GEO. H. HARRIES PRINCIPLES AND METHODS OF MUNICIPAL TRADING MACMILLAN AND CO., Limited LONDON • BOMBAY • CALCUTTA MELBOURNE THE A'lACMILLAN COMPANY NEW YORK • BOSTON • CHICAGO DALLAS • SAN FRANCISCO THE MACMILLAN CO. OF CANADA, Ltd. TORONTO Principles and Methods of Municipal Trading BY DOUGLAS KNOOP, M.A. LECTURER ON ECONOMICS IN THE UNIVERSITY OF SHEFFIELD LATE LANGTON FELLOW OF THE UNIVERSITY OF MANCHESTER MACMILLAN AND CO., LIMITED ST. MARTIN'S STREET, LONDON 1912 COPYRIGHT PREFACE A WORD of explanation is necessary as to how this book came to be written. In 1906 "Municipal Trading" was the subject set for the Warburton Essay Prize at the University of Manchester. It was in writing the short essay which, in an unfinished form, was awarded the prize, that I first came into close contact with the subject-matter of this book. Later, during my tenure of the Langton Fellowship at Manchester, I continued my investigations into Municipal Trading, and this book embodies the results of my work in connection with the Prize and the Fellowship. In view of the controversial character of municipal trading, it is desirable to make quite clear from the outset the standpoint from which I approach the subject. I have attempted to study municipal trading at work, and have devoted considerable space to an examination of the policies and methods commonly adopted by local authorities in respect of their trading undertakings. Further, the various reasons which appear to have led to a development of municipal trading are considered, and a good deal of attention is given to the financial aspects of the problem, as without a clear understanding of the items which should, and the items which should not, be charged against the revenue of trading undertakings of local authorities, it is impossible to deal at all satisfactorily with the question of the results achieved by these enterprises. I seek to show what has happened in the past and what is being done at present ; as far as possible I avoid expressing opinions and V vi MUNICIPAL TRADING content myself with indicating the most obvious conclusions towards which the facts point. My inquiries have practically been limited to the United Kingdom and to Germany, the two countries in which municipal trading has probably reached its highest stage of development. The subject is enormous, and to collect and digest the vast mass of detailed information, on which anything approaching a complete study could be based, was beyond my powers with only a limited amount of leisure at my disposal. This consideration was very important, as the information collected would be liable to become out of date before it was used, if too long a period were to be devoted to the investigations. Almost every week some new development in connection with municipal trading is occur- ring, so that there is really no end to the inquiries which might be made. I have tried to survey what appear to be the most important problems relating to the subject, but necessarily there are many gaps in the book. The chief sources from which I have secured my information are indicated in an Appendix ; the exact refer- ences will be found in the footnotes throughout the book. For the annual reports, etc., of various trading departments I am beholden to many municipal officials for having kindly supplied me with copies of their publications. But my obligations to some of these gentlemen, both in this country and in Germany, are particularly great, because, either by correspondence or at interviews they accorded to me, they answered various questions I put to them with reference to the undertakings with which they are connected. In this matter I am indebted to leading municipal officials in all the following towns : Belfast, Bradford, Burnley, Glasgow, Hull, Liverpool, London, Manchester, Norwich, Salford and Sheffield ; Berlin, Bonn, Cologne, Dresden, Dusseldorf, Frankfort-on-the-Main, Hamburg, Heidelberg, Leipzig, Ludwigshafen, Mayence, Mannheim, Osnabriick and Wiesbaden. From among these PREFACE vii many permanent heads of trading departments I may perhaps be allowed to name five to whom I am especially indebted : Mr. J. Dalrymple, General Manager of the Glasgow Corporation Tramways ; Mr. A. R. Fearnley, General Manager of the Sheffield Corporation Tramways ; Mr, J. M. M'Elroy, General Manager of the Manchester Corporation Tramways ; Mr. Frederick A. Price, Super- intendent of the Manchester Corporation Gas Department ; and Herr Direktor Stahl, of the Dusseldorf Corporation Tramways. It is to Messrs. M'Elroy and Stahl that I owe, amongst other things, the materials on which the two diagrams on pages 240 and 244 are based, and I have to thank those gentlemen, and also Mr. Dalrymple, for per- mission to publish them. My best thanks are due to my father for assisting me in preparing the manuscript for the press and in correcting the proofs, to my colleague, Mr. James Baxter, for revising the proofs, and to Drs, M. Douglas, J. D. Jones and J. Robinson for advice or assistance in connection with special points arising out of the proofs. DOUGLAS KNOOP. Sheffield, March 1912. CONTENTS CHAPTER I The Scope of Municipal Trading PAGE § I. Definition of municipal trading ..... i § 2. Municipal undertakings subsidised on sanitary or public health grounds : swimming-baths, milk supply, houses, burial-grounds, water supply ......... 2 § 3. Municipal undertakings subsidised on grounds of general welfare : bridges, ferries, docks and harbours, canals, bathing establishments, places of amusement ........ 5 § 4. Miscellaneous municipal subsidies : theatres, transport facilities, lighting undertakings ....... 8 § 5. Distinction between self-supporting and subsidised municipal undertakings ........ 10 § 6. Extent of subsidies may be hidden by some capital expenditure being charged to other accounts. Housing accounts of the London County Council. Accounts should be presented in a form which shows the extent of subsidy or deficit at a glance ...... 12 § 7. Undertakings originally subsidised may come to require no subsidy 1 5 § S. Distinction between reproductive and trading enterprises of local authorities ......... 16 CHAPTER H The Development of Municipal Trading § I. Certain industries have a tendency to become local monopolies : water, gas, electricity, trams. Exceptional cases where different authorities supply same public utility service in one area . . . .18 § 2. First method of dealing with local monopolies is to leave the monopolist entirely free. Probable effects of such policy on prices charged and services rendered. Indirect competition to be faced by tramways, gas and electricity ........ 20 § 3. Second method of dealing with local monopolies is to control the monopolist. This involves the consideration of : — {a) The control of prices : maximum prices, sliding scales. Limitations on dividends ....... 23 ix X MUNICIPAL TRADING PAGE (b) The duration of concessions : perpetual and short leases. Con- siderations which should determine the length of leases. Ad- vantages and disadvantages of short leases . . .27 {c) The methods of obtaining leases. The attempt of local authorities, in return for their approval of leases, to impose conditions on companies such as expenditure on street widening, or the pay- ment of an annual rent or wayleave. Limitation on veto of local authority in case of electricity undertakings. The transfer of leases ....... 30 § 4. Third method of dealing with local monopolies is to municipalise the undertakings. One reason for doing so is the difficulty of drafting satisfactory leases. A second reason is that they involve interference with the streets. A third reason is that unremunerative extensions may be desirable. A fourth reason is that a local authority may wish to secure profits in relief of the rates, or, on the contrary, to provide certain services at cost price ......... 36 § 5. Common characteristics of water, gas, electricity and tramway services ......... 41 § 6. Municipalisation of markets and fairs including abattoirs or slaughter-houses ........ 42 § 7. Municipalisation of telephones . . . . .43 § 8. Classification of the remaining cases of municipal trading . . 46 § 9. Subsidiary municipal trades or industries which can be divided into three groups : — (i. ) Subsidiary undertakings which may be necessary for the proper management of principal industries : {a) cold-air stores and ice manufactories {b) fittings and other equipment in connection with gas and electricity undertakings {c) omnibus services . 47 (ii. ■> Subsidiary undertakings which evolve directly out of principal industries: {a) utilisation of gas by-products (J}) tramway repairing shops (c) the building of tramcars . . .52 (iii. ) Miscellaneous subsidiary industries : {a) sale of water at high pressure (6) tramway parcel carrying schemes (r) execution of works of various kinds l^y local authorities . . .54 § 10. Municipal undertakings associated in some way with the land : {a) house-building operations {b) common lodging-houses (c) building plots {d) allotments {e) estates ....... 58 § II. Municipal enterprises relating to the supply of necessities sold under competitive conditions : {a) bread [jb) meat {c) ice {cT) milk . . 68 § 12. Municipal undertakings established to provide credit facilities : {a) savings banks [b) loans on land and house property (r) banks {d) pawnshops ......... 79 § 13. Considerations concerning the desirability of municipal credit institutions ......... 83 § 14. Miscellaneous municipal undertakings : steamboats, publishing and printing, oyster beds, aquarium, sea water supply, conditioning house 89 § 15. Some causes which may have led indirectly to an extension of municipal trading : (a) the desire to increase the number of municipal employees {b) the low rate at which local authorities can borrow money {c) the cheaper management that is possible in the case of local authorities 91 CONTENTS CHAPTER III The Extent of Municipal Trading § I. The information concerning the extent of municipal trading afforded by the outstanding loans of English and Welsh local authorities for " trading " purposes . ....... § 2. The proportion of loans contracted for "reproductive" purposes in certain English and German towns ...... § 3. The number of municipal water, gas, tramway, electricity and harbour undertakings in the United Kingdom .... § 4. The number of " reproductive " undertakings carried on by seventy- three of the largest British local authorities ..... § 5. The extent of municipal trading in Prussia. The ownership of water, gas, electricity and tramway undertakings in large German towns , § 6. Comparison between the extent of municipal trading in large German and large English towns ...... PAGE 95 97 99 102 103 106 CHAPTER IV The Management of Municipal Trades § I. The administration of a municipal trading undertaking by a Town Council. Delegation of powers to committees. Unpaid and paid chairmen of committees ........ 107 § 2. The management of different undertakings by the same committee 109 § 3. Local authorities which conduct a retail trade outside their boundaries . . . . . . . . .111 § 4. Local authorities which purchase water, gas or electricity in bulk from other local authorities, or from private undertakings . . .113 § 5- The management of municipal tramways which serve an area larger than that of one local authority . . . . . .115 § 6. Joint Boards of Management : tramway undertakings, water under- takings, gas undertakings, gas and water undertakings . . .117 § 7- Creation of special and independent authorities to manage municipal trading enterprises . . . . . . . .121 § 8. Municipalities as shareholders in trading companies. English and German illustrations. The advantages and disadvantages of the system . 122 CHAPTER V The Financial Aspects of Municipal Trading § I. Method to be pursued in order to ascertain the "profits" of a municipal trading enterprise . . . . . .126 xii MUNICIPAL TRADING PAGE § 2. Receipts may be influenced by charges made to other municipal departments. These may be supplied free of charge, or may be under- charged, or may be overcharged . . . . . .127 § 3. Expenditure may be influenced by not being properly charged to the capital or the revenue account concerned ; e.g. cost of street widening, share of general expenses of local authority .... 130 § 4. Expenditure may also be influenced by inadequate provision being made for depreciation. General considerations concerning depreciation . 133 § 5. Policies adopted by various local authorities with regard to the pro- vision made for depreciation : — (i.) Trading departments which make no provision for depreciation . 135 (ii.) Provision for depreciation based on estimated life of the various assets ........ 136 (iii.) Depreciation fund credited with "net surplus revenue" . . 139 (iv.) Depreciation fund credited with fixed percentage of "net surplus revenue "....... 140 (v.) Depreciation provided for on no fixed basis . . . 140 § 6. The attitude of the central authorities towards the provision for depreciation by municipal trading departments .... 143 § 7. The accumulation of contingency funds .... 143 § 8. The accumulation of reserve funds. The distinction between reserve funds and reserves. Restrictions on the accumulation of reserve funds undesirable ........ 144 § g. Reasons why the provision actually made by local authorities for depreciation may be inadequate ...... 149 § 10. The accumulation and repayment of debts by central and local authorities. Methods of repaying local debts .... 150 § II. The period for the repayment of loans. If the period is too short, the annual sum to be provided for debt repayment may exceed the financial capacity of the undertaking, which will necessitate a call on the rates or the sacrifice of the depreciation fund ...... 152 § 12. A sinking fund is not a substitute for a depreciation fund . 155 § 13. Where the cost of renewals and replacements is paid out of capital, the question arises whether the original debt will be repaid before new capital has to be borrowed . . . . . -157 §14. The method of dealing with obsolescence . . . . 159 § 15- Consideration of the adequacy of the provision actually made for depreciation by trading departments of English and Welsh local authorities 161 § 16. Analysis of what constitute the " profits" of a municipal trading enterprise ......... 164 § 17. Contributions from "profits" of municipal trading enterprises in relief of the rates in the case of (a) competitive industries [b) monopolistic industries aff'ecting the public health (c) other monopolistic industries. Legal restrictions on " profits " ...... 167 § 18. Contributions from " profits" of municipal trading enterprises in relief of the rates are sometimes forbidden by law .... 175 §19. The method of keeping and auditing municipal accounts . . 176 CONTENTS xiii CHAPTER VI The Selling Policies of Municipal Trades FACE § I. Conflicting considerations affecting the selling policies of local authorities . . . . . . . . .180 § 2. Consideration of some selling policies which are more or less common to water, gas, electricity and tramway undertakings : {a) the charge may or may not depend upon the quantity consumed {b) the charge may vary according to the purpose for which the commodity is used (^c) higher prices may be charged outside than inside the municipal boundaries {d) more favourable terms may be granted to larger than to smaller consumers {e) a discount may be given for prompt payment of accounts (/) meter rents may or may not be charged [g] different charges may be made to different classes of the population .... 180 § 3. Frequently there are legal restrictions on the maximum prices which may be charged by {a) water undertakings {b) gas undertakings (i), between that town and Liverpool is of part V. pp. 112, 113, 197, 198, 199. the character of a steamboat under- 2 The transporter bridge was opened taking, and will be considered else- in October 191 1. The Birkenhead where. I THE SCOPE OF MUNICIPAL TRADING 7 docks and harbours among the different parties interested. If such undertakings can be made self-supporting, they should be conducted so as to pay their way. If this is not possible, on account of the greatness of the capital expenditure involved and the competition of other harbours, the question of a municipal subsidy will have to be considered. This should be done very carefully in each case before a policy of subsidising is adopted, because it is quite possible to attempt the development of a port by imposing too great a burden upon the ratepayers.-^ A very similar case is that of the financial assistance given to the Manchester Ship Canal Company by the Corporation of Manchester. The construction of the canal would never have been completed but for the loan of five million pounds by the Corporation to the Company. For many years the Company was not able to pay any interest, or only a small part of the interest, in respect of the debentures issued in return for the loan. When the Corporation borrowed the money in order to lend it to the Ship Canal Company, they knew that for at least several years the interest would have to be provided from the borough funds, and as a matter of fact at one time the rates were increased by more than a shilling in the pound on account of this transaction. The citizens of Manchester were willing to incur this burden because they believed that it would ultimately be for their benefit, and Parliament, in approving of the arrangement, apparently shared this view.'^ Other undertakings which are sometimes subsidised by municipalities, on the ground that it is for the general welfare of the ratepayers, are the bathing establishments and places of amusement in health and pleasure resorts. This may merely take the form of advertising the attractions of the towns, either by means of posters or by advertisements inserted in newspapers, or these undertakings may actually be owned and managed by the local authorities, and a deficit may be deliberately incurred because they believe that this direct burden on the rates will be more than compensated 1 Some account of the assistance on p. 309. required from the rates in the case of ^ Further reference to the Man- the Bristol and tlie Preston Harbour chester Ship Canal Company will be and Dock undertakings is given below found on p. 122. 8 MUNICIPAL TRADING chap. for by the indirect gain accruing to the town through the increased number of visitors attracted to it. Many English towns have obtained parliamentary powers to advertise, and they make use of them to a considerable extent. On the continent, the bathing establishments, pump-rooms and kursaals at the various spas or watering-places are generally managed by the governments or municipalities. In this country, the Corporation of Harrogate owns the baths, wells and pump-rooms, and also a winter garden, a kursaal, concert-rooms and gardens. The municipality also provides a good band for the entertainment of the visitors.^ The provision of suitable entertainments and amusements for the visitors is apparently essential if a spa is to prove attractive, so that if private enterprise does not provide these, when the baths and wells of a spa are managed by the local authority, it is desirable to allow the local authority to do so. In Buxton, the baths and pump-room, which were originally the property of the Duke of Devonshire, now belong to the local authority, but the provision of entertainments and amusements is almost entirely in the hands of the Buxton Garden Company. The Corporations of Bath and Leamington own the baths and pump - rooms and also provide concerts, but in no other English watering-place does the municipality appear to have made the same pro- vision for entertaining visitors to the town as in the case of Harrogate. § 4. Another reason for which municipalities sometimes subsidise undertakings is to encourage the intellectual life of a town. It is on this ground that municipal theatres are established on the continent of Europe. In large towns, like Frankfort-on-the-Main and Lyons, there are two municipal theatres, the one devoted to opera, the other to drama. In smaller towns, like Freiburg i. B. and Osna- brlick, there is only one theatre in which operas and dramas are performed more or less alternately. The most usual arrangement is for the local authority to own the theatre and to lease it on favourable terms to some actor- ^ See the evidence of Mr. D. S. on Municipal Trading, 1900, QQ. 2522- Ward, Chairman of the Wells and 2566, and the Municipal Year Book, Baths Committee of the Harrogate 1911, p. 84. Corporation, before the Joint Committee I THE SCOPE OF MUNICIPAL TRADING 9 manager, who is in this way subsidised by the municipality. In return, the lessee is generally restricted with regard to the character of the plays he can produce, the repertoire con- sisting entirely of classical plays or modern pieces of a high standard. As a general rule the same piece is seldom given more than twice in one week, the existence of a stock company enabling these frequent changes of programme to be made. An exceptional arrangement is for a municipality to own and manage a theatre, as is the case in Freiburg i. B. There a deficit, which represents the amount of the subsidy, is incurred in connection with the theatre. The municipal theatres enjoy no monopoly, and privately owned theatres frequently exist in the same towns. Several of the undertakings, where the question of a subsidy from the rates arises, are concerned with trans- port facilities. Formerly tolls were frequently charged for the use of main roads, but that has become a rare occurrence so far as this country is concerned, and the whole burden of providing and maintaining roads is now generally placed upon the rates. We have considered the case of bridges, ferries, docks and harbours and ship canals, and have seen that the financial position of such undertakings may vary from being entirely self-supporting to complete dependence on the rates. Sometimes a local authority may be desirous of subsidising other transport undertakings, such as a tramway. This may be the case with a small local authority adjoining a large municipality. The small area would benefit greatly by being linked up with the big one, and yet it may not be possible to equip and maintain a tram line on a remunerative basis. The ratepayers would then have to decide whether they, as a whole, would benefit sufficiently to justify a subsidy. There are several municipal tramways in existence, the expenditure of which exceeds the receipts, and which consequently have to receive assistance from the rates,^ but there is no informa- tion available to show whether it was anticipated before the lines were constructed that such assistance would be necessary, and that therefore it was the deliberate intention of the local authorities concerned to subsidise the undertakings, or 1 See Chapter VIII. pp. 315, 31 7-323- lo MUNICIPAL TRADING chap. whether it was intended that the enterprises should pay their way, in which case the deficits must be regarded as a loss. As a general rule, in view of the many urgent claims upon the rates, it is not easy to justify the subsidising of transport undertakings, which in any case are more likely to benefit a section than the whole of the community, and still less can a loss be regarded with equanimity, as this, of course, implies unintentional assistance from the rates. This applies not merely to tramways but also to steamboats.^ In a few cases exceptional circumstances may exist which will justify a subsidy from the rates being granted to a transport undertaking. So far as lighting undertakings are concerned, there seems to be no ground for subsidising them from the rates. Especially is this the case with electricity, which is used by a very small proportion only of the ratepayers. It is interesting to note, that this appears to be the view of the Board of Trade, who refuse to grant an order if they are not satisfied that an undertaking can be established without involving the local authority in a loss. Three orders were refused in 1910^ on this ground. In spite of the caution exercised by the Board of Trade, some municipal electrical undertakings incur a loss and require assistance from the rates.^ § 5. Sufficient has been said to show that a local authority may pursue one of two policies with regard to its under- takings of an economic character. It may regard them ^ The London County Council then abandoned by the Council, the obtained an Act in 1904 to enable them total loss involved being estimated at to inaugurate a service of steamboats ;^300,ooo (W. B. Peat and F. W. on the Thames. Apparently it was Pixley, Report on the London County intended that the undertaking should Council Stea7nboats,\)^. 15, 16). The pay its w^ay, but even if this was not question as to whether or not steam- the case and the need for a subsidy boats are suitable for municipalisation from the rates had been foreseen, it is considered on p. 89. was impossible to justify the amount of 9 rj^i .. j u ..u t> u i . , ^ , , ', ^ T £: Those promoted by the Ballyclare aid required Irom the rates. In igoij-o ,, , t-v . • .. /-■ -i ^u d u ^, ^ , . J i V Urban District Council, the Brumby the working expenses exceeded the , t- j- u tt 1 -n.- » • * ■ , -i r J 1 • and Frodingham Urban District receipts by /, "51, 1150, and this sum as „ ., j ,> t, , tt 1, ,,^ ,,-' , , ' u r r o Council, and the Templemore Urban well as the debt charges of Aiy.Aqs, t^. ^ . '„ ., , „ -, r r^ j i-- j, , r or o ■ n u J . ^ i \ T>\s\.x\ci Co\xnc\\ [Board of Trade Kep07-t or ^4S,6os in all, had to be charged , ^, e-, , • j ■ ,,■ a ,^ fop^ ,7 ^ T ^ .1. i . 1 under the Electric Lzphtmg Acts 1S62 on the rates. In 1906-7 the total , . , . r -J • f r .1 .. lo 1002, for 19 10). amount 01 aid required from the rates ^ was ;^40,52o. The undertaking was ^ See pp. 315, 318, 323-328, below. I THE SCOPE OF MUNICIPAL TRADING n as strictly trading enterprises, to be managed on a self- supporting basis, or it may deliberately subsidise them from the rates for sanitary or other reasons. According as one policy or the other is adopted in respect of any particular undertaking, different standards of criticism must be adopted. If the undertaking is to be run as a trading enterprise on commercial lines, various questions have to be considered. Is the undertaking one which is suitable for management by a local authority ? Is it being administered on a sound financial basis ? Is the selling policy adopted equitable ? What is the relationship of the management to the workers ? Is the scheme of management adopted, the best that can be devised ? These are some of the problems which must be dealt with in any systematic treatment of municipal trading. On the other hand, if the undertaking is to be subsidised, the first and all -important problem is whether the undertaking is such as to make a subsidy desirable or justifiable. It is against the policy of subsidising in any particular case that criticism must first be directed. If it is decided that a subsidy should be paid, the question will arise whether or not the undertaking is to be managed by the local authority, as the subsidy might of course be paid to a private enterprise. Assuming the service is municipalised, then the selling policy adopted and the labour conditions imposed will call for attention. Finally, the efficiency of the administration will have to be con- sidered, much in the same way as the administration of education, or of the roads, or of the police is subjected to criticism. That supreme test by which the efficiency of any trading enterprise of a local authority can be judged, whether it is actually self-supporting, cannot be applied to a subsidised undertaking, which must be judged by different standards. Consequently cases of self-supporting and of sub- sidised municipal undertakings should be kept quite distinct. The deliberate intention of a local authority to subsidise an economic undertaking should be clearly expressed from the outset, and should always be kept well in the foreground, as the problem of municipal subsidies to economic under- takings differs from that of municipal trading. The former would include such things as the agreement by which the 12 MUNICIPAL TRADING chap. Corporation of Bradford undertakes to pay the Midland Railway Company a sum of ^10,000 per annum in return for improved railway facilities, and the offers by various local authorities in America to remit taxes for a number of years in favour of new industrial undertakings which start business in their areas, as well as the other cases of subsidies which have been mentioned above. In order that a sum con- tributed from the rates to an economic undertaking may be regarded as a subsidy, as distinct from a payment made to a trading enterprise on account of a loss incurred, it is not only necessary that it should be the deliberate intention of the local authority to give a subsidy, but that such intention to subsidise should be approved of by the rate- payers as a whole and by the authority which sanctions the particular municipal undertaking. \ 6. Whatever attitude is adopted with regard to sub- sidies, no good result can be obtained by confusing the two distinct policies, viz., the trading policy under which it is sought to conduct an undertaking on a self-supporting basis, and the subsidising policy under which part of the burden of an economic undertaking is deliberately placed upon the rates. If the former policy is pursued, an excess of expenditure over revenue respresents a loss ; if the latter policy is adopted, the annual deficit repre- sents the whole or part of the subsidy. The annual con- tribution from the rates would represent only part of the subsidy, if some of the capital outlay of the undertaking had been debited to the capital account of some other department of the local authority. In fact, this may have occurred to such an extent, that the annual income of the subsidised undertaking may exceed its annual expenditure. Then, if the accounts are not very explicit, people are led to believe that the subsidised undertaking has made a " profit." An illustration of this contingency may be drawn from the " re-housing " schemes ^ of the London County Council. The ^ Parts I. and II. of the Housing Act ment. The operations of the Council of 1890 and the various Improvement under these heads are referred to as Acts make it compulsory for the " re-housing " schemes {Report on the Council to re -house persons of the London County Cottncirs Working- working classes displaced consequent Class Dwellings, by W. B. Peat and upon a clearing scheme or improve- F. W. Pixley, p. i). I THE SCOPE OF MUNICIPAL TRADING 13 Council was under a statutory obligation to carry out these schemes ; they could not possibly be rendered self- supporting, as the land to be employed was much too costly for the purpose to which it was to be put. The undertakings had to be subsidised, and the form the subsidies took was to write down the commercial value of the sites to the " housing " value, which is the amount which it is estimated that Companies would have been willing to pay for the sites, with the obligation to erect workmen's dwellings upon them. The difference between the commercial and the " housing " value of the sites was charged to the improvement schemes. As a result of these transactions, the " re-housing " schemes were able to show a surplus which amounted in 1907-8 to ;^5 563.^ Between 1894 and 1908, they contributed a net sum of ;^i8,7i5 in relief of the rates," or an average of ;^I337 per annum. In contemplating the figures there is a considerable danger of forgetting that the commercial value of the sites used for the re-housing schemes was ;i^882,o8o, whereas the housing accounts were charged with only ^^271,574, the amount by which the sites were written down being £6\o,^o6} The annual debt charges on this last sum must have been some ^25,000, so that actually in 1907-8 there was a burden on the rates of about ^20,000 in connection with the re- housing schemes. The whole question raised is really one of book-keeping. The method of writing down the commercial value of cleared sites to their " housing " value for purposes of re-housing schemes and of debiting the difference to an improvement account has the approval of such authorities as the Select Committee of 1902 on the Repayment of Loans by Local Authorities'* and Mr. W. B. Peat and Mr. F. W. ^ See Repo7-t of the Housing of the calculated to convey a wrong impres- Working Classes Committee of the Londoji sion as to the annual charge upon the County Council, 1 907-8, pp. 3, 6. rates arising from these schemes. 2 Ibid. p. 34. 2 Ibid. p. 37. Interest and sinking fund payments on ** § 65 of their Report is as follows : the whole amount given for the in- The Committee do not wish to express sanitary area or buildings, or expended any opinion as to the economical char- upon demolition, are often charged acter of municipal building operations, against the re -housing scheme. It but they think that the manner in which appears to the Committee that the the profit and loss account of re-housing capital charges against the re-housing schemes is in many places presented is part of a schejne under Parts I. or II. 14 MUNICIPAL TRADING chap. Pixle.y.^ It is doubtful, however, if the policy is quite sound, as it places all re-housing operations on exactly the same foot- ing, whereas there are really two distinct classes, those which are undertaken solely because the law requires it, and those which are an essential part of clearance schemes, and which would be undertaken, after clearances of unhealthy areas had been made, even if no legal obligation existed. Where clear- ance schemes are undertaken with the primary object of pro- viding better housing accommodation for the working classes, as is often the case, it is only fair to charge to the cost of the re-housing operations the commercial value of such part of the site as is used for building purposes, as the houses are not really erected under compulsion, but as part of a de- liberate policy to replace slum dwellings by respectable working-class property. The cost of any land used for street widening under such a scheme should be charged to an improvement account. The result of such book-keeping would be to show a considerable deficit on the housing accounts. This would represent the subsidy from the rates to the housing part of the clearance scheme, and nobody would fail to realise the costliness of such operations, of which there is considerable danger under the other system of book-keeping. Where, on the other hand, the primary object of a clearance or improvement scheme is to embellish a town or to increase its transit facilities, by laying out new roads or squares, building bridges and so forth, and re-hous- ing operations are merely incidental to the improvements and are engaged in only because of the legal obligation, it is perhaps reasonable to reckon the site used in this way at its "housing" value, but it should be made quite clear in every financial statement issued in connection with the undertaking that the land is charged at its " housing " or nominal value and not at its real or commercial value ; if this is not done, there is a danger of leading the general of the Act should be only interest and them working-men's dwellings. The sinking fund charges in respect of that rest of the loan should be regarded as ex- part of the total loan raised which is pended on a sanitary improvement and rightly attributable to the cost of build- repaid in a period not exceeding sixty ing the houses and to the housing value years. of their sites, i.e. that price which such ^ See their Report on the London sites would fetch in the market if sold, County CounciPs Working- Class Dwell- subject to a covenant to build upon ings, p. 4. I THE SCOPE OF MUNICIPAL TRADING 15 public astray with regard to the true cost of re -housing operations. A careful study of the official reports enables a complete view of the financial transactions connected with the undertakings to be grasped, but if any one relies on some more accessible source of information, the housing value of the sites may be given amongst the capital expenditure without any indication of the writing down which has occurred,^ and people are led to believe that the under- takings are self-supporting, or even profitable. An advantage of taking the sites at their housing value is that it facilitates comparisons between the results achieved by the actual building operations, though too much reliance cannot be placed on these figures, as the housing values of the sites are merely estimates, and the lower they are, the more favourable the results will be." Even where the com- mercial value of the sites is taken for calculating the deficit, the " housing " value might be used to obtain an indication of the efficiency with which the actual housing undertakings are administered. In every case where an undertaking has been subsidised out of the rates this should be made clear in the accounts. The fact that there is a deficit which has to be made good out of the rates, and the extent of the deficit, should be evident to any one who looks at a summary financial statement, and not merely to those who examine the accounts in detail. ^ 7. An undertaking which was originally subsidised from the rates might ultimately come to require no subsidy, though it does not follow that it could then be described as self-supporting, as it would first be necessary to decide whether the accumulated deficits in the past, together with 1 This, for example, is the case in Report, p. 4. In Manchester the the Municipal Year Book, to which method of valuing the sites used for many people are likely to turn for in- re-housing purposes within the central formation. A summary of the financial parts of the city is somewhat rough results for the year, showing a profit and ready : the land is all taken as on the year's working, is reproduced worth lOs. per square yard, although directly from the Report of the Housing the cost of it (including the unhealthy Committee. Neither in the original dwellings to be demolished) varied table, nor in the copy, is any indication from £\ : los. to ;^5 : 6 : 9 per square given that the figures in the column yard. See City of Manchester. Hoiis- showing capital expenditure on land ing of the Working Classes. History of are merely nominal. the Schemes. Published by direction - Cf. W. B. Peat and F. W. Pixley's of the Sanitary Committee, 1904. 1 6 MUNICIPAL TRADING chap. interest on them, should be debited to the capital cost of the undertaking. If the enterprise had been a trading one, all losses would have to be eliminated before there could be any question of a profit. Where, however, a sub- sidised undertaking is in question, it is probably correct to ignore past deficits in ascertaining the present position, otherwise it amounts to going back on the original deliberate decision of the local authority to subsidise. On the other hand, in ascertaining the present financial position of an enterprise, the debt charges in respect of such capital expendi- ture as has been incurred on behalf of the undertaking, but has been charged to some other account, must not be overlooked. The receipts of the undertaking must be sufficient to cover these as well as its working expenses and the debt charges on such capital expenditure as have been charged to its account, before it can be said to be self-supporting ; otherwise by charging sufficient of the capital expenditure to other accounts an undertaking which was really heavily subsidised might be made to appear remunerative. If at any time it can be shown that an undertaking which has been subsidised from the rates can meet from its annual revenue its running charges, all necessary renewals and repairs, and the interest and sinking fund instalments in respect of the whole of the capital spent on the undertaking, it may be described as self-supporting. Thus, if shortly the Manchester Corporation receives on its holding of debentures and preference shares in the Manchester Ship Canal Company more than sufficient to pay all the interest and sinking fund charges in connec- tion with the capital borrowed by the Corporation and lent to the Company, it will have ceased to be a subsidised under- taking and will be described as self-supporting. 8 8. Instead of dividing the economic undertakings of local authorities into those which it is deliberately intended to subsidise and those which it is intended shall be self-support- ing, it is sometimes more convenient to distinguish between all economic undertakings on the one hand, and such of them as do not receive a subsidy, on the other. The former may be described as the reproductive enterprises, the latter as the trading enterprises of local authorities. In respect of certain classes of reproductive undertakings, such as water- THE SCOPE OF MUNICIPAL TRADING 17 works, docks and harbours, where some of the individual undertakings are subsidised and some are not, these are discussed in the later chapters along with the industries which are managed on purely trading lines, but the other types of non-trading reproductive enterprises are regarded as being outside the scope of this book, and consequently are not dealt with, apart from the brief consideration they have received in this chapter. CHAPTER II THE DEVELOPMENT OF MUNICIPAL TRADING § I. In the previous chapter the more usual grounds were briefly discussed on which the subsidising of economic under- takings by local authorities is advocated. Attention must now be turned to municipal trading properly so called, and the reasons must be considered for which local authorities engage in reproductive enterprises on a self-supporting basis. Practice and theory unite in signalling out certain industrial undertakings as possessing a strong tendency to become monopolies, owing to the nature of the businesses. Some of these industries, such as railways, telegraphs and telephones, are national in their scope ; others, such as water, gas, electricity and trams, are local in their scope. All industries of this type require the investment of a large amount of capital throughout the area which they serve, in order to distribute the product or service which they supply. As soon as one such undertaking has laid its mains or its lines in a district, no direct competitor is likely to enter the field, as it is improbable that the population of the district could support two similar undertakings. In most cases it is not even desirable that two similar undertakings should enter the same district, as the capital cost of distributing the product or service would be thereby doubled, which would be almost certain to lead to a rise in price. Further, it would be almost impossible to prevent the competing concerns from coming to some kind of understanding which would do away with competition. It is generally admitted that in the interests of economy in production and in distribution, and in order to secure i8 CH. II THE DEVELOPMENT OF MUNICIPAL TRADING i^ the lowest possible selling prices, it is desirable not to attempt to secure any direct competition in the matter of water, gas, electricity ^ and trams ; it is better that an undertaking providing one of these services should be given a monopoly for its services in the whole of the area of the local authority, unless that area be very large, in which case it may be divided. Thus in London there are now two principal gas companies, the Gas Light and Coke Company north of the Thames and the South Metropolitan Gas Company south of the Thames. Formerly there were more companies, but they have been reduced in number by a process of amalgamation. There are several electricity companies and municipal electrical undertakings in the Metropolitan area, but each has practically its own district." The tramway service is provided by the London County Council, the London United Tramways Company, and the Metropolitan Electric Tramway Company, each of which serves a different part of the area. Other towns in which two tramway undertakings exist are Birmingham ^ and Leipzig.* Formerly there were two tramway companies in Dresden, but they were both municipalised about 1906. In Lyons, two tramway companies, each with a different gauge, existed for a considerable time, but they amalgamated a few years ago. All these cases of two or more similar public utility services ^ in the same town may be regarded as exceptional. ^ The Electric Lighting Act, 1 888, ^ Those belonging to the Corpora- contemplated competition, and the tion of Birmingham and to the City of method adopted by the Board of Birmingham Tramway Company. Trade shortly after the passing of that * See Weigel, "Die Gemeinde- Act was to allow competition between betriebe der Stadt Leipzig," Schriften two, but not more than two bodies of des Vercins fiir Socialpolitik, vol. 129, undertakers. See the evidence of Sir part vii. pp. 135-155. Courtenay E. Boyle, Permanent Under ^ The expression public utility Secretary of the Board of Trade, before services, or more briefly public utilities, the Municipal Trading Committee, is generally used somewhat vaguely. 1900, QQ. 10, II. The policy of In the recent Report of the Board of the Board of Trade appears to have Trade Enquiry into the Earnings and changed in this respect. In any case Hours of Labour of Workpeople, the competition is not likely to prove fourth volume deals with the Public effective in the matter of electricity. Utility Services and comprises labour ^ Where two undertakings do engaged in water, gas, electricity and supply the same area the one appears tramway undertakings, and also in to generate direct current, the other road, sanitary, etc., services. In the alternating current, or the one sells Report of the National Civic Federa- current in bulk to the other. tion Commission Jipon Miitticipal and 20 MUNICIPAL TRADING chap. \ 2. Assuming that the policy of no direct competition in respect of water, gas, electricity and tramways is the one likely to be adopted in most districts, the local authority finds itself face to face with the problem of monopoly. There appear to be three possible methods of dealing with this. The first method is to leave the monopolist entirely free to charge what prices he pleases and to provide such service as is agreeable to him. In view of the fact that the demand for water and gas is probably inelastic,^ when reasonable prices are charged, the monopolist could secure his maximum monopoly revenue only by considerably restricting output and by raising prices to something well above the cost of production. If no restriction of any kind were placed upon a private monopolist in these cases, the general public would probably be exploited to a considerable extent. The case of tramways is different. In the first place, a tramway service is not a necessity in the way in which a supply of water is, or even a supply of gas is. Many people have no requirement for transport facilities in the ordinary way on account of the fact that they live close to their work. In the second place, the amount of indirect competition is generally considerable. Of course this is true to some extent of gas. Oil in the one direction and electricity in Private Operation of Public Utilities, position will be seen to be true if "public utilities" are understood to 2s. Qd. is regarded as the original price mean water, gas, electricity and tram- and 2s. 6d. as the new price. The ways undertakings, and it is in this demand for an article is said to be restricted sense that the expression is elastic if a rise in price causes a marked used in this book. falling off in the demand for an article ^ The demand for an article is said and a decrease in the total takings, to be inelastic if a rise in price causes or conversely, if a fall in price causes only a slight falling off in consumption a marked increase in the demand for and an increase in the total takings, or an article and a rise in the total takings, conversely, if a fall in price leads to Thus if 60,000 units of current were but a slight increase in consumption sold for domestic lighting purposes and a decrease in the total takings. when the price was 4d. per unit and a Thus if 100,000,000 cubic feet of gas rise in price to 4id. caused the con- could be sold at 2s. 6d. per 1000 cubic sumption to fall to 48,000 units, the feet and the price were raised to 2s. gd. demand for current would be said to be and 96,000,000 cubic feet were then elastic at these prices, as the total tak- sold, it would be said that at these prices ings would be ;!f 1000 ( = 60,000 x 4d.) the demand for gas was inelastic, as the at the lower price and only ;^9oo total takings at the lower price would ( = 48,000 X 4id. ) at the higher price, be ^12,500 ( = 100,000 X 2s. 6d.) Generally speaking, the demand for and at the higher price ;i^i 3,200 necessities is inelastic and for comforts ( = 96,000x23. 9d.). The converse and low-priced luxuries elastic. II THE DEVELOPMENT OF MUNICIPAL TRADING 21 the other may compete with it, but if moderate prices are charged, a very large field remains open to gas in which it has little to fear from competition.^ Tramways have generally to face railway competition as far as the suburban traffic is concerned ; whilst in the town areas proper and in such outer areas as are not served by railways a system of motor or horse omnibuses may either actually exist or may be called into existence at any time, if the fares charged are sufficient to justify it. In some cases the competition of cabs and motor cars may have to be taken into consideration, though this applies only to people of some means. As far as people of small means are concerned, bicycles are much used by people who live some way from their work. F"inally, many persons will prefer to walk unless a good service be provided at low fares. In view of these conditions the case for restricting a private tramway monopolist is not so strong as where water or gas is concerned ; nevertheless there are reasons of a somewhat different character why some control should be exercised, even if it is not necessary on account of fares. On the one hand, there will be a tendency for the monopolist to select only those routes which promise to be the most remunerative, and on the other hand, the service he provides may ignore the general interests to such a degree as to give reasonable grounds for complaint. For example, he might provide a service during certain hours of the day only, or during certain parts of the year, within the ordinary town area." The case of electricity is probably more like that of tramways than that of gas. In the first place, part at least of the demand for electric current is probably elastic,^ so long as the prices charged arc reasonable. As a result it will generally pay the monopolist better 1 This point will be dealt with more at a loss only, and consequently gave fully below. it up entirely. The town sought the 2 Some routes are especially built assistance of the Board of Trade in for holiday traffic, and it does not seem compelling them to provide a service, unreasonable to close them out of the The Company was ordered to do so, season. A case of a Company refusing or in default to pay a fine for every to provide a winter tramway service on day that they did not give a certain the ordinary routes recently arose at minimum service. Scarborough. The Company found ^ ggg footnote on p. 20. the winter service could be maintained 22 MUNICIPAL TRADING chap. to make large sales at low prices than small sales at high prices. In the second place, a monopolist selling electric current has to face keen competition. His monopoly relates merely to the use of the public streets for the purpose of distributing current. There is nothing to prevent works or private individuals generating current for their own use, or even selling it to other occupants of the same block, as this can be done without the wires crossing a public street. Of recent years the cost of installing a small plant run by a gas engine or a petrol engine has considerably diminished, so that the competition of private individuals has increased. A works employing steam power can provide itself with electric current for lighting purposes, during such hours as the engines are running, at such a slight additional cost as to make competition from an electric - lighting station almost impossible. On the other hand, if the owners of works decide to employ current exclusively for power and lighting purposes there will be keen competition as to whether special plant is to be installed or current is to be purchased. The undertaking which possesses the monopoly of distributing electric current, besides having to compete with various independent producers of current, has to compete with other forms of light and power. As far as light is concerned, coal gas is the most serious competitor where it exists. In most cases in this country a gas supply exists when electric light is first introduced and all houses are equipped for the use of gas. This holds the monopolist in check to a considerable extent, and obliges him to make moderate charges if he wishes to gain and keep many consumers. Until recently, electric lighting, if it had to be produced by steam power, was likely to prove a good deal more expensive than gas, however low the charge might be, but the discovery of the metallic filament lamps has considerably modified the advantage possessed by gas for lighting purposes.^ If electric current for lighting purposes has no coal gas competition to face, acetylene or petrol gas may cause it to lose some large consumers, and oil, both large and small ^ The question of the competition of gas and electricity is considered in more detail on pp. 204-206. II THE DEVELOPMENT OF MUNICIPAL TRADING 23 consumers. As far as current for power purposes is concerned, the possible or actual competition of steam, coal gas, Mond gas, or some other form of suction gas, petrol, or water power has to be met. Sufficient has been said to show that the electricity monopolist is so much restricted by- competition in the matter of drawing up his tariff as to make it doubtful if any other control of prices is necessary, assuming that a method of affecting such control can be devised. It does not follow, however, that no control of any kind is desirable, as the monopolist, if left free, would probably limit himself to selling current in the more densely populated part of his supply area, so as to keep the distributing cost as low as possible. Besides, although competition tends to modify prices and keep them within reasonable limits in the case of trams and electricity, it may not always be strong enough to do so actually. Hence, for one reason or another, it is generally considered undesirable to leave a water, gas, electricity, or tramway monopolist entirely free to manage his business as he chooses, and one of the two other methods of dealing with the problem of monopoly has to be adopted. 8 3. The second method of dealing with a local monopoly is to control it. As every company which wishes to supply the general public with water, gas, electricity, or tramway facilities requires the use of the streets, consent to establish the undertaking has to be obtained from the central or local authority concerned, and it is in the granting of the lease or concession that the opportunity is afforded of providing the requisite control. {a) In the Act of Parliament or in the Provisional Order authorising the establishment of a public utility company, the terms on which the company is allowed to operate and the area which it may, or must, serve are carefully defined. Various provisions are often inserted to control the opera- tions of the undertaking in the future. These generally relate to some or all of the following things : the price to be charged, the dividend which may be distributed, the issue of capital, the quality of the product, and the pressure to be maintained. Prices may be controlled in one of two ways : either a maximum price is laid down or the 24 MUNICIPAL TRADING chap. price is linked up with the rate of dividend which may be paid, by means of what is known as a sliding scale. The former device is more common than the latter ; on most tramway undertakings the maximum fare is fixed at id. per mile or fraction thereof;^ in the case of electricity supply undertakings the maximum price which may be charged for current is frequently 1 3s. 4d. per quarter for a consumption up to twenty units per quarter, and 8d. for each additional unit.^ As far as gas is concerned, there is no sort of uniformity about the maximum prices where such exist. In Liverpool, for example, the maximum price is 4s. 6d., in Cheltenham 4s., in Grimsby 3s. 9d., and in Cardiff 3s.^ per thousand cubic feet. A considerable number of gas companies operate under what is known as a sliding scale. The object is to secure that prices shall be reduced as profits increase. A standard price is fixed by the Board of Trade ; ^ there is also a standard dividend and an initial scale. If the standard price is charged, the standard dividend may be paid ; if the price is lowered, the dividend may be raised according to the scale, whereas if the price is raised, the dividend must be lowered. As an illustration, the sliding scale in force at the South Metropolitan Gas Company may be quoted. The standard price is fixed at 3s. id. per 1000 cubic feet for 14 candle- power gas, the standard dividend at 4 per cent. If during the whole of any half-year the price charged shall have been id,, or a part of id., above the standard price, the dividend payable for that half-year shall be reduced below the standard rate by j-L of i per cent for every id., or part of id., above the standard price. If the price shall have been id. or more below, the dividend may be increased ^ of i per cent for every full id. below.^ Under the sliding scale ^ Report of the National Civic Committee on Municipal Trading, Federation Comviission on Public 1900, QQ. 34, 35, 36. Ownership, part ii. vol. ii. pp. 429, ^' ^ Report of the National Civic 430. Federation Commission on Public 2 Ibid. p. 276. Ownership, part ii. vol. ii. p. 146. ^ Board of Trade Return of all Prior to 1896 the standard rate was Authorised Gas Undej-takings other 10 per cent, and the standard price than those of Local Authorities, jgog. 3s. 6d., but in that year the standard * See the evidence of Sir Courtenay rate was reduced to 4 per cent and E. Boyle, Permanent Secretary to the the stock was increased to 2% times Board of Trade, before the Joint the former amount {ibid. p. 41). II THE DEVELOPMENT OF MUNICIPAL TRADING 25 of the Newcastle-upon-Tyne and Gateshead Gas Company the standard price is 2s. gd. per 1000 cubic feet and the standard dividend 3 ^ per cent. The dividend may be raised by -|- of I per cent for every fall of id. in the price, and must be reduced by the same amount for every increase of id., or part of id., in the price.^ Where a sliding scale exists, this regulates not merely the prices, but also the rate of dividend. In other cases, a maximum dividend is fixed, 10 per cent being that most commonly adopted in the case of gas companies. In the case of electricity and tramway companies- it appears that maximum dividends are seldom fixed. Where provision is made about the maximum or standard rates of dividend, it is necessary to take precautions with a view to pre- venting the watering of capital. If a company is allowed to issue stock or share bonuses for which no cash is paid, or for a consideration which is less than the real value, the amount distributed as dividend can be increased without increasing the rate of dividend.^ The device often adopted under these circumstances is to introduce the so-called " auction -clauses " into a company's act or provisional order. Under these clauses, it is generally provided that all new issues of ordinary and debenture stock must be offered at public auction or tender, in lots of not 'more than ^100 nominal value, that the reserve price shall not be less than par value, and that all stock not sold in this manner may be offered to the stockholders at the Further provisions concerning the ^ Municipal electrical undertakings South Metropolitan sliding scale are are usually under certain restrictions as follows : If the profits exceed the with regard to the amount of profits amount which may be divided accord- they may make. See p. 171, below, ing to the sliding scale, the excess, Restrictions on municipal undertakings up to I per cent per annum on the are considered elsewhere, paid-up capital, may be carried to a ^ For example, if a gas company fund to be invested in securities until which was paying the maximum it accumulates with interest to 5 per dividend of 10 per cent on its capital cent of the paid-up capital ; this fund of ;^50,ooo distributed, for no con- is to be used as an insurance fund sideration whatever, ;£"5o,ooo of fully to meet extraordinary claims from paid stock as a bonus to its stock- accidents, strikes, etc. All excess holders, and then continued to pay 10 profits beyond this amount shall be per cent dividends, it would have carried to the credit of the divisible increased the amount paid in dividends profits for the next year. from ;if5ooo to ;,^i 0,000. 1 Ibid. p. 147. 26 MUNICIPAL TRADING chap. reserve price, and all premiums received shall be applied to capital purposes, but shall not bear interest.^ Statutory provisions regarding the character and the quality of the service to be given generally exist in the case of gas works. One of these relates to the pressure to be maintained," as measured by the height of the column of water it is able to balance, another to the minimum candle power of the gas supplied, a third requires that the gas shall contain no trace of sulphuretted hydrogen. It will be noted from what is said concerning the way in which control is exercised over private monopolists, that far more appears to be done in this matter in respect of gas companies than in respect of tramway and electricity com- panies. As has already been pointed out, control is much more necessary in the former than in the latter cases, and this is doubtless one reason why tramway and electricity under- takings are left comparatively unfettered. Another reason is that it would be very difficult, if not absolutely impossible, to apply a sliding scale to these enterprises owing to the complex conditions which have to be considered in making even the slightest alterations in electricity tariffs and tramway fares.^ Even the prices laid down as the maximum which may be charged are so high as rarely to impose a real check on the monopolists, though this is probably equally true of the maximum prices fixed in connection with many gas under- takings. When the maximum price is fixed at the time a public utility service company is established, it may be of some value, but with the development of the industry as a whole, and of the undertaking in particular, it is likely very shortly to become merely nominal. In the case of electricity and tramway companies, it is sometimes provided in the lease that, at intervals, the Board of Trade, if requested by the company, the local authority, or a certain number of ratepayers, may revise the limits,'* but it has not been possible to find a record of a single occasion on which this 1 Ibid. p. 142. the latter 16 {ibid. p. 139). 2 This applies, for example, to both ^ See the chapter on the Selling the South Metropolitan Gas Company Policies of Municipal Trades, and also and to the Sheffield United Gas Com- what is said about the average cost of pany, and so does the regulation con- electric current on p. 348. cerning candle power. In the former * Ibid. pp. 277, 435. the minimum candle power is 14, in 11 THE DEVELOPMENT OF MUNICIPAL TRADING 27 has been done. Under any circumstances, even a frequent revision of the maximum prices which may be charged is never Hkely to give anything like as satisfactory results, from the point of view of the consumers, as the sliding scale device. There are still a good many gas companies, the prices and dividends of which are not linked up in this way, and every opportunity should be taken, when any such undertaking applies for a new Act or Provisional Order in connection with some extensions, to arrange for the introduction of a sliding scale. ib) In this country perpetual concessions have been grafted to gas and water companies which render very difficult any revision of the conditions affecting control, because Parliament would be very loath to interfere with an existing contract and to modify the control in any way against the wishes of the company. As a last resource, the local authority might obtain an Act of Parliament conferring upon it compulsory powers to purchase the under- taking at market price. Gradually perpetual leases have come to be regarded with disfavour, both by the general public and by Parliament ; when new public utility services came into being, after water and gas undertakings had been in existence many years, a policy of granting short leases was adopted by Parliament, one important consideration being that if mistakes were made in the conditions laid down, or in the matter of imposing control, a fairly early opportunity would occur for rectifying them. Thus the Tramway Act, 1870, provided for twenty-one year leases, and the same duration of lease was provided for by the Electric Lighting Act, 1882, though six years later by the Electric Lighting Act, 1888, the maximum duration of an electric lighting concession was fixed at forty-two years. The proper duration of a concession to undertake the supply of a public utility service is not very easy to decide, if both parties to the concession, the company, on the one hand, and the general public, on the other, are to be treated fairly. The real crux of the matter lies in the method to be adopted in valuing the undertaking when the lease elapses. If the value of the undertaking as a going concern, including potential earning capacity, is adopted. 28 MUNICIPAL TRADING chap. the purchase is made on the same terms as if the under- taking had been granted a perpetual concession ; in other words, one of the principal objects of granting a short lease, that is, not to give the lessee a vested interest in the monopoly temporarily conceded to him, would be defeated. To secure fairer treatment for the general public some other method of valuation must be adopted. The Tramways Act, 1870, provides that the sum to be paid for a tramway undertaking shall be the value of the physical assets of the company at the time of the expiration of the lease, or in other words, the cost of reconstruction ; that is to say, nothing is to be paid for the goodwill or any intangible asset of the business or as compensation for compulsory sale, and the same conditions apply to electricity companies. These terms may inilict a hardship on the company ; any difference to the disadvantage of the lessee between the sums actually expended on plant and buildings (less the provision made for depreciation) and the sum that it would cost at the date of the sale to reconstruct the plant and buildings as they stand, must be provided for out of accumulated profit ; this will be a particularly serious matter if the price of plant of all kinds has fallen considerably since the undertaking was established. In view of the fact that the lessee is considerably restricted by his lease, and above all by competition, in the charges which he is able to make, and further that some years will probably elapse after the commencement of the undertaking before reasonable profits can be earned, a twenty-one years' lease may inflict an unfair burden on the capitalist, and he may find it im- possible to recoup himself for the early losses incurred and for any expenditure made with the object of developing the business. The only solution seems to lie in adjusting the duration of the lease to the character of the undertaking, so as to enable an efficiently managed company to recover the whole of its capital expenditure at the end of the lease, and to earn what, in view of the risks involved, may be regarded as a reasonable profit during the lease. This would necessitate varying the length of the lease according to the nature of the industry, and very possibly according to the development of the local area concerned. Thus, II THE DEVELOPMENT OF MUNICIPAL TRADING 29 if a twenty-one years' concession was just adequate for a horse-tram undertaking, it is presumably inadequate for an electric tramway undertaking in which a much larger capital outlay is involved and a much greater annual provision for depreciation and obsolescence must be made, and in connec- tion with the plant of which there is a far greater prospect of a difference arising between the cost of construction and the cost of reconstruction, owing to the continual technical improvements in the methods of manufacture adopted in the newer industry. In a similar manner,the various risks involved in an electric lighting undertaking are probably much greater than those connected with a horse tramway. Consequently the lease in the former case should be longer than in the latter. That was not recognised at first in this country, and the duration of an electricity supply company's lease was fixed at twenty-one years by the Electric Lighting Act, 1882, but very soon it was realised that generally private capitalists were unwilling to proceed with such a short lease, and by the Electric Lighting Act, 1888, the maximum duration of an electric-lighting lease was extended to forty-two years. Subject to that maximum, each application can be treated on its merits as regards duration of lease, which is a much sounder principle to adopt than granting all leases of the same length, as it makes it possible to take the character of the area to be served into consideration. The business of an electricity supply company is likely to develop much more rapidly in a densely populated than in a sparsely populated area. Further, the cost of distribu- tion will be proportionately much larger in the latter than in the former case. Consequently a company supplying electric current in an area with a scattered population is likely to incur a considerable loss in the early years, and also stands to lose more by reduced cost of reconstruction of the plant at the end of the concession than a company supplying a densely populated area, owing to its greater outlay on plant in proportion to the quantity of current sold, and this should be allowed for by granting a longer lease. Apart from the possibility of modifying the control exercised over a public utility company, there is another advantage which can be urged in favour of short leases, 30 MUNICIPAL TRADING chap. namely, the fact that a company knows that within a few years its lease will come up for reconsideration and that the service is likely to be municipalised if it has failed to satisfy the general public by not treating the consumers fairly and equitably. This should tend to act as a salutary restriction on the policy adopted by a company, and is likely to be particularly effective during the later years of a lease, provided the company feels that there is a real prospect of the concession being renewed if a satisfactory service is given. If, on the other hand, the company has reason to believe that the local authority is determined to take over the service at the expiration of the lease, the company will probably aim at securing as large a profit as possible during the last years of its existence, without any consideration for the public well-being. It will not be prepared to reduce prices and sacrifice its profits temporarily with a view to increasing the number of consumers and ultimately increas- ing the profits of the undertaking. A company whose days are numbered cannot be expected to pursue a far-sighted policy and to sacrifice the present for the future. This last point is closely related to a disadvantage associated with short leases. During the latter part of the concession the management is likely to be unprogressive ; the company will be very loath to incur new capital expenditure in view of the possible loss which would arise, if the local authority decided to take over the undertaking and the assets were valued accordingly. This would apply especially if there was any question of a radical change in the system of conducting the undertaking. Thus the electrification of tramways in this country was probably delayed for some years by the fact that many tramway companies' leases were approaching their termination at the moment when the adoption of electricity as the motive power for propelling tramways had become a practical problem. {c) Before leaving the question of the control exercised over water, gas, electricity and tramway companies by means of clauses introduced into their leases, another problem concerning such leases may be shortly considered, namely, the way in which such statutory companies obtain their II THE DEVELOPMENT OF MUNICIPAL TRADING 31 powers, and the position adopted by the local authorities concerned towards the granting of such powers. The desired powers may be obtained either by special Act of Parliament or by a Provisional Order, issued under some general Act of Parliament such as the Gas and Water Works Facilities Act, 1870,^ the Tramways Act, 1870," or the Electric Lighting Acts, 1882 to 1902.^ The Tramways Act, 1870, provided that in all cases the consent of the local authority should be required when Provisional Orders were sought for tramway undertakings. The veto with regard to bills was brought about soon after 1870 by the passing of a standing order by the House of Commons which was shortly afterwards adopted by the House of Lords.^ The reason this policy was adopted was probably due to a considerable extent to the fact that opposition before a Parliamentary Committee was more expensive than many of the smaller local authorities were able to undertake. The absolute veto of a local authority to a tramway scheme, which was presumably granted to protect a district from a tramway which in the opinion of the local ratepayers was not wanted or was likely to prove a nuisance, has apparently in practice not infrequently been used to impose conditions upon tramway promoters, in particular with reference to street widening and street paving. It should be noted in this connection that under the Tramways Act, 1870, the tramway authority is responsible for the paving of the roads traversed between the lines and eighteen inches beyond on both sides, and it does not seem reasonable to expect 1 Under this Act, between 1871 and ^ Under these Acts, between 1883 1910 inclusive, 714 orders were applied and 1909 inclusive, 1361 orders were for, 664 orders were made by the Board applied for, 1086 orders were made of Trade, and 650 orderswere confirmed by the Board of Trade, and 1069 by Parliament {^Report of the Board of orders were confirmed by Parliament. Trade of Proceedings under the Gas Of these 309 have since been revoked, and Water Facilities Act, ^Sjo, Session or repealed, or have expired (Report 19 10, Cd. 5455). of the Board of Trade of Proceedings - Under this Act, between 1871 under the E/ectric Lighting Acts, 1SS2 and 1907 inclusive, 633 orders were to igo2, Session 1910, 203). applied for, 487 orders were made by * See the evidence of Mr. Albert the Board of Trade, and 466 orders Gray, Counsel to the Lord Chairman were confirmed by Parliament {Report of Committees in the House of Lords, of the Board of Trade of Proceedings before the Committee on Municipal under the Tramway Act, 1870, ?>tss\on Trading, 1900, QQ. 338, 339, 340. 1907, Cd. 3677). 32 MUNICIPAL TRADING chap. the tramway authority to maintain any other part of the road. The question of street widening is particularly likely to lead to difficulties. A street which is quite suitable in width and in the matter of curves for ordinary traffic may not be practicable for tramway traffic. If tram lines arc to be laid, who is to pay for the widening which may be necessary? If the lines are to be laid alont; a main thoroughfare, which is most usually the case, the general public as well as the tramway company should benefit by the widening, and consequently it seems only reasonable that the local authority should share the burden of the improvement with the company. Where the ordinary traffic is insufficient to justify the widening, the whole burden should presumably fall on the tramway undertaking. In both cases, where expense had been incurred by the company in respect of street widening insisted upon by the local authority, that portion of the burden, which was still unexpired at the moment when the local authority decided to take over the tramway undertaking, should become the charge of the municipal tramway department, as that department would then benefit by the widening. To apportion the burden of the widening between the old and the new tramway undertakings, the cost originally incurred for this purpose should be kept quite distinct from the other expenses ; the number of years for which the central authority would sanction a loan by a local authority for this purpose would be ascertained, say forty years ; then the sum annually to be set aside to accumulate at compound interest in order to redeem the debt in respect of the widening, at the end of the forty years, or whatever the period might be, could easily be calculated. The company would pay the interest and sinking fund contribution in respect of the debt so long as it held the lease ; after that the payment should be made by the municipal tramway department. It would probably simplify matters if the local authority did the necessary street widening and if the Tramway Company undertook to pay to the local authority annually a sum equal to the interest and sinking fund charges, so long as it held the concession or until the debt was liquidated, if this latter event occurred first. 11 THE DEVELOPMENT OF MUNICIPAL TRADING 33 At present, when a tramway company widens streets at its own expense to comply with requirements of the local authority and is bought out by the local authority at the end of the twenty-one years' lease, the price it receives covers the cost of reconstructing its plant and machinery only, and nothing is paid in respect of street widening, which does not appear to be a fair or equitable arrangement. With regard to sharing from the outset the cost of street widening between tramway undertaking and local authority, the decision ought probably to rest with some independent outside authority, such as the Local Government Board, as there is a danger of too little of the cost being debited to the local authority's improvement account if the tramway undertaking is managed by a company, and too much of it being debited to the improve- ment account if the undertaking is managed by the local authority/ Another condition which local authorities have some- times tried to impose is to require the tramway company to pay an annual rent during the years that the lease runs as a sort of wayleavc, but this has not been allowed by the central authority." This, of course, does not refer to the case of local authorities constructing the track and leasing it to companies ; under such circumstances a rent is charged for the use of the track, the payment generally being such sum as is just sufficient to meet all the capital charges in connection with the debt incurred by the local authority on account of the undertaking leased. For example, the Edinburgh tramway undertaking is owned by the Corporation, and is leased for twenty-one years from June 1898 to the Edinburgh and District Tramway Company at a rent of 7 per cent on the capital expenditure.^ In Germany, on the other hand, in cases where the lines have not been constructed by a local authority and leased ' This point is dealt with more fully ^ Parliamentary Return on Muni- below. Seep. 130. cipal Trading {United Kingdom), 'pzxt vi. p. 12. The rent paid in this ^ See the evidence of Mr. Albert case was more than sufficient to cover Gray, Counsel to the Lord Chairman the capital charges, and in each of the of Committees in the House of Lords, years 1902-3 to 1905-6 ^5500 of before the Committee on Municipal the rent received was applied in aid of Trading, 1900, Q. 343. the rates. 34 MUNICIPAL TRADING chai-. to a company, but where all the capital invested has been found by the company, the local authority may demand an annual contribution from the company as a sort of wayleave. Thus, in the concession granted by the Corpora- tion of Berlin to the Berlin Tramway Company it is provided that the company shall pay to the Corporation 8 per cent of such part of its gross receipts as are earned on lines within the municipal area. Further, if in any year the net surplus of the company exceeds 1 2 per cent of the capital of the company at the time when the concession was 'made, the Corporation is entitled to one- half of such excess. In respect of any new capital which may be issued, the company can retain only 6 per cent interest before sharing the excess with the municipality. The Corporation therefore takes half the net surplus after interest has been allowed at the rate of 1 2 per cent on the old capital and 6 per cent on the new capital, and this payment is in addition to, and quite distinct from, the share in the gross receipts.^ As local authorities do not always appear to consider any particular scheme simply on the ground of the proposed tramways being in the public interest or not, and as their refusal to give the necessary sanction in some cases appears unreasonable, it would probably be more satisfactory if their veto were limited, as is the case with electric lighting under- takings. Where electricity is concerned, if the promoters are applying for a provisional order, which is usually the case, the method of proceeding by bill not being common in the case of electricity, the consent of the local authority is required, but the difference between electricity and tramways is that the Board of Trade may grant the order without the consent of the local authority if it thinks this has been withheld unreasonably." In that case a special report must be made to Parliament. This may not happen very frequently, but the fact that the Board of Trade have the power to grant an order, in spite of the veto of the 1 Vertrag der Stadtgemeinde l^erlin betriebes in einen elektromotorischen, mit der Grossen Berliner Pferde-Eisen- § H- bahn - Actien - Gesellschaft und der - Electric Lighting Act, 1888, Neuen Berliner Pferdebahn-Gesellschaft section 1. See also Mr. Albert Gray, betreffendUmwandlungdesPferdebahn- loc. cit. QQ. 321, 396. II THE DEVELOPMENT OF MUNICIPAL TRADING 35 local authority, is likely to make the local authorities more reasonable in considering private schemes which may be brought forward. As illustrations, one or two recent cases of the exercise by the Board of Trade of their powers in this connection may be mentioned. On two occasions in 1 9 10 and on one in 1909 the Board of Trade dispensed with the consent of the local authority.^ On each of these occasions the Board of Trade under Section i of the Electric Lighting Act, 1888, made a special report stating their reasons. The special report made in connection with the Ardrossan, Saltcoats and District Electric Lighting Order, 19 10, is of particular interest, as the ground on which the Corporation of Ardrossan refused their consent was that the grant of the order would result in the intro- duction of competition with the Corporation's gas under- taking. The Board of Trade ordered a local inquiry to be held on their behalf, at which evidence was produced to show that there was a demand for electricity in Ardrossan. " As the policy of the Board has been to hold that objection on the grounds of competition with a gas undertaking, even when belonging to a local authority, is not sufficient reason to justify them in refusing to grant an Electric Lighting Order, the Board decided to dispense with the consent of the Corporation of Ardrossan." ^ It has often been urged that corporations owning gas works have impeded the introduction of electricity supply undertakings in this country, so that this definite statement by the Board of Trade of their policy in this matter is especially deserving of attention. Another method by which a company can obtain the right to distribute electricity in a particular area, is for the powers, duties and liabilities of a local authority under a provisional order already granted, to be transferred to the company.^ Such a deed of transfer requires the approval 1 The Ardrossan, Saltcoats and Acts, 1S82 to ig02, for the sessions District Electric Lighting Order, 1910, 1909 and 1910). the Smethwick Electric Lighting Order, 2 Special Report by the Board of 1 9 10, and the Walton -on- the -Nase Trade under Section i of the Electric Electric Lighting Order, 1909, were Lighting Act, 188S, July i, 19 10 (Cd. granted under these circumstances ^'2.10). {Reports of the Board of Trade of Pro- ^ They may also be transferred to ceedings under the Electric Lighting another local authority ; this involves 36 MUNICIPAL TRADING chap. of the Board of Trade. A local authority is particularly likely to be willing to consent to the transfer of its order, if the terms offered by an existing company, in the matter of charges to be made for current, are very much more favourable than any it could hope to establish if it generated its own current. These transfers of powers from a local authority to a company are not at all infrequent, and during 1908, eleven, during 1909, nine, and during 1910, eighteen deeds of transfer of orders from local authorities to companies were approved by the Board of Trade.^ Of these orders, one in 1909 and eleven in 19 10, all originally granted to local authorities in South Lancashire, were transferred to a single Electric Power Company." § 4. The third method of dealing with the problem of monopoly is for the local authority to undertake the management of services concerned. This is urged on various grounds. One important consideration is that the method of control does not always prove satisfactory. Attention has been drawn above to some of the difficulties associated with long and short leases respectively. Many of the companies undoubtedly provide good service at reasonable prices. Others are probably not so well managed and give cause for dissatisfaction, though whether the local authority would manage the undertakings any better is another question. It may be argued that the efficiency of the existing companies is partly due to a desire to make a good showing when their management is compared with that of municipal undertakings of a similar character. On the other hand, the companies work at a disadvantage in so far that certain restrictions are imposed on them by law from which municipal undertakings are generally free. At this point it is not possible to discuss the whole question of municipal versus private management ; it must suffice to note that the difficulty of drafting a lease entirely satisfactory to the question of a local authority trad- i Reports of the Board of Trade of ing outside its own area, and will be Proceedings under the Electric Light- considered in Chapter VI. Sometimes i>2g Acts, 1882 to igo2, Sessions 1908, an order granted to a company is 1909, and 19 10. transferred to a local authority, and the undertaking is then municipalised before ^ The Lancashire Electric Power the expiration of the company's lease. Company. II THE DEVELOPMENT OF MUNICIPAL TRADING 37 both parties is probably one of the principal causes which have favoured the development of municipal trading. A second reason for which the water, gas, electricity and tramway services have frequently been municipalised, is that they all involve certain rights in connection with the public streets ; mains and lines must be laid and kept in repair, and this cannot be done without pulling up the streets and obstructing traffic. There is a strong feeling on the part of many local authorities that they should have direct and exclusive control of the streets. This may be due in part to the fact that they are legally Responsible for the maintenance and upkeep of the streets in general, in consequence of which they hold that they alone should be entitled to interfere with the streets in any way. Another consideration which weighs with local authorities is that the more undertakings which have rights over the streets, the more obstructions to traffic are likely to occur. If the water, gas, electricity and tramway services are all under the local authority, it can be arranged that they shall all work in conjunction with the Highway Committee, and in this way the disturbance of the streets can be minimised. In the case of tramways, another solution of this difficulty sometimes exists, namely, that the local authority shall construct and maintain the track and lease it to a company which manages the tramway. In the days of horse trams this was a more common arrangement than it is at present, the safety of electric tramways depending much more than that of horse tramways upon the conditions of the track, which may easily render divided responsibility for the under- taking undesirable.^ The case of a corporation laying and keeping in repair water, gas, or electricity mains and leasing them to a company has not occurred in practice, so far as the writer is aware, and certainly docs not appear very feasible. A third reason put forward in favour of municipalising certain monopolistic enterprises is that a private company will be unwilling to undertake extensions which may probably, ^ What actually happens at present, ance of the track, and as far as inter- when electric tramway tracks are ference with the streets is concerned, leased, is generally that the lessee is is practically in the same position as entirely responsible for the mainten- if he had constructed the track. ;S^38528 38 AfUNlCIPAL TRAP IXC. ciiai-. or even only possibly, prove of an unrcmuncrativc character. This argument applies most strongly to the supply of water. In scarcely any other industry is it necessary to look so far ahead in order to provide an adequate supply as in the case of water. In a year or two the output of most under- takings can be doubled or trebled, but to secure an additional supply of water to a town, ten or more years of continuous work may easily be required. This means that for several years a large amount of capital will be unproductive, thus seriously affecting the profits of the undertaking and making boards of directors very chary about entering upon any large scheme. A further point of great importance is that whereas the size of an ortlinary business can be increased by small increments, this is frequently not possible in the case of a water undertaking. To secure a comparatively small quantity of extra water it may be necessary to undertake a large and costly scheme of extension, which will either involve a great increase in the price of water for many years to come, or a very heavy financial loss. It is the duty of a local authority, and not of a water company, to foresee the develop- ment of a town and to make proper provision for its future requirements of a sanitary character. An adequate supply of water is just as essential to the public health as a proper system for dealing with sewage,^ and in the last resort a local authority must act, if a company is unwilling to do so. It is almost inconceivable that a water company would have undertaken the great schemes by which Manchester draws its supply of water from Lake Thirlmere in Cumberland, a distance of some 96 miles, Liverpool its supply from Lake Vyrnwy in North Wales, a distance of some 78 miles, and Birmingham its supply from the Elan Valley in Mid-Wales, a distance of some 80 miles. These three schemes, ^\•hich when completed will each cost some five or six million pounds, have been commenced within the last twenty-five years to supplement other large sources of supply." ^ The great sanitary importance of these supplementary water works up a plentiful supply of water frequently to 1906 were /^6, 484, 779 in Liver- affects the selling policy adopted with pool, ^^6,976,959 in Manchester, and regard to water, as is pointed out in £7 ,9'i^T ,(>7 2, in Birmingham {Parlia- Chapter VI. t/ientary Relicrn relating to Municipal 2 The actual amounts expended on Trading {United Kingdom), part ii. the construction of the original and of pp. i, 22 ; part iii. p. i). II THE DEVELOPMENT OF MUNICIPAL TRADING 39 Similar considerations apply, though to a lesser degree, to the municipalisation of the tramway service as to the municipalisation of the water supply. It is sometimes desir- able that extensions of an unremunerative kind shall be undertaken for social reasons. The construction of a tramway in anticipation of a future development of traffic is likely to prove temporarily unremunerative, but is never- theless a purely business undertaking, as it is done with the object of making profits. On the other hand, it may be desirable to offer special facilities to certain parts of a town with a view to inducing people to live farther out, and thus relieve the congestion in the centre. This may be done by constructing a line which is likely to prove unremunerative for all time, whatever fares are charged, or by charging especially low fares on particular routes, or by granting special facilities to certain classes of the population, in the form of workmen's tickets or otherwise.^ In small towns, where it is very difficult to make tramways pay their way at all, whatever fares are charged and however much the services are restricted to the most populous routes, there is no possibility of managing the tramways on a remunerative basis and at the same time of effecting social improvements. To do so in these cases, it would be necessary to adopt a subsidising policy ; but it must be borne in mind that con- gestion of central areas is likely to be less aggravated in smaller than in larger towns ; further, if a number of people are displaced from the central area, there should be no great difficulty in finding accommodation for them within reason- able distance of their work. It is in the larger towns that a need for assisting the decentralisation of the population by means of a generous tramway policy may exist, and it is in such towns, where a considerable amount of remunerative traffic is likely to be found, that such a policy can be adopted without affecting the self-supporting basis on which the undertaking as a whole is managed. This cannot be done, of course, without diminishing the profits of the enterprise. However, as the making of profits is not generally a primary object of municipal trading, the cost should not be allowed to stand in the way of a desirable policy of social reform. 1 For more details see Chapter VI. on selling policies. 40 MUNICIPAL TRADING chap. A fourth reason which is sometimes adduced for muni- cipaHsing the supply of gas, electricity and tramways is to secure for the local authority the profits of these public-service industries. This has perhaps never been more clearly expressed than in coimection with the municipalisation of the Birmingham gas supply in 1875.^ Mr. Joseph Chamberlain, who was then Mayor, told the Council, and also Parliament, that while for sanitary and other reasons he did not want to make any profit on water, which was a necessity of life, he did want to make a profit on the gas, to enable him to carry out a great improvement scheme, Birmingham being a comparatively poor town, having no estates, a large population, and a low rateable value. The town set out with the deliberate intention of making a profit on the gas undertaking in order to relieve the pressure of the rates," and has succeeded in its intention. Although the desire to make profits from an undertaking is not often so openly expressed as a reason for municipalising an industry as was the case in Birmingham, it is probably not infrequently at the back of people's minds when they express their approval of municipal trading. It will be well, therefore, to examine the matter closely. Before doing so, however, it is necessary to define what constitute the " profits " of a municipal trading enterprise. This is too large a question to enter upon here, but is dealt with at length in the chapter on the Financial Aspects of Municipal Trading. The further consideration of this reason for municipalising certain services is consequently deferred till that chapter. Here, however, it may be pointed out that if the principal object of the local authority is to make " profits " from certain services in order to reduce the rates, this might be achieved quite as well, or even better, by taxing the private monopolist instead of managing the monopolies.^ It could be done by selling the concession, or by requiring the monopolists to pay over a portion of the •surplus revenues."* * Under the Birmingham (Corpora- ^ -phe contrast between the two tion) Gas Act, 1875. policies is illustrated, so far as central 2 See the evidence of Mr. E. governments are concerned, by the Orford Smith, Town Clerk of Birming- English method of taxing tobacco and ham, before the Committee on Municipal the French method of monopolising Trading, 1900, in particular QQ. 1885, the production and sale of tobacco. 1893, 1894. * In Germany concessions are II THE DEVELOPMENT OF MUNICIPAL TRADING 41 It may be noted here that there is another argument in favour of municipal trading which is directly opposed to the one which has just been considered. It advocates municipalisation in order that commodities may be sold at cost price. This attitude towards municipal trading is not nearly so common as the other, which sees in municipal trading an opportunity of securing sums in relief of the rates. These two reasons in favour of municipal trading will be considered together when the question, whether or not it is desirable that municipal enterprises should make " profits," is discussed below, § 5. The four services, the municipalisation of which we have been discussing so far, possess certain common charac- teristics, which must be borne in mind when considering the desirability of municipalising other enterprises. They are all monopolistic in character, and they all involve interference with the public streets. Three of them, water, gas and tramways, have something else in common, though not all to the same degree ; they are all more or less necessities, and to a very large extent the body of consumers coincides with the body of ratepayers. This being so, the local authority, for the purpose of providing water, gas and tramways, may be regarded as a society of consumers who unite to provide themselves with certain necessities of life, with a view to saving the profits of the middleman, much in the same way as the members of a co-operative store unite to provide themselves with other necessities of life,^ some of which not infrequently are especially made for them by workers whom they employ, e.g., bread and cakes, boots and shoes, and various articles of clothing. Electricity, of frequently granted to public utility as rent for the use of streets, bridges, service companies on the condition etc., and a share of the profits if the that a certain share of the revenue is to balance of net revenue exceeded 6 per be paid over to the local authority. cent on the capital outlay (Weigel, "Die The case of the Berlin Tramway under- Gemeindebetriebe der Stadt Leipzig," taking was mentioned on p. 34. An Schriften des Vereins fiir Socialpolitik, illustration from the electricity industry vol. 129, part v. p. 36). may be given here. The agreement ^ As far as the writer is aware, the between the Leipzig Corporation and comparison between municipal trading the Electricity Company in that town, and co-operative distribution was first which was terminated in 1905, after it made by Dr. Edwin Cannan in his had been in force ten years, provided article on the " Principle of Municipal that the company had to pay to the Trading," which appeared in the Inde- town 16 per cent of the gross revenue pendeut Review, November 1905. 42 MUNICIPAL TRADING chap. course, cannot be regarded as a necessity, nor is it consumed by the majority of ratepayers. Where a local authority generates electric current, it does so in order to provide for a particular class of ratepayers, who, generally speaking, arc selected from the richer rather than from the poorer portion of the community, a fact which the local authority should bear in mind, in conjunction with the fact that sanitary considerations hardly apply, when it decides upon the selling policy to be adopted. ^ 6. There is another class of undertakings which, partly on grounds similar to those which have led to the muni- cipalisation of the four services so far considered, and partly because it may not be trading at all, but merely the privilege of levying an indirect tax, is very commonly under the management of local authorities, namely, market and fairs in which various kinds of produce, and also cattle, are dealt in either wholesale or retail. The undertakings may include buildings of various kinds in which goods are stored and bought and sold, or they may represent only the .setting aside of certain public streets and squares on specified days for market purposes. The market undertakings occupy a peculiar position, in that the right to hold a market is frequently a monopolistic privilege of great antiquity. In a good many cases the market rights have been vested in municipalities from very early times, as, for example, in the cases of Bristol,^ Edinburgh," HulP and Preston.'' In other cases they belonged to the Lords of the Manor, and have been purchased from them, together with any market buildings which they may have erected. Thus, the Corporation of Manchester, in 1846, purchased the market buildings and the rights connected therewith from Sir Oswald Mosley, the Lord of the Manor, for ;^200,ooo ;^ ^ "The Markets have belonged to p. 15). the Corporation from time immemorial " •' " The market rights were conveyed {Parliamentary Return on Municipal to the Corporation by a very old charter Trading {United Kingdom), part v. which was subsequently confirmed by p. 7). Edward I." {ibid, part v. p. 51). 2 " By Royal Charters dating from * "The Market rights of the Cor- the reign of David II. to James VI. of poration are very ancient. They were Scotland and various local Acts of originally granted and have been many Parliament, the Magistrates and Council times renewed and extended by Royal have power to hold markets on sites Charter" {ibid, part ii. p. 142). chosen by themselves" {ibid, part vi. ^ Ibid, part ii. p. 40. II THE DEVELOPMENT OF MUNICIPAL TRADING 43 whilst the Corporation of Sheffield purchased the markets and the market rights from the Duke of Norfolk, the Lord of the Manor, for ;^5 26,000, as recently as 1899.^ In some towns market undertakings did not exist until they were established by the local authorities in modern times, as, for example, in Birkenhead" in 1848 and in Southampton"^ in 1865. There is more than one reason why it appears desirable that the market undertakings should belong to the local authority. In so far as they represent no capital outlay, but merely the right to levy a toll for the use of public streets or squares for market purposes, it is only proper that this right should be vested in the local authority. Whether special buildings have been erected or not, the market undertakings practically always enjoy a local monopoly which is not easily controlled if in private hands. Another advantage of public ownership is that it facilitates the sanitary control or inspection which is necessary in the interest of public health of many of the articles dealt in. This last consideration makes it very desirable that the market undertakings should be extended to include abattoirs or slaughterhouses, and that the use of these by butchers should be made compulsory, as is frequently the case in continental countries. There was a Royal Commission on Markets which sat from 1888 to 1891 and reported in favour of markets being placed under the management of local authorities. Under the Public Health Act, 1875, local authorities have power to acquire markets, and it is the policy of the Local Government Board to raise no objections, when applications arc made to borrow money for this purpose.'* 8 7. Another type of enterprise which is connected with the streets, and which tends to become monopolistic in character, is the telephone business. In this country telephones have been a source of contention between the believers in public and private ownership respectively, ever ^ Parliamentary Return on Muni- ** See evidence of Sir (then Mr.) cipal Trading {United Kingdom), part S. B. Provis, Permanent Secretary to i. p. 37. the Local Government Board, before 2 Ibid, part ii. p. 164. the Committee on Municipal I'rading, 3 Ibid, part v. p. 150. 1900, Q. 1002. 44 MUNICIPAL TRAPfNG chai-. since they were first introduced. On the whole the muni- cipalities have played a comparatively small part in the struggle, which has chiefly centred round the central government, as represented by the Postmaster-General, on the one hand, and the National Telephone Company, on the other. In 1892, the Postmaster-General came to an agree- ment with the National Telephone Company in reference to the telephone business of the company ; the general out- line of the arrangement was that the trunk wires which connect large towns should be worked by the Postmaster- General and that the business within the towns, which is generally called exchange business, should be left in the hands of private companies.^ In subsequent years this arrange- ment has been modified in two respects. In a few cases the Postmaster-General issued licences to local authorities authorising them to carry on telephone undertakings, and in 1905 an agreement was entered into by which the Post Office was to take over the business of the National Telephone Company from January i, 191 2. The nationalisation of the telephone business is entirely outside the scope of this book. Here the only thing that calls for consideration is the establishment of certain municipal telephone exchanges. From time to time various local authorities complained about the dearness and the inefficiency of the service provided by the National Telephone Company, which had absorbed practically all the other companies. Whether these complaints were justified or not, they constituted one reason why certain municipalities desired to establish a telephone business. Further, the laying down of wires, where the underground system was adopted, necessitated taking up the streets, the right to do which some local authorities were very loath to see done by or on behalf of a private company.'^ No local ^ See evidence of Sir Robert the Postmaster-General can appeal ulti- Hunter, Solicitor to the Post Office, mately to the Railway Commission, before the Committee on Municipal Once he lias obtained the necessary Trading, 1 900, Q. 4030. permission he can if he chooses lay - Neither the Postmaster-General undergroimd wires for the use of a nor one of his licensees" can take up company to whom permission to take the streets to lay underground wires up the streets has been refused. This without permission of the road actually happened in Glasgow and authorities concerned, but whereas the caused a great deal of friction (Sir road authority can refuse its consent Robert Hunter, loc. cit. QQ. 4026, to a company without right of appeal, 4027, 4037, 4038, 4939). II THE DEVELOPMENT OF MUNICIPAL TRADING 45 authority appears to have gone as far as to seek to buy the undertaking of a telephone company in their area, but a few obtained the necessary permission to establish a competitive undertaking.^ The attitude of the Postmaster- General, who gave the permission, appears to have been that competition may temporarily be very desirable as a means of improving the service, but that in the long run the telephone service is not one that lends itself to competition, as it is very inconvenient for subscribers if there are two systems between which there is no communication.' If there is intercommunication this necessitates some kind of understanding between the two undertakings, which may lead to an amalgamation, and in that case competition ceases absolutely.^ If the undertakings continue to operate on a friendly footing in the same area there is not likely to be much real competition, and in any case there will be a certain amount of overlapping and duplication of working expenses which will raise the cost of supplying the service, and in the long run this cannot be in the best interest of the subscribers. It has been stated by the Postmaster- General that the transfer of the undertaking of the National Telephone Company to the Post Office will do nothing to prejudice the future of the municipalisation of telephones ; * but it is difficult to see how the permanent duplication of * E.g. Glasgow in 1900, Portsmouth No. 104, col. 649. in 1901, Hull in 1902, and Brighton "The Act of 1899 which empowers and Swansea in 1903 (Sir Charles the local authorities to conduct Hunter, loc. cit. Q. 4025, and Farlia- telephone systems, if they so wish, mentary Rehirn on IMiinicipal Trad- remains, and is not affected by the new ing {United Kingdom), part v. pp. measure. My own inclination is 62, 78, 182; part iii. p. 191). opposed to the municipalisation of 2 Sir Robert Hunter, loc. cit. Q. telephones and I think that expert _ opmion throughout the country is also , ' , , <- ^ opposed to the municipalisation of 3 For example, the Swansea Cor- t^.iephones. I have received no poration Telephone undertaking was ^^ j-^^^ corporation to sold to the National Telephone ^^^ody any municipal system of Company in 1907 {Farhamentary telephones in this bill. The Associa- Return on Municipal Trading (United ^^^^ ^f Municipal Corporations has A««ir^;«),partv. p. 182). ^^^ approached me, nor has the •' See speech of Mr. H. Samuel Glasgow Corporation passed any (Postmaster-General) in the House of resolution. I fully recognise and Commons, July 14, 191 1, on the agree, however, that nothing should motion for the second reading of the be done to prejudice future muni- Telephone Transfer Bill, Parliamentary cipalities in the matter. Nothing is Debates, House 0/ Commons, vol. 28, done to prejudice them now." 46 MUNICIPAL TRADING ciiai'. the local exchange business can benefit subscribers ; on the other hand, there is nothing to indicate that the Post Office intends to hand over the local administration of telephones to the municipalities. The local areas for telephone purposes ought to be much larger than those of particular municipalities, and probably better results can be obtained if the whole system of the country is directly untler one management, with such decentralisation of the administration as may be found suitable in the interest of efficiency, than if a whole number of semi-independent telephone authorities are set up in different towns. The distinction between local calls and trunk calls is only artificial, established as a matter of financial expediency. Ever)'thing should be done to diminish the distinction between local calls and trunk calls as much as possible, and the creation of numerous municipal telephone exchanges could only tend to increase it, and any movement in this direction seems undesirable. \ 8. There still remain numerous cases of municipal trading, the reasons for the development of which are quite different from those enumerated in connection with water, gas, electricity, tramways and markets. These remaining cases can be grouped roughly into five classes. In the first are the industries and trades which are subsidiary to those enterprises mentioned above or to non-trading undertakings of local authorities. In the second, operations connected in some way with the land may be placed together. In the third are enterprises organised to supply necessities of life other than those which, owing to the nature of the business, are subject to clearly marked monopolistic tendencies. The fourth group consists of undertakings established to provide credit facilities. In the fifth and last group are placed a number of miscellaneous enterprises which are too varied to permit of special classification. These different classes of trading undertakings will now be considered separately. S 9. The first class, which consists of subsidiary trades or industries, includes such varied undertakings as the manufacture and installation of electric light fittings, the " wiring " of houses for electric light, the supplying of gas stoves, gas cookers and gas fittings, the conducting of a wholesale or retail coke business, the manufacture of II THE DEVELOPMENT OF MUNICIPAL TRADING 47 sulphate of ammonia, the repairing and building of tram cars, the carrying of parcels by tramway, the provision of cold-air stores, the manufacture of ice and the sale of water at high pressure for hydraulic purposes. Furthermore, a corporation may pave its own streets, lay its own sewers, and erect any buildings which may be required for municipal purposes. Many of these trades and industries, it will be noted, may be in direct competition with those conducted by private undertakings ; consequently it is necessary to con- sider very carefully on what grounds, if any, they can be justified. It appears possible to distinguish three relation- ships which the subsidiary industries may bear to the principal industries ; firstly, it may be necessary that they should be established in order that the principal industries may be efficiently managed ; secondly, they may evolve directly out of the principal industries, so that it is impossible to conduct the latter without conducting the former ; and thirdly, they may be connected with the principal industries in a manner less close than in the other two cases, yet close enough to justify their existence. (i.) Amongst the subsidiary undertakings, which it is often urged are necessary for the proper management of the principal undertakings, are cold -air stores and ice manufactories in connection with markets, the supply of meters, fittings and stoves in connection with gas and electricity supply undertakings, and the running of omni- buses in connection with tramways. Each of these enter- prises must be considered separately. {a) A cold -air stores or refrigerator for the preservation of both meat and dairy produce is at the present day an essential adjunct to a market, and in the case of fish a supply of ice is equally essential. Powers to provide these things were frequently obtained by municipalities before private enter- prise had undertaken their supply. Thus in Manchester, the Markets Committee established a cold-air stores at a time when the frozen meat trade was just developing, and no store had been erected by private enterprise. Since then private stores have been established, one of which belongs to a firm which has branches all over the country, and which quotes preferential rates to importers, provided 48 MUNICIPAL TRADING «hap. that in any town in which they do business they use the cold-air stores of the firm if such exists. This has harmed the municipal cold-air stores, as well as the fact that private stores are able to make advances on the goods stored, which the municipal undertakings cannot do. In the case of perishable produce which has to be exhibited on the market in order to secure purchasers, the convenience of a cold-air stores immediately at hand, for the temporary storage of produce, may still justify the establishment of a municipal undertaking to enable the market to fulfil its function properly. On the other hand, the cold storage business in a general way does not seem suitable for municipal manage- ment. As far as the supply of ice is concerned, which is indispensable, for example, for a fish market if an adequate supply is not forthcoming at reasonable prices, the market authority may be forced into providing it. Strictly speaking, under these circumstances the ice should be sold by the local authority only to its market tenants for use in the market, but it may be in the interest of the public health, as enabling food offered for sale to be kept in better con- dition, that shopkeepers and dealers who have food to keep on their own premises should be allowed to purchase ice on the same terms as the market tenants. Up to this point the sale of ice could still be regarded as subsidiary to the market's undertaking.' If a local authority sells ice in small quantities to all who desire it, that authority must be regarded as engaging in the retail ice business," a form of municipal trading which will be discussed below in connection with the supply of necessities other than those which, owing to the nature of the business, are subject to clearly marked monopolistic tendencies.^ {b) The question of a local authority supplying fittings 1 In Bolton the municipal markets to 25s. for I ton, 45s. for 2 tons, and and cold-air stores undertaking sells 63s. gd. for 3 tons {Parliamentary ice at £\ per ton {Parliamentary Return on Municipal Trading {United Return on Municipal Trading {United Kingdom), part iii. p. 108). If the Kingdom), part ii. p. 85). corporation delivers ice at these prices this is practically a case of a retail ice - The prices charged for ice by the trade. Even if customers have to fetch Wolverhampton Municipal Cold Stores their ice it hardly affects the retail and Ice Manufactory undertaking range character of the trade. from 8d. per \ cwt. and is. per h cwt. 3 gge p. 75, below. II THE DEVELOPMENT OF MUNICIPAL TRADING 49 and other equipment in connection with its gas and electricity undertakings is one of considerable difficulty. It probably brings municipal enterprise into direct competition with more private businesses than any other generally recognised kind of municipal trading, and it is strenuously opposed by all ironmongers,^ The crucial point is, whether it is essential to the success of gas and electricity works, that these should be allowed to supply fittings, etc. The different kinds of equipment supplied must be considered separately. Every consumer requires a meter to measure the quantity of gas or current consumed. On the grounds of expense and convenience the great majority of people prefer to hire meters rather than to buy them. This being so, it is certainly simplest that the undertaking which sells gas or current should provide the meter and make a charge for the use of it. This may be done either by means of a separate rent or by charging a slightly higher price for gas or current, in which cases meters are provided nominally free of charge. The case of gas stoves, cookers and grillers is somewhat different. It is not necessary that all, or in fact any consumers, should have these, yet in view of the increasing use of electricity for lighting purposes the development of the use of gas for heating and cooking purposes is essential in many towns, if the gas undertaking is to grow and prosper, and it becomes very desirable that gas-works should push this branch of their business. To do so, it is probably necessary that they should loan stoves, cookers and grillers, as many people who are unwilling or unable to buy them, will hire them if facilities with this object are offered. The charges for hiring may either take the form of a special rent or be embodied in the price of the gas." The position 1 See the evidence of Mr. R. H. work in electric lighting and gas- Smith, General Secretary of the Iron- fitting, this Conference considers it mongers' Federated Association, before desirable that the general subject of the Committee on Municipal Trad- trading by local governing bodies ing, 1900, QQ. 2946-3035. At the should be reconsidered, and in the annual conference of the Ironmongers' interests of local trading communities, Federated Association held at Man- so far as possible, eliminated" (Re- chester in March 1 9 1 1 , the following port in the Manchester Guardian, resolution was adopted unanimously: March 22, 191 1). " That in view of certain municipalities 2 The advantages and disadvantages having recently sought extended powers of the two methods will be considered respecting the execution of internal in the chapter on the selling policies E 50 MUNICIPAL TRADING chap. with regard to the installing of electric fittings and the " wiring " of the inside of houses for electric lighting is not quite the same. Originally it was very difficult to persuade people to adopt electric light. Houses were usually equipped for gas, and frequently neither the landlord nor the tenant was willing to incur the expense of putting in electric wires and fittings. Hence certain local authorities undertook to put in wires and fittings, and to recoup them- selves by a rent, or by charging a higher price for current. This appears to be a good deal more speculative business than the loaning of gas stoves or cookers, for whereas the latter can easily be put in and removed without much cost, if occasion to do so arises, the value of the electric " wiring" is chiefly in the cost of installing it, and consequently cannot be recovered if a consumer leaves a house, and it remains vacant, or the new tenant refuses to use current. The loaning of fittings and wires in connection with an electricity supply undertaking does not occupy the same relationship to the principal industry, as the loaning of stoves and cookers does to the gas lighting industry to which they are clearly subsidiary, as the industry can quite well exist without them. The supplying of fittings and wires is an essential preliminary undertaking to the electric lighting industry, as the supplying of fittings and pipes is to the gas lighting industry. The two industries are quite distinct, and there is no necessity that they should be under the same management. On the other hand, electric heating apparatus, fans, etc., are subsidiary to the electric lighting industry, and stand in the same relationship to that industry as gas stoves and cookers do to the gas lighting industry. The position with regard to electric motors and gas engines is practically the same, though as these are generally used for business purposes it will probably be only the small power consumers who will prefer to hire rather than to buy them. Taking everything into consideration, the installing of electric light- ing fittings and the " wiring " of houses by a municipal of municipal trades. The Manchester and 30,831 grillers belonging to the Corporation Gas Works is one of those Corporation were in use. (See the which loans meters, cookers and Annual Report for the year igio-ji, grillers free of charge. On March 31, p. 4, and the Description of the Works, 1911, 180,981 meters, 53,730 cookers, March 31, 191 1, p. 18.) II THE DEVELOPMENT OF MUNICIPAL TRADING 51 department, in return for a direct or indirect rent, appear undesirable as a general thing, although conceivably special circumstances might exist in some cases to justify them. The loan of apparatus for heating and power purposes is justifi- able on the ground that the sale of current for these purposes is very desirable in order to facilitate the sale of current for lighting purposes.^ All that has been said so far with regard to gas and electric fittings, etc., has been on the assumption that these are to be loaned for a direct or indirect charge. The case of a municipality selling or even manufacturing these articles has still to be considered. There appears to be no sound reason to justify such an undertaking. A municipality may loan them because many people cannot afford to buy them, and from the point of view of the undertakings as a whole, it is very desirable that gas and current should be used for heating and power purposes. If consumers are willing to purchase stoves, etc., ironmongers exist to meet their requirements. There is no reason why a local authority should undertake this branch of business unless it be merely to make a profit, and that in itself is not a sufficient ground to establish any branch of municipal trading. To sell stoves, etc., at cost price, or even at a loss, in order to increase the sale of gas and current is an unsound policy, because there is no guarantee that customers will not leave the district and take their cheap purchases with them, to the detriment of the local undertakings and to the benefit of some other gas and electricity works elsewhere. The business of manu- facturing fittings or appliances of any kind appears quite unsuited for municipal management. Local authorities first obtained powers to supply and manufacture gas-fittings by taking over gas companies and their powers, the acts authorising the transfer stating that sections so and so to so and so of the gas companies' acts were to apply to the corporations, the powers concerned being contained in one of these sections." Thus the question does not originally appear to have received that careful consideration by ' The connection between the sale ^ See evidence of Mr. Albert Gray, of current for lighting and for power counsel to the Lord Chairman of the purposes will be dealt with fully in House of Lords, before the Committee Chapter VL on Municipal Trading, 1900, Q. 304. 52 MUNICIPAL TRADING chap. Parliament which it merited, and the fact that certain corporations have these powers must not be taken as really indicating parliamentary approval. {c) The running of omnibuses in connection with muni- cipal tramways, with the object of feeding the tramway system, is not very common. Where it occurs it is gener- ally on the outskirts of a town along routes on which it is considered that a tram line will not pay its way. Once it is ascertained that an omnibus service will be likely to benefit the tramway undertaking sufficiently to justify its existence, a decision will have to be come to, as to whether the omnibus service is to be maintained by private enterprise or by the municipal department. If, as is quite likely, it is anticipated that the service will be unrcmuncrative for the time being, and that as the traffic develops it will be replaced by an extension of the tramway system, the probability is that no private firm will enter upon the business. The local authority will then cither have to establish the service, or give up the idea of feeding their trams by means of omnibuses. On the whole the latter is probably the best expedient to adopt, although circumstances might exist under which the running of an unrcmuncrative omnibus service could be justified. On the other hand, if it can be established so as to pay its way, there seems no reason why the local authority should undertake it, unless private enterprise fails to supply the need. (ii.) Amongst the second type of subsidiary undertakings, namely, those evolving directly out of certain principal industries, the most important are connected with the by- products of gas-works. The repairing shops organised in connection with tramway undertakings also belong to this class. (<^) The sale of coke, tar and ammoniacal liquor are subsidiary to the gas industry. In the process of manu- facturing coal gas it is impossible to avoid producing these three by-products, and they must be disposed of in some manner. The simplest thing is to sell them in bulk to wholesale dealers, but frequently much better prices can be obtained with comparatively little extra outlay, if they are disposed of in some other way or in some other form. Thus coke may be sold retail, and ammoniacal liquor may be con- II THE DEVELOPMENT OF MUNICIPAL TRADING 53 verted into ammonia sulphate and sold as manure. The more surplus revenue that can be realised on the by-products, the more cheaply the gas can be sold ; consequently once a local authority is allowed to manufacture coal gas, it is only fair to allow it to deal with the by-products to the best advantage,^ ijj) It seems only natural that a tramway undertaking should establish a workshop in which its cars can be repaired, and wheels and other parts which wear can be renewed when- ever the occasion arises, which on a large system, where several hundred cars are employed, must be continually the case. Tramcar works are to be found in very few towns, and to send cars away to be repaired would certainly be very costly, even if feasible. In any case, skilled men will have to be employed to overhaul the mechanical and electrical equip- ment of the cars, as the safety of travelling depends upon their being kept in proper condition ; and the service of joiners, painters and other artisans will be required if the car-bodies are not to be allowed to assume a worn and battered appearance. Under these circumstances, it is simplest if all repairs can be done in the tramway workshop. {c) Some local authorities, however, are not content with merely repairing their cars, they also build new ones, or in any case build car-bodies to place upon trucks which they purchase. Building cars cannot possibly be said to evolve out of the management of a tramway system, nor is it in any sense necessary for the efficiency of such an undertaking. Probably the reason why it is done, is that in the repairing shops all the requisite workers and materials are at hand, and in order to provide more work for these shops, with a view either to occupying more fully men, who must be kept on in any case in connection with the repairs which are continually required, or to employing more men, the building of cars is undertaken. Another possible reason is that the repairing shops once in existence, the departments think they can build cars more cheaply than they can buy them. This last reason does not sound at all convincing and must be regarded as inadequate. To build cars merely ' The question of the sale of gas by- the chapter on the Selling Policies of products will be treated more fully in Municipal Trades. 54 MUNICIPAL TRADING chap. for the sake of finding employment for more men is equally unsatisfactory. If, however, the extra men are wanted in order to form a reserve from which additional motor-men and conductors can be drawn when required to enable an abnormally large service to be maintained on special occasions/ the car building is in any case to some extent justified, and if this consideration, together with the desire to find more regular employment for the repairing staff, constitute the motives for the car building, the justification may perhaps be regarded as adequate. (ill.) The last class of subsidiary industries is that of which it cannot be urged that the management by local authorities is either necessary for the successful conduct of the principal undertakings, or that it evolves directly out of the principal industries. Nevertheless, if a particular subsidiary trade of this type is to be carried on at all, it may be best that it should be managed in conjunction with the principal under- taking. As illustrations, the sale of water at high pressure for hydraulic purposes, the establishment of a tramway parcel carr)'ing scheme, and the execution of works of various kinds by municipal departments, may be considered, {a) The case of a local authority selling water at high pressure for hydraulic purposes is somewhat peculiar. There arc prob- ably not many towns where demand for such water exists, but where this is the case, and the water-supply undertaking belongs to the local authority, there appears to be good grounds for municipalising the service. As special mains will have to be laid, there will be both interference with the streets and a strong tendency to monopoly. On the other hand, sanitary considerations and universality of use cannot be advanced in its favour, as in the case of the ordinary water-supply ; consequently, if the service is municipalised, it should be managed on an entirely self- supporting basis.^ 1 I was informed by the manager of Committee has laid down within the the Frankfort-on-the- Alain municipal city a system of hydraulic power capable tramways that a uniform making de- of being utilised for working lifts, partment was established with the hoists, cranes, presses, suction cleaners, express object of providing a reserve and other machinery. The pressure of men to staff the trams required is looo lbs. per square inch, and the to provide the extra Sunday service. supply is continuous. Power is supplied 2 In Manchester the Waterworks to more than 2000 machines, the total n THE DEVELOPMENT OF MUNICIPAL TRADING 55 (J)) To judge a tramway parcel carrying scheme it is necessary to consider the details of each scheme separately, as everything depends upon the way in which the under- taking is organised. Under any circumstances it can hardly be regarded as essential to the success of the tramway system, although it may lead to a better utilisation of the system than would otherwise be possible. On the other hand, a very considerable extra organisation will be necessary, in addition to the ordinary tramway service, if a large scheme for the collection and delivery of parcels is to be conducted efficiently. Thus, in the case of the Manchester Corporation Tramway Parcels Express, which was established a few years ago, a scheme was organised by which parcels were collected and delivered, not only in the area served by the Manchester Tramways, but in all the surrounding districts. To carry out this scheme the ordinary tramway service had to be supplemented by special electrically equipped freight cars, numerous vans and horses, hand-carts, and a large extra staff of men and boys. In addition, one hundred and fifty collecting and distributing depots were established.^ The scheme had to be given up in October 1906, on account of a decision of the High Court that the Tramways Committee had exceeded its legal powers, though only in so far as it collected and delivered parcels which were not carried on the Manchester trams ; all the special preparations made to facilitate the parcel carrying were apparently legal." length of mains laid l)eing nearly 23 and a considerable surrounding district, miles. There is a similar installation They had commenced, or advertised in Glasgow. their intention to commence, a general ^ Report of the National Civic parcels' delivery business within and Federation Commission on Public beyond the area covered by their tram- Ownership, part ii. vol. ii. p. 479. ways, not confined to parcels and goods - Attorney -General v. Manchester carried on their tramways. This action Corporation, 1906, i Ch. 643. "By was brought by the Attorney-General, virtue of various Provisional Orders on the relation of Manchester rate- and private Acts of Parliament the payers, to restrain the carrying on of Manchester Corporation had power to such a business : — use all tramways belonging to or in '■^ Held, that under the power given lease to the Corporation, or on which by the Act of 1899 the Corporation they had power to place or run carriages, had powers to carry on the business of ' for the purpose of conveying and de- common carriers upon their tramways, livering animals, goods, minerals, or and as ancillarj' to that business to do parcels.' The Corporation worked a all things necessary for the collection large system of tramways, of which they and deliver)- of parcels carried on their were owners or lessees, extending all tramways. For this purpose they over the city and suburbs of Manchester had powers to maintain stations or 56 MUNICIPAL TRADING chap. Quite apart from the legal question in this particular case, it may be questioned whether the possession of an electric tramway system is sufficient justification for under- taking a large parcel carrying scheme. If the ordinary tramway service forms a very small part only of the scheme, as was the case in Manchester, there does not seem any adequate reason for it. A parcel carrying trade is not for the general good of the community, nor is it one which can be advantageously limited to a small area, yet under certain circumstances a small scheme for carrying parcels by tram may prove useful. Outlying parts of a town which can be reached by tram will be considerably benefited by such a scheme, as a tramway department can provide a much more frequent and rapid service between such parts and the centre than any private carrier, but care should be taken to limit the system as far as possible to the tramways. This can best be done if no provision is made for collecting parcels, and if the delivery of parcels is restricted to the immediate neighbourhood of tram routes. If a car line runs out from a town into hilly country, and constitutes the only mechanical transport service which such high lying district possesses, it may even be desirable for the tramway under- taking to offer certain facilities for carrying goods other than mere parcels. Thus the trams which climb the long hill from Dresden to the Wcisser Hirsch have accommodation for carrying three bicycles, the charge being the same as that for passengers. Further, to certain of the cars, trailers are attached in which laden hand-carts, along with the dogs which help to pull them, can be drawn up to the Weisser Hirsch. Under the existing circumstances the provision made for carrying freight by the Dresden municipal tram- ways appears justifiable. It is impossible to generalise about tramway parcel carrying schemes, each must be con- sidered on its merits ; but there is at least one condition with which any such scheme must comply before it can be warehouses for receiving and storing parcels and goods carried or to be parcels and goods, to provide horses, carried on the tramways ; the Corpora- vans, carts, and to employ servants, tion had no power to carry on a general messengers, and agents for the purpose parcels' delivery business apart from of collection and delivery. But all their tramw.iys." these services must be confined to II THE DEVELOPMENT OF MUNICIPAL TRADING 57 approved of, namely, that it must involve very little if any organisation apart from the ordinary tram service. Amongst the undertakings in connection with which small parcels carrying schemes are conducted are the Manchester Corpora- tion Tramways and the Bradford City Tramways. The former earned a net revenue of £2\'^^ during 1910-11^ and the latter of ^^1748.^ Both these schemes are strictly subordinate to the principal undertakings. {c) The case of the execution by local authorities on their own account of various kinds of works differs from the other subsidiary enterprises which have been considered, in that there is no question of selling a product. In one sense therefore, it cannot be regarded as trading at all, but on the other hand, it involves more or less direct competition with private undertakings, and calls for attention, and this seems the most suitable place to consider it. Paving streets, con- structing sewers, and erecting buildings are preparatory rather than subsidiary processes in connection with the performance of various municipal functions. The work must either be let out by contract, subject to municipal supervision, or be carried out by the local authority on its own account. In the case of street paving and of preparing macadamised and other roads, the bulk of the work is in the nature of repairs, which it is extremely difficult to measure up beforehand and consequently almost impossible to let by contract. Thus the local authority will practically be obliged to do most of the work on the roads itself, although when an occasion arises to lay out a new road, the work may quite well be done by a contractor. The position with regard to the construction of sewers is somewhat different. The work to be done can be definitely ascertained before- hand ; the difficulty of handing over the work to a con- tractor lies in the supervision. The work is covered up so quickly that between one visit of an inspector and the next, various defects, which time alone will reveal, may be hidden from sight. It is frequently felt that this can best be avoided by the local authority doing the work on its own 1 Annual Report of the General ^ Annual Report of the General Manager of the Manchester Corpora- Manager of the Bradford City Tratn- tion Tranrways for igio-ii. ways for igio-ii. 58 MUNICIPAL TRADING chap. account. As the number of men employed in such work is not very great, and as by combining repairs with new work, pretty regular employment can probably be found for them, the method does not seem open to serious objections. The case of organising a works department to erect the buildings required from time to time by a local authority is quite different. There is no valid reason why the practice, almost universally adopted by private individuals and firms, of having buildings put up by contractors should not be followed by local authorities. There is no difficulty about supervising a contractor, and there is no reason to think that the work of an experienced contractor will be inferior to, or more costly than, that of a municipal works department. On the other hand, on more than one ground a municipal works department is very undesirable. The erection of buildings by even the largest local authority is likely to be spasmodic, and it would be almost impossible to find regular employment for a building staff. There is no guarantee that such a department would erect a building at the estimated cost. If the building cost more than was anticipated, which is not at all unlikely, the burden would fall on one or other of the committees of the local authority, whereas normally it would fall on the contractor. Further, the number of municipal employees would be largely in- creased without there being any absolute need for it. This touches on the large question of the relationship of a local authority and its employees, which is discussed in a later chapter. The conclusion reached there may be anticipated, viz., that an increase of municipal employees, where it is not really necessary, is an undesirable thing. The principal case of a municipal works department established to erect buildings of various kinds for the local authority was that inaugurated some years ago by the London County Council, and which has since been discontinued. Quite apart from whether the work done by this department was both in- efficient and costly, as suggested by its numerous opponents, its abolition must be welcomed on the ground alone that no adequate justification can be found for the establishment of such a department. S lo. The next class of municipal trading enterprises II THE DEVELOPMENT OF MUNICIPAL TRADING 59 which calls for attention is that associated in some way with the land. This includes undertaking of working class hous- ing operations, dealing in building plots, the loaning of allot- ments, and the ownership and management of estates other than in connection with the previously mentioned activities. {a) Reference has already been made to the rehousing opera- tions conducted by local authorities in connection with the clearance of slum areas.^ In these cases the undertakings are deliberately subsidised and are consequently outside the scope of municipal trading. Here we are concerned with the undertaking by local authorities of house building operations, where there is no question of rehousing people displaced by improvement schemes. The local authorities under these circumstances enter into direct competition with private builders, and we must consider on what grounds this is done and how far they can be justified. It is frequently argued that working-class houses are overcrowded on the one hand, and insanitary on the other ; further, that even where remunerative rents are forthcoming for suitable houses, enough may not be erected, and that the local authorities cannot compel private persons or companies to build. Admitting that overcrowding does often exist, it does not follow that it is due to inadequate housing accommodation in the town concerned ; it is more likely to be caused by too many people wishing to reside in particular districts of a town. As soon as these are fully built up, no more accommodation can be provided, and unless people wishing to live there can be persuaded to reside in other parts of the town, overcrowding will result. The mere build- ing of new houses on the outskirts will not check this overcrowding, which tends to occur in the more central parts of a town. Other measures will be required ; one is to provide better transit facilities, so that people may travel more quickly and more cheaply between houses in the outskirts and works or mills in the centre of a town ; this will doubtless encourage people to live on the outskirts, but in spite of these facilities many people whose hours are long and who commence early in the morning will prefer to live close to their work, and the congestion may still continue. Under 1 See p. 4. 6o MUNICIPAL TRADING chap. these circumstances, another measure would be necessary to force people away from the centre : strict regulation of the number of families or individuals who may live in every house, based upon the air space it contained, in a similar manner to that in which the accommodation of a school or factory is regulated at the present time. Such a regulation raises the question of the limits of state interference in general, and not of municipal trading in particular, and consequently a discussion of it is outside the scope of this book. The attempt to deal with the housing problem by means of improved transit facilities is considered below in connection with the fare policies of tramways undertakings. With regard to the unsanitary character of many existing working-class houses, the state of affairs contem- plated is not such as to make the houses unfit for human habitation, nor even sufficient to constitute them slum property, as in this case they would be unhealthy areas, which would come within the scope of subsidised improve- ment and rehousing schemes. The statement made that many working-class houses are in an unsanitary condition refers to such things as the inadequate conveniences with which many of these houses are provided, the lowness of their rooms, the smallness of their yards, and also the fact that some of them are " back-to-back." The explanation is that these houses were built, either before the days of building by-laws, or in accordance with building by-laws which are now regarded as antiquated and which have since been altered. Some of these defects cannot be removed without pulling down the houses, but sanitary conveniences can be made adequate, and " back-to-back " houses can be converted into " through " houses, if the local authority insists upon these improvements being made. Not infrequently the prospective cost of these alterations, which will probably be divided between landlords and tenants, the latter being charged higher rents, but not sufficient to cover the whole outlay, is a stumbling-block, as very likely neither the land- lords nor the tenants desire the improvements, or in any case are not anxious to pay for them. Under these circumstances, influence may be brought to bear upon the Council of the local authority to prevent steps being taken to remedy the II THE DEVELOPMENT OF MUNICIPAL TRADING 6i evils, or members of the Council may do nothing in this con- nection, in order not to render themselves unpopular with voters. No amount of new house building, whether by private enterprise or by the local authority in the outer parts of a town, can remedy the defects of older houses in the inner parts of a town where a great many people wish to live. Nothing but the careful enforcement of more stringent regulations is likely to lead to improved conditions in the inner parts of a town, and it goes without saying, that it will lead to a rise of rents, as a more expensive article cannot be obtained at the same price as a cheaper one. The assertion that remunerative rents are forthcoming for suitable houses, and that nevertheless private enterprise is not providing new houses, if it is correct, merely shows that opinions differ as to the future prospects of cottage property in a particular district. It might be remunerative at the moment, and yet cease to be so in a short while. If private builders, whose business it is continually to gauge the present and future demand for housing accommodation, are unable to see a reasonable prospect of making new building operations pay their way, it is a bold thing for the Council of a local authority to launch out upon a building scheme on the express understanding that it is to be maintained on a self-supporting basis. The Council is likely to secure the requisite land on less favourable terms than the private builder, the cost of erecting the building will probably be higher, as it is very unlikely that a municipal housing committee will be as careful as a private builder about little economies (as distinct from jerry work) which may make all the difference to him between a small profit and no profit or even a loss. Even if a local authority paid nothing more for the land or the buildings than a private builder would do, there still remains the fact that private enterprise, which must be regarded as more expert in this matter than a Town Council, anticipates unfavourable conditions in the future. If for one or more of these reasons, the local authority is unable to make their scheme self-supporting, which is more than likely, a burden will be imposed upon the rates for the benefit of the few municipal tenants, at the expense of the great bulk of the ratepayers. Such a building 62 MUNICIPAL TRADING chap. scheme is not for the general welfare, but for the particular advantage of those who occupy the houses, and as a general rule, if nice four, five, or six room cottages with all modern conveniences are built, they are occupied by well-to-do artisans on whose behalf rate aid cannot possibly be justified. Even where rehousing schemes are undertaken on the sites rendered vacant in connection with clearance and improve- ment schemes, experience shows that it is the exception for the people actually displaced to occupy the new dwellings, and the chances that new municipal cottages, erected on the outskirts of a town, will be tenanted by people, who have been displaced by the erection of a school, or some other municipal building, or by some street improvement scheme in the centre of a town, are very slight indeed.^ House building is a difficult business, which requires much careful watching and anticipating of demand. The element of risk involved is very considerable ; the whole character of a neighbourhood may deteriorate owing to causes over which property owners have no control, and in consequence of such changes the value of house property will fall. Again, a rise in the general standard of housing accommodation, such as has occurred during comparatively recent years, may compel landlords to make alterations which, however desirable from a sanitary point of view, may be entirely unremunerative. All circumstances considered, the housing business does not appear a suitable trading enterprise for local authorities to engage in, but sometimes a certain amount of house building may be justified by way of experiment, in order to act as a guide and ideal in the matter of the carrying out of development schemes, and to provide reliable information on which new and improved building regulations can be based. There is good reason for thinking that more improvements in the matter of the ^ The first 150 cottages erected the making of the new street from by the Manchester Corporation on Fairfield Street to Ardwick, and the the Blackley Estate, which lies about widening of Long Millgate (,City four miles from the centre of the of Manchester : Housing of the Work- town, were for the purpose of ing Classes. Published by the direction providing accommodation for persons of the Saftitary Committee, ■p'p. 14-21). of the labouring classes displaced As a matter of fact, not one of the by three street improvements effected persons so displaced appears to live on in or near the centre of the city, the Blackley Estate, viz., the widening of Rochdale Road, II THE DEVELOPMENT OF MUNICIPAL TRADING 63 housing of the working classes can be achieved by the preparation and enforcement of suitable town planning schemes and of good building regulations, and by the estab- lishment of rapid and cheap transit facilities, than by the erection of cottage property by local authorities. Town planning schemes have been carried out in Germany for a good many years nearly always with excellent results. In this country, it has only been possible to establish such schemes since the Housing, Town Planning, etc., Act was passed in 1909, and so far not very much use appears to have been made of it. On the other hand, local authorities have been authorised to conduct housing under- takings since 1 890, when the Housing of the Working Classes Act was passed. Under Part HI. of that Act and of subse- quent amending Acts, a local authority can build houses for the working classes, without formally proving that there is any de- ficiency of housing accommodation, and although no cottage property of any kind has been demolished, provided that the Local Government Board will sanction the necessary loans. The importance of building schemes undertaken under Part III. of the Housing Act being self-supporting in character appears to be generally recognised in principle, but seldom acted upon.^ The action of the London County Council in this respect may be given as an illustration. In 1896, it passed a resolution that action should be taken under Part III. of the Housing Act, 1890, with a view to the purchase of land and the erection of dwellings thereon, provided that no charge be placed on the County Rate thereby.^ As a matter of fact, a deficiency of i^6o, 145 had arisen in connection with the working of these schemes up to March 31, 1907. The largest part of this loss (i^47,5 30) was in respect of estates in course of development, ' A list of figures relating to cottages have to be provided for out of what and cottage flats built by local remains. Not less than 4^ to 5 per authorities in urban districts and cent on the capital outlay is likely to boroughs will be found in the suffice for these purposes, yet the net Municipal Year Book, 191 1, p. 669. return on capital outlay represents a,\ In the last column the net return per per cent or more in only ten of the cent on outlay is given, but as only the fifty-six cases for which returns are total working expenses have been given. deducted from the rents received in 2 j^^port on the London County order to ascertain the net return, CounciPs Workittg-Class DwelHf7gs,hy depreciation, interest, and sinking fund W. B. Peat and F. W. Pixley, p. 7. 64 MUNICIPAL TRADING cirAP. but a not inconsiderable amount (-^8379) was in respect of dwellings in occupation. The rest was accounted for by dwellings in course of erection.^ In 1907-8, the total deficiency in respect of the London County Council under- takings under Part III. of the Housing Act was ;^i 0,606.- The position in London appears to be typical of what is happening in most other towns, where building schemes under Part III. of the Housing Act have been carried out, and can only be described as distinctly unsatisfactory. {J)) One type of municipal housing scheme calls for separate mention, namely, the erection of common lodging- houses. Where such are provided by a local authority, the principal object generally is that they should serve as models, though at the same time it is intended that they should sup- plement the existing accommodation where that is inadequate. The municipalities seek to maintain these undertakings on a self-supporting basis, though they do not always succeed in doing so, and where they are run at a loss they compete unfairly with private undertakings, which it is not intended that they should entirely displace ; also they fail to serve as models, as proprietors of common lodging-houses cannot be expected to adopt arrangements which prove unremunerative. On the other hand, if a municipal common lodging-house is run so as to pay its way, it may serve a useful purpose by showing how such institutions can be managed and at the same time enable more reliable information to be collected concerning the people who frequent common lodging-houses, which may be of considerable assistance in considering any measures for dealing with casual labour.^ ic) Municipal departments for dealing in building plots {Grundstiicksfonds) have been established in certain German towns, for example, in Diisseldorf,* Barmen,^ Gelsenkirchen,^ ' Report on the London County Coun- established municipal common lodg- ciVs Working- Class Divellings, p. 7. ing - houses are London, Glasgow, 2 Report of the Housing of the Work- Manchester, and Belfast. See Aluni- ing Classes Committee of the London cipal Year Book, 191 1, p. 661. County Council, 1907-8, p. 25. Of * O. Most, "Die Gemeindebetriebe the total deficiency, ;^6352 was in der Stadt Diisseldorf," Schriften des respect of estates in course of develop- Vereins fiir Socialpolitik, vol. 129, ment, ^3540 in respect of dwellings part ii. p. 118. in occupation, and £11^ in respect of ^ Kommunales Jahrbuch, 1908, pp. dwellings in course of erection. 146, 147. 3 Amongst the towns which have ^ /^/,/. 1509, pp. 173, 174. II THE DEVELOPMENT OF MUNICIPAL TRADING 65 Stettin ^ and Duisburg." The object of these departments is to manage such vacant building plots as the towns already own, to purchase new plots with the idea of increasing the municipal holdings, to make adequate provision in good time, and consequently on the most favourable terms, for the future requirements of the local authorities in the matter of sites for new schools and other municipal buildings, and to sell such plots as are not required by the local authorities whenever good opportunities offer. Incidentally it is hoped that these departments will secure for the municipalities a share of the unearned increments, and also that they will exercise an influence upon the development of new parts of the towns. When one of these departments is established all vacant building plots in the possession of the various municipal departments are generally transferred to it, and a certain capital is placed at its disposal with which to make purchases. Thus in Dusseldorf, the department was established in 1902 with a capital of i^2 50,000, and in addition plots to the value of about i^5 00,000 were transferred to it. On March 31, 1908, the department owned plots of a book value of some ;^875,ooo."^ The expenses of these undertakings consist chiefly of the interest and sinking - fund charges in respect of the total capital employed. In the early years the profits on the transactions will probably be insufficient to meet these charges, and they are either met out of capital for the time being, or the deficits are carried forward. Ultimately it is expected that the departments will more than pay their way and that surpluses will be available for the purchase of still more land. A municipal department for dealing in building plots is engaged in a similar undertaking to an estate development company which is largely actuated by social motives. The real estate business, as the Americans call it, is essentially speculative, and \her&{or& prima facie unsuitable for municipal management. There are, however, certain circumstances which will tend to minimise the risks, when a local authority speculates in building plots, provided there is close co- operation between the various municipal departments, as it ^ Kommunales Jahrbuch, 1910, p. 2 Ibid. pp. 193, 194. 175. 3 O. Most, loc. cit. p. 120. F 66 MUNICIPAL TRADING chap. is intended there should be ; advance information will be available concerning any town-planning scheme which may be formulated, and concerning future developments of various kinds, in consequence of which it should be possible to buy the right sort of plots at lower prices than would otherwise be the case, and also to avoid making undesirable purchases. A close connection between the building-plot department and the other departments of a municipality would certainly tend to reduce the risks involved in land speculation, when engaged in by the local authority, but it also seems to be fraught with considerable danger of abuse. Alterations might be made in town-planning or improvement schemes simply with the object of enabling the building-plot depart- ment to realise profits by purchases and sales of land. Further, if in spite of its favoured position, a building-plot department made unsuitable purchases of which it could not dispose, there would be a temptation for the Town Council to insist upon the other departments using these unsaleable sites to meet requirements for which they were not well adapted, merely in order to relieve the building-plot department of its burden. The prevalence of either of these abuses could not be easily detected, unless they were practised on such a large scale as to become notorious. The ease and frequency with which abuses can occur, and the speculative character of a business which deals in building plots, however well supplied with information the management may be, appear completely to outweigh the advantages which may arise from the municipalisation of such a business. id) Another class of municipal undertaking associated with land is the provision of allotments, and in some cases even of small holdings. Individual members of the working class frequently find it very difficult, if not impossible, to secure the use of small plots of land which they can use as vegetable gardens, as many landlords do not care about subdividing their fields for this purpose. One way to meet this difficulty is for the various people seeking allot- ments to form an association which can then rent a field and sublet it in small plots to its members. If for some reason or other this arrangement cannot be carried out, and it is nevertheless desirable to provide people with oppor- II THE DEVELOPMENT OF MUNICIPAL TRADING 67 tunities of securing allotments, the local authority may- intervene, purchase or rent suitable land, and let it or sublet it as allotments. Provided the rents charged are such as to enable the schemes to pay their way, and the local authorities only act when there is a real demand for facilities which cannot be met by voluntary efforts, there does not appear to be any objection to municipal allotments, as it is undesirable to place difficulties in the way of men who are engaged in mines, or mills, or works of some kind, when in their spare time they are anxious to cultivate a small plot of land, which can hardly fail to be a healthy method of occupying their leisure. Such information as is available shows that a considerable number of local authorities in this country have provided allotments, either under the Small Holdings and Allotments Act, 1908, or under some earlier statute. In connection with several of these under- takings a loss appears to have been incurred,^ which is not desirable, as there is no adequate justification for it. {/) A good many towns possess estates of one kind and another which have not been acquired in connection with particular reproductive or unproductive undertakings. In Germany, local authorities often own large tracts of forest and agricultural land either within or without the municipal boundaries. In many cases the property has belonged to the community as such from time immemorial. The forests are generally administered directly by the local authorities, but the arable land is rented to farmers. In the United Kingdom, the number of local authorities owning revenue- producing estates, which have not been acquired for any special purpose, is comparatively small. Amongst these Liverpool and Doncaster may be mentioned as being in very favourable positions. In the latter town the famous race-course is situated on the Corporation property, and is managed by the local authority, much to the financial advantage of that body. Once towns own estates which have not been acquired for any special purpose, it is the duty of the local authorities to manage the estates so that the general public may derive the maximum benefits ; whether this can best be achieved by letting the property, ^ See Municipal Year Book, 191 1, pp. 821-827. 68 MUNICIPAL TRADING chap. or by utilising it directly in some way, will call for con- sideration in each individual case. S 1 1. There are various municipal trading enterprises relating to the supply of necessities which can be grouped together for consideration. Those, such as water, that are subject to clearly marked monopolistic tendencies have been previously discussed. Here we are concerned only with neces- sities sold under competitive conditions, such as bread, milk and meat, {a) The question of a municipal bread supply may be dealt with first, as this has probably received more attention in theory and practice than the supply of any other article falling within this group. The arguments in favour of municipal bakeries are based principally upon grounds of public health, and to a less extent upon the price charged for bread and upon the conditions of the workers in the bread industry. Each argument must be considered separately ; the first one turns on the fact that many private bakehouses leave much to be desired in the matter of the sanitary conditions under which the work is done, and also as to the methods of doing the work. In many cases bakehouses are situated in cellars ; the water supply may be insufficient, the ventilation quite inadequate ; such sanitary conveniences as exist are often in too close proximity to the bakehouse ; the whole place is frequently dirty and damp. It is hardly possible that bread produced under these conditions should be pure ; it may easily be contaminated and become a source of considerable danger to the consumer. The remedy clearly lies in the strict enforcement of proper regulations, which would prohibit the use of any premises as bakehouses, which did not comply with such minimum sanitary conditions as it was thought desirable to lay down. The conditions prevailing in many industries were altered during the nineteenth century by Factory and Workshop Acts, and there is no reason why bakehouses should not be brought under closer control. Experience has generally shown that in all industries, the state of affairs in small workshops and factories is much worse than in large ones, and the effect of strict regulation would doubtless be to make it impossible for a large number of small producers to continue in business, II THE DEVELOPMENT OF MUNICIPAL TRADING 69 and thus lead to the concentration of the bread industry in fewer hands. Such a movement would hardly be popular, but it would be likely not merely to bring about better sanitary conditions in bakehouses, but also the more extended use of modern kneading machinery and steam ovens, and a reduction in the cost of production. This points to a solution of the objection to the present system of organising the bread supply, viz., that the prices charged are often too high. A large number of small master bakers, each with only a very limited sale, are compelled to charge fairly high prices in view of the considerable fixed expenses which they have to meet ; they are also frequently unable to avail themselves of the most modern methods of produc- tion, which involve considerable capital outlay, and which are suited for comparatively large bakehouses only. Stricter sanitary regulations concerning bakehouses would be practically certain to lead to production on a larger scale. One result of this might be to enable the limited number of large baking establishments to come to an understanding with a view to keeping up prices. Against such a con- tingency the general public would appear to have three safeguards. In the first place, if the price fixed was unduly high it is hardly conceivable that outside competition would not spring up, as there is no sort of natural or legal monopoly about the bread supply. In the second place, the fact that people can bake at home, and actually do so in many parts of the country, should act as a check on prices. In the third place, it is possible to organise a co-operative bakery, which might be run independently, or as a department of a general co-operative stores. Perhaps the former would be preferable, as being likely to excite less opposition and to attract more members. The success of the great co-operative bakeries in Belgium, not un- commonly two in one town, the one organised by the Socialists and the other by the Catholic party, is worthy of mention in this connection. The increase in the scale of production and the introduc- tion of co-operative bakeries, besides leading to the establish- ment of sanitary and healthy conditions in bakehouses, to the introduction of the most modern scientific methods of 70 MUNICIPAL TRADING chap. bread making, and to reductions in prices, should bring about an improvement in the position of the workers engaged in this industry.^ Co-operative Societies generally make a point of giving fair treatment to their workers, and in large private bakeries, where the organisation of the journeymen would be much easier than it is at present in a large number of small ones, reasonable terms of employ- ment could doubtless be secured by organised efforts if the employers were unwilling to concede such terms voluntarily. That the present organisation of the bread industry is unsatisfactory in many places may be admitted, but this is quite different from accepting the municipalisation of the bread supply as the remedy. The industry is one which calls for proper regulation by the central government, and not for State management, which can be justified only under special circumstances which do not exist in this case. There is no reason to think that the best results will not be achieved by competitive undertakings operating under suit- able conditions ; and the proper function of the State in the matter is merely to see that such conditions are observed. The country in which the principal experiments relating to the municipalisation of bread have been made is Italy. As early as the "eighties" of last century, some communal bakeries were established in rural districts to help to fight an illness known as pellagra which was caused by the popula- tion living too largely upon a maize diet. As potatoes do not flourish in Italy and rye is almost unknown, the only remedy was to substitute wheat bread for maize. Wheat bread was either a high-priced luxury, or entirely unknown, in the threatened districts. On medical grounds it was necessary that a plentiful supply at reasonable prices should be available. Under these circumstances the local authorities would presumably have been justified in supplying wheat bread at a loss, and whether the undertakings were subsidised * For an unfavourable account con- phlet are correct, it is impossible to say cerning labour and other conditions how far they are typical or exceptional, in bakehouses in this country, see an The Italian conditions are descril)ed I.L.P. pamphlet, " A Municipal Bread in G. Michels-Lindner, " Geschichte Supply," by T. H. Griffen, three years der modernen Gemeindebetriebe in organiser to the Amalgamated Union Italien," Schriften des Vereins fiir of Bakers and Confectioners. Assum- Socialpolitik, vol. 130, part i. pp. ing the statements made in the pam- 54-71. II THE DEVELOPMENT OF MUNICIPAL TRADING ji or were conducted so as to be just self-supporting, they could not be regarded as trading enterprises. The first of these com- munal bakeries was established in Pasian di Prato in 1884.^ Amongst the municipal bakeries which have been established as trading enterprises, that which existed at Catania in Sicily from 1902 to 1906 was probably the largest, some 100,000 lbs. of bread being baked daily. The local authority had made unsuccessful attempts to regulate the price of bread, which was said to be unreasonably high ; but the immediate cause which led to the undertaking was a general strike pro- claimed by the journeymen bakers. There was no previous investigation of any kind, nor any public agitation in favour of municipal bakehouses, the whole thing was started on the spur of the moment. To reduce the opposition of the private bakers many of these were appointed distributing agents ; further, far more journeymen bakers were employed than the size of the undertaking justified, and both these policies im- posed a heavy financial strain on the enterprise. There were also minor mistakes in the management which tended to have a similar effect.^ The undertaking was given up in August 1906 as the result of an unfavourable report by a Government Commission.^ The largest existing municipal bread undertaking in Italy is that at Palermo. This produces some 45,000 lbs. of bread daily, which represents about one-sixth of the local consumption. The enterprise was established as part of a general policy to break down a " ring " in the local milling industry. In March 1903, it was decided to purchase flour outside the district and to bake some bread. Later a corn mill was rented by the local authority. Although the undertaking is on such a considerable scale, modern methods are employed to a small extent only ; of the twenty ovens, only one is a modern steam oven, whilst in two of the three bakehouses the kneading is done by hand.'* Other towns which have municipal bakeries managed by the local authori- ties in competition with private enterprise are Ravenna, Livorno (Leghorn) and Udine.'^ 1 See Michels-Lindner, loc. cit. pp. ^ Michels-Lindner, loc, cit. pp. 74- 44-52. 93- 2 The buildings were inadequate and * Ibid. pp. 100-104. there was a want of proper supervision. ° Ibid. p. 99. 72 MUNICIPAL TRADING chap. Conditions are so different in Italy and the United Kingdom, both in respect of the wealth of the two countries and of the stages of industrial development which they have reached, that a policy which must be condemned in the latter country may conceivably be justifiable in the former. There, if the force of competition is inadequate to secure reasonable prices being charged, and the mere fact that the old system by which municipalities fixed the price of bread ^ has not been abolished, although it can no longer always be successfully applied, points to this being the case, and if people are too poor to establish co-operative bakeries, some more definite municipal intervention may be necessary. Possibly the best solution would be for the local authorities to help in organising co-operative bakeries, as has actually occurred in some places in Italy." But if for some reason this is not feasible, the only solution may be to establish a model municipal bakery, but under any circumstances it should not be done except as a last resource. {U) The same demand for municipalisation does not appear to exist in the meat trade as in the bread trade ; possibly because the poorer classes of the population are not so largely concerned. Actually the need for proper control is quite as great as, if not greater than, in any other industry engaged in the supply of articles of food. The control pro- vided should relate to the sanitary conditions of the slaughter- house used, to the health of the animals slaughtered, and to the soundness of meat offered for sale. All of these require- ments can best be secured by the compulsory use of municipal slaughter-houses,^ erected and maintained on the latest sanitary principles, in conjunction with a rigorous 1 Town Councils are entitled to fix able price for bread. The taxe qfficielle the price of bread by establishing a is an official price which may not be cahniere. This may be compared with exceeded for the specified qualities of the policy adopted by many French bread. No prices are fixed for the municipalities of fixing each week a finer qualities of bread {pain de luxe), taxe officieuse du pain and in a few The notices on which the prices are cases still a taxe officielle du pain. printed each week have to be displayed Each is based upon the current price in a conspicuous position in every of corn, the calculations being made baker's shop. according to a fixed rule which allows ^ Michels-Lindner, loc. cit. p. 96. for the cost of baking and for the ^ Butchers slaughter their own bakers' profits. The taxe offi-cietise is animals, paying a fee to the muni- merely semi-official and indicates to cipality for the use of the slaughter- purchasers what constitutes a reason- house. II THE DEVELOPMENT OF MUNICIPAL TRADING 73 inspection, which is really only possible if all the slaughter- ing is done in comparatively few places. In Germany and France a great deal more has been done in this matter than in this country, where there is considerable scope for improve- ment. It is in Germany too, that the nearest approach to municipal trading in meat exists. In nearly every German town there is a public stall {Freibank ^) for the sale of inferior qualities of meat. It is organised and managed by the local authority which sells the meat on behalf of private individuals, the expenses being covered by the deduction of a small commission from the receipts realised by the sales. The meat is sold in small quantities only, and the amount which any one household can buy on one day is limited. Restaurants and boarding-houses are generally not allowed to buy at the public stall, and meat dealers not under any circumstances.^ Towns sometimes arrange for the sale of high-grade meat at the public stalls in order to break down the monopoly of the gilds of butchers, when these are accused of maintaining the retail prices of meat at an unduly high level above the wholesale prices. Two cases in which this policy was successfully adopted occurred during 1908 in Landsberg a. L. and in Diedenhofen. In the former town the local authority sold the high-grade meat on commission, in the same way as is done with the inferior qualities. In the latter town the local authority slaughtered pigs and sold the meat on its own account. In both cases the special facilities offered for the retail sale of high-grade meat were with- drawn, after the gild of butchers had undertaken adequately to reduce their prices.^ In some cases the mere threat by the local authority to permit the sale of high-class meat at the public stalls, or to subsidise some private butchers in order to force down prices to a reasonable level, is sufficient to secure the desired object, as happened, for example, in Bonn in 1908.^ Another country in which special circumstances have sometimes arisen that have led local authorities to under- take the supply of meat is Italy. There the attempts of 1 Literally this is a selling place - Kommunales Jahrbuch, 1908, pp. free from the municipal gild regulations 46, 47. (?>3.nAtxs,H'andwdr(erbuchderdetitschett ^ Ibid. pp. 55, 56. Sprache). •* Ibid. pp. 54, 55. 74 MUNICIPAL TRADING chap. municipalities to regulate the meat trade either in respect of prices or otherwise are sometimes strenuously opposed by the butchers, who even close their shops for some days as a protest. This occurred, for example, in Naples in August 1908, on account of a new by-law that the meat of any animal, an organ of which veterinary inspection had shown to be infected, might be offered for sale only in a cooked condition.^ During these butchers' strikes the local authorities sometimes supply meat. Thus in Venice, in 1906, six municipal butchers' shops were opened during a strike. One has since been continued permanently, not with the idea of lowering prices, but of improving the quality of the meat sold at the usual prices.^ The difficulties in the local meat trades both in Germany and in Italy appear to arise from a want of free competition. In Germany, at least, old gild organisations are still in existence, which once doubtless served a useful purpose, but which now are quite as likely to prove a danger as a safe- guard to the general body of consumers. Under modern conditions, to compel all dealers in a trade to meet together for certain purposes, is almost to invite the formation of price agreements, which it will be very difficult to check if it is in the power of the dealers' association to restrict entries to the trade. The direct sale of meat by a local authority may prove efficacious on occasions, but the real remedy from unreasonably high prices undoubtedly lies in securing perfectly free competition, so that any one who wishes may trade as a butcher, provided, of course, he complies with such slaughter-house and veterinary regulations as exist. The public meat stalls in German towns can hardly be regarded as municipal trading ; they really constitute part of the policy of control, for, by compelling certain inferior qualities of meat to be sold at specified places, the general public which buys at ordinary butchers' shops is protected from possible deception. At the same time poor people who are anxious to secure meat cheaply are given a chance of doing so. Such cases of municipal trading in meat as have existed in recent times appear to have represented 1 Michels - Lindner, " Geschichte Socialpolitik, vol. 130, part ii. p. der modernen Gemeindebetriebe in 130. Italian," Schriften des Vereins fiir ^ Ibid. p. 131. II THE DEVELOPMENT OF MUNICIPAL TRADING 75 abnormal efforts on the part of the local authorities to deal with more or less special circumstances, and as such may- have been justified ; as a general thing the butchering business is quite unsuitable for municipal management ; it should be organised and conducted by private enterprise, subject to proper sanitary and veterinary control by the central or local authorities. Amongst the latest suggestions in favour of a municipal supply of bread and meat, was that formulated by the French government in the autumn of 191 1, to mitigate, if possible, the recent increases in the cost of living.^ The proposals were embodied in a bill, which provided that municipalities might either lend money for the establishment of local co-operative butchers' and bakers' shops, or establish such shops themselves. In this latter case, the funds would be advanced to the manager or tenant installed by the local authority. These co-operative and municipal shops were to be subject to all the ordinary State, municipal and trade imposts. Interest at the rate of 4 per cent per annum was to be charged on the money lent, which in no case was to exceed half the original capital expenditure, together with half the trading capital of any shop. The number of these shops was not to exceed one for every five thousand inhabitants. The proposals were received with much hostile criticism, and there does not appear to be any great prospect of the bill being passed into law. ic) A somewhat peculiar case is that of a municipal retail supply of ice. In many countries during the hot summer months it is almost impossible to keep meat, fish, butter, milk, etc., without a plentiful use of ice, which for all practical purposes must be regarded as a necessity. If the weather is sufficiently cold in winter to allow of blocks of ice being cut from ponds, this ice can be stored in ice cellars and will be available for use in summer. Where however, very little, if any, natural ice is available, it will be necessary to rely upon artificial ice, and there is a danger that the industry may pass into the hands of speculators, and that the charges will be exorbitant. The problem will then be how to secure effective competition. The simplest arrange- 1 See The Times , Nov. 2 and 3, 1911. 76 MUNICIPAL TRADING chap. merit would be to organise a co-operative ice supply company, which would either import ice, or, if necessary, manufacture it and then distribute it. Very possibly the mere threat to organise such an undertaking would suffice to bring about the desired reduction of prices. If the consumers were too poor to find the necessary capital, or if the municipality already possessed an ice manufactory in connection with its market enterprises, the local authority might be desirous of establishing a retail ice undertaking. Under the latter circumstances where the retail sale of ice could be commenced, and, if it were so desired, discontinued at any time without involving much expense, less objection could be taken to such a proceeding to combat unreasonably high prices than in the former case, particularly if it involved the erection of an ice factory, which might easily prove to be a losing concern were it met by determined competition from the private undertakings that it was attempting to displace. Under any circumstances it would be an encroach- ment upon the field of competitive industry, for which adequate justification could hardly be found. In Italy various municipalities have undertaken the supply of ice. Some have established ice cellars in which ice collected in winter is stored for distribution at moderate prices in summer ; others have established artificial ice factories, the largest undertaking of the kind being that at Reggio Emilia, which was erected in 1902 at a cost of some .^8000. Ice is sold wholesale at 2.50 lire per 100 kilograms, and retail at 5 centesimi per kilogram. There is a cold-storage factory warehouse and a slaughter-house in connection with the ice factory.^ id) Reference has already been made to the existence of municipal milk depots, established to supply sterilised milk for use by babies,^ with the object of minimising as far as possible the high death-rates amongst infants. As sterilised milk is somewhat costly to produce, its sale at remunerative prices would in many cases fail to achieve the object for which it is supplied, because poor people cannot afford to buy it ; consequently these undertakings are deliberately 1 Michels- Lindner, "Geschichte Socialpolitik, vol. 130, part ii. pp. 132- der modernen Gemeindebetriebe in 136. Italien," Schriften des Ve}-eins fiir ^ See p. 3, above. II THE DEVELOPMENT OF MUNICIPAL TRADING 77 subsidised out of the rates, and are not trading enterprises at all. Sometimes it is suggested that local authorities should undertake the general milk supply on the grounds that milk is a necessity, and that it closely affects the public health. The degree to which an article is a necessity cannot be accepted as a criterion of the desirability of municipalising its supply, although it must be considered when a question of introducing municipal management arises. Careful inquiry may show on the one hand, that it is justifiable for a local authority to supply an article which is clearly not a necessity, for example, electric current, and on the other hand, that it is very undesirable that it should supply an absolute necessity such as clothing. The fact that the purity of the milk supply is intimately related to the public health is a ground, not for municipalising the industry, but for controlling and regulating it. At the present time milk is subject to a certain amount of inspec- tion, but whether this inspection is adequate is another question. It is comparatively easy to check adulteration, the difficulty is to check contamination which may arise not merely at the farm,^ or in the course of transit between the farm and the dealer's, or whilst it is at the dealer's or during the time it is being delivered, but also in the home of the consumer. A good deal can be done by municipal regulations, but it is difficult to enforce these when much of the milk is not produced in the immediate neighbourhood of the towns where it is consumed, as is generally the case in big cities.^ A much more comprehensive inspection than that which even the most energetic local authority can maintain within its own area is required, if satisfactory results are to be secured. At present every local authority in this country is charged with the supervision of milk production in its own district, but some naturally carry out 1 The first question is whether the vol. 128, p. 223. cow is healthy. Then there remains 2 Much interesting information con- to be considered that the milk of a cerning the sources of the Manchester healthy cow may be affected by dirt milk supply is contained in a paper on the udder, on the hands of the read before the Manchester Statistical milkers, or on the utensils, and by the Society in November 1909 by Pro- dust and air of the stall. See Spiegel, fessor Delepine. See Transactions "Kommunale Milch vers or gung," of the Manchester Statistical Society^ Schriften des Vercins fUr Socialpolitik, Session 1909-10, pp. 1-50. 78 MUNICIPAL TRADING chap. their duties less efficiently than others, and many towns have secured powers to inspect cowsheds, etc., outside their own areas, in those cases where the towns derive part of their supplies from outside areas. Even under these circumstances, unless a town which obtains a considerable part of its milk supplies from a distance maintains a large staff of inspectors, it will have to place considerable reliance upon the efforts of the various local sanitary authorities. A close co-operation between the various local authorities is absolutely necessary if adequate inspection is to be main- tained. If Rural District Councils, on which the farming interests are presumably strongly represented, prove lax in the administration of the law, powers of inspection should be conferred on the County Councils either instead of, or in addition to, those possessed by Rural Councils. Even where the friendly assistance of the farmers and others concerned can be secured, it is impossible to be absolutely sure of the purity of any milk offered for sale, as bacteriological impurities can be ascertained only after a lengthy investiga- tion, which cannot be completed until long after the milk is consumed.^ One point must not be forgotten in considering the efforts which should be made to increase the purity of the milk. Some, at least, of the improvements which might be made could not fail to prove expensive, in consequence of which the price of milk would undoubtedly rise. One reason why Municipal Milk Depots cannot supply pure fresh milk for infants, instead of sterilised milk, is that the former would prove even more expensive than the latter, which is already costly to produce." A municipal fresh- milk undertaking could give no better guarantee of purity than well-managed, carefully controlled private enterprises, and the need for inspection at every stage in the production would be practically no less if the local authority were the dealer instead of private firms, as the suggestion that the municipal milk supply should be entirely from municipal model dairy farms, and not purchased from farmers, cannot be contemplated for a moment. It would involve a complete disorganisation of the farming industry of the 1 Spiegel, loc. cit. p. 227. 2 /^^^^ p_ 228. II THE DEVELOPMENT OF MUNICIPAL TRADING 79 country, and if a very high standard of purity were pre- scribed there would be a large increase in the cost of milk, which might easily outweigh the advantages of the greater purity. This same standard, if desired, could be obtained on a private model dairy farm, but it would probably be impos- sible to sell the milk at a remunerative price. No case which is at all sound can be made out for the municipalisation of the milk supply ; the proper function of the State in rela- tion to the industry is to enforce an adequate inspection and supervision at every stage of production, so as to secure that all milk sold shall reach a reasonable standard of purity. ^12. The next class of municipal trading undertakings are those established to provide credit facilities, primarily for people in small circumstances. These undertakings take the form of savings banks, of ordinary banks, or of pawnshops. Local authorities also lend money on mortgage, either in- directly through their savings bank, or directly through municipal mortgage departments. British local authorities do not appear to engage in any of these enterprises, but on the continent municipal credit institutions of various kinds are quite common, {a) In Germany there are a very large number of municipal savings banks, due probably in a con- siderable measure to the fact that there is no State institution of the kind. Many of them were established in the first half of the nineteenth century, at a time when facilities for safely disposing of small sums hardly existed. Of the 1508 savings banks which existed in Prussia in 1901, 686 were municipal and 185 were private, the bulk of the remainder being so-called " rural " and " district " savings banks.^ In Saxony all savings banks are municipal institu- tions.^ Some indication of the size of these institutions can be gathered from the table on the next page, in which the number of depositors and the amount due to depositors in certain municipal savings banks are given. The municipal savings banks are all managed on the principle that they shall be self-supporting, but not profit- making institutions. Nevertheless considerable diversity ' Second Series of Memoranda, British and Foreign Trade and Indus- Statistical Tables and Charts prepared trial Conditions, p. 182. in the Board of Trade with reference to ^ /jj/a'. p. 183. 8o MUNICIPAL TRADING Table showing the Number of Depositors and the Amount due to Depositors in certain Municipal Savings Banks in Germany.^ Year in which Number of Amount due to End of Year Town. Savings Bank Depositors. Depositors. to which was founded. Figures relate. Marks. Diisseldorf . 1825 86,782 61,359,084 1907 Freiburg i/B. 1826 28,751 31,888,005 1908 Halle a/S. . 1857 85,212 46,825,817 1907 Leipzig 1826 198,284 70,573,759 1907 Magdeburg . 1823 170,558 91,900,000 1907 Mannheim 1822 37,826 26,893,186 1906 Munich 1824 115,566 56,973,994 1906 Remscheid . 1840 18,131 17,180,000 1908 exists in the rate of interest paid on deposits. The rates most commonly paid appear to vary from 3 to 4 per cent. Thus, for example, in 1908 the rate of interest paid by savings banks was 3 per cent in Berlin, Konigsberg and Magdeburg, 3^ per cent in Frankfort-on-the-Main, Diisseldorf and Hanover, and 4 per cent in Duisburg, Essen and Dortmund.'^ The results of an investigation concerning 535 public savings banks in Germany, with deposits exceeding ;^200,ooo,ooo in 1908, are summarised in the following table :— ' Number of Savings Banks. Rate of Interest on Deposits. Amount due to Depositors. 97 24 95 137 34 148 Per cent. 3 3i 3i 3i 3| 4 Marks. 886,000,000 188,000,000 593,000,000 973,000,000 266,000,000 1,205,000,000 535 4,111,000,000 ^ Compiled from the Monographs relating to these eight towns, published in the Schriften des Vereins fiir Social- politik, details of which will be found in Appendix A. 2 Silbergleit, " Preussens Stadte," quoted in Kommunales Jahrbuch, 1909, P- 536. 3 The figures, from a paper by H. Reusch in Die Sparkasse, No. 655, 1909, are quoted in the Kommunales Jahrbuch, 1909, p. 536. II THE DEVELOPMENT OF MUNICIPAL TRADING 8i The explanation of the variations in the rates of interest appears to lie in the different methods adopted of investing the funds of the banks : as the proportion invested in mortgage increases, the rate of interest on deposits rises ; on the other hand, the more of the funds that are invested in gilt-edged securities, the lower the rate of interest on deposits falls. To show how differently the savings banks funds are used, two illustrations relating to large Prussian municipal savings banks may be given : at Altona 95 per cent of all the investments held are mortgages, in Frankfort- on-the-Oder only 21^ per cent.^ These are the two extreme cases so far as the 109 Prussian towns with a population of over 25,000 inhabitants are concerned. In addition to investing some of their funds in gilt- edged securities and in making loans to local authorities,"^ practically all the municipal savings banks lend money on the security of land and buildings, generally on those situated within the town boundaries. Not infrequently they appear to assist in the erection of small dwellings. Some- times, with this object in view, the municipalities co-operate with their savings banks, the latter lending, say, up to half the value of the property on the first mortgage, and the former lending a further sum on a second mortgage. Thus in Crefeld, if the value of the property does not exceed ;^2000, the savings bank will lend 50 per cent of the value on first mortgage, and the town will lend a further sum on second mortgage at 4^ per cent, up to 75 per cent of the total value. Beginning not later than one year after the occupation of the new building, the borrower must pay at least a further 2 per cent on the loan to provide for its repayment.^ In Magdeburg, to facilitate the erection of ^ Kommunales Jahrbuch, 1909, p. own savings banks, 0.51 per cent by 536. other savings banks, and 86.69 per 2 An investigation concerning the cent by private banks (Dr. Otto Most, loans effected by the larger German Mitteilungen der Zetitralstelle des towns during the years 1879 to 1907 deutschen Stddtetages,'iir. 13/14, 1908, showed that 25.88 per cent of the total quoted in the Kommunales Jahrbuch, amount was lent by their own savings 1909, p. 535). banks, 8.47 per cent by other savings ^ Kommunales Jahrbuch, 1910, p. banks, and only 6.04 per cent by 586. That facilities are granted on private banks. During the same period property with a value as high as ;i^2000 6.21 per cent of the total stock issued is due to the fact that the erection of by these towns was taken over by their working-class flats is contemplated. G 82 MUNICIPAL TRADING chap. small dwellings, the town will lend on second mortgage up to 70 per cent of the total value of the property, after taking into account any advance of the savings bank, which is prepared to lend up to 50 per cent of the value on first mortgage.^ {U) In a few cases a local authority lends money on house property quite independently of the savings bank. In Dusseldorf there is a Municipal Mortgage Department which was established in 1900. The industrial development of the town was proceeding very rapidly, yet few dwelling- houses were being erected, apparently because it was not sufficiently remunerative. To encourage house building, the municipality decided to lend its credit to private builders and to make loans on mortgage on favourable terms. Ordinary rules of safety are observed, and as a general thing the loans made may not exceed three-fifths of the value of the property. In the case of small dwellings the Department may lend up to two-thirds of the value. To facilitate building, the town makes loans on houses which are about to be erected, whereas most societies will not lend until the houses are finished.^ A scheme was inaugurated in June 1 907 by the town of Li^ge, by which money can be lent to workmen to enable them to erect houses.^ No workman can borrow more than ;^26o. The rate of interest is 3 per cent, and an additional \ per cent has to be paid to provide a cumulative sinking fund by means of which the debt will be repaid after 66 years. The borrower must also insure his life for not less than £^Q). The town does not require the borrower to provide anything ; even the site and the stamp duty and law charges in connection with the transfer of the property may be paid for out of the loan. The municipality takes a first mortgage on the property, but this is certainly not an adequate security in view of the fact that it has lent more than the full value of the house. The object of the scheme is to help people who are too poor to avail themselves of the assistance of the state-aided building 1 Konwiunales Jahrbuch, '^. 596. ^ Report of an Enquiry by the Board 2 O. Most, "Die Gemeindebetriebe of Trade into Working- Class Rents, der Stadt Dusseldorf," Schriften des Housing and Retail Prices in the Vereins fUr Socialpolitik, vol. 129, Principal Industrial Towns of Bel- part ii. pp. 103-111. gium, p. 105. II THE DEVELOPMENT OF MUNICIPAL TRADING 83 societies, but in practice the people who are availing them- selves of it are quite young skilled artisans. {c) Municipal banks, as distinct from savings banks, are very exceptional ; two such are those which exist in Breslau and Chemnitz. The former — Die Stadtische Bank zu Breslau — has a capital of £\ 50,000 and the latter — Die Chemnitzer Stadtbank — has a capital of i^2 5,000. The object of these banks is described as the encouragement of commerce and trade, the acceptance of deposits, and the transaction of the financial business of the municipalities. Both banks are conducted on a profit-making basis. The average annual net surplus during the five years 1902-6 was ^11,000 in Breslau, or 'j\ per cent on the capital invested, and ;^6ooo in Chemnitz, or 24 per cent on the capital invested.^ {d) Municipal pawnshops are very common on the Continent of Europe. In some countries private pawnshops exist alongside of the public ones, but in others all pawn- broking establishments are public institutions, being con- ducted either by the local or the central authorities. Some of the public pawnshops are of considerable antiquity, dating in the case of Italy from the end of the fifteenth century. In France the first mont de piete was established in the sixteenth century. In this country all pawnshops are conducted entirely by private enterprise. Some years ago the London County Council considered the advisability of establishing pawnshops in London, but nothing came of it. ^13. In judging these various types of municipal credit institutions there can be no hesitation in describing a general banking business as quite unsuitable for management by local authorities. As to the rest, it is necessary to bear in mind the conditions under which they were inaugurated, the objects for which they were established, and the principles on which they are conducted. The primary object of a savings bank is to provide a means of placing small sums in absolute security, whence they can be withdrawn at any time when required. The fact that savings banks pay interest on deposits causes some people to deposit money with them as an investment, but in so far as these institutions are used for this purpose, they are only fulfilling a secondary function. 1 Kommunales Jahrbuch, 1908, pp. 367, 368. 84 MUNICIPAL TRADING chap. They pay interest because in the course of their business they earn profits which, after the payment of all expenses and the accumulation of a reserve fund, must be distributed amongst the depositors, if the undertakings are not to be more than self-supporting. Savings banks must do some- thing with their deposits ; to hoard them in vaults would nowadays be regarded as an unsound economic policy to adopt ; a means of investing the funds must be found which is absolutely safe so far as it can be. To secure this object the State has frequently established savings banks and has given the depositors its guarantee that they will be repaid in full whenever they desire it. This is, of course, the posi- tion with regard to the Post Office Savings Bank in the United Kingdom. If the central government does not undertake to provide facilities for saving, the question arises whether local authorities are justified in doing so, and if so, how they are to employ the funds accumulated. As a general principle, it seems undesirable that a savings bank should be run for profit, as the risks are thereby immediately increased. Where private enterprises are established pur- posely to provide facilities for the accumulation of small sums, they are generally of a semi-public type, such as the various trustee savings banks in this country. Of quite recent years some of the large English joint-stock banks have opened savings departments that enjoy the security afforded by the large resources of big institutions conducting a conservative banking business, but these departments have no bearing on problems, the solution of which lies abroad and in the past. In Germany there were no State savings banks, so that if private citizens of suitable standing were not forthcoming to organise an institution which would both impress the general public with its stability, and at the same time afford every indication of being conducted on absolutely sound lines, local authorities were practically forced into establishing savings banks, as the disastrous results attending the collapse of institutions in which people of small means have placed their savings, make the provision of some under- taking, in which little sums can be allowed to accumulate in safety, most desirable. The most natural way for a municipal savings bank to II THE DEVELOPMENT OF MUNICIPAL TRADING 85 invest its funds in order to incur a minimum risk, would be in gilt-edged securities, and the interest on deposits would be based upon the yield obtained from the sums invested. The payment of the interest would doubtless be absolutely safe, but fluctuations in the market value of the securities might easily occur. A reserve fund would, of course, be pro- vided out of revenue to meet normal falls in market value, but a great depreciation in gilt-edged securities, such as has occurred during the last decade, would be likely to place many savings banks in a very serious predicament. For example, in 1908, the fall in the market value of the gilt- edged securities held by German municipal savings banks was equivalent to 4^ per cent of the cost price of the securities.^ In other years recently the fall must have been considerable, if not as great as that in 1908. One thing which makes the position of the German municipal savings banks less serious than it otherwise would be, is the fact that part of their funds are employed in other ways, viz., as loans on mortgage, and as temporary loans to local authorities. Although money invested in these loans cannot be realised as easily as that invested in gilt-edged securities, and re- quires the exercise of more supervision, it possesses the great advantage of not being subject to capital depreciation, and if proper caution is exercised, little or no capital losses should be incurred in connection with foreclosure of mortgages. Another point in favour of loans to local authorities and on mortgages is, that a higher rate of interest is earned, but this is not of the same importance, as it has already been mentioned that the primary object of a savings bank is to make absolutely sure that it can repay all its deposits when required, and not to pay a high rate of interest on deposits. If this primary object can be better achieved, as it apparently can, by spreading the investments over gilt-edged securities, loans to local authorities, and loans on mortgage, than by restricting the investments entirely to gilt-edged securities, municipal savings banks must be held to be justified in acting accordingly, provided that too big a proportion of the assets are not locked up in investments which cannot be realised in a reasonable period of time. The fact that a 1 Ko7nmunales Jahrbuch, iQOQi P- 535- 86 MUNICIPAL TRADING chap. week's notice has to be given before anything exceeding a very modest sum can be withdrawn from a savings bank, and often a much longer notice where large sums are con- cerned, considerably reduces the proportion of cash and quite easily realisable assets, which need be held by these institu- tions, and makes their position different from that of a bank, which has to be prepared to meet large payments on demand. That a municipal savings bank, which has been established to provide a safe place for the accumulation of small sums, in the absence of any other reliable institution, may be justified in investing some of its funds in mortgage and in loans to local authorities, is quite different from establishing a savings bank in order to facilitate the raising of loans by local authorities and the advancing of money on mortgage with a view to encouraging building operations in a town. On the one hand, a savings bank formed under such circum- stances, as a subsidiary department of a kind of municipal building society undertaking, could never inspire the con- fidence of the general public, and on the other hand, if money is to be provided by a local authority to assist build- ing operations, quite apart from whether such action is justifiable or not, it should be kept entirely separate from all other funds controlled directly or indirectly by the local authority, and the last thing to do is to jeopardise the safety of the savings bank by involving it in building speculations. Such loans as a genuine savings bank makes on mortgage should be selected purely from a business point of view, the excellence of the security offered being the all-important consideration. The investment policy of such an institution should be determined solely by the desire for complete safety, and no effort to effect reforms should be allowed to influence the management of the bank in utilising the funds. If working-class house property affords as good security as other kinds of property, a reasonable proportion of the mortgages chosen by the bank may fairly be in respect of such land and buildings ; but if mortgages on such property are not absolutely first class, they should be left entirely alone, and on no account should a savings bank offer pre- ferential terms in favour of mortgages on working-class property ; it has one duty to perform, namely, to serve its ir THE DEVELOPMENT OF MUNICIPAL TRADING 87 depositors to the best of its ability ; to act in a manner prejudicial to their interests by advancing money on second- rate security, or on unduly advantageous terms, must be regarded as a breach of trust. Although a municipal mortgage department is clearly an institution for providing credit facilities, it is also a method of dealing with the housing problem. In Liege the town desired to encourage workmen to build houses for themselves to occupy. There is more than one state-aided building society ^ in the town which offers the utmost facilities that are compatible with even moderate safety, and many workmen have availed themselves of the opportunity thus afforded them to erect houses. To invite unskilled workmen with low wages, whose employment in any particular place must be somewhat uncertain, to undertake the burden connected with the purchase of a house by instalments does not seem a desirable policy, and they appear to think so too, as experience is showing they are unwilling to avail themselves of the scheme. On the other hand, there can be no possible justification for assisting by a financially unsound scheme the young skilled artisans who are accepting the terms offered by the town. In Crefeld, Magdeburg and Dusseldorf the object of the municipalities is to assist private builders in erecting working-class dwellings by lending them money on more favourable terms than could be secured elsewhere. There is no intention on the part of these towns to lose money over these transactions, and there is no information to show to what extent the terms granted by the municipalities are more favourable than those which can be obtained from private credit institutions, so that it is difficult to judge how far building operations are likely to be stimulated. If these municipal mortgage departments really required adequate security for the loans granted, and if the rate of interest charged is sufficiently high, not merely to meet the expenses of the ^ Through the State savings bank societies in various Belgian towns will large sums of money are placed at be found in the Report of an Enquiry the disposal of the building societies by the Board of Trade into Working- at low rates of interest to enable them Class Rents, Housing and Retail Prices to extend the scope of their opera- in the Principal Industrial Towns of tions. Accounts of some of these Belgium. 88 MUNICIPAL TRADING chap. departments, including the sums required for the service of their debts, but to enable a reserve fund to be accumulated proportionate to the risks involved in accepting second mortgages, the treatment accorded cannot be very preferential, and is not likely to stimulate building to any considerable extent. If the departments are prepared to lose money, more building may be encouraged. In any case a certain number of working-class families, or a few private builders, or both these small groups, appear likely to obtain all the advantages associated with the municipal efforts. It is difficult to see that the community as a whole will be benefited at all. A German local authority which tackles the housing problem by means of a carefully managed mortgage department probably stands to incur less loss than an English local authority which takes action under Part III. of the Housing of the Working Classes Act, 1890. On the other hand, a mortgage department affords no information upon which better building or town-planning regulations can be based, which is at least one point that can be advanced in favour of a small building scheme under Part III. of the Housing Act. The opinion has already been expressed that the house-building business should be left to private enterprise, though a little experimental building by local authorities may, under some circumstances, be justifiable. For a municipal mortgage department it does not seem possible to find any justification. The present ownership of pawnshops appears to be largely a matter of history. In many countries of con- tinental Europe the making of small loans on the security of pledges has been regarded since the end of the Middle Ages as one of the recognised methods of dealing with destitution. The first pawnshops, the Italian mo7iti di pieta^ were established by charitable persons who wished to rescue the poor and needy from usurious money-lenders, and these semi-philanthropic institutions were gradually introduced into various countries, the State or the local authorities frequently finding the necessary funds. In England, the lombarding business, as it was then called, continued in private hands. From time to time Acts have been passed to regulate the management of pawnshops, and limits have II THE DEVELOPMENT OF MUNICIPAL TRADING 89 been placed upon the rate of interest which may be charged upon loans for less than £\o. In judging the rate of interest charged by pawnbrokers, it must be remembered that the whole of the working expenses, including cost of management and insurance against loss in connection with forfeited pledges, have to be paid out of the charges made for loans, before the return on the capital invested can be ascertained. In view of the competition which exists among pawnbrokers in this country, it is difficult to believe that the profits are very great. To municipalise the pawnbroking business after it has reached its present stage would imply not merely a change in the form of ownership, but a com- plete alteration in the attitude adopted by the public towards pawnbroking. It would receive sanction as an official method of dealing with destitution, a position it does not occupy at present. The whole problem of how to deal with destitution has been receiving much attention of late, and it would be very undesirable to contemplate instituting public pawnshops, without a very careful preliminary inquiry concerning the relationship of such a proceeding to the various other methods of reform which have been suggested. § 14. The development of the principal groups of municipal trading enterprises has now been considered, but reference must still be made to a few miscellaneous undertakings which cannot be made to fit into any general scheme of classification. One such undertaking is that of the mainten- ance of a service of steamboats on the Thames, which was done for a couple of years by the London County Council. The enterprise was authorised by the Thames River Steam- boat Service Act, 1904. A service was inaugurated in June 1905 between Greenwich and Hammersmith.^ Very heavy financial losses were incurred, and after a couple of years the undertaking was abandoned.^ There never appears to have been any justification for a local authority to provide a service of steamboats on the Thames. This should have been left to private enterprise if the demand for such service was sufficient to enable it to be conducted on a remunerative basis. If this was not possible, and ^ Parliamentary Return oti Muni- ^ Report on the London County cipal Trading {United Kingdom), part CounciPs Steamboats, by W. B. Peat iv. p. II. and F. W. Pixley, p. 16. 90 MUNICIPAL TRADING chap. consequently no steamers were run, that was no reason for the London County Council to step in and provide a service at a dead loss. Another case of municipal steamboats is that of the Birkenhead ferries undertaking, which maintains a service between Birkenhead and Liverpool across the mouth of the Mersey, which is about a mile wide at this part. The circumstances are quite different there from those in London. In the first place, this steamboat service affords one of the principal methods of communication between these two large towns,^ and is consequently in great demand. In the second place, the Woodside Ferry Company, which conducted the principal service before the local authority took it over, brought an action against their competitor, the Monks Ferry Company, and obtained a verdict that they had an ancient right of ferry which the defendants had infringed. In consequence of this decision the Monks Ferry was closed in 1839.^ The service constituted practically a monopoly, subject to no control. It closely affected the welfare of the inhabitants of Birkenhead, and it seems quite justifiable that the Commissioners for the Improvement of the Township of Birkenhead, the pre- decessors of the Corporation, should have purchased it in 1842 under a local Act. It is maintained on a more or less self-supporting basis. In 1902-3 there was a small sum available in relief of the rates. In 1903-4, 1904-5, and 1905-6 a small contribution had to be made to the undertaking from the rates to enable the proper sum to be set aside for depreciation.^ In a few cases in Germany municipalities engage in the publishing and printing business so far as newspapers and official gazettes are concerned.* There appear to be four towns which publish daily newspapers, viz., Elberfeld,^ 1 Its position was even more import- tute," in the Schriften des V'ereins fiir ant before the building of the Mersey Socialpolitik, vol. 128, pp. 347-374, Tunnel. and an article by him on the same 2 Parliamentary Return on Muni- &^h]Gct \nihG Mitteiltmgender Zentral- cipal Trading {United Kingdom), ^zx'i ^^^^^^ desdeutschen Stddtetages, pp. :: _ J- J 62-67, quoted in the Kommunales Jahrbtich, 1909, pp. 529, 530. Ibid. p. 170. 5 Tdglicher Anzeiger fiir Berg und * See J. Ehrler, "Gemeinde- Mark. Daily circulation at end of zeitungen, Druckereien und Plakatinsti- 1908, 8410. II THE DEVELOPMENT OF MUNICIPAL TRADING 91 Freiburg in B.,^ Dresden ^ and Zittau.^ In the two last cases the newspapers belong to foundations {Stiftungen) which are controlled by the municipalities. Amongst the towns which publish official gazettes are Berlin, Breslau and Stuttgart. If a town has a great many notices of one kind and another to make public every week, there may be some justification for the publication of an official gazette, though the same publicity will hardly be attained as through the medium of advertisements in an ordinary newspaper. On the other hand, an ordinary newspaper undertaking appears quite unsuitable for municipal management. A trading undertaking of quite a special character exists in Colchester, where the local authority owns oyster beds on which a considerable profit is made."* In Brighton there is a Municipal Aquarium, bought from a company in 1 90 1, which has proved to be an unremunerative under- taking.^ The County Borough of Blackpool owns a sea water-supply undertaking, of which the Corporation itself is the chief customer for street watering purposes.^ The city of Bradford owns and manages a conditioning house in which the true weight, length, and condition of articles of trade and commerce commonly used in the city, viz., wools, tops, noils and yarns, are ascertained and certified. The undertaking is conducted on a self-supporting basis.^ It is impossible to make any generalisations about miscellaneous municipal enterprises such as those mentioned by way of illustration. Each one must be judged on its merits, after a careful consideration of all the surrounding circumstances. S 15. In the course of this chapter all the reasons in favour of municipal trading which have been advanced from time to time by various writers have not been considered ; reference has practically been restricted to such as can be shown to have exercised a direct influence on the establish- ment of particular municipal trading enterprises. There are, 1 Freibitrger Tageblatt. Daily cir- mittee on Municipal Trading, 1900, culation at end of 1908, 6300. QQ. 3878, 3879, and Municipal Year 2 Dresdener Anzeiger. Daily cir- Book, 19 il, p. 57. culation in 1907, 32,700. ^ Parliamentary ReUirn on Muni- 3 Zittauer Nac/u'ichten und An- cipal Trading {^United Ringdotn), part zeiger. Daily circulation at end of iii. pp. 192-194. 1908, 5750. " Ibid, part ii. pp. 22S, 229. * Evidence before the Joint Com- ^ Ibid, part i. pp. 65-67. 92 MUNICIPAL TRADING chap. however, one or two reasons which may have led indirectly to an extension of municipal trading that call for mention. {a) Amongst such reasons is the desire to improve the conditions of labour by increasing the number of municipal employees as much as possible, the idea being that local authorities are better employers than private firms. This, to some extent at least, is probably true, but it raises the large question as to whether local authorities do not sometimes overpay their work-people and grant them unduly favourable conditions of employment. If higher wages and improved conditions lead to a more than proportionate, or even a proportionate, increase in the efficiency of the labour, the granting of the better terms is clearly a sound economic policy to adopt. The low productive power of labour which is underpaid, and which is compelled to work during unreasonably long hours, causes it to be more costly to employers than well-paid labour which is thoroughly efficient. It must, however, not be forgotten that it is just as much in the true interests of a private employer to pay adequate wages and to grant proper conditions, so as to secure the service of really efficient work-people, as it is in the case of a local authority. On the other hand, there is a danger that a municipality may raise wages and improve conditions beyond the point where any corresponding increase in the efficiency of the work-people can be looked for. Under these circumstances labour must be described as overpaid ; the influences which tend to bring about this state of affairs are discussed below in the chapter on the Labour Policies of Municipal Trades.^ {U) The fact that most local authorities can borrow money more cheaply than the majority of private trading enterprises is sometimes put forward as a reason for adopting a large policy of municipalisation. The reason, however, appears to be quite unsound. The functions of any authority or institution must be determined by clearly established principles, and not according to the price at which it can borrow money." The Bank of England receives 1 See pp. 297-304. 2 That price will depend to a large extent upon its functions. II THE DEVELOPMENT OF MUNICIPAL TRADING 93 enormous sums on deposit, without paying any interest at all in respect of them, yet no sane person would advocate that the Bank should engage in various more or less risky industrial enterprises, merely because it is able to obtain large sums free of interest. Such business would be clearly outside the recognised functions of the Bank. If the low price at which a municipality can at present borrow money were a reason for engaging in trading enterprises, there would be no limit to the sphere of activities of a local authority, and it might even become financially interested in such speculative things as rubber plantations or gold mines, though, judged by ordinary standards of what constitute the functions of municipalities, rubber plantations and gold mines are not suitable undertakings for management by local authorities. The functions of local authorities must first be considered quite apart from the cost of carrying them into effect, and the fact that it is anticipated that a municipality can do certain work cheaply, is no ground for undertaking the work, unless it can be clearly shown that it is adapted for municipalisation. ic) Another consideration which may have led to an extension of municipal trading is the saving in the cost of management in the case of public, as compared with private, ownership : there are no directors' fees to be paid and the salaries of municipal officials are often lower than those of the officials of private undertakings. The saving may easily be more apparent than real. The fees paid to directors of companies are often small when compared with the increased earning capacities of the companies due to their efforts. On the other hand, the unpaid aldermen and councillors who constitute the trading committee of a local authority may contribute little or nothing to the success of the undertaking for which they are responsible, and sometimes may even cause it to be less successful than if the management had been left entirely in the hands of the officials. As far as these latter are concerned, the fact that they often receive lower salaries than the corresponding officers of companies may penalise rather than benefit the undertaking which they manage ; underpaid officials are no cheaper than underpaid 94 MUNICIPAL TRADING chap, ii work-people, and experience seems to show that local authorities tend to err in the direction of underpaying their officials/ whatever the treatment may be which they mete out to their labourers. Another point which must be borne in mind in this connection is whether local authorities are more likely than companies to overstaff their undertakings. But even if it can be shown that a municipality is able to manage a trading undertaking really more cheaply than a company, it is no more a reason for municipalising such an enterprise than is the fact that municipalities can generally borrow money more cheaply than private enterprises. In every case where the municipalisation of an undertaking is to be justified, it must be based on the general principles concerning the proper functions of local authorities. * This point is dealt with more fully in Chapter VII. See especially pp. 304, 305- CHAPTER III THE EXTENT OF ]MUNICIPAL TRADING § I. In the foregoing pages the forces which have led to the development of municipal trading have been analysed and the great variety of trading enterprises conducted by one local authority or another has been briefly indicated. Closely related to this aspect of the problem of municipal trading is the question as to how extensively these various enterprises are carried on by local authorities. Unfor- tunately it is impossible to obtain complete information on this subject, and it is necessary to be satisfied with such details as can be pieced together from a variety of sources. The two countries in which the municipal management of trading enterprises appears to be most extensively adopted are the United Kingdom and Germany, and it is to these two countries, or to parts of them, that the figures in this chapter relate. The amount of the outstanding loans of local authorities for " trading " and certain other " reproductive " purposes in different years gives an indication not merely of the present extent, but also of the growth of the various undertakings. This information is given for England and Wales in the table which follows ; detailed figures were not published for any year before 1884-85, consequently that year and the years 1894-95, 1904-5, and 1907-8, this being the last year for which the figures are available, have been selected. At the end of 1907-8, English and Welsh local authorities had outstanding loans amounting to over two hundred and sixty- seven million pounds in respect of " trading " enterprises. 95 96 MUNICIPAL TRADING CHAP, Fable showing the Outstanding Loans of Local Authorities in England and Wales for " Trading " and certain other " Reproductive " Purposes at the end of 1884-85, 1894-95, 1904-5, and 1907-8.^ Purposes. 1884-85. 1894-95. 1904-5. 1907-8. Water Works . . . i:30,327,ooo ^43,970,000 ;^' I 14,699,0002 i:i22,547,ooo3 Gas Works .... 13.769,000 16,932,000 23,831,000 23,358,000 Electricity Supply . 1,379,000 25,639,000 28,667,000 Tramways and Light Railways .... 1,168,000 1,467,000 25,315,000 33,300,000 Harbours, Piers, Canals, Docks, and Quays . 28,538,000 32,778,000 43>555>ooo 46,874,000 Markets 5,004,000 5,771,000 7,736,000 7,590,000 Advances to Manchester Ship Canal Company 5,127,000 5,088,000 5,051,000 Total of the above {"Trading" Debt) ^£"78,806,000 ;^io7, 424,000 ;^245, 863,000 ;,^267, 387,000 Baths, Wash-houses, and open Bathing-places 562,000 1,470,000 2,940,000 3,131,000 Cemeteries .... 2,369,000 2,718,000 3,077,000 3,120,000 Housing of the Work- ing Classes . . , 3,532,000 4,352,000 8,962,000 10,510,000 Total of all the above ("Reproductive" Debt) ^85,269,000 ^115,964,000 ^{^260,842, 000 ^^284, 148,000 Of this debt, some forty-eight million pounds were in respect of the Metropolitan Water Board and twenty-five million pounds in respect of the Mersey Docks and Harbour Board. Water works accounted for some 46 per cent of the trading loans, gas works for 9 per cent, electricity supply for 1 1 per cent and tramways for 1 2 per cent. During the twenty-three years between March 1885 and March 1908, the outstanding debt in respect of water works increased by some 300 per cent, in respect of gas works by some 70 per cent, in respect of tramways and light railways by some 2750 per cent, whilst the debt in respect of electricity works, which was nothing at the beginning of the period, amounted to more than twenty-eight million pounds at the end of the 1 Extracted from the Annual Taxa- tion Returns, 1907-8, part viii. p. 116. 2 Includes ^45,944,000, the out- standing debt of the Metropolitan Water Board. 3 Includes ;if48, 123,000, the out- standing debt of the Metropolitan Water Board. Ill THE EXTENT OF MUNICIPAL TRADING 97 period. This period saw the growth of practically two new types of municipal enterprise — electricity and tramway undertakings — yet the borrowing incurred in connection with these two together was only two-thirds of that incurred in connection with water undertakings. Even if the out- standing debt of the Metropolitan Water Board is excluded, the new loans incurred in respect of water undertakings considerably exceeded those incurred in respect of any other trading undertakings. In 1884-85 the total outstanding loans of English and Welsh local authorities were ;^i 73,208,000,^ and the "trading" debt represented 46 per cent and the " reproductive " debt 49 per cent of the total debt.^ In 1907-8 the total outstanding loans of English and Welsh local authorities were ;^5 03,646,000,^ and the " trading " debt represented 5 3 per cent and the " repro- ductive " debt 56 per cent of the total debt or, if the loans contracted by the Metropolitan Water Board were entirely excluded from the calculations, 48 per cent and 52 per cent respectively. From these figures it will be seen that the " trading " debt represented a somewhat larger proportion of the total debt in 1907-8 than in 1884-85. Speaking quite broadly, about half the outstanding loans of English and Welsh local authorities are for reproductive purposes and half for other purposes. In Germany the proportion appears to be about the same, for an inquiry relating to all out- standing loans, at the end of 1907, of Prussian towns with a population of over 10,000 showed that 52.7 per cent were for reproductive purposes.^ \ 2. An examination of the purposes for which particular local authorities have contracted loans, shows that the pro- portion due to reproductive and to other purposes varies considerably from town to town. In the tables which follow, the outstanding loans of ten large English and ten large German towns have been set out. The first columns of figures show the total outstanding loans, the second columns the amount of outstanding loans for reproductive 1 Annual Local Taxation Returns, ^ Ibid. 1 1 6. 1907-8, part viii. p. 116. * Silbergleit, " Preussens Stiidte," 2 The difference between " trading " Denkschrift zum hundertjdhrigen Jubi- and "reproductive" enterprises is Idum der Stddteordnnng; quoted in the defined above on p. 16. Komtnunales Jahrbiich, 1909, p. 543. H 98 MUNICIPAL TRADING purposes, and the fourth columns the amount of outstanding loans for other purposes. The other columns show the proportion of debt due to reproductive and to other pur- poses. The very large proportions of reproductive debt in Birmingham, Bristol and Manchester are due to the abnormally heavy borrowings in respect of the water under- taking in Birmingham,^ to the costly harbour and dock undertaking at Bristol," and to the large loan to the Manchester Ship Canal Company in the case of Man- chester.^ Tari.e showing the Outstanding Loans of certain English Towns on March 31, 1909.'' Loans outstanding for Loans o\itstanding for Total Lo.-ins outstanding on Reproductive I' urposes. other Purposes. Town. March 31, Percent- Percent. 1909. Amount. age of Whole. Amount. age of Whole. Birmingham ^17,728,000 ^^14,097,000 80 ^3,631,000 20 Bristol . . 8,760,000 6,647,000 76 2,1 13,000 24 Manchester . 22,981,000 16,282,000 71 6,699,000 29 Sheffield . . 9,873,000 6,244,000 63 3,629,000 n Bradford 8,723,000 5,516,000 63 3,207,000 n Liverpool 16,002,000 9,981,000 61 6,021,000 39 Leeds 13,157,000 7,312,000 55 5,845,000 45 Nottingham 6,087,000 3,262,000 54 2,825,000 46 Newcastle . 3,836,000 1,545.000 40 2,291 ,000 60 Hull . . . 3,753,000 1,208,000 32 2,545,000 68 1 .)f 8.258,000 outstanding on March 3I' 1909- " .){^5»93i)000 outstanding on March 31, 1909. 3 ;^5,o5 1,000 outstanding on March 31, 1909. * Compiled from the Annual Local Taxation Returns, 1908-9, part v. The following purposes have been treated as reproductive : tramways and light railways, water, gas, electricity, markets, burial grounds, harbours, piers, and docks, housing of the working classes and loan to Manchester Ship Canal Company. Loans for baths and wash-houses are not given separately in the returns, so could not be included amongst the loans for reproductive purposes. Had it been possible to do this, the proportion of loans for repro- ductive purposes would have been somewhat greater and that for other purposes somewhat less than is shown in the table, THE EXTENT OF MUNICIPAL TRADING 99 Table showing the Outstanding Loans of certain German Towns on April i, 1908.^ Loans for Reproductive Loans for other Purposes. Purposes. Town. ing on April i, 1908. Percent- Percent- Amount. age of Whole. Amount. age of Whole. Marks. Marks. Marks. Dlisseldorf . I 14,300,000 89,000,000 7« 25,300,000 22 Dortmund 80,400,000 53, 100,000 66 27,300,000 34 Berlin . 397,000,000 259,000,000 65 138,000,000 35 Cologne . 142,900,000 87,600,000 61 55,300,000 39 Barmen . 56,800,000 30,800,000 54 26,000,000 46 Elberfeld 54,400,000 29,000,000 53 25,400,000 47 Magdeburg 60,000,000 31,000,000 52 29,000,000 48 Hanover 69,900,000 32,300,000 46 37,600,000 54 CharlottenVjurg 120,800,000 52,900,000 44 67,900,000 56 Frankfort o/M. 222,900,000 79,900,000 3t> 143,000,000 64 § 3. The table on page 96 gives only the loans out- standing in connection with certain municipal undertakings. This information can, however, be supplemented from other sources. In 1904-5 there were 1142 municipal and 231 private water undertakings in the United Kingdom ; the former employed a capital of i^i 28,8 19,000 and the latter of i^ I 8,7 I 8,000.''^ In 1909 there were 293 gas undertakings belonging to local authorities in the United Kingdom and 501 belong- ing to companies. The outstanding capital of the former was i^30,479,ooo and of the latter ;^90,i 2 i,ooo.-^ Of the 300 street and road tramway and light railway undertakings in existence in 1909 in the United Kingdom, 176 belonged to local authorities and 124 belonged to companies. The total expenditure on capital account was A9.569>ooo in the case of the former and ^23,373,000 in the case of the latter."* In 1909 information was collected concerning 451 1 Silbergleit, " Preussens Stadte," by private enterprise, no official returns Denkschrift zum hundertjcihrigcnjubi- relating to water enterprises bemg Idtini der Stddteordmnig, quoted in the Kommtoiales Jahrbuch, 1909, p. 544. 2 The figures are quoted from the Municipal Year Book, 191 1, p. 460. They are based on the Local Taxation Returns and on Directories brought out published. 3 Parliamentary Return relating to Authorised Gas Undertakings. * Parliamentary Return of Street and Road Tramways and Light Rail- ways, loo MUNICIPAL TRADING chap. electrical supply works in the United Kingdom. In 241 cases local authorities were generating and distributing current, in 7 cases local authorities purchased current in bulk and distributed it ; in i case a Joint Board of Local Authorities generated and distributed current, whilst in 202 cases the supply of current was in private hands.^ From another source we learn that, in 1910, 325 local authorities and one Joint Board of Local Authorities held between them 384 Electric Lighting Orders, whilst 151 companies or private individuals held 351 Electric Lighting Orders.^ In some cases, although an order has been granted, no current is supplied ; this applies especially to local authorities. On the other hand, some companies hold orders relating to areas which are scattered over fairly large districts, and it is not always feasible to supply them all with current from one central power station. In view of these considerations it seems certain that there are fewer than 326 public electricity supply undertakings and more than 151 private electricity supply undertakings in this country. No information is available concerning the total amount of capital invested in electrical undertakings. The number of local authorities carrying on Harbour, Dock, Pier, Canal and Quay undertakings in England and Wales during 1907-8 were as follows : — ^ County Council . . . . . County Boroughs . . . . Other Boroughs . . . . Urban District Councils Other Harbour, Dock, etc., Authorities I 10 28 9 55 Total . .103 The outstanding loans of these authorities were ;^46,8 74,000, exclusive of the five million pounds advanced by the Manchester Corporation to the Manchester Ship Canal Company. 1 Tabulated from the Electrical in the Report by the Board of Trade Review list of electricity supply works respecting the Applications to, and in the United Kingdom, June 1909. Proceedings of, the Board of Trade, 2 Compiled from the index of the tmder the Electric Lighting Acts, 1882 Provisional Orders confirmed by Parlia- to igo2, during the year igog-io. ment prior to the session of 1 910, ^ The Annual Local Taxation Re- which were in force in 19 10, published turns, 1907-8, part viii. p. 43. THE EXTENT OF MUNICIPAL TRADING From the various figures quoted it will be noticed that nearly five-sixths of the water undertakings in the United Kingdom belong to local authorities, whereas in the case of electricity undertakings and tramways a little more than half are municipal. In the case of gas works, on the other hand, nearly two-thirds belong to companies. Table showing the Number of Boroughs in England and Wales (other than Metropolitan Boroughs) which owned and managed Water, Gas, Electricity and Tramway Undertakings during the Year 1908-9.^ County Boroughs. Non-County Boroughs. Al 1 Boroughs. bo i) '0 w ..-: D . « Service. c -a 5 D M Pi rt Ml .S "^ 11 .S "^ 0. 0) rt Q."^ c ^ 01 rt i* l> ri Q--^ c !>„ m X. iy c S ^ !^ cfi t; .a c '.5 t- i^ ^ t: ." c 5 t. i^ ^5 Part in Joi ta ^5 Part in Joi ta CQ "^ 5^ Part in Joi ta Water Supply Undertakings 48 S S7, 159 20 179 207 25 232 Gas Supply Undertakings . .3.3 33 71 2 73 104 2 106 Electricity Supply Under- takings .... 65 65 79 4 «3 144 4 148 Tramway and Light Railway Undertakings ^ 50 50 20 4 24 70 4 74 Total Number of Boroughs 74 253 327 In the table given above there is shown the extent of municipal water, gas, electricity and tramway undertakings amongst the 327 boroughs of England and Wales, other than the Metropolitan Boroughs. It will be observed that the seventy-four County Boroughs all engage in trading enter- prises to a very marked degree. Amongst the non-county boroughs the amount of trading is considerably less, except in the case of water. In view of the fact that in these boroughs the population is nearly always below 50,000, and in numerous cases very much below,^ this result is hardly Board of Trade Returns relating to Tramways and Light Railways. ^ Compiled from the Annual Local Taxation Retw-ns, 1 908-9, part v. 2 To ascertain which tramway under- takings given in the Local Taxation Returns were worked and which leased, it has been necessary to compare the Local Taxation Returns with the 3 Of the 253 non-county boroughs 66 had in 1901 a population of less than 5000, and 1 1 1 a population of less than 10,000. I02 MUNICIPAL TRADING astonishing. In many of these towns where there is no municipal tramway or electricity department, there is prob- ably no private undertaking of the kind either, the number of inhabitants not being sufificient to justify the establishment of such an undertaking. § 4. The great bulk of the information available con- cerning municipal trading refers almost exclusively to water, gas, electricity and tramway undertakings ; for those local Table showing the Number of " Reproductive " Undertakings carried on by seventy-three of the largest British Local Authorities during the four Years ending March 31, 1906.^ Service. Thirty London Local Authorities. Forty-three large Local Authorities outside London. Seventy-three large British Local Authorities. Water Supply .... 33 33 Sea-water Supply I I Gas Supply .... 23 23 Electricity Supply 16 41 57 Tramways — (i) Owned and worked by the Local Authority I 34 35 (2) Owned but not worked by the Local Authority 4 4 Markets (and Slaughter-houses) . 3 40 43 Baths (and Wash-houses) . 26 41 67 Working-class Dwellings 16 26 42 Model Lodging-houses 3 3 Cemeteries 8 6 14 Milk Depots 2 4 Harbours and Quays . 8 8 Ferries 3 3 Steamboats I I Conditioning-house I I Ice Manufactory I I Flag-making I I Telephones 4 4 Aquarium . I I ^ Compiled from the Parliamentary Return on Municipal Trading ( United Kingdofn), 1902-6. A list of the local authorities will Appendix A, p. 389. be found in Ill THE EXTENT OF MUNICIPAL TRADING 103 authorities, however, which were included in the Parlia- mentary Return for the years 1902-3 to 1905-6, a more complete survey of trading activities can be given. This is done in the table on the opposite page. The London local authorities, to which the first column of figures relates, are the London County Council, the Corporation of the City of London, and the twenty - eight Metropolitan Boroughs. All of these are within the supply area of the Metropolitan Water Board, and consequently were indirectly interested in the Water Supply undertaking. Again, the one tramway undertaking, owned and managed by a local authority in London, is that belonging to the London County Council ; their system serves the areas of practically all the other twenty-nine authorities, so that municipal trading in London is really much more extensive than is suggested by the table. Amongst them, the seventy-three local authorities to which the information relates, carried on nineteen different kinds of " reproductive " undertakings, but of these only nine — water works, gas works, electricity works, tramways, markets, baths, working-class dwellings, cemeteries and harbours — were engaged in by more than 10 per cent of these local authorities, whereas in six cases only a single enterprise of the kind existed. § 5. The extent of Municipal Trading in Prussia is indi- cated by the following figures, which show the number of municipal undertakings of each kind in Prussian towns in 1905-6, the total number of such "towns" being 1279. Municipal Gas Supply Undertakings .... 440 Municipal Electricity Supply Undertakings . .201 Municipal Water Supply Undertakings . . .561 Municipal Tramway Undertakings . . . .35 Municipal Light Railway Undertakings . . -35 Municipal Slaughter-house Undertakings . . . 424 Municipal Market-hall Undertakings .... 38 Municipal Harbour and Quay Undertakings . . 97 Municipal Forests and Estates Undertakings . .1210 Municipal Building Plots Undertakings . . . 452 Municipal Dwelling-house Undertakings . . .615 Municipal Undertakings for housing own Employees . 314^ Unfortunately the return gives no indication of the 1 " Preussische Statistik," Heft 217, quoted in ihe A'omtimiia/es Jahrbnch, 1 910, p. 596. I04 MUNICIPAL TRADING number of private undertakings, so that it is impossible to say what proportions of the various industries are under municipal management. Some information on this subject is available for the larger German towns, so far as gas, electricity, water and tramways are concerned. The tables which follow relate to towns with populations exceeding 20,000, except in the case of tramways, where they relate only to towns with over 50,000 inhabitants ; from them it will be seen that of the 214 water undertakings 203 are under public and i i under private management, of the 216 gas undertakings 177 are under public and 39 under private management, of the 170 electricity undertakings 128 are under public and 42 under private management, and of the 82 tramway undertakings, 33 are under public and 49 under private management. In other words, in the larger German towns 95 per cent of the water undertakings, 82 per cent of the gas undertakings, 75 per cent of the Table showing the Number of Municipal and Private Water Under- takings in German Towns with a Population exceeding 20,000 in 1907.^ Towns with Towns with Towns with All Towns Population Population Population with Popu- lation ex- 20,000- 50,000. 50,000- 100,000. over 100,000. ceeding 20,000. Number of Towns with a Population exceeding 20,000 134 44 41 219 Number of Towns with a Water Supply 130 43 41 214 Number of Towns with a Municipal Water Supply 123 41 38 202 Number of Towns obtaining Water Supply from other Local Authorities . I I Number of Towns obtain- ing Water Supply from Private Undertakings 7 2 2 1 1 ' Paul Mombert, " Die Gemeinde- betriebe in Deutschland," Schriftejt des Vereins fiir Socialpolitik, vol. 128, p. 10. The figures are compiled from the Adressbuch der Stddte- Verwaltun- gen Detdschlands, 1 907. Auf Grund amtlicher Mitteilungen bearbeitet von Albert Rene. THE EXTENT OF MUNICIPAL TRADING 105 Table showing the Number of Municipal and Private Gas Under- takings in German Towns with a Population exceeding 20,000 in 1907.^ Towns with Towns with Towns with All Towns Population Population Population with Popu- 20,000- 50,000- over lation over 50,000. 100,000. 100,000. 20,000. Number of Towns with a Population exceeding 20,000 134 44 41 219 Number of Towns with a Gas Supply . 132 43 41 216 Number of Towns with a Municipal Gas Supply . I 12 32 33 177 Number of Towns obtain- ing a Gas Supply from Private Undertakings 20 2 1 1 8 39 Table showing the Number of Municipal and Private Electricity Undertakings in German Towns with a Population exceeding 20,000 in 1907.^ Towns with Towns with Towns with All Towns Population Population Population with Popu- 20,000- 50,000- over lation over 50,000. 100,000. 100,000. 20,000. Number of Towns with a Population exceeding 20,000 134 44 41 219 Number of Towns with an Electricity Works . 85 44 41 170 Number of Towns with a Municipal Electricity Works .... 62 30 11 125 Number of Towns obtaining Current from other Local Authorities . 3 3 Number of Towns obtaining Current from Private Undertakings 20^ 14 8^ 42 1 Paul Mombert, loc. cit. p. 34. 2 This includes one works leased by a municipality to a company. ^ Paul Mombert, loc. cit. p. 56. ■* These include six works leased by municipalities to companies. ° These include one works leased by a municipality to a company. io6 MUNICIPAL TRADING Table showing the Number of Municipal and Private Tramway Undertakings in German Towns with a Population exceeding 50,000 in 1907.^ Towns with Towns with All Towns Population Population with Popu- 50,000- over lation over 100,000. 100,000. 50,000. Number of Towns with a Population exceeding 50,000 ^ 44 4' 85 Number of Towns with a Tramway Undertaking .... 41 41 82 Number of Towns with a Municipal Tramway Service .... 17 i63 ll Number of Towns with a Private Tramway Service 24 254 49 electricity undertakings, and 40 per cent of the tramway- undertakings belong to the local authorities. ^ 6. Owing to the different bases on which the informa- tion is collected, no accurate comparison between the extent of municipal trading in England and Germany is possible, but the position in the 8 5 German towns with a population exceeding 50,000 and in the English and Welsh County Boroughs,^ which practically fulfil the same condition with regard to population, may be roughly compared. Of the 85 German towns with a population over 50,000, 93 per cent possess municipal water undertakings, 76 per cent gas undertakings, 74 per cent electricity undertakings, and 39 per cent tramway undertakings. Of the 74 English and Welsh County Boroughs, 72 per cent possess municipal water undertakings, 45 per cent gas undertakings, 88 per cent electricity undertakings, and 68 per cent tramway under- takings. Taking these four kinds of enterprises as a whole, German and English large towns, excluding the Metropolitan Boroughs, appear to engage in them to a very similar extent. 1 Paul Mombert, loc. cit. p. 75. undertakings. 2 Owing to the difficulty of dis- 3 !„ five of these towns there were tinguishing light railway and tramway undertakings it was not possible to ascertain the figures for private under- takings in 134 towns with a population of 20,000-50,000. In towns of this size there were 23 municipal tramway private as well as municipal tramway undertakings. * These include two undertakings leased by municipalities to companies. '•^ See table on p. loi. CHAPTER IV THE MANAGEMENT OF MUNICIPAL TRADES § I. Where a local authority is authorised by a special Act of Parliament, or by a Provisional Order issued by a govern- ment department under statutory powers, to engage in a trading enterprise, it must be laid down in what body the management of the undertaking is to rest. The most usual arrangement is for the management to be vested in the Council of the local authority ; there are, however, various exceptions to this method of administering a municipal trad- ing enterprise, to which further reference will be made below. The most usual arrangement may be considered first. The Town Council has complete control of the undertaking, but delegates the actual management to a committee of the Council, which does all such acts and things as are necessary to carry on the undertaking ; all acts of the committee, however, are subject to the confirmation of the Council, and the minutes of the Committee are submitted to the Council from time to time for approval. The size of the trading committees of different councils varies considerably ; but this has probably comparatively little effect on the success of the undertakings ; the essential things are the efficiency of the chairman and of one or two of the most active members of the committee on the one hand, and the ability of the principal officials on the other. The relationship between the committee and the principal officials is very similar to that existing between a board of directors of a company and their managers. In some trading and industrial companies the directors, or some of them, take a good deal more active part in the management of their undertakings than in 107 io8 MUNICIPAL TRADING chap. others. In these cases one or more members of the Board are often described as managing directors, and others may also devote their whole time to the undertaking. Where the directors meet once a fortnight or once a month, and then merely act in an advisory and supervising capacity and restrict their activities to determining the general business policy, far more power is placed in the hands of the general manager, and the success of the enterprise depends much more largely upon his ability. Municipal trading committees in this country act very much as boards of directors of this latter type. The committees are not generally in a position to criticise the technical advice tendered by their experts ; for technical advice they rely largely on their managers and engineers ; the committees must co-operate with their expert advisers to secure the most efficient administration. It is the committee's function to control the officials and to examine carefully any suggestions made by these for the improvement of the service ; in particular they must examine the business aspect of all new proposals. They should not hesitate to reject any proposal which appears unsound, but on the other hand, they should be very chary about initiating new schemes against the advice of their chief officials, as such schemes are more than likely to end badly. Exactly how much power will rest in the hands of a manager under this type of committee system will depend very largely upon the chairman of the committee, whether or not he keeps in close touch with the department and is regularly informed of what is being done, and whether he insists upon being frequently consulted by the officials between the meetings of the committee. There is another type of municipal committee organisa- tion which resembles that of a board of directors, one of whom devotes his whole time to the undertaking. In this case each committee has a paid chairman. On German Town Councils there are a number of paid Aldermen who are selected according to the particular departments of the municipality over which they are to be placed in charge. They are generally studied men, who have gained practical experience outside the service of the municipality. When appointed, they devote their whole time to their municipal IV THE MANAGEMENT OF MUNICIPAL TRADES 109 work. A former schoolmaster will very likely be appointed to take charge of the Municipal Education Department, an architect or a doctor to preside over the Building or Sanitary Committee, an engineer to administer the gas and electricity works. Trading departments employ managers, engineers, and superintendents as in England, but their position is less independent, in view of the fact that the chairmen of the committees are more or less experts in their particular spheres, and that these chairmen are able to devote much of their time to controlling the departments of which they are in charge. The system helps to secure that element of continuity which is sometimes lacking in the administration of municipal departments in this country, when the chief members of a committee may give up their work at the same time, owing to defeats at the polls or for other reasons. Under these circumstances the carrying on of old policies will depend entirely upon the paid officials, whereas in Germany the chairmen of committees are not affected by elections. Another advantage of the paid chairman is that, taken as a whole, he is likely to represent his department more ably on the Council than an unpaid chairman who may not have a complete grasp of the points under consideration. § 2. So far it has been assumed that a Town Council delegates its powers, in respect of each trading enterprise it is authorised to undertake, to a separate committee, and that in this way a Waterworks Committee, a Gas Committee, an Electricity Committee and a Tramways Committee may be formed amongst others. This is the usual arrangement in this country. In Germany, on the other hand, it is common to find committees formed to manage two or more enter- prises. In Cologne, Heidelberg, Bonn, and other towns the water, gas, and electricity works are administered by a single committee. The trams are generally under a separate management, though not always, as for example in Frankfort- on-the-Main, where the tramways and the electricity works form one department. The direction of all the various municipal undertakings in a town, however varied they may be, rests ultimately with one body, the Council ; the only question is to what extent the committees are to be no MUNICIPAL TRADING ciivi-. specialised. It must presumably depend partly upon the amount of work to be done, but this is not the only con- sideration. If two departments of a municipality have ground in common, it may be desirable to place them under one committee. Thus, in Manchester the municipal housing undertakings are managed by the Sanitary Committee, whereas under the London County Council there is a separate Housing of the Working Classes Committee. On the other hand, the Tramways undertaking of the London County Council is managed by their Highways Committee, whereas in Manchester the Highways Committee and the Tramways Committee are quite distinct. Originally the Manchester electricity works were managed by the Gas Committee, but after the undertaking had been in existence three or four years, a separate committee was established on the ground that the new department was growing too big. It is doubtful, however, if separate committees for gas and electricity are always advantageous. It is quite possible to have one committee for the two, without in any way treating the newer electricity department as subordinate to the older gas department, and if this is done, the friction, which is always liable to occur between two departments which are to a considerable extent competitors, may be avoided. As far as production is concerned, gas and electricity have little in common, even if coke from the gas works is used for heating the boilers of the electricity works. Where there is only one committee the control of the production of gas and of current is left largely in the hands of the officials especially appointed for each works. On the other hand, in what relates to selling, it seems very desirable that the policies adopted with regard to gas and electricity should be properly co-ordinated. The object of a municipality must be to serve the citizens as efficiently as possible ; at the same time the financial stability of the undertakings must be borne in mind. Severe competition may secure the former, but can hardly secure the latter object. There is the further difficulty that gas and electricity are subject to different conditions so far as external competition is concerned. Electricity has a harder battle to fight, and low prices must be charged to some customers if its use on a large scale is IV THE MANAGEMENT OF MUNICIPAL TRADES in to be secured. For certain purposes gas is in a strong position, and whether the price is a Httle higher or a little lower does not affect the consumption very much. As a result it may be found feasible to secure a larger profit in the case of gas than in the case of electricity, and under these circumstances the two undertakings are not competing on equal terms. Consequently it is probably better to do away with all idea of unrestricted competition, to realise that there are certain purposes for which electricity is more suited, and others for which gas is more suited, as well as some for which either may equally well be used, and to act accordingly. As it is impossible to prevent gas being displaced to some extent by electricity, it seems best to accept this as a fact, and instead of struggling against it, to seek to extend the use of gas in new directions,^ in particular for heating and cooking purposes. In those towns where the gas and electricity undertakings are municipal, it is the duty of the Council to see that both undertakings are properly utilised and that a good service of light, heat and power is provided, and it seems not improbable that this can be best secured if the Council is advised by one committee which has carefully considered the light, heat and power problem as a whole, instead of being advised by separate gas and electricity committees. § 3. As soon as a municipality is desirous of trading outside its boundaries, the problem of management assumes a new form. Under these circumstances two or more local authorities are involved, and the question is how are they to share in the administration of the enterprise concerned ? In practice this problem has been dealt with in various ways. Perhaps the simplest solution, and the one most commonly adopted in this country, is for the larger local authority to manage the whole undertaking, and for it to sell its products or services retail to the inhabitants of the smaller local area. The following table shows to what extent English and Welsh Boroughs, which managed water, gas, electricity and tramway undertakings, traded beyond their boundaries in 1908-9. The figures relate to 532 trading departments, and of these 231 or 43 per cent sold products ^ The competition of gas and electricity is dealt with more fully below on pp. 204-6. Af UN /CI PA L TRA DING CHAP. Table showing the Number of Boroughs in England and Wales (other than the Metropolitan Boroughs), which traded beyond their Boundaries during the Year 1908-9.* Water Gas Electricity Tramways and Light Railways. Supply. Supply. Supply. County Boroughs — Supply Area within Boundary 8 8 52 26 Supply Area extending beyond Boundary 40 25 13 30 All Undertakings . 48 33 65 56 Non-County Boroughs — Supply Area within Boundary lOI 27 68 II Supply Area extending beyond Boundary 58 44 13 8 All Undertakings . •59 71 81 19 All Boroughs — ■ Supply Area within IJoundary 109 35 120 n Supply Area extending beyond Boundary 98 69 26 38 All Undertakings . 207 104 146 75 or services outside their local areas. Taking all boroughs into consideration, the proportion was highest in the case of gas supply and lowest in the case of electricity supply. In these cases the smaller local authority has no say at all in the management, and from its point of view the trading municipality occupies a very similar position to that which a company would occupy. Where this arrangement is adopted, the principal point for consideration is the fixing of prices outside the boundary of the trading authority. This is dealt with at length in the chapter on the selling policies of municipal trades. The powers to engage in such undertakings are either granted directly by Provisional Order or by Act of Parliament, or are transferred to the trading municipality by the neigh- bouring townships. Hertford, Taunton and New Windsor have, among other towns, obtained direct powers by Provi- ^ Compiled from the Annual Local Taxation Returns, 1908-9, part v. IV THE MANAGEMENT OF MUNICIPAL TRADES 113 sional Order to supply electricity in areas not included within their own districts.^ The Manchester Corporation in 1897 obtained power by Act to take, subject to the approval of the Board of Trade, transfers of electricity powers from local authorities of districts adjacent to the city ; " by a further Act ^ this provision was extended so as to include districts in proximity to the city. Similar powers have been given by Acts to other Corporations, e.g., Glasgow,* Blackpool ^ and Stockport.*^ To supply gas beyond its own district a local authority must obtain a special Act of Parliament." Many towns have obtained the necessary powers, as for example, Manchester, Birming- ham, Leeds, Nottingham, Leicester and Birkenhead. As far as tramways are concerned, the Board of Trade do not consider that they have power by Provisional Order to authorise local authorities to construct tramways beyond their boundaries,^ and consequently this can only be done by authority of special Act of Parliament. Such powers have frequently been granted, and Glasgow, Manchester, Leeds, Bradford, Salford and Bolton are amongst the towns which work tramways outside their own area. ^4. In the case of water, gas and electricity a muni- cipality which sells outside its boundaries, instead of dealing directly with the consumers, may sell in bulk to the smaller local authorities and leave them to arrange for the distribu- tion of the products. This method possesses the advantage that it leaves each local authority in control of its own streets, and also enables it to adopt such selling policies as it chooses. Thus, Salford draws the whole of its water supply in bulk from Manchester, and Stockport obtains some of its supply from Manchester in the same way. Various local authorities have obtained powers by Act of Parliament to sell electricity in bulk to other bodies who are authorised ' See Memorandum handed in by 1899, sec. 22. Sir Courtenay Boyle, Permanent Under * Glasgow Corporation (Gas and Secretary of the Board of Trade, to Water) Act, 1899. the Joint Select Committee on Muni- ^ Blackpool Improvement Act, cipal Trading, 1900, and printed as an 1899 Appendix to the Report, p. 347. ^ Stockport Corporation Act, 1899. 2 Manchester Corporation Act, '' Sir Courtenay Boyle's Memo- 1897, sec. 39. randum, loc. cit. p. 349. 3 Manchester Corporation Act, * Ibid. p. 355. I 114 MUNICIPAL TRADING chap. to supply, includin;:^ St. Helens, lilackpool ami Salfortl.' Where a municipality obtains its water from a considerable distance, the Local Government Board do not think it unreasonable that it should supply other local authorities on the way, provided it does so in bulk." Under these circumstances, even an obligation is sometimes imposed upon a Corporation by Parliament to supply with water such local authorities along the route of the pipes as desire it, as for example, is the case with the Corporation of Manchester.^ Mention may be made here of another arrangement of a somewhat similar character by which local authorities purchase their supplies of gas or electricity in bulk from private undertakings. Thus the town of Hull purchases its gas in bulk from the British Gas Light Company. In Germany there is a considerable movement in favour of such an arrangement in all those cases where it is possible for a town to avail itself of particularly cheap supplies of gas or electricity. This is likely to arise in the case of gas in the neighbourhood of large coke works which are willing to dispose, on very favourable terms, of their gas, which to them is merely a by-product ; in the case of electricity where there are large generating stations situated in advantageous positions to utilise water power or to secure at low prices supplies of fuel, either coal, lignite, or peat, or possibly the waste gases of furnaces. At high voltages, current can be transmitted long distances with comparatively little loss of voltage, so that the towns desirous of obtaining supplies need not be in the immediate vicinity of the generating stations. A few examples may be quoted. Essen now buys its gas in bulk from a large coke works and has closed down its own works. Osnabriick has arranged to purchase current in bulk from a large generating station a good many miles away where plentiful supplies of peat are immediately at hand. In this latter ^ See Memorandum by Sir Courtenay 1900, QQ. 1029, 1031. Boyle, loc. cit. p. 348. 3 Manchester Corporation Act, 2 See evidence of Sir (then Mr.) 1879, sec. 81. See the evidence of S. B. Provis, Permanent Secretary to the late Sir James Southern before the Local Government Board, before the Committee on Municipal Trading, the Committee on Municipal Trading, 1900, Q. 2316. IV THE MANAGEMENT OF MUNICIPAL TRADES 115 case the electricity purchased is merely to supplement the current generated by the municipal undertaking. The town of Konigshiitte, in Silesia, buys its electric current in bulk from a large iron works and retails it to the inhabitants,^ The French town of Le Creusot purchases gas in bulk from a large iron works and sells it to the public at a profit." § 5. The position with regard to tramways is somewhat different from that of water, gas and electricity. Where these are sold by a municipality outside its own area, it is primarily for the benefit of the local authorities supplied. As far as tramways are concerned, it may be quite as much in the interests of the local authority which manages the undertaking as in those of the adjacent areas that the system should be extended beyond the municipal boundaries. This will be so wherever the area within which the popula- tion tends to move backwards and forwards is greater than the municipal area. If the suburbs of a town happen to lie outside the boundaries, and the tramways are limited to the municipal area, the residents in such outside districts will, to a large extent, be deprived of a convenient and cheap form of transport, and the undertaking will suffer financially in consequence. The increase in traffic due to the extension of the system to the suburbs may make all the difference between a remunerative and an unremunerative undertaking, and at the same time confer a benefit on the dwellers in the suburbs. Again, the utility of any tramway system will be considerably increased if it is linked up with the systems of neighbouring towns, and if through cars are provided. Further, in the case of small areas with com- paratively few inhabitants, an independent tramway system is a financial impossibility ; on the other hand, it may be feasible to manage a tramway in such a district as part of a larger system, either with a view to future developments of traffic or to provide a through route between two larger centres of population. In all these cases every party may • H. Liicker, "Die Gemeindebe- ^ Report of an Enquiry of the Board triebe in den Stadten, Kreisen und of Trade ijito Working-class Rents, Landgemeinden des Oberschlesischen Housing and Retail Prices in the Industriebezirks," Schriften des Vereitts Principal Industrial Towns of France, fUr Socialpolitik, vol. 1 29, part x. p. 102. p. 30. ii6 MUNICIPAL TRADING en ah. be said to benefit by the extension of the system beyond the boundaries. Various methods are adopted to secure the advantages of a tramway system planned with a view to the maximum utility without reference to municipal boundaries. One method is to allow the central trading authority to construct and to manage the lines in the small adjacent areas, as has happened in the case of Glasgow and also of Cologne. A second method is for the smaller areas to construct their lines and then to lease them to their big neighbour for a period of years. Thus Manchester pays rent to various local authorities for the use of their lines, the payments being calculated to reimburse the various local authorities for their capital expenditure. The leases are generally for twenty-one years, the city to provide the overhead equipment as well as the necessary rolling stock. A third method which is somewhat similar to the previous one is where one local authority hands over the management of its tramways to another local authority, for which the latter receives a certain remuneration. This is the case with Ludwigshafen a. R., which has entered into an agreement with the neighbouring town of Mannheim, situated on the opposite bank of the Rhine. Ludwigshafen obtained the concession for its lines, which it constructed and equipped. They are managed by Mannheim as part of its system. All revenue from the Ludwigshafen lines, after deducting expenditure, is handed over to Ludwigshafen. Mannheim provides the necessary rolling stock ; all repairs and renewals of the same are effected by Mannheim at the expense of Ludwigshafen. For the use of the rolling stock, Ludwigshafen pays Mannheim 4 per cent interest on the capital outlay and 4 per cent depreciation. The cost of management is divided between the two towns according to the number of car kilometers run on each set of lines. From the sum received, Ludwigshafen pays interest on its capital outlay, and provides for depreciation at agreed rates. Of the surplus which remains, i o per cent is paid to Mannheim as remuneration for its management of the undertaking.^ In the case of Dresden, the Corporation has ^ Otto Moericke, " Die Gemeinde- Vereins fiir Socialpolitik, vol. 129, betriebe Mannheims," Schriften des part iv. pp. 155, 156. IV THE MANAGEMENT OF MUNICIPAL TRADES 117 constructed certain lines outside its boundaries, and these form part of its tramway system ; but it also manages certain lines outside the town which have been constructed by and belong to the state of Saxony and certain neighbouring local authorities. A fourth method which may be adopted, and which is generally preferred where the two local authorities in question are both large, is to arrange for mutual running powers. Thus the Manchester cars run into Oldham and into Ashton-under-Lyne, and the cars of those two towns come into Manchester. Through cars are run between Leeds and Bradford, half the service being provided by the one and half by the other Corporation. In this case certain mechanical difficulties had to be overcome, owing to the fact that the gauge in the two towns is different. The basis of these mutual running agreements generally is that each Corporation takes the fares collected in its own area, and that any excess mileage run by the cars of either Corpora- tion is to be paid for at a specified rate. For example, in the agreement between Sheffield and Rotherham for running through cars, it is stipulated that the payment for excess mileage run by the cars of either Corporation is to be 5 id. per car mile.^ During the year 1909-10 the payment made by the Rotherham Corporation to the Sheffield Corporation on this account was £()6 : i 7s.- § 6. Another method of managing undertakings which trade in the areas of two or more local authorities, is to establish a Joint Board of Management. This applies not only to tramway but also to other undertakings, and, as a matter of fact, so far as this country is concerned, is much more common in the case of water than in the case of tramways, gas, or electricity. In England and Wales during the year 1907-8 there were twenty-five Joint Boards or Committees for the supply of water, two for the supply of water and gas, one for the supply of gas, and one for the supply of electricity and the management of a tramway under- 1 Annual Report of the General - Sheffield Corporation Tramways, Manager of the Sheffield Corporation Report and Statement of Accounts for Tramways for the year ending March the year ending March 2^, igiO, 2S, jgio, p. 5. p. 4- ii8 MUNI CI PAL TRADING chai-. taking.' The authorities which undertake the supply of gas and of water must lay pipes in practically every street within their areas, and it is always possible to fix the prices in such a way that the undertakings are self-supporting. Under these circumstances the income to maintain a joint undertaking is provided by the consumers, who will fall roughh- into groups, proportionate to the populations of the different local areas. In this way each local authority supports the joint under- taking approximately in proportion to its population, and this affords a basis on which the various authorities can be represented on the Board. On the other hand, the tramway authority is faced at the outset with the choice of routes, and has frequently to consider the question of new routes and the extension of old ones. Most of the more important towns feel that they should have complete control over the development of their tramway system, as it may be desirable for social reasons that some unremunerative line should be constructed, which cannot well be done at the expense of the other members of a Joint Board. Again, it is difficult to decide in what proportions various local authorities should share in a joint scheme, as the populations of the different areas may not afford a satisfactory basis, for it is unlikely that the residents of each area will use the tramways in proportion to their numbers ; this will be especially so if a tramway just passes through a corner of a local area. The matter is particularly serious, as a loss may easily be incurred in connection with a tramway system, and the question will arise, How is it to be shared amongst the members of the Joint Board ? One of the other methods mentioned above of dealing with the problem seems to afford a much easier solution of the difficulties. Never- theless, the method of a Joint Board may prove desirable for the undertaking of a particular line or lines, where small towns are concerned and the development of through traffic is essential ; it would be financially unsound to maintain more than one management, and yet no one local authority predominates sufficiently to claim to manage the whole system, or no one local authority is prepared to take the whole risk. One example of such a joint tramway under- 1 Annual Local Taxation Returns, 1907-8, part viii. p. 41. IV THE MANAGEMENT OF MUNICIPAL TRADES 119 taking in this country is afforded by the Stalybridge, Hyde, Mossley and Dukinfield Joint Tramway and Electricity Board, which was established by Act of Parliament in 1901. The tramways managed by the Board consist of about twenty-one route miles ; the Board also supplies electric current for power and lighting. Each of the four local authorities appoints six members of the Board, and any loss or profit is shared equally amongst them. Thus in 1908-9, each Corporation had to pay over to the Joint Board to meet the deficiency in revenue £2^^^^ in respect of the tramways and £i\6 in respect of the electricity supply.^ In Germany, the Bonn-Godesberg Tramway belongs jointly, in equal shares, to Bonn and Godesberg. Each local authority appoints an equal number of members to the joint committee of management, and nominates the chairman in alternate years ; the profits or losses are shared equally. The line is managed by the Bonn Tramway Department. A new tramway is planned from Bonn to Konigswinter, in which Bonn and two other local authori- ties, through whose area the line is to pass, will share equally. So far as water is concerned there are various joint authorities, there are also one or two joint gas authorities, and one or two joint authorities which manage gas and water undertakings. A few cases may be given as illustra- tions. The greatest of these joint undertakings is the Metropolitan Water Board, which was created in 1902 by the Metropolitan Water Act of that year. The Board is composed of sixty-five representatives nominated by the con- stituent authorities of the London water area. The Board has taken over the undertakings of eight Metropolitan Water Companies and of two Urban District Councils, and now supplies a population exceeding seven millions. The sum invested in the undertaking is nearly forty-seven million pounds.""^ The Tees Valley Water Board was formed under the Stockton and Middlesbrough Corporations' Waterworks Act, 1876, and is composed of the representatives of the Middlesbrough, Stockton-on-Tees and Thornaby-on-Tees * Annual Local Taxation Returns, 2 ggg Municipal Year Book, 1 9 1 1 , 1908-9, part V. pp. 174, 176, 214. pp. 245-9. I20 MUNICIPAL TRADING ciiai-. Corporations. The first has provided six-twelfths, the second five-twelfths, and the third one-twelfth of the capital, and the profits or losses are divided in these proportions.' The Board supplies water not only in the three con- tributory borouf:jhs but also outside those boroughs. A very large scheme which is not yet completed is that of the Derwent Valley Water Board, created under an Act of 1899. It is owned jointly by the Corporations of Derby, Leicester, Nottingham and Sheffield. The four Corpora- tions will obtain water in bulk from the Board to supplement their existing sources of supply. A scheme in which numerous local authorities participate is the Bury and District Joint Water Board, which belongs to the Bury Corporation, Bury Rural District Council, Ilaslingdcn Corporation, Little Lever Urban District Council, Radcliffc Urban District Council, Ramsbottom Urban District Council, Rawtenstall Corporation, Tottington Urban District Council and Whitefield Urban District Council. The capital invested in the undertaking is some ;^ 1,5 00,000.' A joint gas undertaking is that of the Edinburgh and Leith Corporations Gas Commissioners, who were instituted by Act of Parliament in 188S to acquire the undertakings of the Edinburgh and Lcith Gas Light Companies. The area of supply includes the burghs of Edinburgh and Leith with certain adjacent parts of the country. The under- taking is managed by a Board of Commissioners appointed by the two Corporations."^ A joint gas and water authority is the Accrington Gas and Water Board, which is composed of representatives of Accrington Corporation, Church Urban District Council, Clayton-le-Moors Urban District Council, Great Harwood Urban District Council, and Rishton L'rban District Council. It supplies gas and water within and also beyond the areas of these local authorities."* Where a Joint Board of some kind is formed, the capital required for the undertaking must either be sub- scribed by the constituent authorities, as is the case with ^ Parliamentary Return on Muni- •* Parliamentary Return on Muni- cipal Trading {^United Kingdom), part cipal Trading {United Kingdom), part V. p. 186. vi. p. 7. 2 Municipal Year Book, 191 1, p. * Municipal Year Book, 1911, p. 400. 400. IV THE MANAGEMENT OF MUNICIPAL TRADES 121 the Tees Valley Water Board,^ or must be borrowed by the Board directly from the public, as in the case of the Metropolitan Water Board and the Edinburgh and Lcith Corporations Gas Commissioners. If this latter procedure is adopted, the loans are generally secured not only upon the revenues of the undertaking, but also upon the rates of the constituent authorities. § 7. The system of a joint committee is not the only one under which an enterprise, which is practically municipal, is not directly managed by each local authority concerned. Sometimes, where only one municipality is in question, a special and independent body is created to manage a particular undertaking, and the Town Council is not given the direct control. This occurs not uncommonly in this country in the case of harbour undertakings. Thus, whereas in Bristol and Preston the harbours are managed by committees of the Town Council, in London we find the Port of London Authority ; in Liverpool the Mersey Docks and Harbour Board, and in Southampton the Southampton Harbour Board. On these Harbour Boards the various shipping interests as well as the local authorities are generally represented, if they do not in fact predominate. In Italy, under a law of March 29, 1903, provision is made for the management of the more important municipal trading undertakings by special commissions, azienda speciale, instead of by the Town Councils. A Technical Director assists the Commissioners, who have to be selected from outside the Town Councils amongst citizens who as far as possible are well acquainted with the trade concerned. These commissions are subject to considerable control by the Provincial Councils, but appear to be quite independent of the Town Councils. The administration and the accounts of a commission have to be kept entirely separate from those of the municipality to which it belongs. In the case of smaller undertakings and of those which are not of a strongly trading character, direct management by municipalities, ad economia, is permitted. As the preliminary processes con- ^ In 1908-9 Middlesbrough's share required to meet loan charges {Annual of the net revenue of the Board was Local Taxation Returns, 1908-9, part ;[{,53,ioo, and the Council had to v. p. 48). find ;^4347 to make up the amount 122 MUNICIPAL TRAP INC chap. nectcd with the municipaHsation of an undertaking, as well as the subsequent managenient, are simpler and more free from restraint where this latter method of management is adopted, towns prefer to use it wherever possible, and this is facilitated by the fact that the law does not lay down very clearly what undertakings must be managed by a separate commission, and that the provincial authorities are not very strict in their interpretation of the law.^ ^ 8. There is still one other way in which a local authority can participate in the management of trading undertakings ; it may own shares in the companies which manage them. These cases can be subdivided into two classes, the one in which the municipality holds, and the other in which it does not hold, a controlling interest in the undertakings concerned. So far as this country is concerned, Parliament does not approve of local authorities subscribing to undertakings over which they have not absolute control ; ^ nevertheless certain instances do occur. Thus the Corpora- tion of Hull were allowed to subscribe for ;^ 100,000 of shares in the Hull and Barnsley Railway Company when the line was being erected. The Corporation complained of the monopoly of the North-Eastern Railway Company, and were anxious that an independent line should be built ; their sub- scribing for shares, however, was not so much to facilitate the construction of the line as to prevent, if possible, its ultimate absorption by the North-Eastern Railway Company. The holding of the Corporation in the Company is very far from giving them a controlling interest. Another example is the case of the iJ^5, 000,000 of debentures in the Manchester Ship Canal Company purchased by the Corporation of Manchester. Without this financial assistance the canal could never have been completed, as it cost a great deal more to construct than was anticipated. The Corporation provided a little less than one-third of the capital of the under- taking, but by Act of Parliament is entitled to appoint more than half the Directors, so that it has virtual control.^ ' G. Michels-Lindner, " Geschichte Chandos Leigh, Counsel to the der modernen Gemeindebetriebe in Speaker, before the Committee on YX.zSx&n,''' Schriftcndes Vereinsfiir Social- Municipal Trading, 1900, QQ. 637- poUiik, vol. 130, part ii. pp. 17-24. 644. 2 See the evidence of the Hon. E. ^ See also p. 7, above. IV THE MANAGEMENT OF MUNICIPAL TRADES 123 Another case is that of the Widnes Corporation, which invested <^2 5,000 in the Widnes and Runcorn Bridge Company, which was formed to build and manage the transporter bridge across the Mersey between Widnes and Runcorn. The undertaking has proved unremunerative, and is about to be transferred to the Widnes Corporation. In Germany the ownership of shares by local authorities in companies which engage in industrial undertakings appears to be more common than in this country. In Dusseldorf there is a special fund for participating in such industrial undertakings as are closely related to the public welfare. The town has allotted ;^7 50,000 for the purpose. So far some ;i^400,ooo has been employed to purchase shares in the Rheinische Bahngcsellschaft, the company which owns and manages the tramway between Dusseldorf and Crefeld.^ The town nominates half the members of the Board of Directors." Another case is that of the town of Heidelberg, which owns some 80 per cent of the shares of the local Tramway Company. The towns of Cologne and Bonn hold shares in the Koln-Bonner Kreisbahnen, which consist of two light railways between Cologne and Bonn. The one is equipped for electric traction, being especially intended for through traffic, and runs mostly through open country close to the banks of the Rhine ; the fast trams do the journey in forty-four minutes, and a half-hourly express service in both directions is maintained throughout the day. The older steam-tram route links up the various villages at the foot of the hills, and is used almost exclusively for local traffic. A special company is being formed to construct and manage the suburban tramways round Mannheim ; the shares will be held by the town of Mannheim and the Siiddeutsche Eisenbahn Gesellschaft, the latter at present holding concessions for some of the routes. These will be transferred to the new company, together with new concessions still to be obtained. In Frankfort-on-the-Main in 1909 the two then existing gas companies combined and formed a new company with a capital of M. 13,000,000. 1 All details relating to this fund Schriften des Vereins fiir Socialpolilik, will be found in O. Most, " Die Gemein- vol. 129, part ii. pp. 123-127. debetriebe der Stadt Dusseldorf," in the ^ Most, loc. cit. p. 67. 124 MUNICIPAL TRADING chap. The Imperial Continental Gas Company holds the majority of the shares, but the town of Frankfort bought M. 3,000,000 of shares. The town representatives can vote at meetings of shareholders and the Lord Mayor has the right to attend all board meetings, but has no vote. The system of managing undertakings of a more or less public character by means of companies in which the local authorities concerned have a controlling interest is one which, under some circumstances, may make it preferable to direct management by municipalities. It is less subject to political and popular pressure, which is perhaps of most consideration in the case of tramways, which of all public services appear most exposed to popular agitations in favour of concessions of some kind or other that are likely to undermine the financial stability of the undertaking. The number of people in the direct employ of local authorities is held in check, which may be a consideration of some importance. It also facilitates the introduction of ex- perts on to the body which manages the undertaking. It has the further advantage that a town council which desires larger contributions from its trading enterprises can- not by a mere vote compel the company to pay over the sums desired in the way in which they can force a municipal committee, against the wishes and advice of the members of the committee. Finally, the accounts are necessarily kept quite separate from those of the local authority which holds the controlling interest, so that it is easier to ascertain the correct financial position of the enterprise. Against this system can be urged that it is not truly democratic, and that it is a device to lessen, if not to do away with, the popular control of public utility services. Further, if it were applied to tramways the municipality would lose the direct control of the streets, which is one of the strongest motives for municipalising certain services. Again, in the case of small undertakings it is probably more economical not to establish an entirely new administrative staff, but to utilise the service of existing municipal officers as far as possible. In weighing up the advantages and disadvantages of the system, a most important consideration is the efficiency of the town councillors and of the municipal officers concerned. IV THE MANAGEMENT OF MUNICIPAL TRADES 125 Where the local administration is in able hands there is less reason for adopting the system than otherwise. The cir- cumstances under which it is most attractive are where the undertaking in question is already in the hands of a com- pany with a long or perpetual concession, and the local authority is anxious to secure some say in the management. This might be done most effectively by a purchase of shares in the company. CHAPTER V THE FINANCIAL ASPECTS OF MUNICITAL TRADING S I. The principal problem with which we are concerned in this chapter is the method to be pursued in order to ascertain the " profits " of a trading enterprise conducted by a local authority. This involves a critical examination of the accounts of trading undertakings, as there is reason for believing that in many cases the financial statements issued by trading departments do not accurately represent the true position of the departments. The most difficult point in this connection is that concerned with the provision made for depreciation. First the question when a muni- cipal undertaking may be said to have made a " profit " will be considered, and then the further question of whether or not it is desirable that a trading department should make a " profit." Finally, in view of the want of uniformity which exists in preparing municipal financial statements, the method of auditing municipal accounts will receive some attention. The profits of an undertaking may be defined as the excess of the total incomings or revenue over the total outgoings or expenditure of the business. The difficulties in connection with the profits of a municipal trading enterprise arise in determining whether the various items which properly constitute the Income and Expenditure of the undertaking have been rightly entered in the accounts. More questions arise in connection with items of expenditure than with items of income, but both are of great importance. The principal item amongst the receipts should be the revenue obtained from the sale of the products or services 126 CH. V FINANCIAL ASPECTS OF MUNICIPAL TRADING 127 sold, including by-products ; amongst the other receipts may be rents obtained for the use of land or buildings belonging to the undertaking, or interest on bank deposits and invest- ments. The special point which arises, if the enterprise is a municipal undertaking, is whether some policy adopted by the trading department with regard to the charges made to the other departments of the Corporation in respect of products or services sold to them, does not influence the receipts either to the detriment or to the advantage of the particular trading department. § 2. If a trading department does not sell at ordinary prices to the remaining corporation departments, it may do one of three things : supply them free of charge, undercharge them, or overcharge them. Thus if a Gas Committee pro- vides the street lighting free of charge, the receipts of the department are less than they should be to the extent of the value of the gas and services ^ provided. For example, in Colne and Dewsbury the Gas Committees make no charge for gas for street-lighting purposes." In Oldham gas is supplied free to all municipal buildings, public clocks and all street lamps, and water is also supplied free to all municipal build- ings.^ In other cases trading departments sell water, gas, or electricity, as the case may be, to other municipal depart- ments at less than the prices charged to the general public. Thus in Hull the charge for water supplied to the public baths and parks is 3d. per 1000 gallons, and to all other municipal departments 4^d. per 1000 gallons, the ordinary charge being 6d. per 1000 gallons."* In Cardiff water for sanitary purposes is supplied to the Council at the rate of 2^d. per 1000 gallons, the ordinary price being from 6d. to IS. 6d. per 1000 gallons.^ In Liverpool electric current is sold to the Health Committee at id. per unit, whereas the price paid by private consumers for lighting purposes is from 3|^d. to 2^d. per unit, according to circumstances.^ In Birmingham the price of gas for street-lighting purposes * That is, the cost of maintaining ^ Parliamentary Return on Muni- lamps and paying lamplighters if these dpal Trading { United Kingdom), part burdens fall upon the Gas Committee. ii. pp. 96, 99. 2 Parliamentary Return relating to * Ibid, part v. p. 38. all Authorised Gas Undertakings of ^ Ibid, part v. p. 81. Local Authorities. 6 Jbid. part ii. p. 8. 128 MUNICIPAL TRADING chai-. is IS. per looo cubic feet, the charge made to ordinary lighting consumers being is. lod. to 2s. 6d. per looo cubic feet, according to the consumption.^ Where, as in these cases, Corporation Departments are undercharged, this tells against the receipts of the particular Trading Department in the same way, though in a less degree, than if no charge had been made. In the cases of products or services provided free of charge or at reduced charges by a Municipal Department, fairly complete information can generally be obtained, and it should be possible for most undertakings to establish a new profit and loss account in which the real value of all the products and services sold is entered amongst the receipts. This would show to what extent the receipts, and conse- quently the profits, had previously been under-estimated, or the losses had previously been over-estimated. The other way in which the receipts may be affected is by a Trading Committee overcharging one or more of the remaining Corporation Committees. This may be done deliberately or unintentionally, but in either case it is generally veiled by the fact that the surrounding circum- stances differ from those connected with the sale of the same commodity to private consumers. Thus an Electricity Committee may undertake to light the streets of a town in return for a fixed sum per lamp paid by the Corporation.^ No other consumer of electricity purchases current on the same sort of terms, so that there is no basis for comparison, unless an elaborate calculation be made to ascertain the approximate price of current per Board of Trade unit paid by the Corporation for street-lighting purposes ; even then it would be necessary to bear various considerations in mind concerning the cost of providing the particular service,^ before any satisfactory conclusions could be reached as to whether the Corporation was being charged too much, just enough, or too little for the current supplied. Another case in point is that of current sold by a Municipal Electricity Department to a Municipal Tramway Depart- 1 Parliamentary Return relating to is often sold at so much per lamp. all Authorised Gas Undertakings of ^ This point will be dealt with Local Authorities. more fully in the chapter on the selling 2 Gas for street-lighting purposes policies of municipal trades. V FINANCIAL ASPECTS OF MUNICIPAL TRADING 129 merit. Here the price charged per Board of Trade unit can be ascertained, but there is no private power consumer who purchases large quantities of current for traction purposes, and consequently a basis for comparison is again lacking. In big towns where the tramway departments handle a large traffic and have very little to fear from competition, they have not much difficulty in making a good profit, whereas the Electricity Departments have far more competition to face and find it difficult to make both ends meet. Hence there is a distinct temptation to make both of these undertakings show a reasonable return on their capital outlay, by transferring some of the surplus of the Tramway Department to the Electricity Department, in the form of an abnormally high price paid for current. If a Trading Department overcharges another department, its receipts are improperly increased, and consequently its profits are likewise improperly increased or its losses improperly diminished. Many Municipal Tramway undertakings in this country complain that they are being overcharged for current and that they are bolstering up electricity undertakings. Quite recently the Municipal Tramway Association and the Municipal Electrical Association have agreed upon a new basis on which current for traction purposes is to be charged, namely, the actual cost of production of the energy supplied, instead of the average cost for all classes of load, as is now commonly the case. If an Electricity Department realises a surplus on the transaction it is to be shown separately. For the purpose of ascertaining the cost of production, sums set aside for the repayment of loans are not to be included, but depreciation is to be charged on the assumption that the life of land is lOO years, of buildings 60 years, and of plant and machinery, including mains, 20 years.^ The adoption of this basis of charging will not prevent an Electricity Department from being bolstered up by a Tramway Department, but it will show clearly to what extent such bolstering up occurs, of which at present it is impossible to form a definite opinion.^ ' Report of the Joint Committee of ways Association on the question of the Incorporated Municipal Electrical charging for tramway current. Association and the Municipal Tram- ^ gome tramway undertakings have K I30 MUNICIPAL TRADING chap. S 3. The questions concerning the expenditure of Municipal Trading Departments which require special attention are two : the first is whether certain expenditure incurred in connection with a Trading Department has been properly charged to the capital or revenue account of the particular Trading Department as the case may be ; the second is whether sufficient provision is being made out of revenue to provide for the wear and tear of the various fixed assets. Further, if one Trading Committee over- charges another, as was mentioned above, in so far as it exaggerates the receipts of the one it exaggerates the expenditure of the other, and thereby diminishes its profits or increases its losses. The item which may perhaps most easily be slipped out of the capital account of the Trading Department is the cost of street widening in connection with the tram- ways.^ One aspect of the cost of street widening has been referred to in connection with the conditions made by local authorities before giving their consent to Tramway Companies' leases." In the matter of street improvements a Tramway Department should be treated in the same way as a Tramway Company. If a street is widened for their own generating stations, which considerable. Where current is pur- appear to supply current at much lower chased from an electricity works it will cost than it can be purchased at an very likely be distributed at high electricity works, for example at 0.3d. or voltage to sub-stations, where it is o.4d. per unit instead of, .say, id. per transformed down and then recorded unit. These low figures per unit are before it is supplied to comparatively deceptive on more than one ground. short feeders. In this way little more In the first place, they are works costs, current will be metered than is actually and include no debt charges or pro- used by the cars. In consequence of vision for depreciation. In the second these considerations the difference place, there is probably no accurate between the nominal cost of current control over the meters, as the tramway produced in a tramway power station undertaking has no financial interest in and the price of that purchased from checking how many units are metered ; an Electricity Department is no indica- on the other hand, the more current tion of the extent of the overcharge, if that is recorded the lower the working any, made by an Electricity Department cost per unit. In the third place, the to a Tramway Department, current is probably metered at the j ^^^^^^ widenings paid for after power station where it is generated at ^^^.^^^^ ^^^ ^^^^ ^^ ^^^.^^^ low pressure and distributed through- ^ ^ i,- u • .. • 1 i^ t, ^Q revenue account, which is certainly out the town. In this way far more r ui • »u c n • .,, ' , , ■'. ^ ,, preferable in the case of small improve- current will be metered than is actually ^ . ^ r . u i ments. used, as the loss of current when trans- mitted at low voltage will be very ^ gee pp. 31-33, above. V FINANCIAL ASPECTS OF MUNICIPAL TRADING 131 purposes of general traffic, a tramway undertaking might nevertheless derive sufficient direct benefit from the im- provement to justify its being charged with part of the expense. Where streets are widened in connection with tramway schemes, if it be reasonable that the local authorities share the cost with a Tramway Company it may fairly do so with its own Tramway Department. In that case part of the cost would be charged to the street improvement account of the local authority, and part to the capital account of the Tramway Department. If the local authority could not reasonably be expected to share the expense of street widening with a company, then the whole burden of the cost should be borne by the Tramway Department. In London, where improvements and widen- ings are made for the purposes of general traffic, from which the tramways have derived or will derive benefit, no part of the cost is charged to the London County Council Tramway undertaking, though a considerable proportion of it ought probably to have been so charged.^ Where improvements have been undertaken in connection with tramway schemes, the ordinary basis of apportionment adopted by the London County Council is that one-third of the cost is charged to the Tramway undertaking, but on various occasions only a smaller share has been charged to the Tramways, and in some cases nothing at all. Consequently the Tramways capital account has been undercharged by a substantial sum." A case of the whole of a street improvement being charged to a Municipal Tramway Department is that of the street widening undertaken round the site of the old Manchester Royal Infirmary in order that additional tram lines might be laid down. The site already belonged to the Corporation, but the interest and sinking fund charges in respect of that part of the land which was used for the street widening scheme are paid by the Tramway Department.^ Another item which should be debited to the capital 1 Report on the London County amounted to ^4048, the value of the CoiinctTs Tramways, by W. B. Peat land used being about ;^ 100, 000. See and F. W. Pixley, pp. 14- 17- the Annual Report of the General '^ Ibid. pp. 1 1 -14, 16. Manager of the Manchester Co7poration 2 In 1909-10 this annual payment Tramways for jgog-io, p. 14. 132 MUNICIPAL TRADING chap. account of a Trading Department is the cost of obtaining the original powers to estabHsh the Department. Where the method employed is to obtain a private Act of Parlia- ment this item may be quite considerable. These items of expenditure affect not only the capital amount of a trading undertaking, but also its annual revenue account, as interest and sinking fund contributions will have to be paid in respect of the loans. The most important item which is likely to be omitted from the revenue account of a Trading Department is a share of the general expense of the local authority. This refers in particular to the legal services of the Town Clerk and his assistants on the one hand, and to the financial services of the Borough Treasurer and his department on the other. The smaller the Trading Department is, the more work is likely to be done in the general offices at the Town Hall. The allocation of general expenses amongst different departments is a difficult matter in the case of large companies, but as the shareholders look only to the combined results of the various departments, it merely affects the departments inter se and the shareholders are not prejudiced by it. In the case of municipal undertakings, where each department stands on its own footing and the results of its trading are published separately for the information of the ratepayers and in order to show the profits gained or losses incurred, the allocation of general expenses becomes much more important. A few examples of the practice adopted in various towns may be given. The proportion of general, legal and establishment charges of the Councils paid in 1905-6 by the Liverpool Water Department was £6y2y, by the Liverpool Electricity and Tramway Departments ^2000, by the Liverpool Markets Department ;^iooo, by the Nottingham Gas Department £1 137, by the Nottingham Electricity Department ;^2 90, by the Nottingham Tramways Department £$9$, by the Bradford Water Department £i?>oo, by the Bradford Gas Department £1700, by the Bradford Electricity Department ^850, by the Bradford Tramway Department £7^0, and by the Bradford Market Department ^225. In Manchester, Birmingham, Leeds, Sheffield and Leicester, on the other hand, the Trading V FINANCIAL ASPECTS OF MUNICIPAL TRADING 133 Departments made no contribution to the general, legal and establishment charges of the Councils.^ Another possible omission of a similar character from amongst the working expenditure is rent in respect of rooms devoted to the Department in the Town Hall or other public building. Another point about which it is well to make sure is whether a proper amount has been debited to the revenue or capital accounts of a Trading Department in respect of its share of the cost of obtaining any supplementary powers which may be included in an Act obtained by the Corporation to authorise various undertakings. § 4. The second question concerning the expenditure of Municipal Trading Departments which calls for special con- sideration is the provision made out of revenue for the wear and tear of fixed assets, or in other words for depreciation. All buildings, plant and machinery employed in a business will necessarily suffer from wear and tear, and if it is desired that the business shall be carried on permanently it is necessary to make provision for their maintenance. This will involve regular repairs, periodic renewals, and ultimate replacement. The cost of maintenance must be provided out of revenue if living on capital is to be avoided. The cost of small repairs and renewals will fluctuate from year to year within limits, but it should be possible to meet those payments without difficulty from current revenue. To attempt to meet the whole cost of maintenance out of current revenue will not generally prove satisfactory, as the need for big renewals and replacements occurs only irregularly, and may then require much larger sums than can conveniently be charged to current revenue. In order to secure a fairly stable net revenue, some provision must be made each year in anticipation of the cost of future renewals and replacements. This may be done either by gradually writing down the value of the assets in the books, to correspond with the deterioration of their intrinsic value, or by crediting a suitable sum to a depreciation account. The latter method has the advantage that it is easier to see how much provision has been made ^ Parliamentary Return on Municipal Tradi/t" {United Kingdom), parts i., ii. , iii., V. 134 MUNICIPAL TRADING chap. for depreciation and the ratio it bears to the original value of the assets. The rate at which depreciation should be allowed for, depends entirely upon the estimated life of each particular asset, which in its turn depends a great deal upon the sum annually spent on repairs and small renewals. But no amount of expenditure out of current revenue on repairs and small renewals can do away with the ultimate need for replacement. It can only be postponed, and a day will come when entirely new buildings, plant, or machinery must be substituted for the existing ones, and the expenditure thus necessitated should be a charge, not on the revenue of the particular year in which the replacement has to be effected, but on the revenue during the whole period during which the assets to be replaced were used. This distribution of the burden over the whole period can be effected only by writing down the value of assets or by accumulating a depreciation fund. The estimated life of an undertaking is not always a sound basis to adopt in order to calculate the sum to be set aside for depreciation. In some cases plant or machinery is likely to become obsolete before it is worn out. This should be provided for, either by allowing for the depreciation of such assets at an extra high rate, or by accumulating a special reserve to cover loss by obsolescence.^ There is probably no industry in which the danger of plant and machinery becoming obsolete before it is worn out is greater than in the electrical industry ; many improvements of a radical kind have been made in it during the past, and are likely to continue to be made in the future, as the industry is still a comparatively new one in course of development. In any trade in which much capital is invested in the form of machinery a large provision for depreciation is necessary, as machinery tends to wear out much more rapidly than plant or buildings. Consequently in an electrical undertaking in which much machinery is employed and the likelihood of obsolescence is considerable, very ample provision for depreciation should be made. In the case of electric tram- ways it is in connection with the permanent way that the 1 Further reference to the subject of after the question of the repayment of obsolescence is made below, p. 159, loans lias been discussed. V FINANCIAL ASPECTS OF MUNICIPAL TRADING 135 cost of renewals will be heaviest, and it is essential that this should be provided for by a depreciation fund, as the expenditure in connection with it is likely to be very un- evenly distributed throughout a period of years. The cost of renewing overhead equipment is considerably diminished by the fact that the copper wire retains much of its value in spite of exposure and wear and tear. As far as gas and water undertakings are concerned, although it is possible to make most repairs and renewals out of current revenue as the need for them occurs, without rendering the net incomes of the undertakings very unstable, when an occasion arises to relay mains or replace existing buildings, the desirability of providing for depreciation will be realised. In the light of these general considerations we may pass on to consider the policies actually adopted by the various municipal water, gas, electricity and tramway undertakings with regard to depreciation. § 5. The policies adopted by different local authorities with respect to the provision made for the depreciation of their trading undertakings vary enormously, both with regard to the amount provided for the purpose and to the method by which the amount is determined. At the one extreme we find trading departments which make no provision whatever for depreciation, and which rely presumably on maintaining the undertaking in an efficient state out of current revenue, and at the other extreme we find trading departments which set aside each year in respect of every kind of fixed asset a sum based upon the estimated life of each particular asset. Other methods adopted are to place the whole of the " net surplus revenue " to a depreciation fund, to place a certain fi.xed percentage of the "net surplus revenue" to a depreciation fund, or to place a sum determined on no fixed basis to a depreciation fund. (i.) The departments which most frequently make no provision for depreciation are those which carry on water undertakings, the idea being that the works can be fully maintained out of revenue. This appears to be the case, for example, in Manchester, Plymouth, Bath and Coventry. As far as gas works are concerned, no provision is made for depreciation at Rotherham and Wigan, and the same applies 136 MUNICIPAL TRADING chap. to the electricity works at Gloucester, Swansea and Derby, whilst in Grimsby a contribution was even made in aid of the rates in 1908-9, although no provision was made for depreciation. The tramway undertakings of Rochdale, Gloucester, Blackburn and Plymouth make no provision for depreciation, although in the last town a contribution was made in 1908-9 in aid of the rates.^ (ii.) The policy of setting aside each year a sum for de- preciation based upon the estimated life of the various assets appears to be more frequently adopted, at least in so far as this country is concerned, in the case of tramway undertakings than in the case of electricity, gas, or water undertakings. Some illustrations from the different industries may be given. In the case of tramway undertakings we find that in Man- chester the annual contributions to the depreciation fund are made on the following basis : Permanent way, ^^400 per mile of single track ; overhead equipment, ^50 per mile of single track ; electric cars, 5 per cent on prime cost ; machinery, 7^ per cent on prime cost.' In Wolverhampton it is assumed that rails will last twelve years and will cost £,\ per yard to relay, and one-twelfth of such estimated cost is set aside each year. The cars are assumed to last ten years, and one-tenth of the estimated cost of renewing them is set aside each year. The renewals fund in regard to track equipment and car equipment is based upon the estimate of the electrical engineer.^ In Glasgow the annual contribution to the permanent way renewal fund is ;^500 per mile of single track. The provision for depreciation in respect of electrical equipment of the line is 3.06 per cent ; in respect of buildings and fixtures, 2.5 per cent ; in respect of power stations and sub-stations, 5 per cent ; in respect of workshops, tools and 1 All these statements concerning the ii. p. 35. In 1908-9 the amount ap- provision made for depreciation are propriated for Reserve, Renewals and based on the Annual Local Taxalion Depreciation Fund was equivalent to Returns for J goS-g, part v. pp. 42-59. 1.063d. per car mile, in 1909-10 to lu the case of every town mentioned •979d. per car mile {Animal Report of no payments to reserve, depreciation, the General Manager of the Manchester or insurance funds were made during Corporation Trajnways, 1909-10, p. 1908-9, nor did any sums stand to the 14). credit of such funds at the end of the year. ^ Parliamentary Return on Muni- 2 Parliamentary Return on Ahini- cipal Trading {United Ringdom), part cipal Trading {United Kingdom), part iii. p. 10 1. V FINANCIAL ASPECTS OF MUNICIPAL TRADING 137 sundry plant, cars, electrical equipment of cars, and office furniture, 7I per cent ; and in respect of other rolling stock 10.5 per cent.^ In Cologne the provision for depreciation is £ per cent on buildings, 6 per cent on permanent way, 3 per cent on overhead equipment, 5 per cent on cars, and 10 per cent on instruments, tools, machinery, etc." In Diissel- dorf the corresponding rates are 2 per cent for buildings, 10 per cent for permanent way, 7^ per cent for overhead equip- ment and accumulators, 10 per cent for cars, and 10 per cent for machinery, instruments and lighting equipment.^ With regard to electricity works, in Glasgow amounts are written off the capital assets annually out of revenue according to the following rates : i per cent on land and buildings, 5 to 7^ per cent on plant and accumulators, 2\ per cent on mains, 6 per cent on meters, 5 per cent on electrical instruments, and 5 per cent on office furniture.'* In Aberdeen depreciation is charged to the revenue account annually at the following rates : buildings, i per cent ; mains and services, i-g per cent ; electrical instruments and tools, 2\ per cent ; machinery, accumulators and meters, 5 per cent.^ In Dusseldorf depreciation is charged to the revenue account at the following rates : 3 per cent on buildings ; 10 per cent on boilers, machinery apparatus and accumulators ; 3 per cent on mains ; and i 5 per cent on meters.*^ In the case of gas, Glasgow is the only British munici- pality, as far as can be ascertained, which writes amounts off the capital assets out of revenue, according to the estimated life of the several assets. The bases are as follows : on land, buildings, machinery and plant, 2.\ per cent ; on pipes, 2^ per cent; on meters, 6 per cent; on stoves, 10 per cent.' In Germany this system of providing for depreciation appears to be much more generally adopted. In Heidelberg the rates allowed are i per cent on land, 2 per cent on buildings, 1 Parliamentary Return on Aluni- ^ Parliamentary Return on Muni- cipal Trading (United Kingdoiii), part cipal T?-ading (United Kingdom), part vi. p. 31. vi. p. 28. ^ Ibid, p, 72. 2 Bericht uber die Verwaltung der ^ Betriebs-Ahschluss des stddtischeti stddtischett Bahnen zn Coin fiir den Elektrizitdtswerkes ztc Diisseldorf fiir Zeitraum igo8-g, p. 5. das Geschdftsjahr igo8, p. 66. 3 Geschdftsbericht iiber das Betriebs- '' Parliamentary Return on Muni- jahr igog-io der Strassenbahnen der cipal Trading (United Kingdom), part Stadt Diisseldorf, p. 21. vi. p. 25. 138 MUNICIPAL TRADING chap. lO per cent on retorts, 5 per cent on gasometers, 6 per cent on water-gas plant, 10 percent on apparatus and machinery, 10 per cent on meters, and 5 per cent on mains, street lamps, tools and furniture.^ In Dusseldorf the corresponding rates are buildings, 3 per cent ; gasometers, 6 per cent ; retorts, 10 per cent; apparatus, 10 per cent; mains, 4 per cent; and meters, i 2\ per cent.^ The only British corporation which appears to provide for depreciation of its water undertaking according to the estimated life of the various assets is Salford, which annually pays into a depreciation fund sums equivalent to i per cent on mains and services, i per cent on reservoirs, and 10 per cent on meters.^ Two further examples may be selected from German towns. In Bonn the provision made for the depreciation of the water works is 2 per cent on buildings, 2 per cent on springs, 10 per cent on boilers and filtration plant, 8 per cent on machinery, i^ per cent on reservoirs, 2^ per cent on mains, and 10 per cent on meters, furniture and tools.'* The depreciation rates of the Mannheim water undertaking are i per cent on land and buildings, 3 per cent on mains, 5 per cent on springs, machinery, pumps, boilers and apparatus, and 10 per cent on meters, furniture and tools.'' In certain cases modifications of the above -described depreciation policy are adopted where a certain fixed per- centage of the total capital outlay is carried to a depreciation fund. Thus in the case of Huddersfield Tramway undertaking an amount equal to 3 per cent of the capital outlay is annually carried to a depreciation fund, which is available for renewals of the permanent way and replacements of machinery and plant.*^ In the case of the Huddersfield Gas Works an amount equal to 2 per cent of the capital outlay is annually carried to the depreciation fund,^ whilst in the case of the 1 Bericht iiber den Betrieb der stddti- der Stadt Bonn fit r die Zeit vom i. iv. sche7t Gas-, Wasser- tmd Elektriziicits- igog bis ji. Hi. igio, p. 77. werke Heidelberg imjahre igo8 p. 14. 5 Moericke, " Die Gemeindebetriebe Betriebs-Abschluss des stadtischen Mannheims," Schriften des Vereins fur Uaswerkes zu Dilsseldort fiir das Ge- c ■ ij. i-t-i 1 /„„ ^ ■ ^q , ..^ . , „ -^ -^ Socialpohtik, vol. I2Q, part iv. p. 50. schdftsjahr igo8, p. 1 7. ^ ' ;" r r j 3 Parliamentary Return on Muni- '^ Parliamentary Return on Muni- cipal Trading {United Kingdom), part ^'>^^ Trading (United A'ingdom), part ii. p. 49. i- P- 97- * Betriebsbericht des IVasserwerks ^ J bid. part i. p. 91. V FINANCIAL ASPECTS OF MUNICIPAL TRADING 139 Blackpool Gas Works an amount equal to i per cent of the total capital outlay is annually carried to the depreciation fund.^ Another modification is where the amount of the statutory loan repayments is deducted from the sums set aside for depreciation, these sums being calculated on the basis of the estimated life of the various assets. Thus in the Bolton electricity accounts, contributions to depreciation are made at the rate of 6 per cent in respect of machinery and plant, and 10 per cent in respect of meters and motors. From the sums rendered available in this way the sinking fund contributions are deducted and the difference is credited to the depreciation fund account.^ A similar policy is adopted in respect of the Bristol Electricity Works ^ and the East Ham Tramways.* A third modification is where the sinking fund contribution is deducted from the amount provided for depre- ciation which is calculated as a fixed percentage of the total capital outlay. For example, the revenue of the Sunderland Tramways is charged with a combined contribution to reserve fund, renewals fund and sinking fund calculated at 5 per cent on the capital cost of the undertaking plus 3 per cent interest on accumulations.^ (iii.) The method of placing the whole of the " net surplus revenue " to the reserve or depreciation fund is one of those most commonly adopted in this country. By " net surplus revenue " is meant everything that remains after paying out of gross revenue all running expenses, interest on capital and sinking fund contributions. It implies that no provision is made for depreciation and that nothing is paid in aid of the rates. This method, like the two which remain to be described, is essentially unscientific. The sums contributed in this way may or may not be adequate. It is impossible to form an accurate opinion on the subject, as no informa- tion is available as to the original value of the different kinds of assets. The most that can be done is to compare the net surplus revenue with the total capital outlay. Thus in the case of the Sunderland Electricity Works, ^^1429 was carried to a renewals fund in 1905-6,'^ or something 1 Parliamentary Return 071 Muni- ^ Ibid, part v. p. 3. cipal Trading {United Kingdom), Tpa.xi ■* Ibid, part iii. p. 143. ii. p. 217. " Ibid, part v. p. 102. 2 Ibid, pari ii. p. 78. '^ Ibid, part v. pp. 96, 98. I40 MUNICIPAL TRADING chai-. less than \ per cent of the capital value of the undertaking, which appears quite inadequate. In Norwich a sum of £^6AtO was credited to the depreciation account of the Electricity undertaking in 1905-6, which is at the rate of about 2 per cent on the capital value.^ The Leicester Tramway undertaking in the same year paid ;^i3,iio into a depreciation fund which represents not quite 2 per cent on the capital outlay.^ In Birkenhead the Tramway undertaking in 1905-6 placed ^^898 to the credit of the renewals fund, which is equivalent to \ per cent on the capital value of the undertaking.^ In all these cases the sums transferred to depre- ciation funds represented the balance on the year's working. (iv.) The method of paying a certain fixed percentage of the " net surplus revenue " to a depreciation fund is adopted by the Liverpool Tramways and Electricity undertakings. Thus in the case of the tramways, there is a statutory obligation that two-thirds of each year's " surplus " shall be contributed to the reserve, renewals and depreciation funds,** whereas in the case of the electricity works two-fifths of any " surplus " which remains after contributing a sum equal to i per cent of the capital expenditure to the reserve fund is placed to the credit of the renewals fund. In 1905-6 the sum con- tributed to the reserve, renewals and depreciation funds in respect of the tramways system was ^56,834 or 2\ per cent on the capital value of the undertaking, and in respect of electricity works .^32,657 or i|^ per cent on the capital value of the undertaking.^ (v.) The method of providing for depreciation on no fixed basis is not very satisfactory, as it generally consists of crediting to a renewals fund that portion of the " net surplus revenue " which remains after paying a sum in aid of the rates. The amount of such contribution to the rates may be determined by the trading committee as that which they can afford to pay, if proper provision is to be made for depreciation ; or it may, on the other hand, be determined by the temporary financial requirements of the Municipality 1 Parliamentary Return on Muni- ■* Liverpool Corporation Act, 1902, a'pal Trading {United Kingdom), part sec. 55. iii. pp. 115, 116. ^ Parliamentary Return on Miini- 2 Ibid, part iii. pp. 52, 62,. cipal Trading (United Kingdom), part ^ Ibid, part ii. pp. 149, 160. ii. pp. i, 7, 10. V FINANCIAL ASPECTS OF MUNICIPAL TRADING 141 and the desire of the Council to avoid raising the rates as far as possible, in which case the need of an adequate con- tribution to the depreciation fund is likely to be ignored. As far as this country is concerned, this method of providing for depreciation appears to be as usual as, if not more usual than, the method of contributing the whole of the " net surplus revenue " to a renewals fund. One illustration for which full information is available will suffice to show how thoroughly unsatisfactory this method of providing for depreciation on no fi.xed basis can be. The Salford Tram- way undertaking is the case in point. The Committee hold that there is no necessity to provide for the depreciation of anything except the rails, as the buildings and rolling stock are kept in a thorough state of efficiency.^ In 1906 they instructed the General Manager to report on the position of the depreciation and renewals fund and also upon the arrangements which it was desirable to make in the future to provide adequately for the expenditure which would be entailed in a few years' time in the reconstruction and renewal of the tramway track.^ The General Manager made careful inquiries concerning the probable life of rails and the probable cost of renewals. He estimated the cost of relaying a mile of single track would be ^4000, and that the lines over which the traffic was fairly light would last fifteen years and the lines where the service was more frequent would last ten years. He placed 18 miles of the Salford track in the latter class, and 36|^ miles in the former class. In respect of these 54!^ miles the annual depreciation contribution should be £11,0x2? Corresponding calcula- tions were made for the previous years, and it was ascertained that on March 31, 1906, the sums which had been credited to the depreciation fund were ^20,000 less than the sums which should have been contributed. The General Manager recommended that these arrears in the contribution should be made up, and that the annual contribution to the ^ Parliamentary Retzirn on Muni- be renewed at some time in the future. cipal Trading {United Kingdom), part - Report of the General Manager of ii. p. 58. This, of course, overlooks the Salford Corporation Tramzvays with the facts that it is not possible to go regard to the Depreciation and Renewals on repairing buildings and cars in- Fund, August 1906, p. 3. definitely, and that they will have to ^ Ibid. pp. 4-7. 142 MUNICIPAL TRADING renewals and depreciation fund should be ;^i 7,000, to be increased pro rata as the length of track operated increased/ By 1909, when the length of track had increased to 75 miles,^ the provision for depreciation should have been some -^22,400, on the assumption that the traffic on all the new track was fairly light and that the rails would last fifteen years. As a matter of fact the Committee did not accept the sound advice of their manager ; they preferred to continue to make provision for depreciation on no fixed basis, and we can compare the sums they have placed to the depreciations and renewals fund with the sums suggested by the manager and at the same time note the contributions made by the Committee in relief of the rates. Table sliowing the Provision made for Depreciation in certain Years by the Salford Corporation Tramway Department.^ Year. Placed to Deprecia- tion and Renewals Fund. Contributed in Relief of Rates. Provision which should have been made for Depreciation in Accordance with General Manager's Report of August 1906. 1906 1907 1908 1909 19IO >^9,302 14,890 10,806 264 2,172 £13,000 13,000 18,000 17,000 17,000 £17,000 18,800 20,600 22,400 24,200 A glance at this table will suffice to show that in 1908-9 and 1909-10 there were really deficits, as the sums contri- buted in relief of the rates would not have sufficed to render adequate the provision for depreciation. If the finances of the undertaking had been conducted on sound lines, not merely should nothing have been contributed in relief of the rates in either of these years, but some £5000 should have been made good to the undertaking from the rates, or a deficit should have been carried forward. It would be a mistake to think that all municipal trading 1 Report of the General Manager of Manager of the Salford Corporation the Salford Corporation Tramways with Tramtvays for the Year ending March re^ardto the Depreciation and Renewals ji, jgog, t[). II. Fitnd, August 1906, pp. 7, 8. ^ Annual Reports of the General 2 Anmial Report of the General Manager. V FINANCIAL ASPECTS OF MUNICIPAL TRADING 143 undertakings which provide for depreciation on no fixed basis make such inadequate provision as the Salford Tram- way undertaking appears to make, but if no definite method of allocating sums for renewals is adopted, there will always be a great danger that unduly large contributions in relief of the rates will be forced out of trading committees by their Town Councils, at the expense of the provision which should be made for depreciation. ^ 6. There still remains to be considered the attitude of the central authorities in this country towards the provision of sums out of the revenue of municipal trading undertakings to be set aside to meet future renewals and replacements. As a general rule the central authorities do not insist upon any provision being made for depreciation, but there are certain exceptions. Thus by statute ^ the Aberdeen Tram- way Department is obliged to write off not less than 3 per cent annually on the first cost of machinery and plant in respect of depreciation, and the Dundee Tramway Department is under the same obligation."- In the case of the Liverpool tramways the Committee is obliged to con- tribute to a depreciation fund two-thirds of each year's surplus.^ An obligation to create a depreciation fund has been imposed upon the Salford Water Works,* and a sum not exceeding 3 per cent per annum upon the capital is to be set aside as a depreciation fund to be applied in making replacement and repairs. An exactly similar obligation exists in respect of the Salford Gas Works.^ In connection with the borrowing of money by the metropolitan borough of Woolwich for the purpose of its electricity undertaking, the London County Council has required the Borough Council either to set up a reserve fund or to charge the cost of all renewals to revenue account.^ The latter course appears to have been mostly pursued, and has necessitated considerable contributions from the rates. 8 7. Until an adequate sum has been charged to revenue ' Aberdeen Corporation Tramways * Salford Improvement Act, 1862, Act, 1898. section 412. ., -r^ , „ .- T- ^ Salford Improvement Act, 1862, -^ Dundee Corporation Iramways . ^ ' ' A o section 413. ' " ■ ^ Parliamentary Pefiirn on Mu7ii- ' Liverpool Corporation Act, 1902, cipal Trading (United Kingdorji), section 55. part iv. p. 212. 144 MUNICIPAL TRADING chap. in respect of depreciation, there can be no question of profits in the ordinary business sense of a surplus vvliich is available for the payment of dividends. The provision for depreciation is made to meet losses which, it is almost certain, will occur in the future owing to the wasting of fixed assets, and this should be paid from gross revenue as a business expense or working charge, and not from net revenue as though it represented a portion of the profits. In the same way it is desirable in every business to make provision for contingencies, which may occur and involve the undertaking in considerable expense. Municipal trading enterprises may meet with acci- dents or breakdowns, as, for example, an explosion at a gas works or the bursting of a water main. The risk involved by these contingencies is of a similar nature to that in- volved by fire. The risks involved by fire can be covered by insurance, and the premiums are then regarded as a working expense. It is more difificult to insure against other business contingencies, so that these risks should be met by annually setting aside from gross revenue a suitable sum to a contingency fund or contingency reserve account. It is quite possible that many trading committees make provision for contingencies, but few appear to have established a special fund for the purpose. One or two cases where provision is made may be mentioned. The Sheffield Tram- ways undertaking ^ and the Brighton Water undertaking " have created contingency funds, which, in the former case, is in addition to a renewals fund. In the case of the Dundee Gas undertaking, the Gas Commissioners are authorised ^ to set apart annually a sum not exceeding 2\ per cent of the gross annual revenue to form a contingent fund against risks and losses by fire, explosions, and destructions of works, other than ordinary wear and tear, and for permanent additions and improvements. § 8. Quite apart from depreciation or contingency funds there is another fund which experience shows it is generally well to establish in connection with a business, namely, a reserve fund which is accumulated out of the net revenue to 1 Parliametitary Return on Muni- 2 /^/^_ ^2x\. iii. p. 172. cipal Trading {United Kingdom), 3 Dundee Gas Act, 1872, section part i. p. 31. 16. V FINANCIAL ASPECTS OF MUNICIPAL TRADING 145 provide for the extension of a business, or for the equalisa- tion of dividends, or for generally increasing the resources of a business. It is very important to distinguish carefully between reserves and a reserve fund. A reserve may be defined as a provision charged against revenue, with a view to covering an expected loss. Reserves may be made to cover losses arising from depreciation, bad and doubtful debts, disputed claims, contingent liabilities, etc. A reserve fund is a sum set aside out of divisible profits, and retained in hand for the purpose of strengthening the financial position of the undertaking. It differs from a reserve in that it is impossible to create a reserve fund save out of divisible profits, whereas a reserve may be provided during periods when a loss has been sustained.^ The need for clearly distinguishing reserves on the one hand, and reserve funds on the other, continually arises when dealing with the finances of municipal trading. The central authority frequently permits a trading undertaking to accumulate a reserve fund up to a certain amount. Various local authorities appear to assume that this refers to deprecia- tion funds, with very unfortunate results, if the limit imposed is a low one. On the other hand, where no express per- mission to form a reserve fund is given, trading committees sometimes assume that they have no right to provide for depreciation, which is even more unsatisfactory. An Electric Lighting Order, issued under the Electric Lighting Acts, 1882 and 1888, by the Board of Trade to a local authority, practically always embodies a sub-section authorising the local authority, if it thinks fit, to set aside such money as it considers reasonable to provide a reserve fund, and to accumulate it at compound interest until the fund amounts to one-tenth of the aggregate capital expenditure. As has already been pointed out, Liverpool is accumulating such a reserve fund from surplus, and, in addition, is placing two- fifths of the remaining surplus to a renewals fund." In the case of Manchester there is both a reserve fund and a renewals suspense account.^ In Glasgow depreciation is ^ See Lawrence R.Dicksee,Z)t of Street and Road Tram- ways and Light Railways for the Year igaS-g. The number of miles run by cars was 176,686,312. 1 64 MUNICIPAL TRADING chap. to reserve and renewals funds was only ;i^429,i8o.^ The corresponding figures for the tramway undertakings of all local authorities in the United Kingdom were -!{^86 5,494 and ^680,204 '"' respectively. In other words, English and Welsh local authorities provided 58.3 per cent of the sum which they should have provided for depreciation in respect of their tramway undertakings, and all British local authorities 78.7 per cent of the proper sum. The fact that the latter percentage is so much higher than the former, is due to the very large provision for reserves and deprecia- tion made by Glasgow, which was equivalent to 2.44d. ^ per car mile run. It can therefore be stated without any hesitation that the provision made for renewals and replace- ments by many municipal tramway undertakings in this country is inadequate.'* S 16. We are now in a position to deal more closely with the question of what constitute the " profits " of a municipal trading enterprise. As a preliminary to this part of our inquiry it will be well to consider what constitute the profits of a trading company. A company first deducts from its gross revenue all the working expenses, for example, the cost of the raw materials used and the sums paid as wages, and carries the balance of net trading profits to the credit of a profit and loss account. To this are debited amongst other items any legal expenses, leasehold accounts, debenture interest, bankers' and other interest, and the sums transferred to depreciation fund. The balance available for appropria- tion constitutes the net profits of the company. From it a sum should be placed to a reserve fund to strengthen the financial position of the company, and something may be contributed to a sinking fund formed to pay off the deben- 1 Return of Street and Road Tram- of the proper sum ; whilst the sum set ways and Light Railways for the Year aside by all local authorities in the igoS-g. United Kingdom should have been '^ Ibid. "^ Ibid. ^884,786, and was actually ;,^76l, 646, * It is satisfactory to be able to note or 86. i per cent, of the proper sum. that in 1909-10 better provision was The United Kingdom figures are largely made for depreciation than in the influenced by the sums set aside by previous year. On the basis of id. Glasgow, which were equivalent in per car mile run, the sum set aside by 1909-10 to 2.2id. per car mile run. all English and Welsh local authorities (All the figures are taken from the should have been ^{^754,469, and was Return of Street and RoadTrannvay sand actually ;i^524,833, or 69,6 per cent. Light Raikvays for the Year igog-io.) V FINANCIAL ASPECTS OF MUNICIPAL TRADING 165 tures issued by the company. The surplus is available for the payment of dividends on the share capital. The financial statement issued by a municipal trading department generally includes a revenue account, which is credited with all receipts and debited with the working expenses ; also a net revenue or profit and loss account, to the credit of which is placed the balance, i.e. excess of income over expenditure, or net trading profit brought forward from the revenue account. Against this are charged, or should be charged, amongst other items, legal and parliamentary expenses, rent of leased lines, leaseholds, interest on loans, and provision for deprecia- tion. The balance of net profit is carried to an appropriation account, to which there is debited, or should be debited, pay- ments to sinking funds and loan instalments, contributions in aid of the rates, and sums applied in extension of works or placed to a reserve fund to strengthen the financial position of the undertaking. There are at least two respects in which the accounts of local authorities are sometimes presented differently from what is indicated in the preceding paragraph. The sum allocated for the repayment of debt is sometimes debited to the net revenue account instead of to the appropriation account, thereby making the balance of net profit appear smaller than it really is. This is done, for example, in the tramway accounts of the London County Council for 1 909- 19 10. Another arrangement which appears to be much commoner is to charge the provision for depreciation to the appropriation account instead of to the net revenue account.^ In this way the net profits are made to appear much larger than they really are. The provision for depreciation is essentially an element in the cost of the year's trading, which should not be determined or affected by the result of such trading. It should form a charge in the net revenue account of each year before the balance of net profit is arrived at, and ought not to be treated as an appropriation of any balance of net profit available.^ If it is desired to institute a comparison between the 1 This is done, for example, in the - Cf. W. B. Peat and F. W. Pixley tramway accounts of London, Man- in their Report on ike London Cojiniy Chester, Belfast and Bradford. Council Tratntvays, § 26. 1 66 MUNICIPAL TRADING chap. trading results of a company and of a municipal department, the net trading profits ascertained by deducting all working expenses from gross revenue may fairly be compared, but not the net profits, which are the balances of net revenue avail- able for appropriation, as the size of these depends very largely upon the source from which the capital has been obtained. A company has far fewer loans than a munici- pality, and consequently the interest to be debited to the net revenue or profit and loss account is much smaller in the case of a company than of a municipality. When people talk vaguely about the " profits" of municipal trading, they prob- ably do not mean what have been described above as the net profits, but the sum available for making payments in relief of the rates, which is only what remains of the net profit after provision for repayment of loans has been made.^ Two things greatly influence the " profits " or net surplus available in relief of the rates, viz., the amount of interest on loans which has to be paid and the sums which have to be set aside for the repayment of debt. If the annuity or the sinking fund system of debt repayment is adopted, both these items will remain constant until the end of the repayment period, when both will disappear, and then the " profits " will suddenly be greatly increased. If the instalment system of debt repayment is adopted, the sum allotted to debt repay- ment will remain constant until the end of the period, but the interest item will diminish steadily, and each year the net profits and also the net surplus, or " profits " available in relief of the rates, will increase. Whatever the method of loan repayment adopted, a trading department of a local authority should be in a very strong financial position at the end of the loan repayment period, either to reduce prices or to make large contributions in relief of the rates, or to do both these things, provided adequate provision has been made out of revenue to pay for all renewals and replacements, so that no new loans have to be contracted for this purpose. In look- ing into all trading accounts of municipalities the adequacy of the provision made for depreciation must be carefully ^ It is assumed here that the net ciation has been debited to the net profits have been properly ascertained, revenue account, and that adequate provision for depre- V FINANCIAL ASPECTS OF MUNICIPAL TRADING 167 examined before any opinion can be expressed about the " profits," but the other points referred to in the earher part of this chapter, such as the overcharging or undercharging of other municipal departments and the payment of a proper share of the general, legal and establishment expenses, must also be borne in mind. ^17. Regarding contributions to the rates made from net surplus, it is impossible to generalise. It is almost neces- sary to examine every kind of industry separately, and in some cases it is desirable to consider the conditions under which individual undertakings are administered. In the first place, we must distinguish between competitive and mono- polistic municipal industries, {a) If the municipal enterprise competes directly with private enterprises, the maximum amount of the net surplus will be limited, as the prices charged by the local authority cannot well exceed those charged by private firms for similar commodities or services. The problem under these circumstances really is whether a local authority is justified in not securing the maximum net revenue compatible with charging competitive prices, or, in other words, is it fair that it should undersell private firms ? The general question of local authorities engaging in com- petitive industries has already been discussed. Here we need only note that sometimes one of the objects of doing so is to bring about a fall in prices which are considered to be unreasonable. Under such circumstances it is absolutely essential that the local authority should charge less than the current prices. On the other hand it does not seem just that the local authority should fix a price which will not yield a fair profit to private firms. If prices are so arranged that the municipal undertaking just pays its way and no net surplus is yielded, this may still allow a private undertaking to pay a normal return on its share capital in view of the fact that the local authority has to provide for the repayment of debt out of the revenue of the undertaking, which a company has not to do. If earning no net surplus will lead to such low prices as to involve competitive under- takings in a loss, which is likely to happen if the municipal undertaking is free from debt, then the local authority should raise its charges to a level which will enable private enter- 1 68 MUNICIPAL TRADING chap. prises to earn a reasonable profit, and in consequence the local authority would realise a net surplus. If a normal price is charged and the prices charged by private under- takings are forced down to a reasonable level, then the whole body of consumers benefit, although only a few buy from the local authority. Another objection to charging abnormally low prices, and yet only satisfying part of the demand, is that a small and limited body of consumers alone benefit, so that the policy adopted has not even the justification of being for the general welfare. Thus if a municipality builds a certain number of working-class houses on land which it has received as a gift, and is con- sequently able to make the undertaking self-supporting,^ whilst charging rents below the normal, normal rents ought nevertheless to be charged. Not to do so would, on the one hand, harm ratepayers who might be owners of property, and would, on the other hand, be making a present of the difference between the actual low rent and the normal rent to a small privileged class of tenants. {b) The case of monopolistic municipal industries has now to be considered. Where the public health or sanitation is closely affected it is generally best that no net surplus should be realised, but that such prices should be charged as will just enable the undertaking to be self-supporting. The supply of water is a case in point. It is very essential that the price charged for domestic purposes should not be so high as seriously to limit the consumption ; to keep up the price, therefore, merely to realise a considerable net surplus — it may be necessary if the total supplies are in- adequate and cannot momentarily be increased — is undesir- able as a general thing. If the charge made for water for domestic purposes does not depend upon the quantity consumed, the objection that a high charge will unduly restrict consumption does not apply. This is the case if a water rate is levied on domestic consumers. Very likely the tariff may be complicated, involving different methods of charging owners of house property, occupiers of house * Interest on the value of the gift amount of capital, but no sinking fund should be charged and paid over to the contribution would be necessary in local authority as the owner of that respect of this capital. V FINANCIAL ASPECTS OF MUNICIPAL TRADING 169 property, and occupiers of works, offices and shops, and it is then very difficult to say at whose expense a net surplus might be secured, and whether the general body of rate- payers would be better or worse off if any sum contributed in relief of the rates had been raised instead by increas- ing the rates. Under these circumstances, which exist in Manchester and other towns, it is probably right that no contributions should be made in aid of the rates. This seems to be the safest rule to adopt with regard to the finance of all water undertakings, although exceptional circumstances may exist under which the realisation of a net surplus may be justified, as, for example, if a large supply of water is available at little cost, there seems no reason why a moderate charge should not be made to industrial under- takings, offices and shops, even if domestic consumers, on sanitary grounds, are given a supply free of charge, and in this way a net surplus might be available in relief of the rates. The policies actually adopted by local authorities with regard to contributions to the rates from their water under- takings differ considerably. In some cases water depart- ments are forbidden by statute from paying sums in relief of the rates ; in other cases they voluntarily adopt the same policy. Under these circumstances small surpluses or deficits are carried forward from year to year, and if the credit or debit balances become too large, the water rates or prices charged for water are altered, so as to bring about an equilibrium between revenue and expenditure. There are other local authorities which realise surpluses on their water undertakings and make contributions in relief of the rates.^ {c) In the case of municipal monopolies which do not directly affect the public health, the position is different. Such monopolies can be divided into two classes, those in which, roughly, all ratepayers participate as consumers, and those the consumers of which only form a small part of the ratepayers. In both cases some of the consumers may not be ratepayers at all. Gas and tramway undertakings 1 The financial aspect of contributions to, and aid from, the rates is discussed in Chapter VIII. I70 MUNICIPAL TRADING chap. belong to the first class. One reason why many local authorities are anxious to obtain sums in relief of the rates from such undertakings is that the great bulk of the revenue of a local authority has to be obtained by direct taxation, namely, by rates levied on the rent paid for buildings and land ; consequently, if some revenue can be obtained from what amounts to indirect taxation, the burden of taxation is not felt quite so severely. If people pay a slightly higher price for their gas or travel a somewhat shorter distance by tram for a penny, they do not feel it in the same way as if they had to pay higher rates. To rely largely on indirect taxation is certainly very undesirable, as it is almost impossible to obtain an equitable distribution of the burdens of taxation, and there is a danger that people will not realise sufficiently what they are contributing to the upkeep of the State or of the local area. It may be an ideal arrangement for a central or local authority to raise the whole of its revenue by direct taxation, but if the amount to be raised is considerable, the burden on taxpayers will be heavy. As a practical policy, a judicious combination of direct and indirect taxation is certainly best for a central government, and it is not astonishing that a local govern- ment should strive to adopt a similar policy when the possession of a local monopoly offers it an opportunity. Another reason which may influence a local authority in striving to secure a net surplus from its gas and tramway undertakings is that as the ratepayers as a whole guarantee the capital, the ratepayers as a whole should obtain some advantage from the undertakings. If these reasons for securing a net surplus from gas and tramway undertakings be accepted, certain important con- siderations in fixing prices, and consequently the surplus, must not be lost sight of. In the first place, all ratepayers do not use gas or trams, and amongst those in this position will be, on the one hand, many wealthy ratepayers, who make use of electricity and motor cars, and, on the other hand, so far as trams are concerned, all companies which are occupiers of land and buildings. In the second place, people who are not ratepayers may use the gas or trams, and if they have little choice in the matter may feel a grievance V FINANCIAL ASPECTS OF MUNICIPAL TRADING 171 that they should be unduly taxed by a local authority in whose area they do not live. On account of both these con- siderations it is undesirable to secure a very large net surplus from gas and tramway undertakings, but it is not easy to define what constitutes an unduly large net surplus, but probably a sum equal to 5 per cent on the aggregate capital expenditure should be regarded as a maximum under ordinary circumstances. This in any case is the figure em- bodied in electric lighting orders issued to local authorities,^ and may presumably be regarded as embodying the opinion of Parliament on the subject. Quite recently, however, a Committee of the House of Lords under the chairmanship of Lord Donoughmore de- sired to introduce quite a new principle in the matter of the restriction on profits or net surplus. A private bill pro- moted by the Salford Corporation in 1909, in connection with their gas undertaking, was considered by Lord Donoughmore's Committee, which recommended that the profits of the Salford Gas Department should be restricted to I per cent on the outstanding capital. This restriction, which was recommended as a result of the opposition to the bill by certain out-townships, which are supplied with gas from the Salford gas works, appears to be neither sound nor reasonable. On the one hand, it is unsound to base what- ever percentage of profit a trading department is entitled to earn on the outstanding capital, as this implies that the amount of the net surplus which may be earned shall diminish as additional instalments of debt are repaid, until finally, when the whole debt is liquidated, the local authority shall be entitled to realise no net surplus at all. If a trading department is permitted to make profits in relief of the rates, and it is desired to fix a maximum percentage of profits, this should undoubtedly be based on the total capital outlay which is the best measure of the size of the undertaking and of the financial interests involved. On the other hand, a net surplus of i per cent, even on the aggregate capital expenditure, is a very small return for the risks and responsi- bilities assumed by the ratepayers of the trading authority. 1 See Electric Lighting (Clauses) Act, 1899, sec. 7 ; further reference is made to this below, p. 174. 172 MUNICIPAL TRADING chap. If 5 per cent is a reasonable maximum profit in the case of electricity undertakings, something less should suffice in the case of gas works, which involve fewer risks, but i per cent certainly appears to be too little to fix as a maxi- mum. Under any circumstances, in calculating the net surplus, interest should be charged against gross revenue on all capital employed, whether it is borrowed or provided by the community. The latter will be the case when some or all of the loans have been repaid out of the earnings of the undertaking concerned or from the rates. The interest on this capital belonging to the community should be available in relief of the rates, in addition to any net surplus which may be realised.^ As the sums required to provide for the sinking fund or for the annual instalments allocated for the repayment of debt diminished or ceased entirely, a charge on the revenue amounting originally to some 2 or 3 per cent on the aggregrate capital expenditure would be set free and the realisation of larger net surpluses, not exceeding the maximum rate allowed, or reductions in prices, or both, would be facilitated. The outcome of the decision of Lord Donoughmore's Committee, to limit the profits of the Salford Gas Depart- ment to I per cent on the capital outstanding, was that the Corporation withdrew the bill. They felt that it was in- equitable that they should be restricted in this way, in view of the law with regard to the profits of municipal electrical undertakings. The average annual profits earned by the Salford Gas Department during the last ten years have amounted to about 2^ per cent on the aggregate capital expenditure, interest being charged against gross revenue in respect of outstanding loans only. The out-townships which opposed the Corporation bill in 1909 still feel that they 1 An illustration may help to make so that whereas the capital invested is this point clear. Suppose a munici- still ;if 100,000, the outstanding debt is pality twenty years ago borrowed only ^40,000. If 3 per cent be ac- ^100,000 at 3^ per cent for the pur- cepted as the proper limit for profits or pose of erecting a gas works, which has net surplus available for relief of the since been maintained in a state of rates in the case of a gas works, the complete efficiency out of revenue, so maximum sum which the municipality that it may be regarded as being worth could dispose of would be the interest ;i^ioo,ooo to-day. During the course at 31^ per cent on ^60,000 and profits of the twenty years ;!f6o,ooo of the at the rate of 3 per cent on ;i^ 100, 000, loan have been repaid out of revenue, or ;[^5ioo in all. V FINANCIAL ASPECTS OF MUNICIPAL TRADING 173 have a grievance, as the profits are partly made at their expense.^ Their protests having been in vain and negotia- tions with the Salford Corporation having proved unsuccess- ful, they are promoting a bill in Parliament to secure the restriction on the Salford gas profits recommended by Lord Donoughmore's Committee." It is not suggested for a moment that all trading departments should aim at securing the maximum profits permitted by law, where such limitations exist, whether they be 5 per cent on the aggregate capital expenditure or less. Assuming they are in a position to earn a net surplus at all, they should carefully consider the conditions under which they operate with special reference to the question from whom the surplus would be obtained, before deciding upon any particular policy. As a matter of fact in con- nection both with gas and with tramway undertakings, especially the latter, the local authority will be considerably restricted in the price it charges by indirect competition, so that the chances of many gas or tramway undertakings really realising a large net surplus are not very great, until a time comes when some or all of the loans have been repaid. Then, if interest is charged in respect of the capital pro- vided by the community out of the earnings of the under- takings, there is a good deal to be said for not seeking to secure the maximum rate of profits allowed. On the other hand, if interest is not charged in respect of such capital, or 1 As a matter of fact the residents in capital expenditure, wliich does not two of the out -townships concerned seem unreasonable, seeing that they (Eccles and Swinton and Pendlebury) take no financial risks or responsi- are charged the same amount for gas as bilities. the Salford ratepayers. In the third out-township (Worsley) the price is 2d. ^ See reports of the meetings of higher per 1 000 cubic feet than in the Salford Town Council on December Salford (County Borough of Salford 6 sxiA it,, 1911 (Ma?ichester Guardian, Gas Department, Price of gas from December 7 and 14, 191 1). Mr. W. W. October i, 191 1). The reasons for Woodward, Salford Borough Gas En- charging higher prices outside the gineer, kindly informed me of the facts boundaries of the trading authorities that Lord Donoughmore's Committee re- are considered below on pp. 181- 184. commended the restriction of the profits Assuming that the cost of delivering to i per cent on the capital outstanding, gas is no greater in Eccles and Swinton that in consequence the Corporation and Pendlebury than in Salford, the withdrew their bill, and that the annual consumers in these out-townships con- average profits of the Department for tribute their share towards the Salford the last ten years were about 2^ per cent profits of 2h per cent on aggregate of the aggregate capital expenditure. 174 MUNICIPAL TRADING chai-. if the capital provided by the community has been accumu- lated from the rates and not at the expense of the consumers, the same hesitation about seeking to secure the maximum profit allowed by the law need not be felt. Where the number of ratepayers who avail themselves of the products or services provided by a municipal monopolistic undertaking is comparatively small, or where the consumers are largely non-ratepayers, a new problem has to be faced. An opportunity is afforded to the local authority of affecting a redistribution of the burdens of taxation. Contributions to the rates from gas and tramway undertakings principally enable a certain amount of indirect taxation to be substituted for direct taxation, though in some measure one class of ratepayers will probably be relieved at the expense of another class, but that is not a primary object of, such contributions. In the case of an article like electricity a deliberate attempt might be made to obtain relief for the rates at the expense of the limited number of current customers. Within reasonable limits it could be justified on the ground that the community guarantees the capital and is entitled to some compensation. As the electricity business is a fairly risky one, a net surplus equal to 5 per cent on the total capital outlay does not seem unfair. This is the limit fixed by the central author- ity in this country as a protection to consumers. If the revenue exceeds this amount, prices must be reduced. In practice this limit does not appear to have exercised much influence on prices, as competition has tended to keep prices at levels which afford little or no net surplus. If the monopolistic undertaking is engaged in providing services or commodities which are clearly luxuries, there seems to be no reason for limiting the net surplus to be realised by the local authority. If the consumers be wealthy people who are not ratepayers, the case for securing the maximum monopoly revenue seems even stronger under such circum- stances than if the consumers were all ratepayers. The effect on the community of diminishing the number of consumers by raising prices must, however, be borne in mind. For example, the Doncaster race-course belongs to the Corporation. It is justified in obtaining as large a revenue V FINANCIAL ASPECTS OF MUNICIPAL TRADING 175 as possible from the undertaking, provided a material decrease in the number of visitors is not brought about, as that would prove detrimental to the Municipal Tramway undertaking and to the catering and other trades of the town, so that the town would not really benefit by the increased revenue obtained from the race-course. Ag-ain, although the town of Harrogate, which owns and manages the various institutions connected with the use of the local natural mineral waters, would probably be justified in securing a considerable net surplus from the undertaking, it would thereby restrict the use made of the waters, in consequence of which the. various hotels, boarding-houses, shops, etc., all of which depend for their livelihood upon the visitors, would be harmed. There is still one other aspect of a municipal monopoly of which only comparatively few ratepayers are able to avail themselves. If a net surplus is not made, a small class of especially privileged people may be created. Thus, in the case of a market undertaking, if all surplus is used to diminish the rents, they may become less than what is paid for adjacent land or shops, in which case an interested class will be created, and efforts will be made to get tenancies transferred to relatives or friends.^ § 18. Most municipalities are anxious to receive contri- butions in aid of the rates from their gas, electricity, and tramway undertakings, although as a matter of fact many of these are unable to give any financial assistance, and may even require to receive it, and others give it when they do not appear to be in a position really to do so. This last point is dealt with in the concluding chapter, and statistics relating to the contributions made to and received from the rates by trading undertakings will be found in the chapter on the Results of Municipal Trading. Here it may still be noted that many Scotch local authorities are forbidden by law to devote any part of the net surplus of their trading undertakings in relief of the rates." It is sometimes argued 1 See the evidence of the late Sir 1900, Q. 2431. (then Mr.) James W. Southern, Chair- - This, for example, is so in the case man of the Parliamentary Committee of the Aberdeen Gas and Tramway of the Manchester Corporation, before undertakings and of the Dundee Gas the Committee on Municipal Trading, undertaking. See the evidence of 176 MUNICIPAL TRADING chap. that this must discourage the efficiency of the management by removing the incentive to show good trading results ; but this docs not necessarily follow, as the net surplus realised is by no means the only visible test of the efficiency of the management of the municipal trading undertakings ; the service provided and the price at which it is rendered are other bases on which the success of an enterprise can be judged. Nevertheless, as has been indicated above, there appears to be no harm in allowing gas, electricity and tram- way undertakings to make reasonable contributions in aid of the rates, provided they are really paid out of net surpluses and not out of funds which should properly be devoted to other purposes, such as the adequate provision for renewals and replacements. § 19. In view of the complicated character of municipal trading finance, it is not astonishing that a good deal of public attention has been devoted to the question of the keeping of municipal accounts and the method of auditing these accounts.^ At present the accounts of municipal corporations in England and Wales, with a few exceptions, are audited only by one auditor nominated by the Mayor and by two others elected by the ratepayers. The former must be and the latter may not be members of the Town Council.' The audit thus provided is neither complete nor effective.^ In a few cases, for example in Manchester, chartered accountants are appointed in addition to the Mayor's auditor and the elective auditors,'* and in one or two cases, for example in Bournemouth, the Local Government Board system of audit is adopted."* This system applies to all County Councils, the London Borough Councils and the Urban District Councils. The auditors certify the figures Mr. Emile Garcke before the Com- dealing with these subjects and prepared miltee on Municipal Trading, 1900, a short report on them in 1903. OQ. 1 163, 1 164. On the general ^ Report of the Joint Committee on question of the allocation of trading Municipal Trading, 1903, § 12. profits by Scotch local authorities, see ^ Ibid. § 13. the evidence of Mr. S. Chisholm before ■* Evidence of Sir (then Mr.) S. B. the same Committee, QQ. 2858, 2859 ; Provis, Permanent Secretary to the also Appendix C to the Report of the Local Government Board, before the same Committee, pp. 444-451. Committee on Municipal Trading, 1 A Joint Select Committee of the 1900, QQ. 1097, 1098. House of Lords and the House of ^ Rep07-t of the Joint Committee on Commons took a good deal of evidence Municipal Trading, 1903, § 14. V FINANCIAL ASPECTS OF MUNICIPAL TRADING 177 and note illegal items of expenditure, which they can dis- allow and surcharge to the members of the councils who are responsible.^ Most municipal corporations would strongly object if they were subjected to the Local Government Board auditors,' and the Select Committee which investigated the matter held that, in view of the fact that these auditors were not accountants, they were unfitted as a class for the continuous and complicated task of auditing the accounts of what are really great commerical businesses.^ The Joint Select Committee on Municipal Trading in 1903 made various recommendations of which the principal may be stated here. They were made after a good deal of evidence from different quarters had been heard, and after a considerable amount of statistical information of one kind and another had been collected, and they merited more attention than they appear to have received. The Committee recommended that the existing systems of audit applicable to Corporations County Councils and Urban District Councils in England and Wales be abolished, and that instead auditors, being members of the Institute of Chartered Accountants or of the Incorporated Society of Accountants and Auditors, should be appointed by these three classes of local authorities. In every case the appointment should be subjected to the approval of the Local Government Board.'* The duties of those entrusted with the audit of local accounts should not be confined to mere certification of figures. The auditor should have the right of access to all necessary papers, books, etc., and be entitled to require from officers of the authority such information and explanation as he might need, so that he could certify (i.) that he had found the accounts in order, 1 Report of the Joint Committee on to make disallowances and surcharges; Municipal Trading, 1903, § 14, and and (iv.) that expenditure in itself reason- evidence before the Committee of Sir S. able might be disallowed, or would be B. Provis, Permanent Secretary to the disallowed, because it was technically Local Government Board, Q. 21. illegal. (Evidence of Sir S. B. Provis 2 The grounds on which they would before the Joint Committee on Muni- object have been briefly stated to be cipal Trading, 1903, Q. 21.) Although four : (i.) the delay which would be it may be possible to make a good occasioned in the issue of the accounts ; answer to these objections, the opposi- (ii. ) the difficulty the auditor might have tion of the municipalities would probably in the case of large boroughs in mastering not be affected. the numerous local acts relating to the ^ Report of the Joint Committee on borough; (iii.) the irritation which would I\Iunicipal Traditt", 1903, § 15. be caused by the power of the auditor * Ibid. § 16 (a), {b), and {c). N 178 MUNICIPAL TRADING chap. or otherwise, as the case might be ; (ii.) that separate accounts of all trading undertakings had been kept, and that every charge which each ought to bear had been duly debited ; (iii.) that in his opinion the accounts issued presented a true and correct view of the transactions and results of trading (if any) for the period under investigation, and (iv.) that due provision had been made out of revenue for the repayment of loans, and that all items of receipt and expenditure and all known liabilities had been brought into account and that the value of all assets had in all cases been fairly stated.^ Further, auditors should be required to express an opinion upon the necessity of reserve funds and of amounts set aside to meet depreciation and obsolescence of plant, in addition to the statutory sinking funds, and upon the adequacy of such amounts.'- On the other hand, the auditors' powers of dis- allowance and surcharge should be dispensed with entirely in the case of the major local authorities, as these powers apply only to illegal expenditure and not to unwise under- takings and enterprises, and consequently afford no real safeguard to the ratepayers whose interests are affected.^ With a continuous, vigilant and thoroughly efficient system of inspection and audit, the surest guarantee to the ratepayers against extravagance would be found in the deterrent effect of public exposure, in addition to the existing legal remedies.** If the recommendations made by this Select Committee were adopted, many of the uncertainties which exist about the accuracy of municipal trading accounts would be removed, but it is doubtful whether the system contemplates a method of presenting accounts which would rectify, or even draw attention to, the amount by which revenue had been modified by a department undercharging or overcharging other municipal departments, or the amount by which ex- penditure had been modified by a department being under- charged or overcharged by another trading department. Some of these things, as has been pointed out above, would be very difficult to check accurately even if the auditor had the requisite technical knowledge, but a man who can require information from the various officials of local authorities and 1 Report of the Joint Committee on ^ Ibid. § i8. ^ Ihid. §§ 22, 23, 24. Municipal Trading, 1903, § 17. * Ibid. % 25. V FINANCIAL ASPECTS OF MUNICIPAL TRADING 179 who can obtain such expert advice as may be necessary, should be able to point out all cases where undercharging or overcharging has occurred to more than a small extent and be able to give some estimate of the amount of such under- or overcharging. The difficulty associated with the obtain- ing of accurate and complete information about the financial aspects of Municipal Trading is one of the greatest obstacles with which an investigator of this subject has to contend, and the introduction of a new system of auditing municipal accounts, such as was suggested by the Joint Select Committee on Municipal Trading, 1903, would greatly facilitate all future inquiries. CHAPTER VI THE SELLING POLICIES OF MUNICIPAL TRADES § I. The problems which are dealt with in this chapter are of a somewhat complex character. This is due partly to the nature of the industries with which we are especially concerned — water, gas, electricity and tramways — and partly to the mixing of social and of economic considerations in fixing prices, which easily occurs when a municipality undertakes to sell a commodity or service. Local authorities are usually anxious, on the one hand, to make as many concessions as possible to the general welfare, or to the welfare of certain classes of the community who are held to be in need of assistance, and on the other hand, to conduct their trading undertakings on such lines that, if possible, they may produce surpluses which can be devoted to the relief of the rates. It is not at all unlikely that the social and the economic considerations will clash ; and it is frequently possible to distinguish between the policy advocated by town councillors in October immediately before the municipal elections, and the policy advocated in April when the estimates for the new financial year are being made up. The October policy, it need hardly be said, favours concessions to the general public, the April policy advocates large contributions from the trading depart- ments in aid of the rates, which would be impossible if the concessions were numerous. The selling policies actually adopted often represent more or less happy compromises between these conflicting considerations. § 2. Before examining the selling policies adopted by the various kinds of trading undertakings, certain common char- acteristics may be noted, (a) The most usual way of selling i8o CH. VI SELLING POLICIES OF MUNICIPAL TRADES i8i a commodity is to charge in proportion to the quantity con- sumed ; thus, gas may be sold at so much per thousand cubic feet, water at so much per thousand gallons, and coke at so much per ton. But there are two other ways in which a commodity may be sold ; an unlimited supply or service may be given for a fixed sum, based more or less upon an estimate of the probable consumption, or the charge may consist of a fixed sum independent of the real consumption plus a variable sum depending upon the amount actually consumed. The former policy occurs in connection with the supply of water and with the tramway service, the latter policy in connection with the supply of electric current. As the reasons for adopting these policies are partly social and partly economic and differ in the case of each industry, they will be considered in detail in the sections of this chapter devoted to the separate undertakings. {U) A special feature of water, gas and electricity is that they are very frequently sold at different prices, according to the purposes for which they are to be used. The distinctions most commonly made in tariffs are between the use of water for domestic and industrial purposes, between the use of gas for lighting, heating and power purposes, and between the use of current for lighting and power purposes ; but many tariffs go much further in the distinctions made. The grounds for adopting this policy are somewhat different in each industry and are best discussed in connection with the par- ticular undertakings. {c) A policy which calls for special attention is that not uncommonly adopted of charging higher prices outside than inside the municipal boundaries. Where such a policy is pur- sued, it is clearly shown in the water, gas and electricity tariffs. In the case of tramways, the fares may be established with a view to favouring residents within the municipal area, but this is generally not easy to ascertain. Probably the most common argument in favour of making higher charges out- side than inside the municipal boundaries is that the munici- pality provides the capital and takes all the risks involved, and is consequently entitled to compensation in the form of higher prices from people living outside the local area who do not share in the risks. Another reason put forward is i82 MUNICIPAL TRADING chap. that to supply people living in outside areas is likely to be more costly than to supply the inhabitants of the town itself. The farther the consumers are from the distributing- centres — gas works, generating stations, or service reservoirs — the longer the length of mains to be laid and the greater the expense entailed. Further, the longer the mains, the more leakage and loss there will be. This is particularly true of electricity, if it is distributed long distances at low voltage, and also of gas. If the distance from the distributing centre were to be taken systematically into consideration it would be necessary to have a whole series of prices not merely out- side the boundaries but within them. This would hardly be desirable as far as ratepayers were concerned, as the local area should be regarded as a single whole, but in what concerns outside areas, such a policy was adopted by the Manchester gas undertaking prior to 1900, and is still adopted by the Stockton-on-Tees Corporation. The Manchester tariff distinguished consumers in the city, in the near out-townships, and in the remote out-townships, the second being charged sixpence,and the last one shilling more per 1000 cubic feet than the first.^ Another consideration which may influence a local authority in charging more outside than inside the boundary in the case of gas is, that the out-town- ships should pay something for the advantage of being saved the smell of gas works, an advantage of some importance in the case of a residential suburb. Further, higher prices may be charged as an inducement to neighbouring areas to seek amalgamation with the local authority which supplies them, in order to secure the benefit of the lower prices charged within the boundaries. Lastly, the trading authority may feel that the outside areas are securing water, gas, or electri- city, as the case may be, at lower charges than they could supply themselves, and that it is not unreasonable that they should pay something for the benefit which they thus receive. This consideration shows more clearly than any of * See Statistics of the Manchester from 1878 to 1899, 6d. more, as indi- Corporation Gas Works for the year cated above. During the whole of this ending March 31, igo8, pp. 28, 29. period the near out-townships paid 6d. From 1865 to 1872, the remote out- more than the city. Since 1900 con- townships paid lod. more per 1000 sumers in out-townships pay 3d. more cubic feet than the near out-townships, per 1000 cubic feet than city con- from 1873 to 1877, 8d. more, and sumers. VI SELLING POLICIES OF MUNICIPAL TRADES 183 the others that when a local authority sells outside its own area it is liable to be largely dominated by the same motive which inspires a company, namely, the pursuit of profit. Unless a trading authority makes reasonable charges and accords fair treatment to any outside areas which it may supply, the outside areas may be worse off than under a company. The restrictions imposed by the central authorities on local authorities trading outside their own areas appear to be either very strict or somewhat lax ; they either require exactly the same terms to be granted outside as inside the municipal boundaries, without making any allowance for the risks the trading authority has to bear, and the possible higher cost of providing the service, or they leave the local authority free from any control, except possibly that maximum charges are fixed ; the inadequate nature of such control has already been mentioned in connection with the conditions imposed on public utility companies by their leases, and is also referred to below.^ That outside areas, which are charged more for their gas than the area where the gas is manufactured, may feel that the conditions im- posed upon them are unreasonable, is by no means unlikely. Under these circumstances, one remedy is to agitate with a view to influencing public opinion, and ultimately the town council concerned, in their favour. In the " nineties," the out-townships supplied with gas by the Manchester undertaking became very dissatisfied, and finding their agitations in vain, appealed to the Board of Trade. It is very doubtful if the Board of Trade could have done anything directly to help them, but as a matter of fact the Corporation made considerable voluntary concessions to the outside areas shortly after the appeal to the Board, so that their grievances were largely, if not entirely, removed. Outside areas which are granted even the same terms as the trading authority may also become dissatisfied if they think that the prices charged enable the trading authority to earn an unduly high rate of profit.^ As a last resort, where an outside area cannot obtain satisfactory terms from a trading authority, it must presumably seek parliamentary ^ See pp. 190-192. ^ See footnote (i), p. 173. i84 MUNICIPAL TRADING chap. powers, to restrict the prices charged, or to establish an undertaking of its own. Some illustrations of the policy of charging higher prices outside than inside the municipal boundaries will be found in the sections of this chapter which deal more specifically with water and gas.^ {d) Another policy which is frequently adopted by municipal water, gas and electricity undertakings, is to offer more favourable terms to larger than smaller con- sumers. In doing so the local authorities merely adopt a very ordinary commercial practice based on the experience that big quantities of commodities can be produced and handled comparatively more cheaply than small quantities. From a business point of view the policy is probably quite sound in the case of water and gas undertakings, but care must be taken how it is applied to electricity, as a large consumption does not necessarily imply a low cost of production.^ On the other hand, if such policy is regarded from a social point of view, in so far as domestic consump- tion is concerned it is difficult to approve of it, as it implies that small consumers who can presumably least afford it, will have to pay the highest price. It is more satisfactory if uniform charges are made, however great the purchase for domestic purposes may be. Where water, gas and electricity are sold for industrial purposes, the transactions are purely business arrangements, and no question of social expediency arises ; consequently there can be no objection to municipalities pursuing the ordinary business practice of granting special terms to large industrial consumers. The manner in which concessions to large consumers are made calls for some attention. These are effected either by granting discounts varying in amount according to the sum of money due, or by charging lower prices the greater the quantity consumed in a specified period. If care is not taken with regard to the way in which the scale of discounts or the scale of prices is fixed and applied, it may be possible to obtain larger quantities of the commodities, not merely at lower rates, but actually for smaller sums ^ See pp. 199, 200, 213, 214, below. of the load factor and will be discussed 2 This has to do with the question more fully below. VI SELLING POLICIES OF MUNICIPAL TRADES 185 than smaller quantities of the commodities, which is both unfair and wasteful. This will be so if the lower price or higher discount relates to the whole consumption. Thus, if the ordinary price of gas is 2s. 6d. per 1000 cubic feet, but only 2s. is charged if the quarterly consumption exceeds 100,000 cubic feet, a customer using 99,000 cubic feet would pay 99x2s. 6d. = ^12:7:6, whereas a customer using 101,000 cubic feet would pay loi X 2s. = ;^iO : 2 : o. It would be exactly the same if a discount of 20 per cent was allowed on quarterly accounts exceeding ;^I2 : 10 : o. The consumer who used 99,000 cubic feet would pay 99 X2S. 6d. = ^12:7:6, whereas the consumer who used 101,000 cubic feet would pay ioiX2s. 6d. = i^i2 : 12 : 6, on which he would be entitled to 20 per cent discount, so that the net payment would only be ^10:2:0. In the same way a whole scale of prices or discounts can be established, each price or discount relating to the whole consumption. The charge for water by meter in Salford may be quoted as an example : — ^ A supply of 1,000 to 2 50,000 gallons is charged i id. per 1,000 gallons. „ „ 1,000 to 500,000 „ „ „ lod. „ „ „ „ „ 1,000 to 1,000,000 „ „ „ 9d. „ ,, „ „ „ above 1,000,000 „ „ „ 8d. „ „ „ Under this scale a customer who uses 240,000 gallons is charged 240Xiid. = i5^ii, whereas a man who uses 20,000 gallons more is charged 260X iod. = ;^io : 16 : 8. Likewise, 490,000 gallons cost 490 X lod. = ;^20 : 8 : 4 and 510,000 gallons only cost 5 10 X 9d. = -^19 : 2 : 6. In the same way for 990,000 gallons 990 X 9d. = ^^^37 : 2 : 6 have to be paid, whilst for 1,010,000 gallons the sum to be paid is only loio X 8d. = iJ^3 3 : 13:4. As soon as the consump- tion approaches one of the limits it is to the financial interest of the consumer to waste water in order to secure the benefit of the lower price. Such scales of prices or discounts, which may perhaps best be described as sliding scales of prices or discounts, are clearly anti-social in their character. In contrast to these sliding scales of prices or discounts, are others in which the lower prices or higher ' Parlianietttary Return on Mimicipal Trading [United Kingdom), part ii. p. 50. i86 MUNICIPAL TRADING chap. discounts, relate to particular parts only of the consumption or of the sum due ; these may be described as zone scales of prices or discounts. For example, the ordinary price of gas may be 2s. 6d. per i,ooo cubic feet, but only 2s. for all gas consumed quarterly in excess of 100,000 cubic feet. A man who consumed 99,000 cubic feet would pay 99 x 2s. 6d. = ;^I2 : 7 : 6, and a man who consumed 101,000 cubic feet would pay 100 X 2s. 6d. + i x 2s. = ^l 2 : 12 : O. Or a discount of 20 per cent might be given on the amount of the quarterly gas bill in excess of £12: 10:0. In that case the man who used 101,000 cubic feet and whose bill consequently was ;^I2: 12:6 would be entitled to deduct 20 per cent of 2s. 6d. the amount by which the bill exceeds i^i2: 10:0, in other words he would pay ;^I2 : 12 : o. Most zone scales of prices or discounts are much more complex than the illustrations given, but the principle is the same and a large consumer can never obtain his supply for less than a smaller consumer. As a practical illustration, the zone scale of prices established by the Cologne municipal gas works for gas sold for lighting purposes may be quoted : — ^ All annual consumption below 2,500 cbm. 16 pf. per cbm. All annual consumption between 2,501 cbm. and 10,000 cbm. 15 ,, ,, ,, ,, ,, 10,001 cbm. and 25,000 cbm. 14 ,, ,, „ ,, ,, over 25,000 cbm. 13 ,, ,, A man consuming 24,900 cubic meters in a year would pay 2500x16 pf. + 7500x15 pf.+ 14,900 X 14 pf. = 3621 marks, whereas a man who consumes 25,100 cbm. in a year would pay, 2500 X 16 pf+7500 x i 5 pf. + 15,000 x 14 pf. + 100 X 13 pf. = 3638 marks. When it comes to preparing bills for customers, zone scales involve more trouble than sliding scales, especially if the number of zones is numerous, but this should not be allowed to stand in the way of the introduction of zone scales, which are greatly to be preferred to sliding scales." {e) There is one form of discount that is fairly common amongst municipal undertakings which is based, not upon the size of the consumption, but upon prompt payment of 1 Bedingungen filr die Abgabe von ^ For further illustrations of zone Gas aus den Gaswerken der Stadt Coin, scales, see footnotes on pp. 232, 234, § 8. 235, below. VI SELLING POLICIES OF MUNICIPAL TRADES 187 accounts. Such a discount, provided the period during which it may be deducted is not unreasonably short, seems a perfectly fair and business-like arrangement, to which no exception can be taken. (/) Another selling policy, which tends to favour large consumers as against small consumers, is the system of charg- ing meter rents for the meters by which a customer's con- sumption of water, gas, or electric current is measured. Where meter rents exist there is nearly always a scale of charges which varies with the size of the meter, but this does not prevent the burden of the meter rent being much heavier per unit of consumption in the case of small than of large consumers. A small gas consumer may pay is. a quarter for his gas meter which represents, on a modest quarterly consumption of 6000 cubic feet, 2d. per 1000 cubic feet, whereas a large gas consumer may pay 5s. per quarter, which only represents |^d. per 1000 cubic feet on a quarterly consumption of 90,000 cubic feet. From a business point of view it is perfectly sound that an expense incurred on behalf oi a particular customer should be borne by that customer, and in the case of electric current and of gas and water supplied for trade purposes there seems no reason why meter rents should not be charged. On the other hand, in the case of water and of gas supplied for domestic purposes the abolition of meter rents may be urged on social grounds. This will necessitate a slight raising of the price of water and of gas, which will be somewhat to the advantage of small consumers and to the disadvantage of large con- sumers. As a matter of fact, many municipalities adopt this policy with regard to gas. In the case of water for domestic purposes the question hardly arises in this country, as a meter is not generally employed. is) ^ policy somewhat closely related to that discussed immediately above, is that of making different charges to different classes of the population. This applies especially to the tramway undertakings, which not infrequently dis- tinguish between ordinary passenger, workpeople, children and school-children. In connection with swimming baths, different charges are often made to first-class bathers, second-class bathers and school children. The supply of iSS MUNICIPAL TRADING chap. gas through prepayment meters may possibly be associated with class distinctions. The reasons for these distinctions are essentially social, and will be considered in connection with the separate undertakings. ^ 3. Generally speaking, local authorities are not entirely free in fixing the charges to be made for the service or products sold by their trading undertakings, as ver\' frequently the Acts of Parliament or Provisional Orders under which the enterprises are conducted, fix the maximum prices which may be charged, {a) In what concerns water, the usual arrange- ment appears to be for maximum prices to be fixed where it is supplied for domestic, but not where it is sup- plied for trade purposes. Thus the domestic water rate in Salford may not exceed 5 per cent per annum on the rack- rent,^ in Hull 7 per cent per annum on the net annual value," and in Swansea 5^ per cent per annum on the net rateable value ^ of the premises supplied. In Huddersfield the domestic water rate may not exceed 10 per cent on the annual rental, and the charge for a supply by meter for business purposes is limited to 2s. per 1000 gallons.* Two towns in which there are no maximum charges for water, whether for domestic or trade purposes, are Manchester "^ and Southampton.^ {h) Maximum prices are fixed in connection with most gas undertakings in England, Wales and Ireland, but in Scotland this is not generally done." Amongst the English towns which are free from restrictions in the matter of charges are Manchester, Nottingham and Carlisle.^ Generally a uniform maximum rate is imposed, such as 4s. 6d. per 1000 cubic feet in Oldham,^ 5 s. per 1000 cubic feet in ^ Salford Improvement Act, 1862, Works Act, 1S47, sec 93) and to the sec. 46. charge for additional vater-closets both - Kingston-npon-Holl Corporation within and beyond the city (Manchester Act, 1897, sec 85. Corporation Water Works Act, 1858, 3 Swansea Corporation Water Act, sec. 3). 1 884-, sec 26. s Parliamentary Return en Mitni- * Huddersfield Water Act, 1869, cipal Trading {United Kingdom), -paxt Third Schedule, and Huddersfield Cor- v. p. 142. poration Act, 1902. sec. 16. " See Returns relating to Authorised • Parliamentary Return on Muni- Gas Undertakings in the United King- cipal Trading {United Kingdcni), part dom belonging to Local Authorities. ii. p. 25. There is a legal maximum * Ibid. to the domestic water rate beyond the ^ Oldham Borough Improvement city (Manchester Corporation Water Act, 1865, sec 100. VI SELLING POLICIES OF MUNICIPAL TRADES 189 Blackburn/ 4s. per 1000 cubic feet in Birmingham,' and 4s. 7d. per 1000 cubic feet in Glasgow;' but there are a good many cases where local authorities which supply outside areas may charge higher rates there than within their boundaries. Thus the maximum prices which may be charged by the Stockton-on-Tees undertaking are 5 s. per 1000 cubic feet within the borough, and ^'i. per 1000 cubic feet beyond the borough.' At Bolton the maximum charge is 4s. per 1000 cubic feet within the borough or within two miles of the town hall, and 45. 6d. beyond that radius." {c) In the case of municipal electric supply undertakings in this country maximum prices always appear to be fixed. The most ordinary limit is i 3s. 4d. for any quantity up to 20 units per quarter, and 8d. for each unit over 20 units. This applies, for example, in Manchester," Bolton," Black- burn,* Birmingham,^ Nottingham ^^ and Battersea.^^ Other limits which occur much less commonly are lis. 8d. for any amount up to 20 units per quarter, and jd. for each unit over 20 units ; and i^3 : los. per quarter for any amount up to 100 units per quarter, and /d. for each unit over 100 units; the former exists at Hampstead ^- and Islington,'^ the latter at Bradford ^^ and Brighton.^^ In Absrdeen the maximum price is as high as 9d. per unit,^^ and where the Liverpool undertaking supplies current outside the city the minimum price is i6s. 8d. per unit up to 20 units per quarter, and lod. per unit for each unit above 20 units.^' 1 Blackburn Improvement Act, Order, 1894. 4ih schedule. 1882, sec. 148. 10 Nottingham Electric Lighting ' Birmingham Corporation (Con- Order. 1S90. 4th schedule. solidation) Act, i S83, sees. 1 58 and 167. "^ Battersea Electric Lighting Order, * Glasgo-w Corporation Gas Act, 1896, 4th schedule. 1869. sec 67. 1^ Hampstead Electric Lighting * Stockton Gas Act, 1857, sec 77. Order, 1892, 4th schedule. 5 Bolton Corporation Act, 1872, 13 Islington Electric Lightii^ Order, sec. 82, and Bolton, Turton, and 1893, 4th schedule. Westhoughton Extension Act, 189S, ** Bradford Electric Lighting Orda, sec. 98. 1883, clause 45 and schedule C. * Manchester Electric Lighting i' Brighton Electric Lighting Order, Order, 1890, 4th schedule. 1883, clause 45 and schedule C. '■ Bolton Electric Lighting Order, is Aberdeen Electric Lighting Order, 1 89 1, 4th schedule. 1S90, 4th schedule * Blackburn Electric Lighting i^ Allerton, Woolton, Childwail, and Order, 1890, 4th schedule. Garston Electr-c Lighting Order. ^ Birmingham Electric Lighting 1896, arts. 30 and 52. igo MUNICIPAL TRADING chap. {d) The general practice of Parliament with regard to tramways is to impose a maximum fare for ordinary passengers of id. per mile, or part of a mile, as for example, in Birmingham,^ 'Salford' and Stockport,^ but very often there is a further condition that no fare less than 2d. need be taken, as in Manchester,* Burnley ^ and East Ham,'' or that no fare less than 3d. need be taken, as in Oldham," Blackburn '^ and Sunderland. " Occasionally there is no specific limit to the fares which may be charged, as for example, in Liverpool, where the corporation are authorised to take " reasonable tolls for the use of their cars." ^° In addition to the legal limit imposed upon the fares charged to ordinary passengers, special provisions are generally inserted in Tramway Acts and Provisional Orders with regard to workmen's fares. As the whole subject of workpeople's fares is discussed at some length towards the end of this chapter, the statutory regulation of these fares may best be considered in the same place.^^ § 4. It is difficult to say exactly what the effect is of fixing maximum prices by statute. As far as gas and electricity are concerned, it is very doubtful if it exercises any influence at all, in any case at the present time, though it may have done so when they were first established. To-day the maximum charges are generally greatly in excess of any- thing that can be described as reasonable prices, and local authorities sell their gas and current on much more favour- able terms than those at which they are compelled to sell. Even from a purely business point of view, it is probably in their interest to do so. An electrical undertaking which charged 8d. per unit would cause very many, if not all, large consumers to generate their own current, and even the sale 1 Birmingham Corporation Act, ways Order, 1898, art. 28. 1903, sees. 31 and 38. 7 Oldham Borough Tramways 2 Salford Corporation Act, 1899, Order, 1878, sec. 20. sees. 33, 37, and 38. 8 Blackburn Improvement Act, 3 Stockport Corporation Tramways ^gg^ cgc 78 Act, 1900, sees. 21, 22, 23. o c J 1 J /- .• A . * Manchester Corporation Tram- / Sunderland Corporation Act, ways Act, 1899, sec. 23. '^99. sec. 33. ^ Burnley Corporation (Tramways, ^^ Liverpool Corporation Tramways etc.) Act, 1898, sec. 8. Act, 1897, sec. 19. * East Ham Urban Council Tram- " See pp. 265-271, below. VI SELLING POLICIES OF MUNICIPAL TRADES 191 of gas would be seriously restricted if the price in a large town were 4s. 6d. or 5s, per 1000 cubic feet. In the case of water undertakings the position is different. Where a large capital outlay has had to be incurred in order to provide an adequate supply of water, it is quite likely that the levying of the statutory maximum domestic water rate will not produce sufficient revenue to defray the total annual expenditure, and that local authorities will then be compelled to make good the deficiency from the borough, general district, or other rates. The consequence will be that some of the burden involved by making provision for future generations will be borne by the ratepayers as a whole, to the partial relief of the present water consumers. Thus, for example, in Swansea, where large additional works were authorised in 1898 on which over ;^50o,ooo have been spent,^ the maximum domestic water rate of 5^ per cent per annum on the rateable value of the premises supplied is charged, and a subsidy from the rates is required which is almost equal to the total receipts from the sale of water for domestic and trade purposes." On the other hand, in some cases local authorities grant subsidies from the rates to their water undertakings where the statutory maximum charges are not being made to consumers. This, for example, is so in Birmingham ^ and Huddersfield."* Thus municipalities which are limited in the charges they can make for water may in consequence be compelled to sub- sidise their water undertakings from the rates, but judging by the cases of Birmingham and Huddersfield they can sub- sidise these undertakings, if they wish, without charging the maximum prices. Where no limit is imposed on the domestic water rate, it is doubtful if a local authority can subsidise its water undertakings from the borough or general district rates. That at least appears to be the position in Manchester."' ^ Parliamentary Return on Muni- ^ Parliamentary Returns on Muni- cipal Trading {^United Kingdom), cipal Trading [^United Kingdom), part V. p. 170. part iii. pp. 3, 4. '^ In 1908-9 the total receipts from ■* Ibid, part i. pp. 88, 89. the sale of water were ;i^3i,979, ^ Under the Manchester Corporation whereas the subsidy from the rates Waterworks Act, 1847 (10 and 11 was ;^26, 381 {Annual Local Taxation Vic. cap. 203), sec. 1 11, domestic and Returns, 1908-9, part v. p. 48). public water rates are to be levied each 192 MUNICIPAL TRADING chai-. With regard to tram fares, the statutory provision that these must not exceed id. per mile or fraction of a mile for ordinary passengers, has probably little or no effect upon the fare policy of municipal tramways. The fact that part of a mile is deemed one mile makes the limit a very easy one to comply with, as far as shorter distances arc concerned, and it is with these distances that tramway undertakings are chiefly concerned. The average tram fare on most municipal undertakings works out at less than id. per mile,^ and in many cases at very considerably less. On the other hand, the limit concerning workmen's fares compels various towns to modify their charges, and has therefore a direct influence on the fare policy of the undertakings, as will be shown more fully when the whole question of workmen's fares comes up for discussion. Water Undertakings? ^ 5. Two principal selling policies can be distin- guished in connection with municipal water undertakings, the one is to charge in direct proportion to the actual consumption, the other is to charge a sum based upon a more or less rough estimate of the probable consumption. The former policy is in accordance with ordinary com- mercial practice, the latter policy is largely adopted as a social and sanitary expedient in order not to restrict an adequate consumption of water. As the price paid does not depend upon the actual consumption, no one is under any restraint to limit the quantity of water used and there is a danger that a good deal of water may be wasted. Statistics show that the consumption per head of the popula- tion in towns where the charge for water is based on the actual consumption is generally lower than in towns where the charge for water does not depend on the actual con- year in order to raise a sum of money people's fares are in operation, April sufficient to defray the costs, charges 191 1. and expenses of supplying the borough - Throughout this and the sub- with water. sequent sections of the chapter, where reference is made to prices and methods ^ See appendix to Report by General of charging in German towns, without Manager of the Manchester Corporation any indication of the source of informa- Tramways in regard to the proposed tion being given, use has been made of extension of time during which wo)-k- the Kofmnujiales Jahrbuch, 19 10. VI SELLING POLICIES OF MUNICIPAL TRADES 193 sumption, but there is no means of ascertaining whether all the water consumed in such towns is properly used. As a sort of compromise between discouraging the use of water by charging for every gallon consumed, and encouraging waste by giving an unlimited supply at a fixed price, many towns which charge according to the actual consumption, fix a minimum quantity which must be paid for each month, quarter, or year, as the case may be, so that a consumer stands to gain nothing by using less. If the minimum quantity fixed is reasonable, and adapted as far as possible to the sanitary requirements of different households, the objections on the ground of public health to the sale of water by meter for domestic purposes are very considerably diminished. Where a charge not based on actual consump- tion is made, this applies only to water supplied for domestic purposes and possibly to water supplied to offices and shops. Water sold for trade purposes is practically always paid for according to actual consumption. Con- sequently in the water tariffs of many towns the two methods of charging exist side by side, the one applying to the domestic the other to the industrial consumption of water. § 6. The policy of charging by meter for water supplied for domestic purposes appears to be very uncommon amongst the water undertakings managed by the larger British local authorities.^ Amongst German municipalities, on the other hand, it appears to predominate." In its simplest form there is a uniform charge of so much per cubic meter for water, without any minimum or any reduction for large consumers. Thus Wiesbaden charges 30 pf. per cubic 1 There is no annual official publica- inquiry made on behalf of the town of tion relating to water undertakings in Carlsruhe by Dr. Wimpfheimer who this country', and the Municipal i'ear investigated the tariffs of sixty-three Booi gives no information with regard larger German towns and ascertained to the prices charged. None of the that thirty-six of them charged by municipal water undertakings tabulated meter for water for domestic purposes in the Parlianientayy Return on (quoted in Mombert, " Die Gemeinde- Mitnicipal Trading in the United betriebe in Deutschland," Schriften des Kingdom, 1 902-6, charged by meter Vereins fiir Socialpo/itik, vol. 128, for water supplied for domestic pur- p. 23) ; and on an examination of the poses, and this return embraces most of tariffs of 403 water undertakings of the principal towns of the country (for local authorities enumerated in the list of towns see p. 389). Kommuna/es Jahrbiick, 1910, pp. xliii - This statement is based on the to Ixii. O 194 MUNICIPAL TRADING cmap. meter, Osnabriick 20 pf. per cubic meter, Mayence 25 pf. per cubic meter. In many cases the minimum sum to be paid, or the minimum quantity to be paid for monthly, quarterly, or annually is fixed. Sometimes there is a single minimum, as for example 6 marks per quarter, the price of 40 cubic meters, in Aix-la-Chapelle, or 20 cubic meters per annum (value 4 marks) in Mlilhausen. More frequently the minimum is a variable quantity based upon the number of rooms occupied,^ upon the size of the house,^ upon the size of the house and the number of inhabitants,^ upon the value of the house for insurance purposes,^ upon the building tax,'' or upon the rcnt.^ Another modification of a uniform meter tariff which appears to be fairly common in German towns is a reduction of price,' or the granting of a discount, to large domestic consumers.^ In some cases where water is sold by meter for domestic purposes, the tariff is so drawn up as to favour the poorer classes, but this appears to be very exceptional. In Messina houses on which the annual taxes exceeded 50 lire, were charged 50 centesimi per cubic meter for water, whilst houses on which the annual taxes were less than 50 lire were only charged 30 centisimi.^ In Milan, houses with small tenements consisting of not more than three rooms each are charged 10 centesimi per cubic meter for water, whereas the ordinary charge varies from 20 to 15 centesimi/" according to the consumption. Not infrequently there is a common tariff for domestic and industrial purposes in which case the reductions in price or the discounts generally only take effect when such quantities are consumed as are never likely to be used for 1 E.g. I mark per room in Dresden. meters per annum, the price then 2 E.g. from 8 to 35 marks, according falling by zones, all consumption above to the size of the house, in Giessen. looo cubic meter per annum being ^ E.g. in Biebrich. charged lo pf. per cubic meter. ■* E.g. in Oldenburg. M. 1.20 per ^ E.g. in Neisse, 10 pf. per cubic month for houses with a fire insurance meter, for quantities below 500 cubic value of less tlian M. 7000 ; M. 2 per meter per annum, then a discount of 5 month for houses of a greater value. per cent, rising to 25 per cent, when the ^ E.g. in Eberswalde, 50 per cent of annual consumption exceeds 3000 cbm. the building tax. ^ G. Michels-Lindner, " Geschichte ^ E.g. in Halle a/S., 2 per cent of der modernen Gemeindebetriebe in the rent. Italien," Sclviften des Vereins fiir ^ E.g. in Liineburg, 20 pf. per cubic Socialpolitik, vol. 130, part ii. p. 158. meter for quantities below 100 cubic '^ Ibid. p. 161. VI SELLING POLICIES OF MUNICIPAL TRADES 195 household purposes, so that the concessions really only apply to industrial consumers. Thus, for example, in Dresden and Diisseldorf discounts are only granted where the annual consumption of water exceeds 5000 cubic meters (approxim- ately 1,100,000 gallons). In some towns where all water is charged for by meter, different charges are made for domestic and trade purposes,^ but this appears to be an uncommon arrangement. Generally where different charges are made for domestic and trade purposes this is effected by charging on two different methods based on the probable and the actual consumption. In this country practically all water for trade purposes is sold by meter ; the most usual arrangement appears to be for the prices to vary according to the consumption, large consumers obtaining their supplies at lower rates than small consumers. For example, in Cardiff the price falls from is. 6d. per 1000 gallons for a quarterly con- sumption of less than 10,000 gallons to 6d. per 1000 gallons when the quarterly consumption exceeds 1,000,000 gallons f in Nottingham the price is lod. per 1000 gallons up to 10,000 gallons and slides to 6d. per 1000 gallons at 2,000,000 gallons.^ In some cases water is supplied by meter for trade purposes at a uniform charge, whatever the consumption may be. Thus in Liverpool'' and in Edinburgh^ the charge is 6d. per 1000 gallons. An exceptional feature in connection with water tariffs, which is nevertheless deserving of mention, is the practice of charging higher prices in summer, when water is presumably scarce, than in winter when water is presumably plentiful. Thus in Homburg the price of water is 40 pf per cubic meter in summer and only 20 pf per cubic meter in winter. In Frankfort-on-the-Main water for trade purposes is charged 25 pf per cubic meter from April till September and 15 pf per cubic meter from October to March. S 7. Where water is not charged for by meter, the amount to be paid is either assessed by the water authorities according * E.g. in Neusalz, 27 pf. per cubic v. p. 81. meter for domestic and 20 pf. per cubic 3 Jbid, part iii, p. 35. meter for trade purposes. 2 Parliamentary Return on Mimi- ^^^^- P^"^' "' P" 4- cipal Trading [United Kingdom), part ^ Ibid, part vi. p. 3. 196 MUNICIPAL TRADING chap. to the estimated consumption or is calculated upon some particular basis which gives a more or less rough indication of the probable consumption. The former occurs amongst some of the smaller German local authorities/ the latter is very common in this country and also in Germany. The basis most commonly adopted is the rent of the house, which seems more likely to indicate the capacity to pay than the probable consumption. The increase in the consumption is not likely to grow in proportion to the increase in the rent, but at a slower rate and in some towns this fact is taken into consideration and houses with low rentals are charged at a higher rate than houses with high rentals. Thus in Plymouth''^ a house is charged los. if the rent is between £\o and £\2, 28s. if the rent is between £d,o and £,^0 and 40s. if the rent exceeds i^8o. In Preston,^ if the annual rateable value is less than .^20 the charge is 6 per cent on the annual rateable value ; if it is between £d,o and ;^8o, 5 percent ; if it exceeds i^i6o, 4 per cent. On the other hand, in some towns water is charged for at a uniform rate, which tends to bring it about that smaller householders obtain their water to some extent at the expense of larger householders. Thus in Blackburn^ private dwelling-houses pay 8 per cent per annum on the rateable value and in Swansea" 5^ per cent. The small householders are still further relieved in those towns where, in addition to a domestic water rate on dwelling-houses payable by the occupiers, there is also a public water rate on all property payable by the owner. Thus in Glasgow ^ and Dundee ^ there are public water rates of id. per £ on the annual value of all property, and in Manchester^ of 3d. per £ on the rateable value of all property. In Manchester the sum produced by the public water rate at 3d. in the £ is very little less than that produced by the domestic water rate at Qd. in the £^ so ^ E.g. Feuerbach, Heidenheim, ** This is taken from the scale of Leichlingen. charges published by the Corporation. - Parliamentary Return on Muni- It was only id. in 1905-6, the last cipal Trading {United Kingdom), ^^xi year to which the Parliamentary Return V. p. 123. refers. 3 Ibid, part ii. p. 136. ^ In 1908-9 the public water rate * Ibid, part ii. p. 1 18. yielded ;^47,866 and the domestic ^ Ibid, part v. p. 169. water rate ;!^54,563 (Annual Report s Ibid, part vi. p. 23. of the IVatenaorks Committee, 1 908-9, "> Ibid, part vi. p. 48. p. 1 1 ). VI SELLING POLICIES OF MUNICIPAL TRADES 197 that the actual consumers of water for domestic purposes pay but Httle more than half of what they would have to pay, but for the relief afforded to them by the public water rate, which is paid by the owners. Occupiers are also relieved of part of the cost of obtaining their supply of water, though not to the same extent as above, if the public water rate, levied on all property irrespective of any water supply, is payable half by the occupier and half by the owner as is the case in Liverpool,^ or if the domestic water rate is collected partly from the owners and partly from the occupiers, as is the case in Aberdeen." The system of charging for water by means of a water rate applies not only to dwelling-houses but generally to combined houses and shops, and sometimes to public-houses and to lock-up shops, but often there are special rates in these cases, shops being charged at lower and public-houses at higher rates than ordinary houses. Thus in Salford dwelling-houses used in part as retail shops pay 8d. in the £ on the gross estimated rental and public-houses i id. in the ;^, whereas dwelling-houses of ;i^20 rent and upwards pay gd.^ In Blackburn lock-up shops are charged 3I per cent per annum on the rateable value, public-houses and beer-houses 9^ per cent, and dwelling-houses 8 per cent.^ In Manchester on the other hand, shops in connection with dwelling-houses are charged the domestic rate upon the whole premises, except under special circumstances.^ In some German towns the rent is taken as the basis of the charge made for water for domestic purposes ; as in Frankfort-on-the-Main, where the charge is 4 per cent of the rent, and in Carlsruhe and in Offenburg, where the charge is 2\ per cent of the rent. In a few cases other bases are taken which are even more remote indications of the probable consumption than the rent, for example, the state buildings tax assessment*' or the income tax assessment.^ On the other hand, in many cases bases for levying water charges are * Parliamentary Return on Muni- " Manchester Corporation Water cipal Trading {United A'ingdofn), part IVorks, Scale of Charges. ii. p. 4. ^ E.g. in Kosten. 2 Ibid part vi. p. 67. ' ^-g- in Holzminden, 50 pf. per person and \ per cent of taxable income 3 Ibid, part ii. p. 50. (^jj ^^q^,^ jyj ^^^^^ ^^ o^^ to pay on •' Ibid, part ii. p. 118. more income than M. 6000 per annum. 198 MUNICIPAL TRADING chap. adopted which are likely to be much more accurate indications of the probable consumption than the rent. Thus the charge may depend upon the number of rooms, as in Tubingen, where M. 1.50 is charged for each room and M. 4 for a kitchen ; in Crefeld, where M. 2.50 is charged for each room with an area exceeding 8 square metres, M. 10 for each bathroom and M. 12 for each water-closet, and in Heidelberg, where the charges are M. 5 for each kitchen, bedroom, and sitting-room, M. 5 for each water-closet, and M. 10 for each bath. Occasionally the area of each floor of the house is taken as the basis/ Wherever water for domestic purposes is provided for a fixed charge, based on the rent or otherwise, it is very common to find that special charges are made for certain uses of water, such as water-closets and baths. In some cases the water rate includes the cost of supply to one bath and one water-closet, and each additional bath or water- closet is charged extra." In other cases the cost of one water-closet but no bath is included in the water rate.^ Sometimes the supply of water for each bath or water-closet is charged extra.'* In other towns no extra charges are made for supplies of water to water-closets and private baths.^ Where special charges for baths and water-closets are levied, they may be at a uniform rate,*^ or at a higher rate for the first and a lower rate for each additional one," or at a variable rate based upon the rateable value of the house.^ Other cases in which domestic consumers of water are ^ E.g. in Calbe a. S. water-closet beyond the first {ibid. 2 E.g. in Halifax. Parliamaitary part ii. p. 25). Return on Municipal Trading ( United Kingdotn), part i. p. 72. In Man- '' E.g. in Huddersfield, los. for the Chester no extra charge is made for first bath and 5s. for each extra bath additional baths, but only for extra {ibid, part i. p. 89). water-closets. 2 E.g. Huddersfield {ibid, part i. p. 89). * E.g. Bradford {ibid, part i. p. 45), Sheffield {ibid, part i. p. 25), Nottingham {ibid, part iii. p. 35). ^ E.g. Cardiff {ibid, part v. p. Si), Oldham {ibid, part ii. p. 96). ^ E.g. in Manchester, 4s. for each ^ E.g. in Nottii 35):- Annual Rent. figh; am {ibid, part iii. Annual Charge for each W.C. or Bath. £^0 20 4S. 6s. 40 8s. 80 I OS. Over 80 I2S. VI SELLING POLICIES OF MUNICIPAL TRADES 199 often affected by special charges based on the probable consumption arise in connection with gardens, carriages and horses. Thus, for example, in Manchester ^ tubes for watering gardens and greenhouses are charged los. per annum for the first 800 square yards or under, and 5s. for each additional 800 square yards or part thereof Four- wheeled vehicles are charged 5s. per annum each and two- wheeled vehicles 3 s. per annum each. For one horse the charge is los. per annum, for two or more 7s. each per annum. In Dusseldorf" the annual cost of a supply of water for greenhouses is 2 5 pf. per square metre of area ; for gardens, 3 pf per square metre of area ; for carriages, 3 marks each ; for horses, 3 marks each. Enough has been said to show the application of the two methods of charging for water, according as the actual consumption constitutes, or does not constitute, the basis of the charge. The latter method may take various forms, in some of which there is little attempt to ascertain the probable consumption. In some cases it appears to be the deliberate policy of municipalities not only to encourage the consump- tion of water by supplying it at a fixed charge, but to provide smaller householders with water partly at the cost of the larger householders and, where there is a public water rate in addition to a domestic water rate, partly at the cost of property owners. In these cases this method of charging for water is made the means of carrying out the social ideals of particular municipalities. In other cases where gardens, carriages, and horses are concerned it is a purely business expedient to avoid the cost of installing meters where comparatively small quantities are concerned. ^ 8. The general policy of municipalities supplying outside areas and charging higher prices in them has already been discussed.^ This practice is adopted by many municipal water undertakings, and applies both to water sold by meter and to water supplied in return for a fixed charge based upon the rent. For example, in Burnley the charge for a supply of water for domestic purposes within the borough is 5 per cent per annum on the gross estimated rental, and 1 Manchester Corporation Water Wasser aus dem siddHsckeit Wasserwerk Works, Scale of Charges. zu Diisseldorf, p. 11. 2 Bedingungen iiber den Bezug von ^ See p. 181, above. 200 MUNICIPAL TRADING chai'. outside the borough 7^ per cent per annum on the gross estimated rental.^ In Dundee the charge for water by meter within the compulsory area is 6d. per 1000 gallons with a minimum charge of £2 : los., without the compulsory area yd. and 8d. per 1000 gallons with minimum charges of £2 : 18 : 6 and £t, : 6 : 8 respectively." The policy of charging special rates to other under- takings of a local authority has been dealt with above,^ and further illustrations need not be given here. Gas Undertakings I 9. The simplest method of charging for gas is to establish a uniform price, without taking into consideration in any way the purpose for which the gas is used, as is done, for example, in Hamburg, where the price is 14 pf. per cubic metre, and in Dundee, where the price is 2s. 3d. per 1000 cubic feet with a discount of 5 per cent. This method, however, appears to be exceptional. It is much more common to find two or more rates of charging according as the gas is used for lighting, power, heating, or cooking purposes, is supplied by ordinary or by prepayment meters, is sold inside or outside the town boundaries, is consumed in small or in large quantities, or is purchased by undertakings of the local authority or by private con- sumers. In some cases the charge is based on the estimated and not on the actual consumption. There are several reasons for selling gas for power, heating and cooking purposes at lower rates than for lighting purposes, (a) As far as power is concerned it is desirable not to place any difficulty in the way of local industries, upon which the welfare of many inhabitants of the town itself may largely depend ; consequently it is probably well not to attempt to make profit on gas supplied for power purposes, but to sell it at little more than cost price, {b) If the use of gas for power, heating and cooking purposes can be encouraged by preferential treatment, the consumption of ^ Parliamentary Return on Muni- ^ /^/^_ pj^,t vi. p. 48. fipal Trading (United Kingdom), part ii. p. 178. 3 ggg p_ 127^ above. VI SELLING POLICIES OF MUNICIPAL TRADES 201 coal in a town should be reduced and the smoke nuisance abated, which in many towns is a consideration of con- siderable importance. These two reasons are both connected with the promotion of the general welfare, those which remain are of a more technical character. ic) The next reason is concerned with the better utilisa- tion of the plant. Where gas is sold almost exclusively for lighting purposes, the consumption of gas throughout the twenty-four hours of the day is very uneven and occurs principally in the evening. This necessitates a large provision for storage, not merely for the purpose of providing a reserve of gas as a precaution, but because the hourly capacity of the plant is less than the highest hourly consumption, and gas must be accumulated during hours of low consumption to supplement the supply of gas actually produced at hours of high consumption. Consequently, it is likely to prove more economical if the daytime consumption can be in- creased by selling as much gas as possible for power, cooking and heating purposes, for, although this may necessitate an increase in this plant, the proportion of the total gas produced, which will have to be stored, will be diminished. Much more serious is the great difference in the consumption of gas for lighting purposes in winter and summer, in consequence of which a good deal of plant is idle in summer, as storing summer production for winter consumption is too costly to be contemplated. On the other hand, the consumption of gas for power and cooking purposes should not be affected by the season of the year,^ and consequently enables a better utilisation of the plant in summer than if lighting consumers alone are supplied. * Some interesting information on per cent during the summer half-year ; this point is supplied in the Ver- 1.27 per cent was consumed for power waltungsberichtdes Stadtj-atsderGrossh. during the winter half-year and 1.29 Badischen Hauptstadt Mannheim fiir per cent during the summer half-year. igo8. Of the total consumption of Thus, whereas the summer consumption the Mannheim gas works from October of gas for lighting purposes was less I, 1907, to October l, 1908, 35.81 than half the winter consumption for per cent was consumed for lighting lighting purposes, the cooking and purposes during the winter half-year and heating consumption was only one- 16.41 per cent during the summer tenth less in summer than in winter, half-year ; 23.93 per cent was con- and the power consumption practically sumed for cooking and heating purposes the same, during the winter half-year and 21.29 MUNICIPAL TRADING To encourage the use of gas for cooking and power purposes, lower rates are frequently established.^ To show the effect which the encouragement of the use of gas for cooking purposes may have upon increasing the consumption of gas during the daytime, a table is given below showing the hourly consumption of gas in Manchester during the year 1902-3, immediately previous to the adoption of the loaning of gas cookers free of charge by the Corporation, and during the year i9io-ii,the most recent for which information is available. The great increase in the con- sumption between seven and nine o'clock in the morning, and between eleven and two o'clock in the middle of the day, two periods during which meals are presumably being cooked, is very noticeable. Of the total increase in the consumption in 1910-1 i, as compared with 1902-3, "j"] per cent occurred between 5 A.M. and 5 P.M., and only 23 1 To give the reader some idea of the great difference in consumption at different hours and at different times of the year, figures relating to three large German municipal gas works may be quoted from their official reports : — Dusseldorf, 1908-9. (Of the total gas consumed, 47.70 per cent was employed for power, cooking and heating purposes.) Average daily consumption ..... 82,300 cbm. Highest Lowest , , , , Consumption in June Consumption in December 151,200 42,200 1,638,800 3,578,600 iMayence, 1908-9. (Of the total gas consumed, 43.66 per cent was employed for power, cooking and heating purposes.) Average daily consumption ..... 27,123 cbm. Highest Lowest ,, ,, Consumption in June . Consumption in December Highest hourly consumption Lowest , , , , 43,080 15,540 602,560 1,123,350 4,340 70 Leipzig, 1908-9. (Of the total gas consumed, 30.3 per cent was employed for power, cooking and heating purposes.) Average daily consumption ..... 111,057 cbm. Highest ,, ,, Lowest ,, ,, Consumption in June Consumption in December 204,600 42,040 1,857,940 5,406,360 VI SELLING POLICIES OF MUNICIPAL TRADES 203 per cent during the other twelve hours, so it is quite clear that the bulk of the additional gas used cannot have been for lighting purposes. Table showing the hourly consumption of gas in Manchester in 1902-3, immediately previous to the adoption of free gas cookers, and in 1910-11.^ 1902-3. 1910-11. Increase. Hours. 1000 Cubic Ft. 1000 Cubic Ft. 1 000 Cubic Ft. Per Cent. I 2 P.M. to I A.M. 138,293 138,806 513 1 0.4 I A.M. „ 2 87,075 92,573 5,498 6.3 2 3 76,450 83,104 6,654 8.7 3 4 70,412 79,172 8,760 12.4 4 5 69,500 81,935 12,435 17.9 5 6 79,904 102,523 22,619 28.3 6 7 128,540 153,662 25,122 19-5 7 8 157,805 221,315 63,510 40.2 8 9 156,406 211,503 55,097 35.2 9 10 161,354 205,571 44,217 27.4 10 1 1 159,100 212,718 53,618 33-7 II 12 163,003 234,500 71,497 43-9 12 I P.M. 162,865 253,623 90,758 55-7 I P.M. „ -7 118,136 175,850 57,714 48.9 2 3 130,664 171,004 40,340 30.9 3 4 148,449 184,584 36,135 24.3 4 5 220,078 248,312 28,234 12.8 5 6 305,489 335,742 30,253 9.9 6 7 349,135 367,138 18,003 5.2 7 8 384,240 403,866 19,626 5-1 8 9 418,176 429,879 11,703 2.8 9 10 430,346 451,404 21,058 4.9 10 1 1 374,493 395,042 20,549 5-5 II 12 244,483 266,458 21,975 9.0 4,734,396 5,500,284 765,888 16.2 [d) Another consideration which may influence the policy of a gas committee is that the more gas they can sell, the more chances there are of reducing the cost of production, and consequently of strengthening the position of the ' The figures in this table have been kindly supplied by Mr. Fredk. A. Price, Superintendent of the Man- chester Corporation Gas Department. 204 MUNICIPAL TRADING chap. undertaking. The use of gas for purposes of power, cooking and heating affords an excellent opportunity for extending the sale of gas, as it does not in any way prejudice the sale of gas for lighting purposes, and, as far as cooking and domestic heating are concerned, has no strong competition to face. The demand for coal amongst gas consumers will be diminished, but, on the other hand, this will be com- pensated for by the increased demand for coal by gas undertakings, so that the coal producers should not oppose the extended use of gas. Special efforts will be required to draw the attention of householders to the advantage of gas for cooking and heating purposes, and to overcome the difficulty involved by the expense of installing the necessary appliances. Probably the easiest way to overcome this difficulty is for the Gas Committee to loan the appliances free of charge and to take the cost of doing so into con- sideration in fixing prices. As far as the consumption of gas for power purposes is concerned, the competition of other forms of power — steam, electricity, water, suction gas — has to be met. Under these circumstances the use of coal-gas for driving gas engines is likely to prove somewhat limited, unless the gas can be sold at very low prices.^ {/) In determining the selling policy with regard to gas, there must be borne in mind a further point which of recent years has probably become the most crucial of all, namely, the effect of the introduction of the incandescent mantle and above all of electricity upon the consumption of gas for lighting purposes. By employing incandescent mantles a better light can be obtained with a smaller consumption of gas, which tends to diminish the consumption of gas for lighting purposes by existing customers ; though, as the cost of obtaining a given quantity of light is diminished, an ^ The actual experience of two for power purposes 940,000 cbm. or towns in respect of the use of gas for 13.32 per cent of the actual consump- power purposes may be quoted. In tion. In 1903 the respective figures 1898-9 Cologne sold for power pur- were 581,000 cbm. or 6.24 per cent, poses 2,893,000 cbm. or 10. 98 per and in 1908, 311,000 cbm. or 2.56 cent of the total consumption. In per cent. (The figures are quoted 1903-4 the respective figures were from, or based on, the Reports of the 3,464,000 cbm. or 9.60 percent, and Municipal Gas Undertakings of Cologne in 1908-9, 3,064,000 cbm. or 6.84 and Mannheim.) per cent. In 1898 Mannheim sold VI SELLING POLICIES OF MUNICIPAL TRADES 205 ultimate increase in the number of consumers should com- pensate for the diminished consumption of each consumer. The effect of the introduction of electricity is much more serious, because many customers may be lost entirely to the gas undertakings as far as consumption of gas for lighting purposes is concerned. It is a great mistake to consider that the choice between the use of gas and of electricity is entirely or even largely one of price. Electricity possesses certain advantages over gas for lighting purposes of which many people will desire to avail themselves, quite apart from considerations of cost. Electric lighting does not vitiate or use up the air, it hardly affects the temperature of the rooms in which it is used, it is essentially clean and does not blacken ceilings, wall-papers, etc. The way in which it can be switched on and off is extremely convenient, it lends itself excellently for decorative purposes, and it can be brought close to inflammable materials without danger. One or more of these, or of other advantages which electricity may possess, makes its use almost necessary in hotels, restaurants, theatres, public halls and many shops, and is likely to lead to its installation too in offices and in the private houses of many of the wealthier citizens. The extension of electricity for lighting purposes amongst people of moderate means depends to a considerable extent upon the price of current and the cost of " wiring " a house and purchasing the necessary fittings. If, as new houses are built, these are wired for electric light instead of being provided with piping for gas, the use of electricity will naturally be increased. The recent introduction of the metallic filament lamp, by diminishing very considerably the consumption of current required to obtain a given amount of light, will undoubtedly gain consumers for electricity undertakings amongst householders of moderate means. The situation then, as far as gas undertakings are concerned, is that they have lost a considerable number of former large light consumers, and will probably lose a good many moderate light consumers in the future, and that no reduction in the cost of gas is likely to check the movement very much if the cost of electric current is reasonable, because the use of electric light, up to the 2o6 MUNICIPAL TRADING <,hap. present at least, is not due to the fact that it is cheaper than gas, but to the various advantages it possesses over gas. The best way in which gas undertakings can meet the competition of electricity is to extend the use of gas for cooking and heating purposes, as in this way it is possible to build up a demand for gas which is likely to be but little, if at all, affected by electricity. If ^as undertakings are to continue to prosper and to grow in the future as they have done in the past, it will not be by making financial concessions to retain business, which they are ultimately almost certain to lose at whatever price gas may be sold, but by finding new outlets for their product, and this is realised by very many gas committees. Thc\' are doing their utmost to encourage the use of gas for other than lighting purposes, and frequently find it desirable to charge lower prices where gas is so used. S lo. The growing importance to gas works of the sale of gas for heating and cooking purposes may be illustrated by some figures relating to the municipal gas works of Cologne and Mayence which are given below. It will be noted that in Cologne during the ten years 1898 to 1908 the gas sold to private consumers for lighting purposes increased by some 34 per cent, whilst the gas sold to private consumers for cooking and heating purposes increased by some 289 per cent. In Mayence in 1885 the consumption of gas by private consumers for lighting purposes was roughly 1,526,000 cbm., and for cooking and heating purposes 301,000 cbm. In 1908 the respective consumptions were 2,914,000 cbm. and 3,977,000 cbm., the former having in- creased some 91 per cent and the latter some 1221 per cent. [Table VI SELLING POLICIES OF MUNICIPAL TRADES 207 Sale of Gas to Private Consumers in Cologne ^ Year. Gas sold for Lighting Purposes. Gas sold for Cooking and Heating Purposes. Cbm. Percentage of Total Output. Cbm. Percentage of Total Output. 1898-9 1903-4 1908-9 14,322,197 17,102,222 19,353,016 54-35 44.81 43-16 3,703,560 8,544,903 14,466,845 14.05 23.68 32.26 Sale of Gas to Private Consumers in Mayence^ Total Output Percentage of Output Percentage of Output Year. of Gas. sold for Lighting sold for Heating and 1885-6 Cbm. Purposes. Cooking Purposes. 2,619,452 58.27 11.48 I 890-1 3,770,612 52.44 15.53 1895-6 4,790,540 46.43 28.71 1 900- 1 5,948,846 37.04 41.56 1905-6 8,117,406 34.08 43-68 1908-9 9,107,350 32.06 43.66 Whilst recognising the desirability of extending the sale of gas for power, cooking and lighting purposes, many towns are inclined to the view that it is best to charge a uniform price for lighting, cooking and heating purposes, if not for power. There are various grounds for adopting this policy. In the first place, as the consumption of gas for other than lighting purposes becomes considerable, the financial position of the undertakings may be seriously affected if preferential rates are granted. Thus in Dusseldorf and Mannheim, for example, the consumption of gas for cooking and heating purposes represents more than half the total consumption of gas by private customers ; so that it is hardly astonishing that in 1 9 1 o these undertakings should have changed their tariffs 1 Geschdftsberichte der Gas-, Elek- 2 Rechenschafisbericht der stddtischen trizitdts- und Wasserwerke der Stadt Gaswerke zu Mainz fiir das Hechmmgs- Coln fiir die Jahre igoj-igoS, igo8- jahr igoS, p. 46. igog. 2o8 MUNICIPAL TRADING chai-. to do away with the preferential rate for ^as for cooking and heating purposes.^ In the second place, once the use of gas for cooking and heating purposes is fairly well established, a small rise in price is not likely to diminish this type of gas consumption very much, whereas it may enable the price of gas for lighting purposes to be lowered which will strengthen the position of gas undertakings in their competition with electricity in those cases, where the cost of light is a factor of importance. In the third place, the establishment of a uniform tariff does away with the need of domestic consumers having two meters, which saves expense in the matter of capital outlay and in the matter of administrative costs, as there will be fewer meters to be read, less book-keeping to be done, and not so many bills to be sent out and collected. S I I. We may now consider the various policies adopted by different municipalities in respect of the sale of gas for lighting, heating, cooking and power purposes. One very common arrangement is to distinguish between the use of o-as for lighting purposes and for all other purposes. Thus in Leipzig the price of gas for lighting is i 8 pf. per cbm. ; whereas if it is used for engines, for machines or appliances to carry out industrial or scientific work, for the industrial production of goods, for heating or for cooking, the charge is I 2 pf. per cbm. A discount is granted in respect of gas used for lighting purposes where the annual consumption exceeds 5000 cbm.' Sometimes no reduction in price is made, whatever the consumption may be, as in Bonn, where 1 Formerly the charges in Dusseklorf to the annual consumption, and 12 pf. for lighting purposes were from 16 to per cbm. for all other purposes. Now \2\i pf. per cbm. according to the there is a uniform charge of 14 pf. annual consumption, for cooking and per cbm. for all gas supplied through heating purposes 10 pf. per cbm., and ordinary meters. (The figures are for power purposes 8 pf per cbm. taken from the annual reports and the The prices are now 13 pf. per cbm. scale of charges of the two under- for lighting, cooking and heating takings.) purposes, and 8 pf. per cbm. for power - Stiidtische Gasanstalten in Leipzig. purposes. In Mannheim the charges Bedingtmgen fiir die Abgabe von Gas, were formerly from 18 to 14 pf. per pp. 3, 4. The discounts are as cbm. for lighting purposes, according follows : For an annual consumption between 5,000 and 10,000 cbm. 2 per cent. ,, ,, 10,000 and 20,000 ,, 3 ,, 20,000 and 30,000 ,, 4 ,, ,, ,, >• over 30,000 5 VI SELLING POLICIES OF MUNICIPAL TRADES 209 the price of gas for lighting purposes is 16 pf., and for cooking, heating and power purposes 10 pf. per cbm. In other cases large consumers obtain reductions, whether the gas be used for hghting or for other purposes, as for example in Cologne, where the base price for lighting purposes is 16 pf. per cbm., and for heating, cooking, power and other technical purposes 10 pf. per cbm.^ A much more exceptional arrangement, where gas for cooking, heating and power purposes is charged at lower rates, is to grant discount solely in respect of such low-priced gas. Thus in Brandenburg gas for lighting pays 17 pf, per cbm., gas for other purposes pays from 1 3 to 11 pf. per cbm. according to the consumption." In this country the distinction between gas used for lighting and for all other purposes also exists, but does not appear to be nearly as common as in Germany. In Huddersfield, for example, the price for lighting purposes is 2s. per 1000 cubic feet, whilst the price for heating and cooking purposes and motive power is is. 6d. per 1000 cubic feet, with 5 per cent discount. In Rochdale the price for lighting purposes is 2s. 8d. per 1000 cubic feet with discount from 2d. to 5d, according to consumption, whilst for purposes other than lighting the price is from IS. 6d. to 2s. per 1000 cubic feet. In some cases lower rates are granted for cooking and power purposes only.^ As far as the use of gas for lighting, heating, cook- ing and power is concerned, one of the most common arrangements amongst municipal gas undertakings in this country is to distinguish between power and other consumers only. At the same time reductions may be given to large consumers. Thus in the city of Manchester the ordinary price of gas is 2s. 3d. per 1000 cubic feet,'* 1 Gas for lighting purposes is - A zone scale varying from 13 pf. charged 16 pf. per cbm. for the first per cbm. for the first 5000 cbm. per 2500 cbm., and then less by zones annum to 1 1 pf per cbm. in respect until the annual consumption reaches of all annual consumption in excess of 30,000 cbm., all in excess of this being 50,000 cbm. charged 13 pf. per cbm. Gas for ^ j? g Buxton : cooking and power other purposes is charged 10 pf per 2s. per 1000 cubic feet, other purposes cbm. for the first 5000 cbm., and then 2s. 3d. net per 1000 cubic feet, less by zones until the annual con- ^ P"rom June 25, 191 1, the price sumption exceeds 250,000 cbm., when of gas used within the city for manu- the excess is charged 5 pf, per cbm, facturing purposes only was reduced P 2IO MUNICIPAL TRADING chap. but gas used for motive purposes is charged only is. Qd. per looo cubic feet. In Birmingham the prices of gas for ordinary purposes are from is. pd. to 2s. 4d. per lOOO cubic feet according to the consumption, whilst the prices for motive purposes are is. 6d. and is. gd. per lOOO cubic feet according to the consumption. Another common arrangement is to establish a base price and to make reductions for large consumers without distinguishing in any way the purpose for which the gas is used. Thus, for example, in Oldham the net prices are from is. Qd. to 2s. 2d. net according to the consumption. Occasionally, as in Stockport, whilst there is a single price, reductions in favour of large consumers are granted in respect of the gas used for trade purposes only.^ One or two special points may bs noted here. In some cases where gas for power purposes is sold at lower prices than for lighting purposes, gas used for generating electric light is not charged at the low rates. Thus in Bonn, gas used for generating electricity for lighting purposes is charged at the same price as for light (i6 pf per cbm.), and not at the heating, cooking and power price ( i o pf per cbm.).' In Heidelberg the price of gas for lighting purposes is 20 pf. per cbm., for other purposes 12 pf per cbm., except that gas used for generating electric current for lighting purposes is charged 16 pf per cbm.^ Where higher charges are made for gas for lighting than for other purposes, one or two flames situated in the rooms in which gas is used for cooking or power purposes are, nevertheless, not uncommonly supplied at the lower rates.'* from 2s. 3d. to 2s. per looo cubic berg Gas an Privat - Konsumenten feet providing the annual consumption geliefert,tind die erforderliche Einrich- is not less than 500,000 cubic feet tiuig beschajft wird, § 13. {Annual Rep07-t of the Alanchester * E.g. in Heidelberg, in a kitchen Corporation Gas Works, 1910-II, p. 5). which is supplied with gas for cooking 1 The various prices in this para- purposes, one light may be supplied graph and the previous one are from the same source. (Vertragsbe- quoted from ihe. Return relating to all dingungen, etc., § 13.) Authorised Gas Uttdei'takings of Local In Dresden where gas is sold for Authorities, 1909-10. cooking purposes, two flames in the 2 Bedingungen fiir die Abgabe von kitchen, or one in the kitchen and one Gas aus dem Gasiverke der Stadt Bonn, in the hall ; where it is sold for heat- § 6. ing water, one flame in the bath-room ; ^ Vertragsbedingungen unter denen where it is sold for power purposes, seitens dcs stadt. Gasxverks zu Heidel- two flames in the engine-room may VI SELLING POLICIES OF MUNICIPAL TRADES 211 In some cases lower prices are charged in summer than in winter. This is done to encourage the consumption of gas in summer, but it is very doubtful if the result is satis- factory as people are not likely to use much more light or to do much more cooking or heating in summer than they would if prices remained unchanged, and unless the con- sumption is considerably increased the total receipts will be diminished. Amongst the towns which have a summer and a winter tariff are Kiel,^ Cassel ^ and Heilbronn.^ § 1 2. The supply of gas by prepayment or automatic meters has already been mentioned. The object is to facilitate the use of gas by people of small means who would frequently find it difficult to provide the money to pay quarterly or even monthly accounts, but who may be quite willing to pay for gas in small quantities, as they require it, by placing a coin in a slot in the meter. The annual interest on the capital outlay caused by the provision of the meter and the making of the connection, and the annual allowance for the depreciation of the meter, together with the cost of collection, must be added on to the price of the gas supplied. As the consumption will be comparatively small, the interest and depreciation and collection charge per unit of gas supplied will be comparatively large, and if prepayment consumers are to be placed on the same footing as ordinary consumers, the former will have to pay a higher price than the latter. Where ordinary consumers pay no meter rents the ordinary price already includes an allowance for interest and deprecia- tion in respect of meters, but not as much per unit as is necessary in the case of prepa}ment meters. In many cases it is very difficult to say whether the extra charge for gas purchased through prepayment meters is more than adequate, just adequate, or less than adequate to meet the interest and depreciation charge, or in other words, whether prepayment consumers are really paying more than, the same as, or less than ordinary consumers for the actual gas. In Berlin, for be supplied from the meter which per cbm, measures gas for cooking, heating and y „ ^ . , ^ , u J- r- ' bummer, 14 pf. ; wmter, 16 pf. power purposes. {Beaingiingen fur . } \ \ den Beziig von Gas aits den Gaswerken ^^ V • ) V der Stadt Dresden, §8.) ^ Summer, 14 pf. ; winter, 16.5 ^ Summer, 13 pf. ; winter, 16 pf. pf. per cbm. 212 MUNICIPAL TRADING chap. example, it is clearly stated in the conditions that the users of prepayment meters shall pay the ordinary price of gas plus a certain sum per cubic meter of gas consumed as rent for the installation^ (approximately 8d. per looo cubic feet). On the other hand, in Bolton where the ordinary consumers pay 2s. 4d. net per lOOO cubic feet and no meter rents are charged, prepayment consumers pay 3s. 4d., or is. more per 1000 cubic feet, which should more than cover the rent for the installation and the cost of collection. In most municipal gas undertakings in this country the extra charge to pre- payment consumers is more moderate ; in fact, so far as the information is forthcoming, it often appears to be insufficient to meet the extra costs. Thus in Manchester, the cost of distribution, management, repairs and maintenance, renewals, interest charges, salaries and wages is 5.2od. per 1000 cubic feet in the case of ordinary meters, while as regards auto- matic meters it is I3.02d. or 7.8 2d. more per 1000 cubic feet,^ whereas the extra charge made is only 3d.,^ so that the automatic meter-user gets an advantage of nearly 5d. per 1000 cubic feet as compared with the ordinary consumer. In Salford the cost of supplying gas by prepayment meters is io.6d.periooo cubic feet dearer than that supplied byordinary meter. The cost of collectors alone is 2d. per 1000 cubic feet with this class of meter. The extra charge made is 6.33d. per 1000 cubic feet, so that the committee nets 4.27d. less per 1000 cubic feet than in the case of gas sold through ordinary meters.'* Where the extra charge for supplying gas by prepay- ment meters is insufficient to meet the extra cost of provid- ing the gas by this system, the municipality is really giving ^ The ordinary price of gas is 12.35 30 cubic feet ; since September 30, pf. per cbm., the rent for the installation 191 1, it is 33 cubic feet, which is equi- is 2.46 pf. per cbm., consequently the valent to a reduction in the price from prepayment meter supplies 675 litres 2s. gd. to 2s. 6d. per 1000 cubic feet, of gas for 10 pf., or at the rate of 14.81 The price to ordinary consumers is pf. per cbm. [Bedin^jmgen fii?- die 2s. 3d. (Amtnal Report of the Man- Gaseiitnahme durch Aiitomatgasmesser Chester Corporation Gas Works, igio- aus den stddtischen Gaswerken, § 7). ig 11, p. 5). 2 See report of statement by Alder- * See the speech by Alderman man Gibson, Chairman of the Man- Phillips, Chairman of the Salford Gas Chester Gas Committee, in the Man- Committee, at the Salford Town Chester Guardian, December 16, 1910. Council meeting, June I, 1910, re- 3 Formerly the quantity of gas sup- ported in the Manchester Giiardian, plied to automatic meters for id. was June 2, 1910. VI SELLING POLICIES OF MUNICIPAL TRADES 213 more favourable terms to the small consumers, who use pre- payment meters, than to the larger consumers who use ordinary meters. It is not sound business, but may be justifiable on the grounds of social expediency. This policy of favouring small consumers is seen more clearly where the charge for gas by prepayment meter is the same as by ordinary meter, and still more so where the charge by pre- payment meter is less than by ordinary meter. In these last two cases some limitations with regard to the quantity of gas to be supplied by prepayment meters, the value of the tenements in which they may be installed, or the total cost of the installation, must be imposed, otherwise the system might easily be abused. In Wiesbaden, for example, the ordinary price of gas is 16 pf. per cbm., and the same charge is made for gas supplied through automatic meters, provided the annual rent of the dwelling does not exceed 400 marks. If the rent is between 400 and 700 marks the price by pre- payment meter is i 7 pf. per cbm.^ The fact that there are two prices according to the rent clearly shows the social character of the terms granted. Towns in which the charge for gas by prepayment meters is less than by ordinary meters are Nurnberg, Furth and Hanau.'^ § I 3. The general principles concerning the charging of higher prices outside the municipal boundaries than within them have already been discussed.^ Here we need only notice that the policy is pretty commonly adopted in the case of gas undertakings of local authorities in this country. Thus in Manchester, corresponding to the three prices of gas supplied in the town for ordinary purposes and power purposes, and by ^ Gaswerk der Stadt Wiesbaden. 2 Niirnberg : Gas for lighting, by Bestimmungen iiber die Abgabe von ordinary meter 18 pf. per cbm., by pre- Gas zum Privatgebranche,%%. Bestim- payment meter 14 pf per cbm. mungen iiher die Abgabe von Gas Fiirth : Gas for lighting, by ordinary mittels Antomaten, §§ 3, 4, 13. meter 18 pf per cbm., by prepayment The installation of prepayment meter 16 pf per cbm. meters is allowed in dwellings of an Hanau : Gas for lighting, by ordinary annual value not exceeding 700 marks ; meter 19 pf per cbm., by prepayment in shops, workshops, offices and ware- meter 15 pf. per cbm. houses, without dwellings attached, of See Komniunales Jahrbuck, 19 10, an annual value not exceeding 950 pp. xix-xxiii, also Mombert, "Die marks, or, with dwellings attached, of an Gemeindebetriebe in Deutschland," annual value not exceeding 1 200 marks. Schriften des Vereins fiir Socialpolitik, The total cost of the installation may vol. 128, p. 45. not exceed 75 marks. ^ See p. 1 8 1, above. 214 MUNICIPAL TRADING chap. prepayment meters, are three higher prices for gas suppHed outside the boundaries.^ In other cases, where various prices are charged outside the boundaries, they depend roughly upon the distance from the gas works, and not upon the use to which the gas is put or the kind of meter by which it is measured, as for example, in Stockton-on-Tees.^ Sometimes, although different charges may be made within the area of local authority, a uniform higher charge is made outside.^ In connection with a good many municipal gas under- takings where gas for the purpose of street lighting is not provided free, it is supplied at specially low rates, and some- times the public buildings also receive preferential treatment. Thus in Birmingham gas used for the public street lamps is charged is. per looo cubic feet and a discount of 5 per cent is allowed, whereas the ordinary prices for lighting purposes vary from is. gd. to 2s. 4d., according to the consumption. In Leipzig, where the price of gas to private consumers for lighting purposes is 18 pf. per cbm., a reduced price of 7 pf. is charged for gas used in public buildings, and a reduced price of 10 pf is charged for gas used in semi-public buildings, such as the theatres and the market hall."^ As far as street lighting is concerned, it is very common for the gas to be charged not according to the actual consumption measured by meters, but according to the probable consumption based upon the number of hours which it is estimated that the lamps will burn. For example, in Burnley the annual charge is £2 : los. per lamp, including lighting, cleaning and repairing. In Kingston-upon-Hull the annual charges per lamp are for full lights, £t^ : 5s ; for half lights, £2 ; for Lambeth lamps, £^ \ for Victoria lamps, £'] . In exceptional cases, where it is * The prices are 2s. 3d. per 1000 cent discount. cubic feet for ordinary purposes, is. od. ■! 7- • m 1 1 r i- , 1 /]" i . i^.f^. in Blackpool, gas tor ordinary for power, and 2s. od. by prepayment "^ j .•/-.. '^ .,. ,, , J ■ J /-J purposes, 2s. 2d. per 1000 cubic feet, meter within the boundaries, and 2s. od., r r > r » J , .• , -..1 . ^1 for power is. lod., by prepayment 2s., and 2s. Qd. respectively without the , , r^ \ ■ i \. ■> 1 , , . ^ ^ ■' meters 2s. Iid. Outside the borough boundaries. ^ 2 Price of gas in Stockton-on-Tees ^ 2s. 6d. per 1000 cubic feet. Beyond, * See Weigel, "Die Gemeinde- Thornaby, 2s. 8d. ; Norton, 3s. 4d. ; betriebe der Stadt Leipzig," ScJu-iften Billingham, 3s. lod. ; Wolviston, 4s. des Vereins fiir Socialpolitik, vol. 129, All the prices are subject to a 10 per part vii. p. 69. VI SELLING POLICIES OF MUNICIPAL TRADES 215 difficult to fix a meter, private consumers pay in propor- tion to the estimated instead of to the actual consumption.^ § 14. There remains to be considered the selling policy of municipal gas undertakings with regard to the by-products. The principal by-products associated with the production of coal gas are coke, tar and ammoniacal liquor, and their sale plays a most important part in gas finance, as the better the prices which can be realised for them, the lower the net cost of producing gas, and consequently the more cheaply the gas can be sold, {a) The most important of the by- products is coke. The quantity produced depends chiefly upon the quality of the coal employed, the kind of retorts used and the completeness of the carbonisation process, and consequently varies considerably from one works to another. Generally speaking, the quantity of coke made is between 12 and 14 hundredweights per ton of coal carbonised; in other words, the weight of the coke produced is between 60 and 70 per cent of that of the coal used.^ Some of this coke is employed at the gas works for firing the boilers, heating the retorts and making water gas, if that is pro- duced in addition to coal gas. The rest, which generally represents between two-thirds and four-fifths of the total pro- duction, has to be disposed of outside the works. Various difficulties are associated with the sale of coke. It is very bulky to store, and in any case cannot be kept very long without its tending to break up into breeze, which involves a considerable diminution in value. Further, gas works cannot check the output of coke in response to a fall in price, as the supply of coke depends entirely upon the demand for gas. Consequently it may easily happen that large supplies of coke have to be offered for sale at times when market conditions are entirely unfavourable ; it practically amounts to forced sales, and the prices obtained are likely to be unduly low. Thus, as far as the conditions on the side of supply are concerned, gas works are not in a ^ E.g. there is a provision in the sumed is sold in this way. Berlin regulations that where gas is '^ '$>e.&Y\^\'\, Analysis of Gas Accounts, provided without being measured, the and table quoted in Weis, " Die consumption shall be estimated accord- Verwertung der Gasnebenprodukte in ing to the size of the burners and the den stadtischenGasanstalten,".S'f/irz/?t'« time during which it is used. About des Vereifis fi'ir Socialpolitik, vol. 128, one half per cent of all the gas con- pp. 322, 323. 2i6 MUNICIPAL TRADING chap. strong position when selling coke. Conditions on the side of demand are also peculiar. In proportion to the value, coke is a bulky article, and consequently cannot stand much transport by rail. If water transport is available and a good outside market can be reached, the position is some- what better, but the cost of freight will, of course, diminish the sum received for the coke. In all cases works must look first to the local market. The quality of this varies enormously. The local demand may be for trade purposes, or domestic purposes, or both. As far as the demand for trade purposes is concerned this will depend, in the first place, upon the character of the local industries, in the second place, upon the competition of concerns owning coke-ovens which produce coke for industrial purposes, and in the third place, upon the competition of coal. In any town in which, for example, metal-working or cement-making industries are situated, there is generally a good demand for coke. If the price of coal is high, as in the south of England, coke may be used in some industries to replace coal for firing boilers. The competition of private firms owning coke-ovens is, of course, restricted to certain districts ; the gas works which probably fare the worst in this respect are those situated in and immediately around the Ruhr district of Germany. The local demand for coke for domestic purposes depends largely upon the habits and customs of the people and upon the price of coal. In Germany, where stoves are used instead of open fire-places, there is a far better chance of inducing householders to use coke than in this country. In the north of Germany, where lignite is comparatively cheap, far less coke is used for domestic purposes than in the south of Germany, where lignite and coal are dear. Coke may be sold either through dealers or direct to the consumers ; the former policy has the advantage of disposing of the coke more quickly and with less trouble and expense, but many municipalities, especially in South Germany, adopt the latter policy to some extent, as it removes the danger of poor prices being obtained for coke owing to a ring amongst the dealers and large consumers. Some of the coke is broken up into suitable sizes and then sold direct to house- holders, and the rest to dealers and large consumers at VI SELLING POLICIES OF MUNICIPAL TRADES 217 reduced prices or with discounts. In some cases, for example in Cologne, the gas undertaking offers especially favourable prices, and possibly free delivery or delivery at reduced rates, to householders who undertake to purchase regular supplies throughout the year, the quantities, one for summer months and a higher one for winter months, being stipulated beforehand, the coke to be paid for on delivery.^ In this country the demand for coke in general does not appear to be so good as in Germany, as the demand for domestic purposes is very much smaller, and almost every- thing depends upon the demand for industrial purposes. Thus in Birmingham, thanks largely to the presence of the metal trades, the gas works are able to obtain a good 2s. more per ton for coke than the Manchester gas works.^ In any one town, the price of coke varies roughly in propor- tion to the price of coal, the prices generally rising and falling together, though not necessarily in the same propor- tion. As between different towns, the cost of coal is not a good indication of the price which will be obtained for coke, as in some towns the price of coke approaches or even exceeds the price of coal, and in others falls a long way below it. Thus in Birmingham in 1905 the coal cost I OS. ^d. per ton, whilst the coke sold for 9s. 2.3 id, or 91.5 per cent of the price of the coal, whereas in Manchester the coal cost IIS. 3d. per ton, but the coke sold for only 7s. o. 5 7d., or 62.6 per cent of the price of the coal.^ In this country it appears to be exceptional for the price obtained by the sale of coke to exceed the price paid for the coal, but in Germany it is quite common. Statistics con- cerning forty-three German municipal gas works in 1906-7 show that the price of coke exceeded that of the coal in twenty-eight cases, and was below it only in fourteen cases. In one case the two prices were equal.* The efforts amongst German gas works to obtain better prices for their coke led in 1904 to the formation of an ^ Weis, " Die Verwertung der ^ Report of the National Civic Gasnebenprodukte in den stadtischen Federation Commission on Public Gasanstalten," Schi-iften des Vereins Ownership, part ii. vol. ii. p. 223. fiir Socialpolitik, vol. 128, pp. 314, 315. * See table given by Weis, loc. cit. - Field, Analysis of Gas Accounts. pp. 322, 323. 2i8 MUNICIPAL TRADING chap. Association of Gas Works known as the " Wirtschaftliche Vereinigung deutscher Gaswerke, Aktien-Gesellschaft," with its head office in Cologne.^ The object of the association is to secure the most favourable terms for the sale of the coke and other by-products of the works which are members, and also to assist members in the purchase of apparatus and material.^ Up to the present the principal work of the association has been to facilitate the sale of coke. Each works is responsible for the sale of its coke in its own local area, and all dealers who purchase from it must undertake not to resell the coke outside the local area.^ The associa- tion undertakes to dispose of all surplus coke outside the local area to wholesale dealers, and imposes upon them the condition that none of the coke shall be sold within the local areas of any of the works which are members of the association.* In order to facilitate the sale of coke by the association, the probable surpluses for the year, and the times at which they will be available for delivery, must be notified to the association before February i.^ On the basis of this information standard prices are fixed for each district.^ The association undertakes to sell any extra supplies of coke of which it receives notification after February i, but in respect of these extra supplies it is not under the obligation to make good the respective standard prices. Any losses, as compared with the standard prices, incurred on the sale of the extra supplies are divided equally amongst the extra supplies disposed of during a business year. Any profits, as compared with the standard prices, realised on the extra supplies belong to the association. Any profit realised on supplies notified by February i belong to the gas works which delivered the particular coke, Any loss incurred in respect of duly notified supplies is borne by the association.^ The general administrative expenses of the association are met by an annual levy from the members, based on the quantity 1 See the Gesellschaftsvertrag der ' Ibid. § lo. wirtschaftlichen Vereinigung deutscher '° Ibid. § lo. Gaswerke, Aktiengesellschaft zu Cciln <> Ibid. § 12. The districts are a. Rh., Satzungen, § i. West, South, North, and Middle 2 Satzungen, § 2. Germany. 3 Ibid. § 10. '■ Satzungen, § li. VI SELLING POLICIES OF MUNICIPAL TRADES 219 of gas produced during the previous year ; the expenses incurred in connection with the sale of coke, including any sums which the association may have to contribute to make good the standard prices, are met by an annual levy from the members, based on the quantity of the surplus coke sold for them by the association.^ The principal object of the association is to protect gas works from outside competition in the sale of coke in their own markets. The association is anxious to sell as little coke as possible, greatly preferring that each works should sell its own in the local area. This is generally the case in South Germany, away from coal-fields and coke works. In Westphalia, on the other hand, much of the coke has to be disposed of by the association. In 1910 there were 163 members of the association, most of which were municipal undertakings. Seventy belonged to the West German group, the largest amongst them, according to production, being Cologne,'-^ Dusseldorf,-' Elberfeld,^ Barmen,'' Aix-la- Chapelle, Essen-Ruhr- and Bonn ;'-' forty-five belonged to the South German group, which included Frankfort-on-the Main, Stuttgart,- Strassburg, Carlsruhe,- Mannheim,^ Wiesbaden - and Mayence ; " the North German group contained Hanover, Dortmund, Bielefeld,^ Osnabruck ^ and twenty-two smaller towns ; amongst the twenty-two towns of the Middle German group were Magdeburg,^ Erfurt and Gottingen.- During the year 1908-9 there were 144 members. These works produced 1,200,000 tons of coke, of which 294,000 tons, or something less than 25 per cent, were notified to the association for disposal outside the local areas. The average price obtained by the association was 18.35 marks per ton. In 1909-10 there were 146 members ; their production of coke was 1,241,000 tons, of which 314,000 tons were placed at the disposal of the association. The average price obtained by the association was 17.32 marks per ton. The estimates for 19 10- 11 showed that the association would have some 360,000 tons to dispose of, out of a total production by members amounting to 1,300,000 tons. It is interesting to notice the great difference in the local 1 Satzungen, §17. - The gas works is a municipal undertaking. 220 MUNICIPAL TRADING chap. consumption of coke : Stuttgart expected to dispose locally of the whole of its production (63,000 tons), and the same was true of Pforzheim (17,000 tons). Magdeburg asked the association to dispose of 1000 tons out of a total pro- duction of 39,000 tons. On the other hand, Cologne placed 40,000 out of 97,500 tons, Elberfeld 20,000 out of 39,000 tons, and Dlisseldorf 29,700 out of 72,800 tons at the disposal of the association for sale outside the local area.^ {b) The financial importance of the two remaining prin- cipal by-products, ammoniacal liquor and tar, varies from works to works. In some works tar, and in other ammoniacal liquor yields the largest revenue. The quantity and quality of the tar obtained, and consequently the sum for which it can be sold, depend largely upon the quality of the coal and upon the carbonising retorts. The conditions affecting the sale of these by-products are quite different from those affecting the sale of coke. The local markets play little or no part in the determination of prices, and price fluctuations are independent of the cost of coal. Until quite recently all tar had to be disposed of to tar distillers, as no gas works produces enough tar to make it worth while distilling its own tar. The prices offered by tar distillers depend upon the prices which can be realised by the products obtained from tar, and indirectly, therefore, to a considerable extent upon the price of aniline dyes ; upon the quantities of tar which are being offered in the market, the supplies from the coke works being the determining factor ; and upon understandings which may exist among the limited number of tar purchasers. During the last few years there has been a greatly increased demand for tar for treating roads to check dust, and if this use of tar grows, gas works should become much less dependent upon the tar distillers than they are at present. Most gas works sell their tar by tender, but there are exceptions. In Manchester the corporation has a contract with a tar-distilling firm, under which the tar is sold according to a sliding scale based upon the selling price of the five principal products of tar — naphtha, light oils, creosote, anthracine and pitch. A certain sum, 1 Wirtschaftliche Vereinigung deutscher Gaswerke A. G., Geschdftsbericht fiir das GeschdJ'tsjahr igog-io. VI SELLING POLICIES OF MUNICIPAL TRADES 221 fixed by agreement with the distiller, is allowed to the firm to cover the costs of manufacturing", and this is deducted from the market value of the estimated amount of the pro- ducts which the tar will yield. Whether the corporation really secures better terms in this way than it would under a system of sale by tender, influenced by possible under- standings amongst purchasers, is doubtful. A comparison of the average price obtained for tar in Manchester and in other large English municipalities, in one recent year at least, was entirely unfavourable to Manchester.^ In Germany several of the gas works which belong to the " Wirtschaftliche Vereinigung deutscher Gaswerke " sell their tar through the association. In 1905-6 the quantity handled was only 596 tons ; in 1906-7 it was 8302 tons ; in 1907-8, 27,953 tons; in 1908-9, 58,884 tons; in 1909-10, 65,748 tons. The average price obtained during this last year was 21.92 marks per ton." {c) The ammoniacal liquor produced by gas works is an extremely bulky article in proportion to its value, and is consequently very costly to transport. To obtain a satis- factory price for it, a works must utilise it for manufacturing purposes to some extent at least. The two things most commonly done with it are to produce concentrated ammonia or sulphate of ammonia. The latter involves a larger element of manufacture, but enjoys a wider market, as it is much used at home and abroad as manure. On this account many municipalities prefer to make it rather than concentrated ammonia, for which there is only a limited market. Gas works generally sell their own ammonia pro- ducts, though some German works dispose of them through the " Wirtschaftliche Vereinigung deutscher Gaswerke " which sold 11,219 tons of ammonia products in 1909-10, worth 1,040,000 marks.^ A few municipal gas under- takings, for example Bonn, Bochum and Bielefeld, sell 1 See Field, Analysis of Gas Ac- ham, i.2od. in Birmingham, i.i5d. in counts for the Year ending March 31, Carlisle and l.iid. in Manchester. igo8. The average price obtained for ^ Wirtschaftliche Vereinigung deut- tar per gallon was i.55d. in Notting- scher Gaswerke, A.G., Geschdftsbericht ham, i.48d. in Bolton, i.36d. in Brad- fiir das Geschdftsjahr igog-w. ford, l.^Sd. in Salford, l.24d. in -^ Geschdftsbericht fiir das Geschdfts- Leeds, 1.2 id. in Leicester and Old- jahr igog-io. 222 MUNICIPAL TRADING chap. their ammonia products through the " Bochumer Ammoniak- verkaufsvereinigung," which is an association composed chiefly of coke works.^ Electricity Undertakings " § 1 5. The selling policies adopted by municipalities with regard to electric current differ materially from those adopted with regard to gas. In the first place, it is almost impossible to store electric current cheaply, which practically necessitates the installation of sufficient generat- ing plant to meet the maximum demand for current, which will occur at one particular hour in the year, prob- ably between five and six o'clock in the evening on some day in December. Actually the capacity of the plant must be something greater than the maximum demand, to allow of a margin being held in reserve. In the case of gas, the heavy evening demand in winter can be met from supplies accumulated in gasometers during the early morning and the daytime. In the second place, the cost of supplying current is generally not closely related to the quantity of current supplied. In the third place, social considerations play a smaller part in determining the selling policy of electricity than in the case of gas or water. 816. The various selling policies adopted represent different methods of attempting to adjust the charges to the cost of production. The conditions in the electricity industry are similar to those in some other industries, for example railways, in that the special expenses or prime costs are much smaller than the general expenses or supplementary costs. The general or fixed expenses are independent of the utilisation of the undertaking ; they consist of the interest and sinking fund charges in respect of capital invested, rates and taxes, office expenses, salaries of officials, the larger part of the wages bill, some of the cost of wear and tear and all that is provided against obsolescence. The special or variable expenses, which depend upon the quantity of current produced, consist of the cost of coal and of oil, 1 Weis, " Die Verwertung der Gas- Die Preisstellung beim Verkaufe elek- nebenprodukte," loc. cit. p. 328. trischer Energie, and to some extent - In writing this section I have of Fritz Hoppe, Die Elektrizitiitswerk- made considerable use of Gustav Siegel, betriebe iiii Lichte der Statistik. VI SELLING POI^ICIES OF MUNICIPAL TRADES 223 of most of the provision for repairs, maintenance, and renewals, and of the smaller part of the wages bill. The fixed expenses, which depend upon the maximum demand for current from the generating station, generally represent some 70 per cent of the total cost of production where current is generated by steam power. No current should be sold for less than the special cost of generating it, as that implies a dead loss to the undertaking. Assuming, then, that every unit of current sold is to bear its proper share of the special or variable expenses, this constitutes a minimum charge, and the problem is to distribute the general or fixed expenses amongst the consumers. The simplest would undoubtedly be to divide them equally amongst the units sold and to charge a uniform price. Under most circumstances this would be neither a sound nor a fair policy, as the fixed expenses are but remotely connected with the quantity of current consumed. Perhaps the easiest way of representing the position is to regard a definite amount of plant as allotted to every consumer, somewhat in proportion to his demand ; each consumer is responsible for the fixed charges in respect of his share of the plant, and the more current he consumes the smaller the cost of the fixed charges per unit consumed will be. The more intensively a man uses his installation the more he is entitled to lower charges. There is, however, a further consideration, namely the time at which the current is used. Every evening the load on a generating station rises, that is the proportion of the quantity of current demanded to the maximum amount of current which the station is able to supply ; the higher this load, which will reach its peak points every evening about five or six o'clock, the greater the amount of plant which will have to be installed. Any consumer who does not require current at the time when the load is near its peak is entitled to specially favourable treatment, as comparatively few fixed charges are incurred on his account. Most electricity tariffs take these three factors, the size of demand, the intensity of consumption, and the time of consumption, into consideration, though the ex- tent to which and the way in which this is done vary 224 MUNICIPAL TRADING chap. from undertaking to undertaking. Sometimes the total amount of each connection is taken as a basis, at other times the maximum amount of energy demanded at the same time. In almost all cases the use to which the current is put is considered and a distinction made between light and power. The demand for power purposes is likely to be more favourable from the point of view of electrical undertakings, both in respect of duration and time, and consequently lower prices are charged to power consumers. Further, in drafting all electric tariffs the capacity and willingness of the consumers to pay has to be borne in mind. This principle of charging what the traffic will bear is not so effectively carried out in the case of drawing up the charges for electric current as in establishing railway rates, but it is nevertheless an important factor in the situation. Its influence is most clearly seen in the extremely low rates which are frequently quoted to large power con- sumers. The competition of other forms of power renders such low rates necessary, but it is by no means certain that such large power consumers are any real advantage to an electricity undertaking, as it is very probable that they will demand energy at the time of the peak load, in which case extra plant will have to be installed for their benefit. The fixed charges in respect of such extra plant should be borne by these consumers, but in some cases at least, it is doubtful if this happens, and under these circumstances the burden of light consumers will be increased, and not diminished, as should be the case, by the sale of current for power purposes. S 17. For the sake of simplicity, the consideration of the distinctions made between the use of current for light and power, and by large and small consumers, may be postponed as far as possible and the principal ways in which electric current is charged for may be examined, (i.) In those cases where the special or variable expenses are very small, as is likely to happen where electricity is generated by water power, the charge for current frequently depends upon the estimated consumption, based on the size of the connection,^ ^ E.g. in Arosa the price used to be 80 centimes per candle per annum (Siegel, loc. cit. p. 137). VI SELLING POLICIES OF MUNICIPAL TRADES 225 or on the size of the connection and the probable duration of the consumption.^ Under special circumstances this method may be employed where current is generated by steam power, as for example, where electricity is used to light the public passages and stairways of tenement houses or buildings containing flats, but the great bulk of the current must be sold in some other way, based upon the quantity consumed as measured by meter. (ii.) A second method of| selling current is to charge a uniform price per unit sold, or a flat rate as it is generally called. In this case a distinction is always made between light and power consumers, and frequently between large and small consumers. This is probably the commonest method of charging for current, for although it is technically the least sound, it possesses the great advantages of being simple and easily comprehensible to the ordinary lay mind. For example, the charge for lighting purposes is 3|^d. per unit''' in Manchester, 4d. per unit in Portsmouth and 4d. per unit in Sheffield; the charge for power purposes is id. a unit in Stepney, id. per unit in West Ham and i|^d. per unit in Willesden.^ (iii.) A third way of charging for electricity is to take the size of the connection and the quantity of current consumed as bases. The sum to be paid is then composed of two parts, a fixed amount dependent on the size of the con- nection and a variable amount dependent upon the number of units consumed. The objection may be made to this system that the size of the connection is not a fair basis for distributing the fixed charges, because the capacity of the generators and dynamos installed does not correspond to the total connections, and because consumers do not use ^ E.g. in Chemitz the annual charge for a 16 c.p. lamp used to depend upon the time it was used daily : Hours ..22. 5 3 4 5 6 7 8 Marks . . 20 24 28 33 38 43 47 51 and for each additional hour 3 marks (Siegel, loc. cit. p. 139; Hoppe, loc, cit. p. 236). 2 A Board of Trade unit is the same as a kilowatt hour, which is equal approximately to i^ electric horse power for an hour or the consumption of 16 ordinary 16 c.p. glow lamps for an hour. ' These prices, as well as others quoted later in this section, are taken from the Municipal Year Book, 1 9 1 1 . Q 226 MUNICIPAL TRADING chap. the power station in proportion to their connections. There is the further objection that consumers may be led to believe that they are being charged twice over for the same current This method of charging was once pretty common, but is now somewhat exceptional. It still exists in Manchester as an alternative to a flat rate at the option of the consumer. For lighting there is a fixed charge of £'J per annum per kilowatt of demand ( = 2s. 4d. per ordinary i6 c.p. lamp per quarter), plus i^d. per unit metered ; for power a fixed charge of ;^i : 5s. per horse power demanded per quarter, plus ^d. per unit metered. In Poplar, for power purposes, there is a fixed charge of £df per annum per kilowatt of demand, plus ^d. per unit metered. (iv.) A fourth method of charging is to take the duration of consumption as a basis. To calculate this, either the total connection, or the maximum demand at any one time, must be employed, generally the latter, which is measured by meter. Then, in view of the fact that the fixed costs per unit are less, the longer the consumer uses his installation, two prices are charged, a high one for a certain period of consumption, and a low one for all additional consumption. The most usual arrangement is to charge a high price for one hour per day of consumption at the maximum rate ^ and a low price for the rest of the daily consumption. One objection to this system is that it involves the use of an expensive and very complicated meter. Another is that a single high demand may burden the price of light for a whole year. It is likely to check the size of installations, as consumers will be anxious to avoid the possibility of an abnormally high demand on some particular occasion. The limitation of the size of connections is undesirable from the point of view of the undertaking, as it tends to prevent the better utilisation of the plant. This method of charging, ^ E.g. if the most light a customer hours, or | unit, at a high rate and all ever- burnt at once was 12 ordinary i6 additional consumption at a low rate, c.p. lamps, which is equivalent to a If on any particular day he burnt only demand of some 750 watts, this would 6 of his 16 c.p. lamps instead of the be the customer's maximum demand, usual 12, it would require two hours and every day he would be charged for of consumption at this rate before the the current consumed by 12 ordinary \ unit charged at the high price was 16 c.p. lamps in one hour or 750 watt consumed. VI SELLING POLICIES OF MUNICIPAL TRADES 227 commonly known as the maximum demand system, is largely employed in this country, though generally as an alternative to a flat rate at the option of the consumer. Thus in Hull, for lighting purposes the maximum demand rate is 5d. per unit for i hour and i^d. per unit for all additional daily consumption, the flat rate being 4d. per unit. In Cardiff", for power purposes the maximum demand rate is 4d. per unit for i hour, and id. per unit for all additional daily consumption, the flat rate being i^d. per unit. In some cases there is no alternative to the maximum demand system, as in Nottingham for lighting purposes and Belfast for power purposes. In some places the period of consumption at the maximum rate is more than i hour per day, as for example in Ealing, where it is i^ hours, and in Glasgow where it is 2 hours for lighting purposes ; in other places the period of consumption at the maximum rate is less in summer than in winter, as, for example, in Birken- head and St. Anne's-on-Sea (^ hour and i^ hours re- spectively). In a few cases the system is based on a quarterly instead of a daily consumption. Thus in South- wark the charge is 6d. per unit for the first 125 hours' ^ consumption per quarter, and a id. per unit for all after that. Occasionally the system is based on three prices instead of two. Thus in Southport, the charge for light on the maximum demand system is 6d. per unit for the first hour, 4d. per unit for the second, and 2d. per unit for all additional daily consumption. The maximum demand system is not the only method of charging which takes the duration of consumption into account. Long -hour consumers may receive preferential treatment in the form of a specially low flat rate or in the form of a discount based upon the number of hours during which the connection is used. Two illustrations of the former arrangement may be given. In Birmingham ordinary light consumers are charged 6d. or 4d. per unit, according to the quarterly consumption and long-hour light consumers 3d. or 2d., according to the quarterly consumption.^ In Sheffield, long-hour factory lighting, when combined with . 1 150 hours in the winter quarters. pal Trading (^United Kingdom), part 2 Parliametitary Return on Mtcnici' iii. p. 14. 228 MUNICIPAL TRADING chap. bulk supply, is charged id. jjcr unit, as compared with the ordinary price of 4d.' Illustrations of the latter arrangement will be found below, where the general question of discounts is discussed.^ (v.) A fifth method of charging for current is based on the time at which the consumption occurs, more being charged when the load is high than when the load is low. Hours are fixed, varying generally according to the time of the year, during which higher prices are charged. The object of this method of charging is to bring about a more equal consump- tion of current throughout the 24 hours, and consequently a better utilisation of the plant and a reduced burden of fixed expenses per unit sold. It is somewhat doubtful how far this method of charging can achieve these ends. As far as lighting is concerned, the consumption of current during the day-time and the later part of the night will hardly be raised ; that during the earlier part of the night, as soon as the low price comes into force, may be encouraged. If people burn gas when prices are high and electricity when prices are low, the peak load will be reduced, but this involves a double installation, the expense and unsightliness of which most people will be unwilling to incur, though it is undoubtedly to be found in a good many restaurants. In so far as shops and offices purchase practically all their current at high prices and domestic consumers obtain a good deal at low prices, provided these begin at 8 or 9 P.M. and not at 1 1 P.M., as happens in some towns, this method of charging takes into consideration, to some extent at least, the capacity of the consumer to pay. As far as power is concerned, there are certain classes of consumers who can avoid using current at the time of the peak load if they so arrange their businesses. These are customers who use power for a short time only every day, such as bakers, butchers and coffee roasters, and also people who employ electrical pumps.^ In these cases this ^ Parliamentary Return on Muni- compared with a total power connection cipal Trading {United Kingciom)y ^2iri of 9841 horse power. In Bonn in i. p. 29. 1909-10 the amount of the power con- 2 See pp. 231-233. nection of bakers, butchers and coffee 3 In Cologne in 1908-9, the amount roasters was 311 horse-power as com- of the power connection for these pared with a total connection of 637 purposes was 3710 horse power as horse power {Gesckd/tsbericht dcr Gas- VI SELLING POLICIES OF MUNICIPAL TRADES 229 method of charging seems very desirable, as the use of current at the time of the peak load is discouraged and a better utilisation of the plant can be brought about. On the other hand, there are many power consumers who must run their machines throughout the working day, and who consequently in winter cannot avoid using current at the time of the peak load. In these cases this method of charging will lead to no better utilisation of the plant, and will make consumers feel that they have a grievance by being charged high prices for part of their current. The objection that a very expensive complicated meter is necessary applies to this system as well as to the maximum demand system. This method of charging is very common in Germany, and one or two illustrations from that country may be given.^ Thus in Frankfort-on -the- Main the current for power purposes is charged 1 5 pf. per unit except from 5 to 9 P.M. during the nine months from August to April, when the price is 25 pf. per unit. In Mayence, as alternative to two flat rates, current for lighting and power purposes is charged 5 5 pf per unit during evening hours and 20 pf. during the rest of the day. The evening hours during which the high price is charged are as follows : — January, 4.30 to 10 P.M. Auj^ust, 7.45 to 10 p.m. February, 5.30 to 10 P.M. September, 6.30 to 10 P.M. March, 6.30 to 10 P.M. October, 5 to 10 P.M. April, 7.30 to 10 P.M. November, 4.30 to 10 P.M. May, 8.15 to 10 P.M. December, 4.15 to 10 P.M. In June and July all current consumed is charged at the lower rate. In Diisseldorf, where this system of charging is compulsory for all small-power consumers (connection under 75 kilowatts) and optional for all other power consumers, high prices are charged until i i P.M. In Leipzig, where the system may be chosen by any consumer, low prices begin as early as 8 P.M., this being the hour when all shops are compelled to close, and consequently the time when EUktrizitiits- und Wasserwerke der das Jahr igog-io). Stadt Coin fiir das Jahr igo8-g, and ^ The information is taken from Betriebs-Bericht der Gas- Elektrizitdts- the scales of charges of the particular und IVassenverke der Stadt Bonn fur towns. 3y> MUNICIPAL TRADING ciiAf. a considerable diminution of the load on the power station may be expected. In both these cases, too, no hi^jh prices arc charged in June and July. A modification of this method of charging exists, in accordance with which, instead of charging high prices during certain stipulated hours, when the load of the power station is high, no current at all is supplied during such hours. Thus a " restricted hour supply " for power, heating and cooking purposes h.vs been estab- lished by the Bradford Corporation Electricity Depart- ment, a charge of ^d. j)cr unit being made, provided no current is taken from the mains Ix'twecn 4 I'.M. and 6 r..M. during the months of October, November, December, January and February. A special time switch is used in connection with this supply.' (vi.) A sixth method of charging, in which the capacity of the consumer to pay is taken into consideration, is that known as the " rateable value system," or '* Norwich system " as it was first introduced by the Nonvich CoriH)ration. The system applies to private houses. The charge made for a current falls into two parts, the one a fixed payment indei>cndcnt of the consumption, intended to cover the consumer's share of the general expenses, and the other a variable payment based u[>on the quantity of current consumed. The fixed sum to be paid is based upon the net assessment or rateable value of the house supplied. Amongst the advantages claimed for the system are that it gives a considerable reduction to private houses where electric light is used throughout, as compared with an ordinary flat rate, and that it facilitates the use of electric cooking and heating appliances, as no separate wiring or separate meters are required, which is the case wherever different prices arc charged for current for lighting and power purposes. In Norwich, where the system is an alternative at the option of a domestic consumer to a flat rate of 4^d. per unit, the fixed charge is 12 per cent per annum on the rateable value of the house, and all current used is charged at the rate of i d. per unit ; no extra charge • City of Bradford Corporation Elec- for Poxvtr, Heating and Cocking Iricity Department. Scale of Charges Purposes, July igio. VI SELLING POLICIES OF MUNICIPAL TRADES 231 is made for the use of the meter. The total fixed charge of 1 2 per cent is payable in four parts, 4 per cent in each winter quarter and 2 per cent in each summer quarter.^ There are about 5000 electricity consumers in Norwich, of whom over 3000 are domestic consumers ; of these more than half have adopted the system.- The same system has been adopted in Bradford, and private residences have the option of selecting it, instead of a flat rate of 4d. per unit or a maximum demand rate of 7d. and id. A fixed charge is made of 15 per cent per annum of the rateable value of the property occupied, plus one half- penny per unit for all energy consumed, as registered by meter. The energy supplied at this rate may be used for all domestic purposes. The fixed charge covers and includes meter rent."* The rateable value system is proving very popular in Bradford, and the number of applications for a supply to private residences has increased since the rate came into force. There has also been a rapid growth in the number of heating and cooking utensils connected to the supply. The effect of the introduction of the system on the finances of the department is said to be favourable.* § 18. The reductions in charges made to large consumers may be based, on the one hand, on the number of units con- sumed or the total amount of the account owing, or on the other hand, on the number of hours during which the con- nection is used. The latter is technically more sound than the former, as a large consumption may occur entirely at the time of the p)cak load, when the cost of rendering the service is highest. In some cases both the number of units used and the hours of consumption are taken into consideration. The forms in which the preferential treatment is granted may be discounts or reductions in prices. For example, in Frankfort- on-the-Main the price of current for lighting purposes is 50 pf. per unit for the first 3000 units per annum, and 40 pf. • Tlie Householders' Guide to Electric ^ City of Bradford Corporation Lighting in Norwich, published by the Electricity Department. Scale of Corporation Electricity Committee. Chari^s for Liqhtini^, Heating and Cooking Purposes, July 19 10. ' This statement is based on in- * These statements are based on formation kindly supplied in .M.iy information kindly supplied by Mr. 191 1 by .Mr. F. M. Ix)ng, A.M.I.C.E., Thomas Roles, Bradford City Electrical the Norwich City P^lcctrical Engineer. Engineer. -32 MUNICIPAL TRADING niAf. per unit for all additional units.* In Wiesbaden the price for li^htin^ purj)oscs is 60 pf per unit, but discounts arc allouccr cent if the total account exceeds 500 marks.' In Osnabriick the price of current for power purposes is 25 pf. per unit, but all current used each year in excess of an amount C(iual to 400 hours' consumption by the whole of the connection is charged only 10 pf. per unit.' In Manchester there is a slidin^j scale of charges for current for motors, varying from 1 \k\. jxrr utul for units below 300 per horse power jkt quarter year to j'^^d. |xrr unit for units amounting to 600 or more per horse jicwer jjcr quarter year.* This latter condition represents an annual cor • -1 of some 3200 hours or more. In Mannheim the i s in the price of current for power purjjoscs are based both on the <]uaiitity consumed and on the duration of consump?' Iherc is a /one scale of prices, all annual consumption bt! .s 10,000 units being charged 20 pf. |>cr unit and all annual consumjition alx)ve 200,000 units, 9 pf. |)cr unit.* In addition there is a sliding sea'" "<" discounts var>'ing from 5 ' Thi% an in .t, lollow* : — On all accounts the amounts between 500 and 1000 marks Arc entitled to 5 p. c. dis. • • ■• 1000 and aooo ,. to ., • t .> aooo and 3000 ,. ao •• !• 3000 mod 4000 ., 30 t> >• 4000 and 5000 .. 40 ., • • •! 5000 and la.ooo 45 ,. i> .. 13,000 and ao.ooo .. 50 ,. .1 .. over acooo 58^ ., A customer whose annual account was 3500 mar ' m. -f ($00 m. - 5 per cent) + ( 1000 m. - 10 \ytx cent)-*- (500 m. - ao ( i ' E.ji^, if a customer has a 5 hor«:-power motor representing a connection of 4.4 kilowatts, the first (4.4 x 400) = 1760 kilowatt hours or units of con- sumption will l>c ch.Argcd at the r.itc of 25 pf. per unit, and all additional annual consumption at the rate of 10 pf. per unit. * The intcrmc .. 30 «300 ., 2 i I ■•. 'I ,. 30 I - ... The annual huuri of to!iiUiiipl;uii arc .xitciu.i^cd thr lot.il numfjcr of units (kilow.itt hours) consumed by the number of k;; illetl. i horse power being treated as the etjuivalcnt of 0.8 kilowatts. » Wliat is said here may be read in conjunction with what is said on p. 128, above, with regard to over and uml ' ' » In Manchester, during 1 908-9. • 'f* for private lighting, power, trac- tion and street lighting, calculate*! ou > .. i.,..ximum demands, were as follows :— Private lighting average la per cent Traction lightmg average 33 per cent Power .. 51 .. Suect lighting .. 35 (Manchester Corporation Electricity Department. Statiitux for tkt Year ending March ji, igog. p. 40>- . . « E.g. in Wolverhampton public houses are charged 2Ad. per unit, the ordinary flat rale being 4d. rarliamtntary A'etum on Municipal Trading (6/'«//^«/ AV«<:i 1 ih.ki 1 k\m\\ x'k Systkm showing THi: Kakk Stacks ' N.Fric StAilt^r K-itint: Hardt NUiktG Bbf.G. The fare stages arc close together in the centre of the town, though somewhat wider apart farther out.'* Such a system is not without its drawbacks, especially if the fare stages are very numerous, and if through tickets are issued from one route to another. The conductors have frequently to refer to elaborate tables showing the distance from every fare stage to practically every other point on the system, in consequence of which delays will often occur in collect- ing the fares, and a new fare stage may easily be reached ' The following instructions are printed on each ticket : — Fare for 2 sections = 10 Pf. Only one change of cars allowed with a 10 pf. ticket. The fare stage Comeliusplatz is not counted I on journeys from Ratbaus to Grafcnbcrg and beyond. 2 There is a fare stage every 300 or 400 meters in the town, and farther out they are about double that distance apart. 3 or 4 . ='5 5 , =JO 6 . =25 7 or 8 . =30 VI SELLING POLICIES OF MUNICIPAL TRADES 241 before all the fares have been collected. This system is known in this country as the " fair fare " system, and is adopted on the lines of the British Electric Traction Company. The routes are divided into short sections, and fares are charged according to the number of sections travelled. The routes on which it is applied are presumably not very crowded. From a social point of view, it is doubt- ful if it is a desirable policy to adopt, as it does away with the possibility of encouraging journeys of particular lengths by offering specially favourable terms. S 23. Regarding the distance which may be travelled for different fares, three different policies may be distinguished : the charge per mile may increase, remain constant, or decrease, as the journey becomes longer. The first and the last policies are much more common than the second policy. One of the few towns which adopts the second policy is Frankfort-on-the-Main, where 10 pf. arc charged for the first 4 kilometers, and 5 for each additional 2 kilometers. In Dresden 10 pf. are charged for the first four sections, and 5 pf. for every additional two sections. Another town where the rate is constant is Glasgow, where the average fare charged per mile is .45d. on the id., i.^d., 2d., 2Ad., 3d., 3.^,d. and 4d. stages. In this country a common arrange- ment appears to be to increase the charge per mile as the fare rises above a penny, the object being apparently to favour the passengers who travel two miles or so, rather than the long-distance passengers. Thus in Manchester and Liverpool the average fares charged per mile are : — ' M.\N'CHESTER. 1 LiVF-RPOOL. .452d. on the id. stage. .413d. on the id. stage. .482d. lid. „ .452d. 2d. „ .495d. 2d. „ •47«d. 3d. „ • Slid. 2. id. „ .478d. 4d. „ .527d. 3d. „ .53id. 3id. „ .5i8d. 4d. „ ' The average fares charged on differ- ent British systems are taken from the Report by the General Manas^er of the Matuhtster Corporation Tramways re Proposed Extension of the Time during ■which WorkpeopW s Fares are in Opera- tion, April igii. R 242 MUNICIPAL TRADING chap. The reverse policy of lowering the rate of charge with the increase in the distance is also pursued, though it is difficult to find cases where it is carried out quite consistently. For example, in Leyton and Bolton the average fares charged per mile are : — Leyton. .58 2d. on the id. stage. .592d. „ lid. „ .546d. „ 2d. „ .54id. „ 2Ad. „ • 5-7d. „ 3d. „ .5i7d. „ i\A. „ .543d. „ 4(1. M BOI.TON. .68 id. on the id. stage. .63 id. „ \\A. „ .6o8d. „ 2d. „ .623d. „ 2Ad. „ .6i5d. „ 3d. „ • i\y\- „ 3^- M .62 2d. „ 4d. „ Many tramway undertakings appear to be actuated by no clearly-marked policy in the matter of the rate of charge, the fares being selected according to the situation of the more important street crossings, or of the centre points of suburban areas, or of public-houses, without special reference to the distances. In some towns the penny stages commencing from the centre arc longer than the penny stages on other parts of the .system, with a view to assisting people to live well away from the centre at the lowest possible cost. This, for example, is the case in Manchester. In Germany the most usual arrangement appears to be to charge lower rates the longer the journey, which tends to encourage long journeys without discouraging short ones in the way in which a uniform fare must do. In Cologne, for example, 3 sections may be travelled fur 10 pf., 6 sections for 15 pf., and 9 sections for 20 pf. In Dusseldorf, 2 sections may be travelled for 10 pf., 4 for 15 pf, 5 for 20 pf., 6 for 25 pf,, and 8 for 30 pf. In Mayence, the charges are 10 pf for 3 sections, 15 pf. for 5 sections, 20 pf. for 7 sections, and 25 pf. for 9 sections. On the joint system of Mannheim -Ludwigshafen a/R., 3 sections cost 10 pf., 5 sections 15 pf., 8 sections 20 pf., and 12 sections 25 pf.^ § 24. One of the most debatable questions in connection with the fixing of tramway charges is the desirability of ' The information concerning the tariffs published by the municipalities German towns is quoted from the concerned. VI SELLING POLICIES OF MUNICIPAL TRADES 243 introducing halfpenny fares.^ The great majority of tram- way experts appear to be opposed to them ; the general public is usually keen on securing their introduction, and, once they have been obtained, is desirous that the distance which may be travelled for a halfpenny should be increased. Where the halfpenny fare is introduced it is presumably with the object of creating a new traffic without disturbing the receipts from penny-fare passengers." This may be possible if the distance which can be travelled for a halfpenny is quite short, say half a mile, and if the whole tramway traffic is distributed fairly evenly throughout the day. The im- portance of this latter consideration cannot be exaggerated. In some towns there is a very large inward traffic in the morning between eight and nine, and a very large outward traffic in the afternoon between five and seven, and the cars are likely to be so crowded at these hours that halfpenny passengers could only be carried by displacing more remunerative passengers who pay larger fares. Quite likely it would be impossible to put on any more cars owing to the congestion of traffic in the centre of the town, but even if it were possible, it would never pay to do it in towns where people work in the centre, and mostly dwell away from the centre, as in this case comparatively few people wish to enter a car after it has left the centre. Under these circumstances the cars would probably be half empty before they had completed a third or a quarter of their journey. In a town where the population is very dense, and where dwellings and also works are fairly well distributed throughout the town, people will be anxious to enter as well as to leave cars the whole length of the routes, so that the cars are likely to remain fairly well filled throughout their 1 The best information on this sub- Stages on the Tramways Undertaking, ject is contained in the Report of the issued in 1906. All these puVjlica- General Manager of the Manchester tions contain information concerning Corporation Trannuays in Regard to numerous municipalities. The various Halfpenny Stages, issued in 1909, and special reports of the General Manager in a report of the General Manager of of the Glasgow Corporation Tramways the Croydon Corporation Tramways, refer almost exclusively to the half- Jnformation respecting Halfpenny penny fare movement in that city. Fares, February 191 1. There is also See footnote (i) on p. 247. a Report of the Tramways Committee ^ Cf. Report of General Manager oj to the Salford Council upon the Sub- the Glasgow Tramways on Halfpenny Ject of the Introduction of Halfpenny Fares, August 1903, p. 2. 244 MUNICIPAL TRADING journey if halfpenny fares are introduced. The great difference which exists in the character of the tramway TRAMWAY PASSENGER TRAFFIC DIAGRAMS GLASGOW CORPORATION TRAMWAYS Typical Route Diagram showing the Passengers carried an the Inward journey each hour of the day Diagram ehowing the Passengers carried on the Outward journey each hour of the day 1300 1200 1100 '~ - ' "" r u u 1 ■l t 1 1 eoo 800 70O 600 eoo 400 30O 200 100 1 1 |e f ■ ■F h I m J I |y«H 1 ^1 ^h Ih - - - - fTH . r q I! _ _t _ J ^7^8^8 1011 ia 123456789 10 11 7 U 10 11 U 1 2 3 4 8 7 8 10 11 Note:- I I Indicates passengers at Id. fare and upwards ^B Indicates Yid. passengers MANCHESTER CORPORATION TRAMWAYS Typical Route Diagram showing the Passengers carr^d on the Inward journey each hour of the day Diagram showing the Passengers carried on the Outward journey each hour of the day — 2400 2100 2000^ 1800 1600 I500 1300 1200 11DO 100O 900' 800 700 600 500 400 300 200 100 L_ - L_ - -i -1 ^ ^ _ Mua - 2100 _ 20roo iHno teoo 1S00 14O0 1300 1200 1100 1000 900 800 700 - |- _ _ -I — - " — BOO 200 100 — 1 - — - - 7 a 9 10 11 la 1 a 3 4 6 6 7 8 9 10 11 7801flll12 12345 traffic of different towns is clearly brought out by the accompanying diagrams, which show the passenger traffic at different hours of the day on a typical Glasgow and on a typical Manchester route.^ The great " peak " loads in the ^ The figures on which these dia- grams are based were very kindly supplied to me by Mr. J. M. M'Elroy, General Manager of the Manchester Corporation Tramways, and they will be found printed in Appendix C, p. 396. VI SELLING POLICIES OF MUNICIPAL TRADES 245 Manchester traffic at rush hours into town in the morning and out of town in the evening are very conspicuous. It will be noticed with regard to Glasgow, where the average length of the halfpenny stage was 1020 yards when the informa- tion concerning the number of passengers carried was obtained, that the halfpenny passengers do not tend to bring about a more even distribution of the traffic during the various hours of the day. Before halfpenny fares can be introduced the financial aspect of the problem must be very carefully considered ; above all, the effect upon the penny passengers must be borne in mind. In most towns the penny passenger is the mainstay of the tramway system, and it is difficult to see how halfpenny fares can be introduced without seriously diminishing the number of penny passengers. In Manchester, for example, the penny passengers represent some two- thirds of all the passengers carried, and the receipts from them some 56 per cent of the total revenue. The average length of the penny stage is 2 miles, 372 yards; careful inquiries have been made with regard to the distance travelled by the various penny passengers, and it has been ascertained that 35 per cent of them travel only a mile or less. If halfpenny stages averaging one mile in length were adopted, a large number of those who now pay a penny and travel a mile to a mile and a half would probably walk to the halfpenny stage, and thus be transferred to the halfpenny class. In this way some 50 per cent of the penny passengers would be transferred to the halfpenny class, involving a loss of revenue of ^107,000 per annum. The introduction of the halfpenny fare would probably lead to an increase in the number of passengers carried, but to compensate for this loss of revenue it would be necessary to carry 5 1 million additional halfpenny passengers. This could not be done without greatly increasing the number of cars, and consequently the working expenses and the fixed charges, so that there would be a serious loss even if this very large number of additional passengers were secured. The same inquiry showed that some 20 per cent of the penny passengers travel only three-quarters of a mile or less. If a halfpenny stage of this length were adopted. 246 MUNICIPAL TRADING chap. probably half of those who travel from three-quarters of a mile to a mile, i 5 per cent of the total, would avail them- selves of the halfpenny fare. In this way some 27^ per cent of the penny passengers would be transferred to the halfpenny class, involving a loss of revenue of some ■;^5 9,000 per annum. If half-mile halfpenny stages were adopted, the 10 per cent of the penny passengers who travel half a mile only, and about half of those who travel between one half and three-quarters of a mile, or 1 5 per cent in all, would pay a halfpenny only, which would reduce the revenue by i^3 2,000 per annum. Another factor which would tend to increase the loss would be the impossibility of properly collecting short-distance halfpenny fares at rush hours on large cars which carry eighty passengers.^ If detailed investigations concerning the probable effects of the introduction of halfpenny fares were made in other towns, similar conclusions to those come to in Manchester would probably be reached. The history of the halfpenny fare movement in Glasgow throws considerable light on the question of halfpenny fares generally, and is consequently deserving of special notice. The halfpenny fare was introduced in Glasgow when the Corporation took over the horse tramways in 1894. The penny stage then averaged rather over a mile, and for a halfpenny, half that distance could be travelled.^ In 1896 the penny stage was extended to cover three consecutive halfpenny stages, and again in 1902 to cover four consecutive halfpenny stages.^ During the year following the last change 32.05 per cent of the passengers paid a halfpenny fare, and 60.97 per cent paid a penny fare, 18. 11 per cent of the total revenue being obtained from the former and 68.91 per cent from the latter source."* Since 1903 an agitation in favour of lengthening the halfpenny stage has been carried on almost continuously, and on various occasions the Tramways Committee have instructed their General ^ All the information concerning the 2 Report on Halfpeiiny Fares, by probable effects of the introduction of Mr. John Young, General Manager of halfpenny fares in Manchester is taken the Glasgow Corporation Tramways, from the Report of the General Manager August 1 903, p. i . of the Manchester Corporation Tram- 3 ji,{^^ p_ 2. ways in Regard to Halfpenny Fares. * Ibid, p. 2. VI SELLING POLICIES OF MUNICIPAL TRADES i^j Manager to report on the subject.^ In 1903, in 1906, and again in 1910 the suggestion was made to extend the average length of the halfpenny stage from a little over half a mile ^ to three-quarters of a mile. On each occasion the General Manager pointed out that the proposal would involve not merely a serious financial loss owing to the transfer of many penny fare-paying passengers to the halfpenny class, but also a very large rearrangement of the halfpenny stages, so that three instead of four should go to make up a penny stage. In consequence of such rearrangement many important crossings, which then constituted the starting- points of fare stages, would be ignored, to the great inconvenience of the general public. A further practical difficulty would arise in connection with the number of three-quarter-mile halfpenny stages which could be travelled for I id. and 2jd., as the system of fixing fares then in vogue would allow four and a half halfpenny stages to be travelled for I id., and seven and a half for 2^d.^ Another form which the suggested concessions to short- distance passengers took was the adoption of a coupon system by which two halfpenny (half-mile) stages could be travelled for three farthings. Quite apart from the financial aspect of the problem, a coupon system was considered objectionable on account of the abuses to which it might easily lead,^ whereas a cash fare of three farthings would have led to an inundation of the town with farthings, which would have been very inconvenient, to say the least of it. The General Manager pointed out the fall in the revenue which would be likely to occur, and expressed himself as strongly of the opinion that when the time came for a concession to be given in the shape of reduced fares, it should be given in such a way that the whole body of the citizens should get the full advantage, and not merely the short-distance passengers, as would be the case in connection 1 Reports, Notes, or Memoranda on a mile. the subject were issued in August 1903, ^ gee the General Manager's Reports December 1903, April 1907, November of August and December 1903, April 1910, March 191 1, and November 1907, and November 1910. igii. ^ This point is referred toon p. 261, * The average length of the half- in connection with the subject of dis- penny stage was 1020 yards or .58 of count tickets. 248 MUNICIPAL TRADING chai'. vi with the proposed concession.^ The members of the Corporation, however, had apparently made up their minds to give some concession of the kind suggested, and a modification of the proposal, in the form of the two-stage fare, was introduced in January 191 i by way of experiment. Under this system a passenger could travel two halfpenny (half-mile) stages on each of two separate cars for three halfpence. The first two stages had to be travelled on the car on which the ticket was purchased, the second two stages on any other car, on any route, and at any time. This practically amounted to allowing people to travel two half- penny (half-mile) stages for three farthings. In operation the two-stage ticket was somewhat of a nuisance ; on the one hand the passenger required to ask for this particular ticket, and on the other hand, the ticket, after being used and cancelled by the punch, had always a money value. The effect of the introduction of the two-stage fare can best be seen from the accompanying table, which shows the number of passengers carried at different fares for the first forty-four weeks during which the system was in force," as compared with the corresponding weeks for the previous year. During this period some thirteen and a half million two-stage (i^d.) tickets were issued, and with them some twenty-six and three-quarter million journeys were made. On the other hand nearly fourteen million fewer penny passengers were carried than in the previous year. If the penny passengers had continued to constitute about the same proportion of the total passengers as previously, or, what would have had approximately the same result, if each journey made with a two-stage ticket had cost a penny instead of three farthings,^ the number of penny passengers would have increased by nearly thirteen millions, and the 1 Glasgow Corporation Tramways, considered by the Glasgow Tramway Notes by the General Manager on Pro- authorities. posah for the Alterations of Fares and "^ T>\xx\x\g the forty -four weeks in Stages, November 1910, p. 2. 1 9 10 the penny passengers represented 2 The system was actually in force 59.364 per cent of the total. During forty-seven weeks, from January 15 to the corresponding period in 191 1 the December 9, 191 1, but the statistical penny passengers represented 47.159 information tabulated above was pre- per cent, and the two-stage passengers pared at the end of November, when 12.509 per cent, or together 59.668 a modification of the system was being per cent of the total. .2 « — 0^ ei O B- 00 o ^ U >- ^ -Q o £ i3 o o a: rt 0\ O 00 o o ■-I *-• c 6 c 00 <-! vO Ln « 00 un PO ^d bo ri ro vO " Pn P< PO p«-> o 1 S. c -• — CO "^ o r^ vo l\ vO d pJ ri vo o* p< ►- r^ V o i3 5 1) > u + 1 + + + + 1 1 + D '' V -a D " CO fo O O 1^ — f OO 00 1_ fi o e- OO !> O O -i- -^ O PI NO 00 O^ f^ O t^ O — — 00 *— On . — . c + 8 u « vO Ti- 1-00 00 0^ •* LO PO ii t^ "^ PO ■^ — P<^ p« « o ■ ' in E C^ r^ O N PO -^ \r\ S3 M 3 PI PO -" d p« S 2^ a " + + 1 + + + + 1 1 + .-*-. >, «> 3 J 2 2 - OO - 00 — o 0\ iy% vO 00 ^ O "->00 PO PO — — NO o o c o 00 fn — — C7> 'T O Ln "T q o d l< o o t-i t^ pi — ' 1=°- l'^ N tT o u "^ 'E E O ""J- o ri 0» — O «^ « i^ o « 5 r^ — r^ 0\ po O — PO — ■* On '^ S u O r^ vO — -f P) O 00 vO M 00 •? 12 Z -r ro PJ \0 On O O 00 O PO t>» « ro— -TO r^O PI OvO\ PO 00 be O 5 >0 "^ PI 00 O PI PI O 00 "" 00 S) "^ 2: ^ p^ r o r^ o c o •^ rO •-■ LTV O "^ ^ q o 5, o Sh l< • • On od pi «' d ^ c£ = PI LT^ o i^" u -a u o J 'C ? p« PI On -t- O On O po 00 car ivei 00 00 f^ LTl O PI 'J- »N o u O^ — r^ Lr> CO t^ »r P^ On i2 y. ^ f«" ^ -f O" -T <> LTNOO" PO '^ « s 3 >o • ■ O fO On OC NO O PO 00 bo >o OO 00 OO O O ON l>^ PO c *^ Z PO Tj- tn ^ PI « PO ir> M « 0^ 0, . -c 'O w « c D '- 'mple. id. .. 72.3 ,, [60.10] , .-., . . , ., ijd. ,, 6.2 ,, r 7.00I - rifty new cars are bemc built at „ . t \ , . 1 2a. ,, 0-94 .1 I i.QQl the present time (January 1912). ^id. .. 0.06 .. [ .65] 3 That this has been the experience It will therefore be seen that the of Glasgow is brought out in the people who use the halfpenny stage General Manager s Report on the Ex- most are those who arc- moving fre- tension of the Halfpenny Fare, April quently about the city, and of course if 1907, p. 4 : " It is a fallacy to suppose an extension of the halfpenny distance that the wage-earning class forms the were given, this class would benefit bulk of the halfpenny passengers. It most from the change." has been ascertained that on the early For purpose of comparison I have cars specially provided for this class put the percentages of all passengers one passenger in five takes a halfpenny carried in 1906 in brackets behind ticket, whilst the average all over is those relating to passengers on early one passenger in three. From a census cars. Of the total passengers, .91 of passengers travelling on early mom- per cent paid a fare of 3d. and up- ing cars the percentage at the different wards. 254 MUNIC/PAI. TRADING cMAf. a dead loss, or, in other words, that the short -distance passenger may be subsidised at the ex|>cnsc of the long- distance passengers, which docs not ap{)car to be cither socially or financially desirable. Information on thi^ |K>int is not available with regard to many towns, but the experience of Glasgow and Manchester in this connection may be quoted. In 1907 the General Manager of the Glasgow Corix)ration Tramways stated that almost the whole of the fare received from the half|)cnny passenger was expended in the fi.xed charges, and indeed for that year he calculated that the half|)cnny passenger would contribute nothing towards the actual running of the car, or that, in other words, the whole of the running costs and profits would be derived from the passengers paying one j)cnny and upwards.* In Manchester halfi)cnny fares have been adopted on the circular and cross routes only, and not on the main routes. The average length of the stage is 143 1 yards. The service is very popular, and on the circular-route cars 33 per cent more passengers per mile are carried than on the other routes, yet the incomi does not cover the expeniiiture? Thus in Manchester as well as in Glasgow halfpenny passengers are carried at a loss. A brief reference may be made to the experience of some other towns in the matter of halfpenny fares. The chief officer of the London County Council Tramways has expressed the opinion that on large tramway systems the halfpenny fare is a valuable asset if short stages are adopted, but the tendency nowadays is gradually to lengthen these stages, and they arc becoming unprofitable by encroaching on the reasonable penny stage. On small systems it is a great source of danger, and should be avoided.^ In London in 1909-10 a quarter of all tiie passengers carried paid a halfpenny fare, the average length of the halfpenny stage being 1072 yards. The General Manager of the Sheffield Corporation Tramways reports that passengers paying half- 1 Glasgow Corporation Tramways, in regard to Halfpenny Fares, April General Manager's Report on the Ex- 1909, p. 4. tension of the Halfpenny Fare, April 3 Presidential Address to the Muni- '907» P- 8. cipal Tramways Association, September 2 Report of the General Manager of 1909. Quoted in the Croydon Report^ the Manchester Corporation Tramways p. i. VI SELLING POLICIES OF MUNICIPAL 1 ih> 255 penny fares in Sheffield are now 20 per cent of the whole, and if kept to the limit of half a mile for a halfpenny are probably profitable.^ At the beginning of 191 1 information respecting halfpenny fares was collected concerning eighty- seven municipal tramway undertakings.' On eighteen of these systems halfpenny fares had been entirely adopted, on nine they had been partially adopted, and on sixty they had not been adopted.' The fact that halfpenny fares have been adopted on a system does not prove that the manager concerned believes in them, as several tramway managers on whose systems they have been introduced hold unfavourable opinions about them.* The managers of all the more important municipal tramway undertakings, where halfpenny fares have not been adopted, express themselves as strongly opposed to them.' § 25. A problem closely connected with the fixing of ordinary fares is the issue of through tickets from one route to another, or the granting of permission to passengers to • Quoted in the Manchester Kefort, on Halfpenny Fares, p. 17. * Croydon Girporation Tramways, In/ormaiwn respecting Hal/penny Fares, February 191 ^ For list of towns, see Appendix B, P- 394- * The following are the opinions of some managers on whose systems half- penny fares are entirely ad(jpted : — Asliton-undcr- I.yne : " Ilalffjenny fares are a mistake, and altogether unprofitable to a tramway system." Dundee : " From a revenue-pro- ducing point i)f view my opinion is not in favour of half|>enny fares." I^yton : " My opinion is that half- penny fares, except under special conditions, are a mistake." Rotherham : " Consider that half- penny fares are very undesirable." The following arc the opinions of some managers on whose systems half- penny fares are partially adopted : — Ilkeston : " We have only one short route here over which halfpenny fares are in use. This route is not a profitable one. I do not agree with the halfpenny fares in general, and at holiday times they arc a great nuisance." Plymouth : "My view is that half- jjcnny fare* arc a jierfcct nuiiiance and greatly interfere with the long- distance passengers. Frequently I find at the ' rush ' houn of the day, half|K'nny p.-uscngcrs are in- side the cars keeping out the penny and three-halfpenny JM-Vsengcrs." These opinions are (juoled from the Croydon Report. ' The General Manager at Belfast writes : " I tried the ex|)criment for the Committee for three weeks. Our traffic went down 28 per cent." The General Manager at Birming- ham, who formerly had ex|>erience of halfpenny fares w hen chief officer of the London County Council Tramways, •• is strongly of the opinion that it would be fatal to adopt halfpenny fares in Bir- mingham." The General Manager at Nottingham •' objects very strongly to the adoption of halfpenny fares on their system. The matter was before the Council recently, and in view of the loss likely to be entailed by the adoption of h.ilf- penny fares, it decided against them." These opinions are quoted from the Croydon Report. 256 MUNICIPAL TRADIiSG CMAf. change or transfer from one tram to another without buying a new ticket. Various points call for consideration in connection with the transfer system.' In the first place, it is liable to have a serious effect upon the finances of a tramway undertaking. On all tramway undertakings many passengers do not travel the full journey to which they arc entitled for a i>enny, and if those who wish arc allowed to complete their journey in other cars without extra payment, the receipts will be diminished accordingly. The introduction of the transfer system really amounts to reducing the average fare |)cr passenger, and the reduction may become quite alarming if abuses of the system become common. This is a second important consideration. There are various possibilities of abuse, depending .somewhat upon the regulations concerning the i.ssue of transfers. The regulations frequently require that a journey shall be completed by the next available car;' but it is very difficult, if not impossible, to enforce this rule. Even if the utmost precautions are taken and the ticket is punched with the date and hour, and a rigorous inspection is maintained, passengers often succeed in allowing one or two cars to pass in order to give themselves time to transact some business or to make a purchase. In some cases the transfer ticket is available any time on the day of issue.' Under these circumstances delay in using a ticket is no longer a breach of regulations, but another possibility of abuse is considerably increased, namely, a traffic in transfers, by which they arc passed from people who are entitled to use them to those who arc not. To check their use on a wrong day, the transfers are generally numbered, lettered, or coloured differently according to the day of the week. Another source of abuse of transfers is that they may make peculation on the part of conductors easier. This will be most likely to occur if exchange tickets are issued in return for transfers ; when a cash fare is tendered a conductor may then issue an exchange ticket and place in his bag one of a ^ The chief source of information on ' E.i^. Burnley, Hull, Northampton, the subject is contained in the Report South.impton, Frankfort-on-the-Main, of the General Manager of the Glasgow Cologne, Dusseldorf. Corporation Tramways on Transfers, July 19 lo. 3 £g^ Cardiff, Croydon, Dover. VI SELLING POLICIES OF MUNICIPAL TRADES 257 batch of transfer tickets which have been thrown away by passengers who did not require them. A third drawback to transfers is that an adequate system of checking their use requires that the tickets shall be punched to show the date, the time and the journey to be travelled, for which the con- ductor has hardly time at " rush " hours where graded fares exist, especially if halfpenny fares have been adopted. The result is likely to be that a good many passengers will escape payment of the fare. In the fourth place, the introduction of the transfer system would considerably increase the cost of inspection if abuses were to be checked, which would increase the working expenses. Where the tramway system radiates from the centre of a town in various directions like the spokes of a wheel, as is generally the case in this country, the need for transfers hardly exists. On the other hand, in towns where the lines largely cross each other like on a chess-board, there is more need for granting facilities for changing. If several routes at one end have a short distance in common, it may be more economical to issue transfers than to run all the cars over this section, though the difficulty might also be met by adopting a halfpenny fare on this particular section. The table which follows shows to what extent the transfer system has been introduced on British Tramway undertakings ; it has been adopted either wholly or partially on some 40 per cent of the municipal undertakings for which returns were obtained, but with the exception of the London County Council undertaking, on which the system is partially adopted, it is on the smaller rather than on the larger under- takings that transfers are to be found. ^ The average length of street route is about i 2 miles on the undertakings where the transfer system is entirely adopted, about 8^ miles excluding.or I 5 miles including, the London County Council, on the under- takings where the system is partially adopted, and about 20 miles on the undertakings where the system is not adopted. In some cases the distance which can be travelled on a transfer is less than can be travelled for the same fare on a one-car journey,"^ but in other cases it is exactly the same.^ ' See list of towns in Appendix B, ^ E.g. Burnley, Halifax, p. 395. ^ E.g. Dover, Hull, Northampton. S 258 MUNICIPAL TRADING c Table showing the Use of the Transfer System on British Tramway Undertakings.* Municipal Tramway Undertakings. Company Tramway Undertakings. All Tramway Undertakings. Tramways on which Transfers are issued on the Whole System . Tramways on which Transfers are issued on Certain Sections Tramways on which Transfers were issued but have been discon- tinued . . ■ • • Tramways on which no Transfers are issued .... 17- 3- 49" 7 I I 2 58 24 27 5 107 Tramways to which Returns relate 85 78 163 In German towns the transfer .system is commonly adopted, though the right to change cars without paying a new fare is not always given to a passenger paying a 10 pf. fare. Thus in Cologne, only passengers who pay i 5 pf. or more are entitled to one free change, and the same rule applies in Dresden. In Frankfort-on-the-Main all fares entitle a passenger to two free changes if necessary. The regulation in Bonn is the same. The Dusseldorf passengers paying 10 pf. may change once, and those paying 15 pf. or more as often as is necessary to reach their destination. In both this country and Germany the tramway authorities suffer to some extent from the abuse of the trans- fer system through delay in continuing the journey, where the regulations require that the next available car shall be used, and also through a certain number of transfers falling into the hands of, and being used by, persons who did not commence the journey.^ The original home of the transfer system, and the country in which the abuses have grown to dix B, p. 395. ^ Compiled from the Report of the General Manager of the Glasgow Cor- poration Tramivays on Transfers. The Glasgow undertaking which is excluded in the Report is included in the above table. 2 For list of these towns see Appen- ^ The experience of British tram- ways is recorded in the Glasgow Report ; that of German tramways I gathered from interviews I had with various tramway managers in Germany. VI SELLING POLICIES OF MUNICIPAL TRADES 259 an alarming extent, is the United States. To illustrate the possibilities of the transfer system a few facts relating to the Chicago tramways may be quoted. During 1908-9 a crusade was conducted against the misuse of transfers, and over one thousand arrests were made within a year. During the year 373,000,000 passengers were carried, of whom 153,000,000 rode on transfers. At the time when the crusade was started the sale of transfers at junction points and in stores was quite general. At one point there were a dozen newspaper boys who solicited transfers from passengers and sold them to others. Testimony given in court showed that at this crossing alone each of the boys derived a revenue of one dollar to three dollars a day from this source. There were other corners where the unlawful sale of transfer slips was almost as extensive. But the greatest injury to the company's business was done at points where hundreds of transfers were not sold but thrown down, picked up, or traded daily. At one place where three important lines connected, it is estimated that several hundred transfers were presented daily by people who had not received them from a conductor.^ On some lines in the United States the average revenue per passenger has been brought from 5 cents to the neighbourhood of 3 cents by the rapid spread of the legitimate use of transfers, accompanied by an even more rapid increase in the illegitimate use of the privilege." Amongst the undertakings which find them- .selves in this position are those in New York City and in Baltimore.^ The introduction of transfers was recently suggested in Glasgow, and after very careful inquiries Mr. Dalrymple, the General Manager of the Corporation Tramways, expressed his opinion on the subject as follows : " It is certain that no amount of checking can prevent the transfer system from being abused. The margin of profit which most tramway 1 Statement made by Joseph V. Glasgow Report, p. 104. Sullivan, General Supervisor, Chicago ^ Extracts from the Report of the Railways Company, Electric Railway Committee of the Metropolitan Street Journal, October 8, 1909. Quoted in Raihvdy, New York, and from the i\iQ Glasgow Report, ^. 106. Attnual Report of the United Railways and Electric Company of Baltimore, 2 Editorial, Electric Railway fmir- quoted in the Glasgow Report, pp. nal. May 8, 1909. Quoted in the 103, 105. 26o MUNICIPAL TRAnii\G chai-. undertakings have to work on is small, and the result of our inquiries convinces me that it is our duty strenuously to oppose the introduction of the transfer system, particularly when the halfpenny fare has been adopted." ' It must be remembered that on many of the undertakings where the transfer system exists, it was introduced when comparatively high uniform fares or scales of fares were charged, in the days of horse trams, when the distances travelled were only short. When the lines were electrified, either no reduction of fares was made, or new scales of fares were established on the basis of the existence of the transfer system : in other words, the effect of transfers on revenue was taken into account in fixing fares. In this country, when tramway undertakings were electrified, the transfer system generally did not exist, and fares were often fixed at the lowest points compatible with financial stability. The subsequent adoption of a policy which tends to diminish the net revenue by an uncertain and possibly growing amount, seems very undesirable ; if the undertaking has a surplus to dispose of, it would seem a much more satisfactory arrangement to make a general reduction of fares, by which all tram passengers would benefit instead of only that section which could make use of the transfers. ^ 26. Up to this point the issueof single tickets to ordinary fare -paying passengers has been considered. There are, however, various special facilities which may be granted to such passengers as make considerable use of the tramway system, ia) The simplest facility, though that which appears to be least often adopted, is to issue return tickets at reduced fares. This is done to some extent on the Sheffield Corporation Tramways. On three routes the single fare is three halfpence and the return fare twopence,- on one route the single fare is three halfpence and the return fare two- pence halfpenny,^ and on one route the single fare is two- pence and the return fare threepence.^ These return fares were first introduced when the system was extended, and the old arrangement, by which one penny was charged from the centre of the city to any terminus, had to be abandoned. ' Corporation of Glasgow Tramways Darnall routes. Department, Report on Transfeis, p. 6. '^ Firth Park route. 'i Ecclesall, Malim Bridge and * Handsworth route. VI SELLING POLICIES OF MUNICIPAL TRADES 261 On these routes where the twopenny return fare exists, the receipts are very little larger than if the three halfpenny single fare had never been established, so that the Tramway Department only just gains enough by the raising of the single fare to justify its continuation/ Another system on which ordinary return tickets exist is that of the London County Council. They are in operation on certain tram routes north of the river Thames, but their introduction on to the routes south of the Thames is strongly opposed by the committee, who prefer cheap ordinary single fares. Return tickets are very easily abused and involve much extra checking. Their introduction also diminishes the revenue of an undertaking and may necessitate the adjust- ment of other fares.^ Other cases of cheap return tickets occur in connection with workmen's tickets, to which reference is made below. {b) Another facility is the issue of books of tickets or coupons at reduced rates. These discount tickets, as they are generally called, are not issued on many systems, and they must not be confused with prepaid tickets or tokens issued at face value, which are fairly common on account of the convenience they constitute to emplo)'ers of labour, tradesmen and others. An investigation made in the autumn of 1909 concerning seventy-one British Municipal Tramway undertakings showed that nine issued discount tickets to the general public.^ The extent of the concession made varies considerably from town to town ; in Blackpool a 25 per cent reduction is accorded to purchasers of dis- count tickets. In Burnley an allowance of twopence in the shilling is made. In Doncaster penny tickets are sold fourteen for a shilling, in Portsmouth ten for nincpence, in Darlington thirteen for a shilling.' Discount tickets are 1 Information kindly supplied by ing Books of Discount Tickets, OzKoh&x the General Manager of the Sheffield 1909. The towns which issued these Corporation Tramways. tickets were Blackpool, Bournemouth, 2 London County Council, Ad- Burnley, Darlington, Doncaster, Erith, journed Report of the Highways Com- Leyton, Portsmouth, Swindon. One mittee (No. 2), nth and i8th May or two others issued them to scholars 191 1, p. 48. and workmen. 3 See Reading Corporation Tram- * Where an ordinary passenger pays ways, Summary of Infoi-mation from id. a discount ticket-holder pays |d. Various Tram-way Undertakings respect- in Blackpool, f ths of a penny in Burn- 262 MUNICIPAL TRADING chai-. also issued in certain German towns. Thus, on the Mann- heim-Ludvvigshafen Tramway system a book of ten 9 pf. tickets costs 0.90 m. and a book of ten i 3 pf. tickets costs 1.30 m. The 9 pf. ticket entitles the passenger to travel a 10 pf. journey, the 13 pf. ticket entitles the passenger to travel a i 5 pf. journey. The unused tickets are transferable, and are valid without the covcr.^ When one of these tickets is offered instead of a cash fare it is punched by the conductor so as to show to what point it is available. A 20 pf. journey can be paid for with two 9 pf. tickets, a 25 pf. journey with one 9 pf. and one 13 pf. ticket. In Mayence books of twelve coupons are issued for 50 pf. A 10 pf. journey is paid for with two coupons, a i 5 pf. journey with three coupons, a 20 pf. journey with four coupons, etc. The coupons are transferable, and may be used by several persons at the same time.- There is probably more than one reason why the issue of books of discount tickets is not common. In the first place, they handicap poorer people who cannot afford to pay for them in advance, which is contrary to the general trend of tramway policy, at least as far as this country is concerned. In the second place, where fares have been fixed with a view to giving as long a ride as possible for the money paid, the management could not afford the loss of revenue involved in the issue of these tickets. In the third place, there is a serious danger of abuse and fraud, as it is practically impossible to prevent conductors from securing these tickets, putting them into the money-bags, and in return abstracting their face value in coin, thus securing the advantage of the discount for themselves. {d) Much more common than either return tickets or books of tickets at reduced prices are contract or season tickets. These exist on most German municipal tramways, but are very exceptional in the United Kingdom. A return published in 1909, which related to seventy-two British municipal tramway undertakings,^ showed that on three ley, f ths of a penny in Doncaster, ^^ths 2 Tarif der stddtischen Sirassenhahn of a penny in Portsmouth, and ^ths of Mainz, p. 3. a penny in Darlington. 3 Reading Corporation Tramways, 1 Tarif der stddtischen Strassenbahn Summary of Informatiofi from Various Mannheim- Lzid7vigshaf en ajR., pp. 4 Tramways Undertakings respecting and 5. Season Tickets, October 1909. VI SELLING POLICIES OF MUNICIPAL TRADES 363 systems only were season tickets issued to adults, namely, in Aberdeen, Blackpool and Southport. In Aberdeen the annual cost is 7s. 6d. for the first 700 yards and 6d. for every additional lOO yards. Many of the tickets average only a halfpenny a day. In Blackpool, where the length of the street route is some nine and a half miles, a ticket for twelve months, available over the whole system, costs three pounds, the charge for juveniles being half that amount. It will be noted that in the one case the distance travelled forms the basis of the price of the contract, and in the other it does not. Similarly, in Germany two kinds of contracts are issued. The one is available either for the whole system, or for such part of the system as is within the municipal boundaries ; the other is available for a specified journey which may involve the use of only one route, or of two or more routes. The contracts are issued in all cases monthly, but in some cases in addition quarterly, half-yearly, or annual contracts are issued at lower rates. Some illustrations may be given to show the various ways in which this method is put into practice. In Cologne a contract for the whole system costs 1 3. 40 marks a month ; a contract for a specified journey not exceeding 3 sections, 5.10 marks ; not exceeding 4 sections, 7.20 marks ; not exceeding 5 sections, 8.20 marks per month.^ In Frankfort-on -the- Main a monthly contract for the town system costs 1 5 marks. A monthly contract for a specified journey not exceeding 3 kilometers costs 6.25 marks, not exceeding 4 kilometers, 7 marks, and so on, the price rising 75 pf. for each additional kilometer.^ In Dusseldorf the monthly charge for a contract available on the whole system within the boundary is 10.50 marks. For each section outside the town 1.50 marks extra is charged. A monthly contract available on one line for a specified journey not exceeding three sections in length costs 6 marks. The cost of a monthly contract for a specified journey not exceeding 2 sections is 6 marks ; not exceeding 3 sections, 7.50 marks ; not exceeding 4 sections, 1 The ordinary tariff is 10 pf. for a includes the ticket tax. journey not exceeding 3 sections, and ^ fhe ordinary fare is 10 pf. for a 15 pf. for a journey not exceeding 6 journey not exceeding 4 km., and 5 pf. sections. The price of the contracts more for each additional 2 km. 264 MUNICIPAL TRADING thap. 9 marks.^ In Dresden, contracts arc issued for one, three, six, nine and twelve months ; the cost of contracts available over the whole municipal system is according to the dura- tion, 20, 56, 108, 156, and 200 marks respectively. The cost of a contract for a specified journey on one line not exceeding 4 sections is 6 marks per month and 60 marks per annum ; for a specified journey on one or two lines not exceeding 6 sections, 7.50 marks and 75 marks respectively ; not exceeding 8 sections, 9 marks and 90 marks respectively; exceeding 8 sections, 10 marks and 100 marks respectively." Contracts for the whole system within certain zones are also issued,^ In some cases transferable contracts arc issued, as for example, in Dijsseldorf, where they cost double as much as the ordinary contracts, but the ordinary contracts arc strictly non-transferable, and there is always a danger that they will be abused. It is impossible to have the systematic inspections which occur on suburban railways, when on a particular day every train is stopped specially for the purpose and all contracts are examined. Nor can the tramway officials get to know the contract-holders largely by name, as occurs at the local stations. The tramway undertakings try to protect themselves by requiring a contractor to place his signature or photograph upon the contract. The latter is much more satisfactory than the former, but cannot always be employed in connection with monthly tickets. On the German railways, contractors show their tickets every time they pass a station barrier, and consequently contractors on tramways feel no grievance when asked to show their tickets every time they ride on a tram. In this country, where the inspection of railway contracts is the exception rather than the rule, where contractors generally escape the trouble with a nod or by muttering "contract" or "season," ticket -holders might easily raise difficulties about showing their tickets every 1 The ordinary fare is lo pf. for a additional two sections. journey not exceeding two sections, and 3 All the information concerning 1 5 pf. for a journey not exceeding 4 German tramway contracts is quoted sections. from the Trannvay Regulations of 2 The ordinary fare is 10 pf. for 4 Cologne, Frankfort, Dusseldorf and sections, and 5 pf. extra for each Dresden. VI SELLING POLICIES OF MUNICIPAL TRADES 265 journey, in which case there would be a large sphere for abuse. On this ground, if not on others, a large number of British tramway managers are strongly opposed to the introduction of season tickets ; ^ in Germany, where conditions are different, there appears to be little complaint about them, and the system is largely adopted. \ 27. The provision of special tramway facilities for par- ticular classes now calls for attention. The principal classes affected are workpeople, scholars, and children, {a) The case of workpeople' may be considered first. As far as this country is concerned, most modern Tramway Acts contain a clause that workpeople's fares shall not exceed a halfpenny per mile, or fraction of that distance, with one penny as the minimum. The clause relating to the Manchester system may be quoted as an example : — "The Corporation at all times after the opening of the tramways for public traffic shall, and they are hereby required to run a proper and sufficient service of carriages for artisans, mechanics and daily labourers each way every morning and every evening (Sundays, Christmas Day and Good Friday always excepted), at such hours not being later than eight in the morning or earlier than five in the evening respectiv'ely, as may be most convenient for such workmen going to and returning from their work, at fares not exceeding one halfpenny for every mile or fraction of that distance. On Saturdays the Corporation, in lieu of running such carriages after five o'clock in the evening, shall run the same at such hours between noon and two o'clock in the afternoon as may be most convenient for the said purposes." ^ The introduction of workmen's fares may easily become a serious problem in tramway finance. Once a system of preferential treatment is begun, the difficulty is to know how to fix the limits, with regard to the time during which the special facilities are afforded, the classes to which they ' Reading Corporation Tramways, Manchester Corporation Tramways in Summary of Information from Various Regard to the Extension of the Time Tramway Undertakings respecting during which WorkpeopW s Fares are in Season Tickets. Operation, issued in April 1 909 and 2 A large amount of information April 191 1. on this subject is contained in two ^ Manchester Corporation Act, 1 901, Reports of the General Manager of the sec. 14 (i). 266 MUNICIPAL TRADING chap. apply, and the length of the journeys which may be travelled for the reduced fares. Further, every increase in the facilities granted checks the possibility of lowering the ordinary fares, if it docs not necessitate their increase, as workpeople are generally carried at cost price or very little above it, and not infrequently at a loss. A recent report of the Highway Committee of the London County Council estimates that the loss involved by running the workmen's car service is £6^,(^12 per armum.* The ordinary traffic by tramway in London may be sufficient to enable this loss to be borne,^ but in many towns which are predominantly working class, the issue of workpeople's tickets on very generous terms can only result in the undertaking as a whole becoming unrcmunerativc. A tramway system is for the benefit of the citizens as a whole ; it should be the object of the management to pro- vide reasonable facilities for all, and not to penalise some for the benefit of others, which is the case if workpeople are carried at a loss. It is difticiilt to see why artisans, mechanics and day labourers who travel in the early morning should receive facilities which men and women serving in shops, clerks, and others who are no better off financially, do not enjoy. This is rectified to some extent by allowing all who travel before a specified hour to enjoy the same facilities ; but the majority of shop assistants and clerks do not commence their journey before 8 o'clock, or even 8.30 A.M. To extend the time for the reduced fares to 8.30 A.M. in a town which has to meet a very heavy " peak " load between eight and nine o'clock is courting financial difficulties. Thus in Salford the experiment was tried from September 1908 to September 1909 of ad- vancing the hour during which cheap return tickets could be obtained, from 7 A.M. to 8 A.M. At the end of a year it was ascertained that the income per car mile had fallen from io.44d. to 9.84d., equivalent to a decrease in the total receipts of i^ 1 4,46 3 per annum. The General Manager expressed the opinion that the greater portion of it was 1 London ^County Council, Ad- May 30, 191 1. journed Report of the Highways 2 i( jg ^^^ doubtful if adequate Committee {^0.2), nth and i8th May provision is being made for deprecia- 1911. Submitted to the Council on tion. See footnote (4), p. 163. VI SELLING POLICIES OF MUNICIPAL TRADES 267 due to the extension of the time during which cheap return tickets could be obtained from 7 to 8 o'clock, and that had the extension been made to 8.30 A.M., as had been suggested, the result would have been even more dis- astrous.^ He further expressed the view that the hopes that are held out and the prophecies that are so frequently made in speaking of tramway systems — that if you only cheapen your fares you are sure to be repaid by an equivalent increase of passengers — were not fulfilled. In a town such as Salford there is and must be a limit to the number of people who desire from necessity or otherwise to travel on the cars. There are day by day a steady load of passengers desirous of being conveyed from the outskirts to the centre, in the morning and back home again in the evening, and this load varies but little. Consequently, having to deal with regular passengers, the granting of additional concessions only results in extra benefit to the passengers, but does not bring to the under- taking any additional number of passengers except to a slight extent." In a recent report, the General Manager of the Manchester Corporation Tramways estimates that the extension of the time during which workpeople's fares are in operation,^ from 7 A.M. to 8.30 A.M., would cost the undertaking ;^25,ooo per annum."* There are towns where the facilities are granted till 8.30, but if this is done without a loss, either the character of their traffic is different, being more evenly distributed throughout the day than is the case in Manchester or Salford, or they are according comparatively small facilities. In view of the difficulties in which the management becomes involved by a system of workpeople's fares, and the unequal way in which the benefits of any facilities are distributed, workpeople living within an ordinary penny stage of their work and the majority of shop assistants and clerks being very largely excluded, many people incline to the view that it is better to avoid preferential treatment » See letter of Mr. G. W. Holford, 2 /^/^^ pp_ ^ and 6. the General Manager of the Salford ^ At present every one commencing Corporation Tramways, quoted in a journey before 7 A.M. is entitled to Ma7uhester Report on Workpeople's travel at the reduced workmen's fares. Fares, April 1911, p. 5. "• Ibid. p. 5. 268 MUNICIPAL TRADING « MAf. of all kinds, and instead to use any available surplus funds to reduce the ordinary fares as low as possible. Only those towns, however, whose fares do not exceed one halfpenny for every mile, or fraction of that distance, escape the le^'al obligation to introduce workpeople's fares. Some of these towns, such as (ilas^vnv, Liverpool, Shcflicid, Leicester, Aberdeen and Ilkeston, make no sjxrcial provision for workpeople, but other of these towns do so, thouf^h not obliged to by law, one reason probably being the unwilling- ness of the Councils to resist the pressure brought to bear by some sections of the general public. The provisions actually made for working people vary considerably from town to town. The most ordinary arrangement, as far as this country is concerned, is to issue cheap single tickets or cheap return tickets to workpeople, or in some cases to all passengers commencing a journey before a specified hour, generally 7, 7.30, or 8 A.M. Occasionally weekly tickets are issued. A few examples may be given to illustrate the various types of regula- tions. In Rotherham, workmen's weekly tickets, avail- able for one journey each way for si.x days, cost 8d. for a penny stage, is. for a threehalfpenny stage, and is. 4d. for a twopenny stage. In Burton-on-Trent a charge of lod. is made for twelve workmen's tickets, which are available only during the week of issue and during certain hours. On the London County Council system the fares by workmen's cars on the routes to Central London are generally one penny for a single journey for any distance beyond the usual halfpenny stages, and twopence for two-journey tickets available for another journey, on any route, on any car, at any time on the day of issue. In this way journeys up to eight miles can be made for a penny. On the outlying routes the fares arc somewhat higher.' The last workmen's cars each morning leave the suburban termini in time to enable them to reach the London termini by 8 A.M. Workmen's fares are issued on these cars on their return journey to the suburban termini, which in the case of the longer routes may not be reached until » London County Council. Quarterly Return of Workmen's Trams, February 191 1. VI SELLING POLICIES OF MUNICIPAL TRADES !6q 9 A.M. or later' The average length of the workpeople's penny .stage is some six miles." In Manchester all cars in service up to 7 a.m. are considered workpeople's cars. The original arrangement was that the i ^d. and 2d. fares were reduced to id., the 2^d. and 3d. fares to i^d., and the 3^d. and 4d. fares to 2d., and that these fares were avail- able only in the morning. In October 1907 a further concession was granted, under which all travellers travelling by the early morning car up to 7 o'clock can purchase return tickets which enable them to make the return journey at any time during the day at the cheap rates. This conces- sion cost the undertaking some X5000 per annum. In the autumn of 1 909 the stages b>' ordinary fare other than the penny stage were somewhat lengthened, so that the preferential treatment in favour of early travellers is comparatively le.ss than it was. The distances which can be travelled by ordinary passengers and workpeople at present are as follows : — ' Fare. Average Length of Stage. Workpeople. Ordinary. Id. 2d. Mites. Yards. 3 996 4 786 5 1239 Miles. Yards. 2 372 3 193 4 57 In Burnley workmen's discount tickets are issued, the prices being 12 tickets for 9d., is. 2d., and is. 6d., accord- ing to the distance."* In Bradford workpeople who com- mence their journey before 8 A.M. pay a penny without reference to distance. The average length of the work- people's stage is 4.13 miles, as compared with 1.6 1 miles 1 London County Council, Adjourned Report of the Highways Committee (No. 2), lllh and 1 8th May 191 1. - Table of workpeople's fares in the Report of the General Manager of the Manchester Corporation Tramways in Regard to IVorkmen^s Fares, April 1909. The average length of the ordinary penny stage is just under two miles. ' All the facts are from the Man- chester Reports on Workpeople s Fares. * Information kindly supplied by the General Manager of the Burnley Corporation Tramways. 270 MUNICIPAL TRADING ciiAf. for the ordinary penny stage.' In Belfast any person whose fare is paid before 9 o'clock has struck is able to ride any distance for one penny, or is able to purchase for twopence a return ticket enabling the holder to ride any distance on any car in the morning, and to enjoy the same privilege on his return later in the day."' In Germany the special facilities granted to workpeople generally take the form of weekly tickets at reduced rates. For example, in Frankfort-on-the-Main weekly tickets are issued to workpeople for use between their home and their place of work. For a single journey each morning before 7.30 A.M. the price is 30 pf a week if the distance does not exceed 3 kilometers, and 5 pf extra per week for each additional kilometer ; "' for a ticket entitling the holder to two journeys daily, an outward before 7.30 and a return journey after 2 I'.M., the charge is exactly double. Monthly tickets for workpeople are also issued, and in these cases no restric- tions are imposed with regard to the number of journeys or the times of such journeys. The price is 5 marks per month for a distance not exceeding 3 kilometers, and 75 pf per month extra for each additional kilometer. No work- people's tickets are available on Sundays or on legal holidays. In Dlisseldorf weekly tickets are issued which allow two journeys per day. The charge for such a ticket, where the distance does not exceed 3 sections, is 60 pf ; where the distance does not exceed 4 .sections, 75 pf, and where the distance does not exceed 8 sections, 90 pf ■* A supplementary ticket entitling the holder to two additional journeys each day between i i a.m. and 2 p.m. can be ^ Bradford City Tramways, General number of passengers carried paid a Manage)' s Annual Report for the Year fare exceeding id. ; but even this allows ended A/arch j/, igii, p. 30. scope for a considerable loss in connec- 2 The time before which the fare tion with the extension of the facilities, must be paid was formerly 8 A.M., then and it remains to be seen what effect it was extended to 9 a.m. for females, the last concession will have on the and in May 191 1 it was extended to finances of the undertaking. 9 A.M. for males too {Annual Report "^ The ordinary charge is 10 pf. for of the Belfast City Tratnu>ays for the a journey not exceeding 4 km. and 5 pf Year ended March j/, igio, and in- for each additional 2 km. formation kindly supplied by the * The average length of a section General Manager). It may be noted is 1920 meters. The ordinary charge that there are no routes on which more is 10 pf. for 2 sections, 15 pf. for than 2d. is charged, and that in 1909- 3 or 4 sections, and 30 pf for 8 1 910 only 8.14 per cent of the total sections. VI SELLING POLICIES OF MUNICIPAL TRADES 271 obtained at the same price as the first ticket. Workpeople's tickets are valid from Monday morning until Sunday at 2 P.M. In Dresden workpeople's weekly tickets are issued at the price of 60 pf. for a distance not exceeding 4 sections, and 10 pf. extra for each additional two sections. A ticket allows a holder to make two journeys each week-day ; the outward journey must be commenced before 7 A.M., and the return journey not before 6 p.m. in summer and before 8 A.M. and 5 P.M. respectively in winter (October i to March 31).^ In Cologne cheap weekly tickets costing 30 pf. are issued, available for use by any person commencing a journey before 7.30 A.M. A ticket entitles the holder to one ride on each week-day ; he can travel any distance he chooses by any one car. These tickets are transferable. In Mannheim books of tickets are issued to workpeople. According to the length of the journey for which they are available, they cost 2 marks for 40 tickets, 2 marks for 25 tickets, or 2 marks for i 2 tickets." ib) Most tramway undertakings give preferential treatment to children, young ones who do not occupy a scat being allowed free, and older ones being allowed to travel at reduced fares. Perhaps the most ordinary arrangement in this country is that children under three, not occupying a seat, are free and children under twelve pay half fare. In a good many towns children under five are carried frec.^ In German towns there appears to be less uniformity. In Frankfort-on-the-Main and in Dlisseldorf, for example, there are no reduced fares for children, but in the former town those under five, in the latter town those under six, who do not occupy a seat are free. In Mayence, children under four who do not occupy a seat are free ; those under ten are charged 5 pf. for a 10 pf. journey, 10 pf. for a 15 pf. or 20 pf. journey, and 15 pf. for a 25 pf. or 30 pf. journey. In Mannheim, children under six who do not occupy a seat are free ; those under twelve are charged 5 ' The ordinary fares are 4 sections ^ See Report of General Manager 0[ for 10 pf., and 5 pf. tor each additional the Manchester Corporation Tramways 2 sections. on Children'' s Fares, April 1909, p. lO ; 2 All the information concerning and Glasgow Corporation Tramways, workmen's tickets in Germany is Notes by the General Manager on Pro- taken from the Tramway Regulations of posals for the Alteration of the Fares the towns to which reference is made. and Stages, November 1910, pp. 4-7. 272 MLNICIPAL TRAni.WC < map. pf. for a 10 pf. or i 5 pf. journey, 10 pf. for a 20 pf. or 25 pf. journey, and 15 pf. for a 30 pf. journey. In Dresden, children under four who do not occupy a scat are free, those under fourteen pay 5 pf. less than a grown-up person, with a minimum of 10 pf for a simple and 15 pf. for a transfer ticket. In Cologne, children's tickets, which do not entitle to a transfer, cost 5 pf , without reference to the distance. {c) In many towns, scholars proceeding to or from school are carried at reduced rates. This privilege is conceded in various ways. On the Manchester Tramway system, for example, scholars up to fifteen years of age proceeding to and from school pay half fare. In Bradford school children under the age of sixteen are allowed to ride at half the adult fare at certain times during the day when going to and from school. In Belfast, scholars under fourteen years of age travel with halfpenny school tickets which are avail- able from any of the terminal jioints into the centre of the city (a 2d. journey) or vice versa, or for a penny cross-town stage. In Northampton, season tickets are issued to school children, the charge being 15s. for six months. In Sheffield reduced tickets costing three farthings, available for a penny stage, are issued to scholars. In Cologne, scholars pay, with- out reference to the distance, 5 pf for a ticket which does not entitle to a transfer. In Mannheim, scholars of the compulsory school age can buy books of tickets, either 40 for 2 marks, each ticket being available for a 10 pf. journey, or 24 for i.8o marks, each ticket being available for a 1 5 pf. journey. These tickets arc transferable. In Mayence, scholars up to sixteen years of age can purchase for 2 marks scholars' tickets provided with 100 divisions. For a 10 pf. journey two, for a 15 pf journey three, and for a 20 pf. journey four of these divisions are cancelled. In Dresden, scholars can purchase contract tickets for specified journeys at reduced prices. Those of the compulsory school age obtain them at half price, those who are fourteen years of age and over pay two-thirds of the ordinary rates. In Frankfort-on-the-Main there are special monthly tickets for scholars ; the distance is not taken into consideration, only the use which is made of the tickets. A ticket available to travel between home and school and back costs 3 marks a VI SELLING POLICIES OF MUNICIPAL TRADES 273 month ; if in addition it is available to travel to coaching lessons (Nachhilfestunden) or to the swimming baths, it costs 4 marks a month ; if it is available for both these additional objects, it costs 4.50 marks a month. No age limit is imposed except for tickets of still another kind which are available for travelling to a school of art, a school of music, a continuation school, or other special school. These cost 5 marks monthly, and are issued to young people only who earn nothing and who are under twenty years of age. {d) Mention has now been made of the principal cases of preferential treatment on tramways, but there are still one or two minor cases. In Hull the Postmaster-General is charged only three-fifths of a penny for each official's journey.^ In Diisseldorf, for example, books of tickets at reduced prices are issued to small independent producers or dealers, officials and clerks who live inside the town, and whose income, subject to taxation, does not exceed £\OAf per annum. The price of these tickets is 4.50 marks for a book of sixty, each available for a journey of any length by any one car. In certain towns some classes of passengers arc carried free. Thus in Bradford blind passengers pay no fare, and in 1909-10, 43,852 and in 1910-11,82,589 wore carried free of charge.^ In Sheffield the Tramways Committee grants free tram tickets to local Nursing Associations to be used in connection with their work. For the year 1 909- 1 the value of such tickets was X i 78 : i 3 : 9. The number of passengers carried with free tickets was 52,000, which represented .07 per cent of the total number of passengers carried during the year.^ A somewhat different kind of special treatment is that involved in distinguishing between first and second-class passengers on tramways. In October 1908 a service of first-class cars was introduced in Liverpool. The inside lower deck of these cars is elaborately upholstered and the fares are higher than on the ordinary cars. The upper deck is available for passengers at the ordinary fares. This class of 1 Parliamentary Return on Muni- Manager for these years. cipal Trading {^United Kingdom), part V. p. 47. ^ Annual Reports of the General 2 Annual Reports of the General Manager for 1908-9 and 1909-10. T 174 .\t I MCI PA L TRA DING CHAr. car has proved a great success.' The distinction between first- and second - class passengers is made on the systems of several French Tramway Companies, e.g. in Amiens and Lyons. The accommodation provided is I)ractically the same in both classes ; first-class passengers pay 5 centimes more than those who travel second class, and their part of the car is generally less crowded. ^28. The extent to which the various facilities described — books of tickets or coupons at reducetl rates, contracts, workpeople's tickets, scholars' tickets, etc. — arc used, and the financial asj)ccts of their use, may be briefly considered. The table which follows has been compiled from the Annual Tari.k showing for certain Municipal Tramway Undertakings the Number of Tcople benefiting by Special Rales.* ^_— -^^^^_^^^_^^^^_^^_____» Fnmkfort-OQ- the- Main. DruiUo. Mayvnc* Year .... Total Number of Tassengcrs 1 90.S-9 1908-9 1909-10 1908-9 carried Passengers carried with Con- 80,332.559 89,895,040 47,416.908 9.304.173 tracts and Cheap Tickets Percentage of Total Pas- 22,520,832 M..>'4.i59 17.554.499 4.783.648 » sengers .... Total Revenue from Pas- 28 per cent 16 per cent 37 per cent 51 per cent sengers .... Revenue from Contracts and 7.57«.7«3m- 9,370,126 m. 4.094.998 m. 864,275 m. Cheap Tickets 1,449,066 m. 840,065 m. 667,775 m. 385,812m. Percentage of Total Revenue Average Receipts from each 19 per cent 9 per cent 16 per cent 45 per cent Journey by an Ordinary Fare-paying Passenger . Average Receipts from each 10.59 pf. 11.28 pf. 11.47 pf- 10.57 pf. Journey by a Contractor, or Cheap Ticket-holder . 6.43 pf. 5.b7 pf. 3.80 pf. 8.00 pf. Reports of the tramway undertakings concerned. It shows that in Mayence more than half, in Diisseldorf more than one-third, in Frankfort-on-thc-Main more than one quarter and in Dresden about one-sixth of all the passengers 1 Information kindly supplied by included. Mr. C. \V. Mallins, General Manager of 3 jhe majority of these (3,890,000) the Liverpool Corporation Tramways. were passengers using books of coupons - Scholars but not children are issued at reduced rates. VI SELLING POLICIES OF MUNICIPAL TRADES 275 carried enjoy preferential treatment. In Diisseldorf their average payment per journey is only one-third of that of the ordinary passenger, in Dresden it is one-half, in Frankfort it is three-fifths and in Mayence it is three-quarters. The most striking case of the four quoted is undoubtedly Diisseldorf, where the number of people enjoying a large measure of preference is very considerable. It is quite evident that the ordinary fare-paying passenger must be charged distinctly more than would be necessary but for the special terms granted to so many people. The margin of surplus on tram fares is generally very small, and the profit of such an undertaking can easily be converted into a loss if many passengers are carried at cost price, and still more easily if many are carried at less than cost price. The only way to maintain a profit under these circumstances is to keep up the charges made to ordinary passengers. In the case of the four towns which arc dealt with in the table, none appears to make any contribution in relief of the rates, which suggests that the concessions have not been made entirely at the expense of the ordinary fare-paying passengers, but partly at the expense of the profits. Up to a certain point the granting of increased facilities on tramways will probably lead to growth of traffic sufficient to compensate for the reduction of the average fares, but whether the granting of preferential treatment can ever have a beneficial effect on the finances of tramway under- takings is doubtful. If too many general concessions are made the result will be a decrease in the net revenue. If much preferential treatment is granted, the net revenue will be dimmished, or the ordinary fares will have to be raised to prevent this from happening. A system of preferential facilities must always be extremely arbitrary in its applica- tion ; people who stand most in need of assistance may easily be excluded, and others who require none may be helped. Continual efforts will be made by the general public to secure the extension of the .system, so that it may be made to include classes who feel that they are hardly treated, and as a consequence the financial stability of the undertakings will quickly be in danger. In the spring of 191 I the management of two of the largest municipal 276 MUNICirAl. rRAOING ciiAf. vi tramway undertakings in the country, namely, those owned by the London County Council and the Manchester Corporation, were engaged in resisting proposals to extend facilities of various kinds' which were being advwatcd without any thought for the financial results they would be likely to inv(jlvc, ami this is doubtless only typical of what is happening on many tramway systems. Tramways exist for the benefit of the general public ; the object of the management should be to provide an efficient and cheap service, so that everybody may enjoy the maximum facilities compatible with the financial stability of the undertaking and with the earning of a reasonable profit, if that is thought desirable. The more preferential treatment is accorded to some sections of the population, the more the granting of general facilities will be checked, to the detriment of the common good. The adoption by a tramway undertaking of the policy of treating all alike, with certain exceptions in favour of children, certainly appears to afford the best means of removing grounds for grievance by giving everybody fair treatment and a good service at a low price, and at the same time it greatly facilitates the conducting of the undertaking on sound financial lines. This polic\' is pursuctl on certain tramway s\'stems, and the management of other systems would do well to consider the advisability of introducing it. * See London County Council, Ad- for children, and for issuing return j'ounted Report of the Highways Com- tickets on the southern tramways), and mittee (No. 2), May 1911 (this relates to Report of the General Manaf^er of the proposals for extending the time for Manchester Corporation Tramways in running workmen's cars, for issuing regard to the proposed extension of tickets at special rates to working the time during whiih workpeople's women, for introducing special fares fares are in operation, .\\m\ 1911. CHAPTER VII THE LABOUR POLICY OF MUNICIPAL TRADES s I. One important effect of the increase in the functions of iocal authorities of recent years has been the L^reat growth in the number of municipal employees. In 1906, after the municipalities had become the local education authorities, and after the movement in favour of municipal tramways and municipal electricity works had been largely carried to a successful conclusion, the total number of persons employed by the London County Council, the Metropolitan Boroughs and the County Boroughs in England and Wales slightly exceeded a quarter of a million.' Information relating to the ten County Boroughs which employed more than five thousand persons in 1906 is given in the table on page 278 ; in the second column will be found the total number of municipal employees in each of the boroughs, in the third column those numbers expressed as percentages of the number of inhabitants. It will be noted that Bristol and Sheffield have comparatively fewer municipal employees than the other eight towns. This is accounted for very largely, if not entirely, by the fact that in Bristol the water, gas and tramway undertakings, and in Sheffield the gas works, are managed by companies. That 2.2 or 2.4 per cent of the population of a town are employed by the local authority does not seem very much, but when it is remembered that these employees represent some 11 or 12 per cent of the 1 Parliamentary Return, "showing land and Wales at any time during the the number of persons in the employ of week ended Saturday, the 3rd day of the London County Council and the November, 1906." Reprinted in the Council of each Metropolitan Borough Municipal Year Book, igfi, pp. 922- and of each County Borough in Eng- 924. 277 278 MVMCll'A I. TRA JJ/Xu number of ratcpayiTs, tlr; importance of thr prob' in its true proportions. Many of the municipal • Taui.e showing the Total Numl)cr of I'crjons employed by certain County Boroughs in November 1906.* cs Place. Total Numbrr PrrcraUffv "( employrd. PoptiUlKM) nnptoyni i Birminpham . 11.48s , , Bradford ^',044 \\ 1 Bristol . '-■''} '•7 1 Leeds 1. ■ /H I Leicester 5,180 Liverpool 1 ''.. ;^^ Manchester 1 ■ . -' ; Nottin^'hani 5.731 Sal ford . S,2o.. Sheffield 8,2^7 '■-^ Table showing the Total Number of Persons employed by certain Municipal Trading Departments, April 1, 1905.' Town. Water Ga*. Klecthdijr. 1 Tramwajn. , Birmingham*. 3>3 2312 '34 64 Bradford -19 1099 =93 900 Bristol ^ . '74 Leeds 2^3 969 2 1 2 1444 Leicester 187 I I 89 85 638 , Liverpool ^2 2 451 1 2315 Manchester 4^'- 1944 632 3611 Nottingham 208 1227 '-4 1 436 Salford'\ ^3 594 '54 889 Sheffield 251 •36 '343 * The number employed are those given in the Parliar/ietitary Rtturn for November 1906. To calculate the figxires in the last column, the approxi- mate population of the different boroughs in 1906 has been taken as the arithmetic mean between the popu- lations in 1901 and in 191 1. ■^ Compiled from the Farliamcntarv Return on Municipal Trading {United Kingdom), 1902-6. ' At this time the municipal tram- way was only two miles in length, in addition to which the Corporation had nmning powers over four miles of route belongmg to a company. * The municipal dock undertaking found employment for 7S2. " Salford purchases its water in bulk from Manchester. vii LABOUR POLICY OF MUNICIPAL IKAl'h.s 279 do not possess the borough vote in the towns where they are employed, cither because they live outside the boundary, or because they are not householders, although living in the town area. If we eliminate one half of the municipal employees on this account, the remaining half may be regarded as municipal voters, and they may quite easily constitute 5 to 6 per cent of the total number of voters on the register. In the second table uv\ the opposite page the number of persons employed in April 1905 in the principal trading departments of these same ten towns is given. It will be seen that gas works and tramway undertakings afford far more employment than water or electricity works. '1 he average number employed in the 7 gas works was 1222, in the 8 tramway undertakings (excluding Hirmingh.mi; 1447. in the 8 water works (excluding Salfordj 33^^ ainl in the 10 electricity works 239. Another way to gauge the importance of local authorities as employers of labour is to examine the sums spent by a local municipality for salaries and wages during a year. For this purpose the figures relating to Manchester arc quoted in the table which follows : — [Table 28o MVNICirAL TRADING Statemknt showing the Amount- for Salaries and Wages for the 'XX Committer. !»kna& \\»^% Baths and Wash-houses Z339 Z9.057 Z9.386 Cleansing . 1,748 lai, ; '-• i:j.oso Libraries 2,98 s 7.77> iu,76o Parks and Cenjeterie* . 980 ao,9o3 31.883 Paving, Sewering, and Highway* a.900 79.9$o 8}.8$o /•3.'^ 4 » t ?,878 Rivers 3,044 1 1 1.73$ Sanitary S.083 a6.t^- 31. 130 Town Hall iS c,o4 aa.i'-s 4«.073 Watch 40 ii$,J3i 1 I;. >:: Withington (Hijijiiw.iv ^ Cleansing, etc.) 1.471 17.363 i«.:34 Education 40. F^^ 413049 Electricity ■ . ■> ' '' $7.4 M 6S.7'>3 Gas . 2i,ii 1 167.873 189,083 Markets 2.399 "4.SOS 16.804 Tramways 6,603 a86,ioi 393,704 Water Work . I2.4:S 4«,664 S4.o9a Miscellaneous Total 1 l.U'' 8.ai8 •9,364 ;£475.«6i Z 1,06 1,976 Zi,S37,837 As far as salaries arc concerned, the Education Com- mittee pays far more than any other committee, but in the matter of wages the four principal trading dcpartmcnla, water, gas, electricity and tramways, spent some i^5 50.000 on wages, or more than all the other departments put together. Of this j^5 50,000 the Tramway Committee was responsible for a little more than one-half and the Gas Committee for nearly one-third. v^ 3. Having briefly surveyed the extent of the problem with which wc are concerned, we may now turn to consider its various aspects. In the first place the method of paying wages calls for attention. The great bulk of the persons employed by municipal trading departments are paid time- ^ City of Manchester, Abstract of tht Treasurers Aiccunts /ffr the Year ending March j/, ic)OS, pp. 707-7 12. VII LABOUR POUCY OF MUNICIPAL TRADES wages. This is conclusively shown by the Board of Tradf Emjuiry into the Earnings and Hours of Labour of Work- people in the United Kingdom in iQo6. The volume which deals with the Public Utility services ' embodies returns from nearly all the local authorities directly employing labour, and from most of the private companies of imixirt- ance.' Unfortunately from the point of view of the present investigation, the returns from local authorities and from companies have not been tabulated separately ; but for our immediate purpose this docs not make ver>' much differenco, as neither companies nor municipalities employ piece-workers to any appreciable extent in the case of electricity, water and trainways. and only to a slight extent in the case of gas undertakings. This is shown quite clearly in the table given below. Occasional cases of piece-wafjes may occur outside these four principal trading undertakings, as for example, in a municipal dock undertaking such as that at Tablk showing Number and Percentage Proportion of Workpeople returned as Time-worker? and Piece-workers res|)cciivcly in certain Public Utility Services in an Ordinary Week ■ of 1906 * Sccvic*. TfaM-WOrlMKh PWcV'VoHMf^ All WoffcpMpIc No. Pwetai. 94-1 99.8 99 9 99.4 Na rWt UAl. No. Far cmM. G«i Supply Electricity Supply Water Supply Tramway and Omnibus All the above 64,240 «3.3'6 14,074 46.427 3.994 3' «9 a75 59 0.2 0.1 0.6 68.2J4 •3.347 14,093 46,70a 100 100 100 100 138.057 96.9 4«3I9 3-« I4a.376 too Bristol, wlierc the grain-men arc paid piece-rate.* In the case of a good many of the municipal employees who arc paid time-wages, bonuses are offered in addition to > Cd. 5196. « r. iii. ' For water supply and tramway and omnibus services particulars were returned for the last pay -week of Seplcmljcr 1906; for gas supply and electricity supply particulars were re- turned for an ordinary winter week in 1006. * Compiled from the Board 0/ Trade Rff^rt on PuJlie Utility Services (Eamins^ and lloun Enquiry), 1906, Cd. 5196, pp. 10, 1 1. * Parliamentary Return of Muni- cipal Trading ( L 'n iteJ Kingdom ) , 1 90 2 • 1906, part V. p. 17. 282 ml: MCI PA I. TKAD/Xu the ordinary w.igcs. There arc two kinds i : ' - >>, ihc one paid on account of the excellence or t : > with which work is done, the other paid on account of the amount of work tloric. Honuses of both these lyj)cs cxint in connection with municipal tramway undertakings, but the former appear more common than the latter.' Freedom from accidents, good conduct, punctual attendance, and economy in the use of current are some of the bases of the bonuses paid to tramwaymcn. Thus in Belfast a motorman receives £\ ytcr annum for freedom from accidcnt.s. in Glasgow £ I : 6s. for freedom from accidents for twenty-six clear weeks, in Hirmingham £\ i>cr quarter for freedom from blamahle accidents. In Hirkenhead motormen and conductors receive £\ jxrr annum for regular and punctual attendance, in Ilford they receive i os. {x:r quarter for good conduct and freedom from accident. Amongst the towns which offer bonuses to mt)tormen for saving current arc Blackburn, Gloucester, Ipswich and Warrington. The regulation in Blackburn is that if the current consumption is reduced from 1.9 to 1.85 units jjer car mile during any one week, each motorman receives is. as bonus; if reduced to 1.75 units per car mile during anyone week, each motor- man receives 2s. as bonus. In Ipswich motormen arc given 25 per cent of the saving in power, taking 1.15 units' per car mile as the standard and charging at i.5d. jK-r unit. A form of efificiency which applies exclusively to conductors is freedom from uncollected fares. In South Shields con- ductors receive a bonus of 2s. 6d. per month for freedom from uncollected fares and regularity in turning up for work. The other type of bonus, given according to the amount of work done, is based, so far as tramwaymen are concerned, in some way upon the number of passengers carried. For example, in Darlington motormen and conductors can earn a bonus, not exceeding is. 6d. per week, based on the traffic receipts. In Lincoln a bonus of 2s. 6d. is given every seven weeks to the conductor selling the largest ' See return of tramwaymen's wages 933. and hours of labour, prepared for the Municipal Tramways Association by - In contrasting this figure with Mr. Alfred Baker, printed in the that for Blackburn it must be re- Municipal Year Book, rgir, pp. 925- membered that Blackburn is very hilly. vii I ^ HOUR POLICY OF MUNICIPAL TRADES 283 number of tickets. In West Ham a bonus of 5s. per quarter is paid to each conductor whose fare receipts are over the average in his particular group, and who is not reported for bad timekeeping on the road. On many municipal tramway systems, merit stripes or badges, carry- ing extra pay, arc awarded to motormen and conductors with good records. § 3. From the methods of paying wages we may turn to the rates of pay.' These, of course, differ vcr>' consider- ably frcjm town to town, somewhat according to the cost of living. So far as skilled labour is concerned the general jiracticc a{)pcars to be to pay the local trade union rates. For unskilled labour there are usually no recognised stamiard rates, and the local authorities appear to take as their :nodcl the rates paid by the best private employers in the ncighlxiurhood ; consequently the wages of general labourers in the employ of a municipality are above the average wages paid in the locality. No objection can be taken to this, provided the efficiency of the municipal labourers is corre- spondingly greater than that of the average labourer in the neighbourhood. Local authorities often adopt the principle of a minimum wage, and it is then essential that no one should be employed who is not worth that wage, otherwise the system constitutes a distinct abuse, a small favoured class of workpeople is created which is subsidised at the expense of the general body of ratepayers. It is both right and desirable that municipalities should be good employers, but it is neither fair nor reasonable that they should be over- generous employers. In addition to their money wages municipal employees ' The Earnings and Hours Enquiry, of Trade Enquiry into the Cost of IV., Publu Utility Services in tgo6 Living- in German /owns gives the (Cd. 5196), gives a general indication predominant wages of some clavscs of of the earnmgs of men employed in municipal workmen in the principal the water, gas. electricity and tram- German industrial towns in Octol^r way services, hut does not distinguish 1905. The return prei^ared by Mr between municipal departments and .Mfrcd Baker for the Municipal Tram- private companies. Tht Parliamentary ways Association, printed in the A/uni- Keturn on Mumdpal Tradinf; {United cipal Year- Book, igii, gives the wages h,n^,^m), 1902-6, gives the wages and hours of lalwur of tramwaymen paid by a large number of municipal Information concerning wages is pub- trading departments to different classes lished in the annual reports of some of workpeople during the years 1902-3 municipal trading departments, e ,; to 1905-6. The Report of the Board Sheffield Tramways. 284 MUNICIPAL TRADING ciixr. not infrequently receive uniforms, and sometimes dwelling- house accommodation ; further, they may be entitled to sick pay and to holidays with wa^es, and the local authorities may contribute to superannuation schemes on their behalf. All these things, of course, must be taken into account in considering the amount of wages paid. The ser\'ice in which uniforms are most usually provided by the local authorities is that of the tramways. The provision of house accom- modation is exceptional ; a few employees, esixrcially fore- men, are sometimes housed on the sites of gas works or of water works, so as to be immediately available in case of emergency. Amongst the municipal undertakings which have regulations concerning sick pay are the East Ham, Lincoln and Manchester Tramway Departments.' In East Ham all men of at least one year's service arc allowed two weeks' sick pay at full rate and two weeks' half pay. This is quite apart from accident pay, for which they receive full pay for the first three weeks, and half pay thereafter. In Lincoln, in case of sickness, the motormen and conductors receive no pay for the first three days, and afterwards half pay for a fortnight. In Manchester, after six months' service, all men are entitled to half pay for one month,' sick pay allowance not to exceed two months in any one year. Sheffield, Halifax and Preston may be quoted as illustra- tions of towns which give holidays with pay to their tramwaymen. In Sheffield all employees of the Tramway Department arc granted one week's annual holiday with pay.'' In Halifax motormen and conductors receive six days' annual holiday with pay ; in Preston they receive one day, with pay for each year of active service, with a maximum of six days. The number of superannuation schemes supported by town councils is comparatively few. In Newcastle-upon-Tyne the Corporation contributes annually to the superannuation fund a sum equal in amount to that contributed thereto by each officer and servant. The scale 1 Return prepared for the Municipal £22"]^ in 1910-11 {Annual Report Tramways Association by Mr. Alfred of the Department, 1910-I1). Baker, Municipal Year-Book, igir, 3 Annual Report of the General pp. 925-33. Manager of the Sheffield Corporation 2 The grant of half pay to sick Tramways for the Year ending March workmen involved a total payment of 2^, 19^0, p. 19. VII LABOUR POLICY OF MUNICirAL TRADES 285 of contributions for officers and servants is from 2 per cent to 4 per cent of the salary and wage, according to the Xewcastle-upon-Tyne Corporation Act, 1904.* In Croydon workmen contribute 2J per cent of their wages to a super- annuation fund, and the Corporation adds a like amount. Pensions and endowments are payable at the age of sixty- five.- In Birmingham certain non-contributory pensions arc- payable to municipal workmen/ Another problem concerning wages is the rate of pay for work on Sundays, on holidays and for overtime. The only municipal service for which information on these points has been systematically collected and published is the tramway service.* As this department is the one which in most towns occupies more workmen than any other muni- cipal department, the conditions ascertained may be briefly considered. Of seventy-six municipal tramway undertakings which had a Sunday service in December 19 10, twenty-four paid their motormen and twenty-two their conductors at higher rates for Sunday work, or in other words, something less than one-third of the undertakings distinguished in the matter of pay between Sunday and week-day services. The higher Sunday pay generally takes the form of time rate and a quarter, as for example, in Birmingham, Derby, Huddersfield and Sheffield, but sometimes it is as high as time rate and a half, which is the case in Cardiff and Leith. As far as holidays are concerned, the majority of municipal tramway undertakings pay the ordinary rates, one or two pay time and a quarter,^ a few pay time and a half," and several give as much as double pay on Christmas day,^ and one or two on Good Friday as well.'* The only town which is recorded as paying its traffic men at higher rates for overtime is Manchester, the rule being that the motormen and conductors are allowed time and a quarter for lime worked over nine hours per day or fifty-four hours per week. 1 Parliamentary Return on Muni- Tramway Association by Mr. Alfred cipal Trading (United Kingdom), Baker, part V. p. 23. ^ E-g- Belfast. ., „ . , ... , ^ E.z. East Ham, Wigan. ' ^^"^- P=^" '"• P- 'S3. 7 E.g. Halifax, Leeds and North- 3 Ibid, part iii. p. 4- ampton. * Return prepared for the Municipal « E.g. Chester, Doncaster. 5 3 O o c 3 o 3 O c '% o C/3 CO <: u _ > < = .S=^ tr\ \r\ ir\ xf> <^ ^ 1 • i-^ PI o o o o o o 1 S ^ ii 00 ro fnoo o o o o 1^ 0\ — O^ is "1 \0 O^ \n \r\ ir% LTk Ln ^ £ >o — N N Ch « « O ^ 1 >o (A »A •- r>« 5.'- M ij •o JJ N Tf ir> C> J t c^ P» "J- fO t^ ••t rj vo CN "o ^ S "o 00 — r^ t^ in V o o* ^ »^ ^ OO M LTk tt \0 — fO — c« O M O M M rn '^ •5-§ cT " a . S.E a T3 OO _ C3 »0 t« O — r^ -MOO lAoo •^00 >0 3 S-5 ro — — ro Ul •n^ tN. r^ O "^ < 1^ c "^ u r« — — O H c^ -r 1^ — :i^ r^ O ro "^ r^ 4 O 4 O 'in :?;■§ 13 cT rT f^ o" -» r» N N 3 z 1^ •O u C V . ■>* «^ •* 00 i-v O "^ -" 00 •* O 00 00 Os u^ rJ- yt 6 o^ •^ rn b 2 t; fi OO 00 O "^ u — 1> '^ c '^ Tf Tl- -1- - O o 00 rv cu-H «« b •^OO^O ro d rO »A d ■oO 00 -a ■f c oo" cT m N 3 E Tt OO -^ en « - C> — 3 On O "^ CO cf» -4 d 2 D rC "^ "* . in . V) 3 3 J2 X> & o V o in =3 ^-O ,« o -2 c 3 '5 ^ ^ ^ t; ii E ^ (U 0! rt O W ^ H ;g (U rt p3 O W ^ H I - c^ s CHAP. VII LABOUR POLICY OF MUNICIPAL TRADES 287 § 4. The most complete information concerning the hours of labour in public utility services is contained in the report of the Board of Trade in connection with the Earnings and Hours Enquiry. The figures relating to gas, electricity, water and tramway and omnibus undertakings are given on the opposite page ; they embody the returns from private as well as from municipal undertakings. So far as the gas, electricity and water services are concerned the hours of labour of the great majority of workers arc fewer than fifty- six hours per week. This does not seem excessive, and in the absence of any special grounds for believing that municipal workers in these services are employed for fewer hours than employees of private companies, these figures may be accepted as typical. So far as tramways are concerned there appears to be a fairly general impression that shorter hours are worked in municipal than in private undertakings ; further, hours in excess of sixty per week seem sufficiently long to call for curtailment by municipalities, which at first sight might incline people to believe that the longer hours refer to companies only. The information published by the Municipal Tramways' Association ^ does not confirm this view. The returns from 83 municipal tramway undertakings were tabulated. In 47 of these the hours of the motormen are given as 60 per week, in 10 of them as being 62 per week or more, and in 26 of them as being less than 60 per week. The hours worked by the conductors are practically the same as those worked by the motormen. This return only confirms the result of the Earnings and Hours Enquiry,^ that the predominant hours for tramwaymen are from 54 to 60 per week.^ ^ Quoted above, footnote (I), p. 282. hours relate to the undertakings of 2 The very high proportion (16.4 certain companies. This is confirmed per cent) of tramway and omnibus by the investigations of the National men working 62 hours and above is Civic F'ederation in London and largely accounted for by a considerable Dublin. Consequently the hours above number of men in the London District 64 per week may be ignored for our and in Ireland working between 68 purpose as not relating, to any con- and 72 hours per week {Earnings and siderable extent at least, to municipal Hours Enquiry, vol. iv. p. 180). As undertakings. the hours on all the principal under- ^ Other sources of information con- takings of local authorities in the cerning hours of labour in municipal London District and in Ireland appear undertakings will be found in the same to have been fewer than 64 per week, publications as deal with wages, which it seems safe to assume that these long are referred to in the footnote on p. 283. 288 MUNICIPAL TRADING chap. In the two trading services which employ the largest number of workers, namely, the tramway and the gas under- takings, it is necessary to organise a good deal of the labour on the shift system. In the case of tramways this probably applies to the bulk of the workers. In the case of gas undertakings the majorityof the men are employed on ordinary day work, to judge by the returns of the Board of Trade Earnings and Hours Enquiry,^ but a large minority are engaged in shift work. These are engaged in the actual carbonising process, which is continuous, and has to be carried on day and night seven days a week. This really raises two problems, firstly, the arrangement in relays of such workers as are necessary to carry on those parts of the work which are of a continuous character, and, secondly, the introduction of a scheme by which the shift men can secure periodically a full day's rest. The first problem is solved by adopting three eight-hour or two twelve-hour shifts. In neither ca.se is there any regular break for meals, but actually, of course, certain intervals in the work must occur, and for the purpose of the Earnings and Hours Enquiry an eight-hour shift is regarded as representing a seven-hours day and a twelve-hour shift as representing a ten and a half hours day." Formerly the latter system was almost universal, but at the present time the eight-hour shift is more commonly adopted. The table given opposite indicates for all those municipal and private gas works which made a return in 1906, the system which was in ^ Information was obtained con- practice they are shorter. On the cerning 59,787 men employed in gas twelve-hour system the men charge a undertakings in the United Kingdom ; set of retorts every two hours, but the of these 36,666, or, roughly, 60 per cent, actual work occupies only about an were employed on ordinary day work hour, and in the last charge of the and 23,121, or, roughly, 40 per cent, shift the men hurry themselves and get were shift workers ; see Report, pp. it finished in three-quarters of an hour. I34"^37' They are then at liberty to go, and the men on the new shift only come in 2 Earnings and Hours Enquiry, when the charge is ready to with- vol. iv. pp. 134, 135. Mr. F. draw. There is thus an interval of Popplewell, in his paper on "Seasonal an hour and a quarter between the Fluctuations in Employment in the shifts, and the actual length of shift is Gas Industry " in \.\\q Journal of the io| hours. On the eight-hour system Royal Statistical Society, 191 1, refers charging takes place ever)' hour, and to the twelve- and eight-hours shifts as occupies half an hour. The actual follows (p. 699) : These are the length of shift is, in this case, 7^ nominal lengths of shift. In actual hours. LABOUR POLICY OF MUNICIPAL TRADES 289 vogue. It will be noticed that the proportion of eight-hour and of twelve-hour shift workers varies for the different occupa- tions, the proportion for all occupations being ^6 per cent Table showing the Number of Men engaged in Gas Supply returned as working Eight Hours and Twelve Hours per shift respectively, and the Numbers of Shifts worked in an Ordinary Winter Week in 1906.^ Number of Men Number of Men Average Number Occupation. returned as working Eight returned as working Twelve of Shifts worked in Ordinary Hours per Shift. Hours per Shift. Winter Week. Foremen 484 332 6.4 Coal Porters . 420 34 /6.5 2 I6.33 Coal Wheelers 809 170 /6.7 2 16.6 3 Coke Spreaders and Wheelers . 2,440 152 |'6.8 2 \6.53 Firemen ',436 175 6.8 Gas Stokers . 8,423 3,036 6.8 Retort Cleaners 459 93 6.8 Pipe Cleaners 576 188 6.7 Retort Labourers . 298 286 6.5 Sulphate House Men 99 262 6.6 Purifier Men . 257 163 |6.2 2 \6.33 Coke Trimmers 328 266 /6.4- (6.1 3 Engine Drivers 644 236 /6.8 2 t6.o3 Boiler Attendants . 643 162 6.8 Valve Men . 253 57 6.9 All foregoing Occupations 17,509 5,612 eight-hour and 24 per cent twelve-hour shift workers. The last column of this table shows to what extent a periodic day of rest is provided. The most numerous classes, the stokers, firemen and coke spreaders and wheelers, worked ^ Earnings and Hours Enquiry, vo\. - Pieceworkers, iv. pp. 136, 137, 138. ^ Timevvorkers. U 290 MLN/C/PAL TRADING chap. on an average 6.8 shifts per week, which represents one free day every five weeks. This, of course, appHes to the winter months only, when the work is carried on at high pressure. In summer it is comparatively easy to free men for whole days, as at that time there will probably be a more than adequate reserve of workers. A numerical example will illustrate best what is implied by men working 6.8 shifts per week instead of 6 shifts a week. Assuming 102 shift workers are required to carry on the work of each shift, then, in order that no man might work more than 6.8 shifts per week, it would be necessary to employ 105 men, so that three might be free each day in turn.' If it were desired that the men should not work more than six shifts per week it would be necessary to employ i 19 men in respect of each shift so that seventeen might be free each day in turn." This would entail a serious increase of the number of men employed in winter, which would greatly aggravate the problem of providing regular employment for the men in summer, when the demand for gas is considerably reduced and production is conducted on a smaller scale. This point is referred to below ;^ here, however, the importance of limiting the size of the winter staff as far as possible in order to minimise unemployment in summer must be emphasised. Consequently it seems necessary to approve of an arrange- ment by which certain classes of gas workers do not obtain a weekly day of rest in winter, but only a day every four or five weeks, and instead have extra days free during the summer months. The absence of a weekly day of rest in winter is much less serious where the eight-hour shift system is in force and every man has sixteen out of the twenty-four hours of the day at his disposal, than where the twelve-hour shift system exists and every man has only twelve hours off duty each day. The problem of the shift system in connection with tramways is quite different from that in connection with the supply of gas. There is no question of a continuous process ; it is considered desirable and expedient to provide 6.8 ,6 1 — xioi; = io2. - -X 119=102. 7 7 3 See pp. 393-396. VII LABOUR POLICY OF MUNICIPAL TRADES 291 a service from early morning till late evening/ and it is, of course, physically impossible that such service should be maintained by one set of workers. In many towns two special difficulties have to be contended with ; firstly, the service required is much greater at some hours of the day than at others, and secondly, the service required is much greater on some days of the week than on others. Further, at holiday times a special strain may be put upon tramway undertakings. To provide for the unequal service required throughout the day, it is necessary to make some of the shifts overlap, so that more men are working at one period than at another, and also to divide into two parts the periods during which a good many of the men work with a longish interval between, so that they may be on duty during the morning and the evening rush hours. The arrangements adopted in Sheffield may be given as an illustration. The service begins at 4.40 a.m. and finishes about 12.40 A.M. This period of twenty hours is divided into two parts : one set of men works from 4.40 A.M. to 2 P.M., and another set from 2 P.M. to 12.40 A.M. Each man is relieved once during his spell of duty to allow him to have a meal, the length of the interval being about fifty minutes, which is the average length of time occupied for a car to journey from the centre of the city to a terminus and back. The men who work morning shift one week, work afternoon and evening shift the following week, and vice versa. To provide the extra service during the morning and evening rush hours, some men work what are known as " split turns." They are on duty from about half-past five to nine o'clock in the morning, and again from about half-past four to eight o'clock in the evening. In most towns a service of trams is maintained on Sundays for the convenience of the general public. In some cases the traffic will be much lighter than on week- days, but in others, particularly on the Continent, the traffic is likely to be considerably heavier. Where the former condition exists, the service can be so organised that enough ^ So far as the writer is aware the service, and for the purpose of the London County Council Tramway present argument it can be left out of undertaking is the only one in this consideration, country which provides an all-night 292 MUNICIPAL TRADING chap. extra men are employed to allow all to have a free day periodically once a week, or less often as may be desired. Where the latter condition exists, and many additional men are required one day in the week, other arrangements have to be made, as a few permanent extra men who six days out of seven replace other men, will not answer the purpose.^ It will be necessary to provide a special reserve of men to supplement the permanent staff on Sundays. One way of doing this is to train such men to act as reserves as are employed on week-days only in the car sheds, for example, in connection with the repairing and building of cars. If these workmen are to some extent mechanics, they may be taught to act as motormen, otherwise as conductors. In Frankfort-on-the-Main a special depart- ment was established for the making of tramwaymen's uniforms, so that an extra reserve of men might be available to facilitate the provision of an additional service when required. Another way of temporarily increasing the staff of motormen and conductors is to engage people from outside the service, men who are accustomed to handling money and who are willing to supplement their incomes, to serve as conductors, whilst the ordinary con- ductors act as motormen. Those towns which have organised their service to deal with a heavy Saturday afternoon or Sunday traffic ^ are well prepared to deal 1 Suppose the service required that system should be adopted by which a 30 motormen and 30 conductors reserve of men should be available for should be on duty at one time, week- Sunday service. In this case 72 men days and Sundays. The employment might be permanently employed in con- of 10 surplus men in connection with nection with each shift by the tram- each shift of 60 would enable all 70 way department. All would work on men to enjoy a weekly day of rest Sundays, and they would take turns at (including one Sunday every 7 weeks). providing 60 men pershift on week-days, If instead of 60, 90 men were required which would give each man one week- simultaneously to provide the Sunday day free every week. It would then be service and 90 men were permanently necessary to provide a special reserve of engaged, it being arranged that they 18 men in respect of each Sunday shift should all work on Sundays, on the to make up the numbers from 72 to 90. 6 week-days there would be employ- - Two illustrations of extra Sunday ment for 60 men, and there would be traffic in German towns may be given. 90 men to do the work, which would In Dresden in 1907 the ordinary week- provide full employment for each man day service was maintained by 605 cars on four week-days only. This would (including 205 trailers) and 1005 necessitate either that each man did five motormen and conductors. To main- days' work only, and received five days' tain the Sunday service 745 cars pay only each week, or that some other (including 278 trailers) and 12 12 men VII LABOUR POLICY OF MUNICIPAL TRADES 293 with heavy holiday traffic. Other towns may have to make special arrangements to secure the services of the neces- sary additional men at these times. To meet an abnormal demand of short duration for extra tramway facilities, as for example, in connection with a football match, it is always possible to draw on the morning shift in the afternoon, and vice versa, if the spare men and reserves are not numerous enough to suffice. With regard to the number of days of rest accorded to tramway and omnibus men, the Earnings and Hours Enquiry shows that on those municipal and company undertakings for which returns were made,^ the average number of days worked in the last week of September 1906 by those motor men and conductors who worked full time was 6.2." In other words, on an average they enjoy four days of rest every five weeks. The way in which the labour was actually organised probably provided that some men should be free one day in seven, and others one day in fourteen. It is difficult to say whether in this respect municipalities are better employers than companies, but there appears to be no special reason, as in the case of the supply of gas, why the work should not be so organised that as a general rule every tramway man should enjoy a weekly day of rest. The fact that a weekly day of rest is not accorded on all undertakings is probably due, in part at least, to the men, who are anxious to earn extra money by working thirteen out of fourteen days, instead of only six out of seven. ^ 5. Some reference has already been made to the seasonal fluctuations in trade in the gas industry. For this purpose it makes no difference whether the undertakings are organised on a municipal or a company basis. The conditions which were necessary, or 207 men more per Saturdays. It is in Mayence that on a shift than were required for the week- fine Sunday afternoon in summer on day service ( Verwaltungsberichi der one route it is necessary to maintain stddtischen Strassenbahn in Dresden a service of 32 cars (including 16 aiifdasjahr igo8). In Mayence, during trailers) instead of the usual four cars 1907, 18.22 per cent of the takings which provide the week-day service, from the sale of tickets were received ' They relate to 46,702 work- on Sundays, 14-77 P^r cent on people, including 10,009 tram-car Mondays, 14.47 P^r cent on Tuesdays, drivers and motormen and 13,051 con- 12.35 P^"' c^^*^ °" Wednesdays, 12.49 ductors. per cent on Thursdays, 14.24 per cent ^ Earnings and Hours Enquiry^ on Fridays, and 13.46 per cent on vol. iv. p. 181. 294 MUNICIPAL TRADING Table showing the Total Number of Workpeople receiving Wages in the last Pay-week or other Ordinary Week in each Month in 1 906 from Local Authorities and Companies furnishing Returns.^ Tramway Month. Gas Electricity Water and Supply. Supply. Supply. Omnibus Services. January 69,863 13,607 14,097 44,110 February 67,510 13,633 13,865 44,517 March . 64,085 13,796 14,052 45,099 April 61,507 13,595 13,936 45,641 May 60,500 13,664 14,074 46,538 June 59,691 13,872 14,330 47,197 July . 60,033 13,860 14,177 47,240 August . 60,647 14,112 13,985 47,358 September 63,130 14,212 13,874 47,073 October 66,304 14,271 13,719 46,812 November 69,880 14,066 13,775 46,646 December 71,854 13,761 13,608 46,567 Average Wee kly N umbe r 64,584 13,871 13,958 46,233 Percentages of Average Weekly Numbers January 108.2 98.1 lOI.O 95.4 February 104.5 98.3 99.3 96.3 March . 99.2 99.5 100.7 97-5 April . 95.2 98.0 99.8 98.7 May 93-7 98.5 100.8 100.7 June 92.4 100. 102.7 102. 1 July . 93-0 99-9 101.6 102.2 August . 93-9 101.7 100.2 102.4 September 97.7 102.5 99-4 101.8 October 102.7 102.9 98.3 101.3 November 108.2 101.4 98.7 100.9 December 1 1 1.3 99.2 97.5 100.7 Average Wee kly N umbei 1 00.0 100. 1 00.0 1 00.0 ^ Earnings and Hours Enquiry, vol. iv. p. 2. VII LABOUR POLICY OF MUNICIPAL TRADES 295 lead to the fluctuations in employment have nothing to do with the form of management. Consequently the figures published in the Board of Trade Report on the Earnings and Hours Enquiry can be accepted, subject to a restriction mentioned below, as typical of the experience of municipali- ties in this respect. The first part of the table given opposite shows us the number of workpeople employed in such gas, electricity, water and tramway and omnibus undertakings as made returns in one particular ordinary pay-week of each month during 1906. In the case of gas undertakings, for example, in a week in June only 59,691 workpeople were employed, whereas in December 71,854 were employed.^ In the second part of the table, the number employed in a particular week of each month is expressed as a percentage of the average weekly numbers employed. Thus the average weekly number employed in the gas industry was 64,584. This is treated as equal to 100 ; the number employed in June was 92.4 per cent of the average, and in December 11 1.3 per cent of the average. In the case of gas, the variations in the number employed were from y .6 per cent below the average to i 1.3 per cent above the average ; the corresponding figures in the case of electricity were 2 per cent and 2.9 per cent, in the case of water 2.5 per cent and 2.7 per cent, and in the case of tramways 4.6 per cent and 2.4 per cent. With regard to tramways, how- ever, there is reason for believing that some of the under- 1 Seasonal unemployment in the gas torts, the overhauling of purifiers and industry is not evenly distributed by-product plant, and for effecting any amongst all classes of workers, but is necessary extensions to the works, restricted to certain classes, chiefly to Amongst the "outside men," who are those directly connected with the actual employed exclusively in connection carbonisation process, or the " retort- with the distributive side of the under- house men," who include the stokers taking, and who work for the most part and most of those mentioned in the outside the works, employment is table on p. 289 above. Amongst the practically regular throughout the year, "yardmen," or those engaged in and The whole burden of summer unem- about gas works in connection with ployment in the gas industry falls upon purification, the manufacture of by- the " retort-house men," and it is esti- products and the repair and upkeep of mated that the number of these em- the plant, there is a slight seasonal ployed in June is only about half of fluctuation in employment, which is that employed in December (see F. somewhat greater in summer than in Popple well, "Seasonal Fluctuations in winter, owing to the fact that the Employment in the Gas Industry," summer months are utilised as far as Jot-ccs, namely, the spread of socialistic views amongst town councillors, is a very real danger. There are men who are not content with ac- cording fair and reasonable treatment to municipal workmen, but are desirous of improving their positions at every oppor- tunity ; they are willing to vote advances without consider- ing in the least the value of the services rendered. This applies only to people with small incomes ; applications for rises in salary by officials who occupy responsible positions are not accorded the same sympathetic reception as similar applications from minor officials and workmen. The evil is consequently a double one : there is a tendency for one class of municipal employees to be overpaid and for another class to be underpaid as a result of the attitude of certain councillors. The chance of the workpeople being overpaid is greater in the case of a trading department than in the case of a non-trading department, because in the former case such a policy can be adopted without making any call upon the rates, if the undertaking is financially successful. This pressure put upon local authorities from the inside, so to say, is the most difficult to control ; it is neither tangible nor does it result from people acting directly in their own interests. It is due to altruism rather than to egoism. 304 MUNICIPAL TRAniNil cmap. but it is misplaced altruism, as it imposes a hardship on the many for the benefit of the few. The general ratepaj'cr is burdened with hi^;hcr [trices for the services or com- modities sold by the local authority, or his rates are raised in the interests of a privileged class of municipal employees. As in the other cases where pressure is exerted upon local authorities to improve unduly the conditions of their labour, the principal remedy appears to lie in publicity. It is impossible to say whether, and if so to what extent, municipal employees are being overpaid for one cause or another, but in view of the influences which may be set in motion at any time, it seems desirable to restrict their number, so far as this can be done without impeding a local authority in fulfilling its proper functions. The direct employment of labour by municipalities cannot be avoided, and should not be allowed to interfere with the undertaking of certain trading enterprises by local authorities, where wcii^hty considerations in favour of such enterprises exist ; in itself it is a drawback and not an advantage of municipal trading, and where the considera- tions in favour of municipalising an undertaking are not strong it may easily outweigh them, as in the case of a Municipal Works Department. The inadequate payment of the principal officials of large trading departments is a serious problem. Where there is a considerable element of business men on a Town Council, of men who are accustomed to big transactions and who themselves employ large staffs, the importance of paying good salaries in order to attract first-rate men will be realised. Even then it may be difficult to secure the approval of the Council. In other cases, the members of local governing bodies do not appear to appreciate that a eood manager makes all the difference between a successful and an unsuccessful undertaking, and that the improved financial results due to his efforts will more than compensate the local authority, which employs him, for any higher salary which he may be paid. For a muni- cipality to act on the principle that no man is worth more than i^500 a year, or some such figure, is most unfortunate ; low-paid labour is seldom the cheapest in the long run, and VII LABOUR POLICY OF MUNICIPAL TRADES 305 it is not likely to prove true economy to employ low-paid managers. Where in a profession there are few well remunerated positions and many poor ones, these conditions cannot fail to deter promising men from entering it. The small salaries offered for responsible positions in many municipal trading departments must tend to have the effect of making those departments less efficient than might otherwise be the case.' ' The salaries paid to all officials in the Parliamentary Keturti on Mttni- during 1902 to 1906 in the larger ci pal Trading {United Kingdom). English and Scotch towns will be found X CHAPTER VIII THE RESULTS OF MUNICIPAL TRADING 8 I. Amongst the many difficulties which have to be con- tended with in any systematic examination of municipal trading, none are greater than those involved in the attempt to use existing statistics for the purpose of reaching some conclu- sions with regard to the results attained by local authorities engaging in trading enterprises. The material available is employed in one of two ways, either to measure the success or the failure of municipal trading directly, or to do so indirectly by comparing it with private trading. In every case the accuracy of the figures employed and the validity of the interpretation put upon them call for careful consideration. The supreme test of the success of any ordinary business enterprise is the financial result obtained. This test cannot be applied to municipal trading under- takings without some qualifications, as the making of profits is not the primary object of any of these undertakings ; the character of the service rendered and the price at which it is rendered must always be considered first. Nevertheless, the question whether the trading enterprises of local authorities are remunerative, or are merely self-supporting, or are actually run at a loss, is of great importance. Where, from the outset, there was no deliberate intention to subsidise an undertaking, it should be so managed as to be at least self- supporting ; the making of a net surplus in order to relieve the rates is very often simply a matter of selling policy, and depends upon the price charged for the service or com- modity, assuming that indirect competition is not so keen as to leave the local authority little freedom in the fixing of 306 CH. VIII THE RESULTS OF MUNICIPAL TRADING 307 prices. To make a loss, where it was intended that an undertaking should be self-supporting, shows either bad management, or that a mistake was made in estimating the probable revenue and expenditure of the enterprise at the time when it was being established. The loss may quite well be due to both these causes. In dealing with the figures relating to the financial position of various trading undertakings the remarks made in Chapter V. concerning municipal trading accounts must be borne in mind ; the capital accounts may have been in- adequately debited with expenditure incurred in connection with the trading departments, in consequence of which their loan charges would be reduced ; a proper share of the general expenses of the municipality may not have been charged to the trading departments, and the provision made for depreciation may be quite insufficient. In this way the annual expenditure of the undertakings would be checked, which would make their financial position appear unduly favourable. On the other hand, if the trading departments have supplied other municipal departments with services or commodities at less than the usual prices, or even free of charge, their receipts would be diminished to that extent, and the return would show their financial position to be less favourable than it really was.^ ^ 2. In the table given on p. 308 will be found the aggre- gate receipts and expenditure of English and Welsh local authorities in respect of water, gas, electricity, tramway, harbour and market undertakings during 1907-8. It will be noted that in the case of water and of harbour under- takings there were very considerable deficits. So far as water undertakings are concerned, this is largely ex- plained by the costly schemes which have frequently to be adopted to secure adequate supplies of water for future generations as well as for the present. With the growth of the populations of the areas supplied, the burdens will become less heavy in proportion to the quantity of water consumed ; at present it is only possible to meet the heavy expenditure, ' The most recent statistics, pub- land and Wales in 1910-11 will be lished after this book was in the press, found in the Appendix, p. 397. concerning municipal trading in Eng- 3o8 MUNICIPAL TRADING CHAI'. Tahlk showing the Aggregate Receipts and Expenditure (including Loan Charges) of Local Authorities in England and Wales in respect of certain Reproductive Undertakings during the \ear 1907-8.^ Service. Aggregate Receipts. ARgregate Expenditure. Surplus (-f ) or Deficit (-). Water Supply Undertakings ^ Gas Supply Undertakings Electric Lighting Under- takings .... Tramwaysand Light Railways Harbour, Dock, etc.. Under- taking .... Markets .... All above Services . ;^4,768,ooo 7,649,000 3,404,000 7,875,000 3,615,000 994,000 ;^5, 252,000 7,098,000 3,283,000 7,249,000 4,182,000 867,000 ;^- 484,000 -f 55 1,000 + 12 1 ,000 + 626,000 - 567,000 + 127,000 ;^28,305,ooo -1^27,931.000 ;^+ 374,000 which chiefly consists of loan charges, either by fixing the prices very high or by making good the deficiencies out of the rates. The maximum prices which may be charged or the maximum water rates which may be levied are frequently fixed by Parliament. If sufficient revenue is not produced when the maximum water rate is levied, the deficiency must be made up out of the general rates, unless it appears to be only of a temporary character, in which case it may be carried forward, with the intention that it shall be eliminated out of future surpluses. The deficit in connection with water undertakings indicates roughly the subsidies which many local authorities are compelled to make to their water undertakings on account of the parliamentary re- strictions on the charges that may be made. The great sanitary importance of a plentiful supply of pure water and the universal character of the demand for water appear to justify the policy of partially meeting out of the rates an abnormally heavy annual financial burden due to a very large outlay, which has been incurred in the present, principally with a view to secure adequate supplies of water for the future. Hence little or no fault can be found with the municipal management of water undertakings on account ^ Annual Local Taxation Returns, 1907-8. part viii. pp. 95, 99. 2 Including receipts and expenditure of the Metropolitan Water Board. VIII THE RESULTS OF MUNICIPAL TRADING 309 of the deficit revealed in the return of receipts and ex- penditure. The heavy deficit in connection with harbour and dock undertakings is much more serious than that in connection with water undertakings, as the service rendered is not by any means of such general utility in the former as in the latter case. The subject of municipal harbour and dock undertakings has already been discussed, and in particular the advisability of running such undertakings with the assistance of large subsidies from the rates. The heaviness of the burden which may be occasioned by a harbour and dock undertaking is perhaps brought out most clearly by observing the experience of two of the towns which have entered upon big schemes of this character. In Bristol the expenditure exceeded the revenue in 1908-9 by nearly ;^ I 1 5,000, and the rate levied to meet this deficit was IS. 5£d. in the £ in those parts of the borough which enjoyed no differential rating.^ In Preston 1908-9 the deficit in con- nection with the municipal harbour and dock undertaking slightly exceeded ^^40,000, which necessitated the imposition of a rate of i s. 9^d. in the £? Most of the deficits incurred in connection with harbour undertakings have doubtless been foreseen from the outset, and the enterprises have been begun with the deliberate intention of subsidising them out of the rates ; the adoption of such a policy is, of course, open to criticism, but not the deficit actually incurred, in so far as it was anticipated. The price paid by the ratepayers of such towns as Bristol and Preston for the development of a shipping business certainly appears very high, but they alone are really in a position to judge to what extent they benefit by the facilities afforded by the harbour and docks ; if they are satisfied with their bargain, and there is no reason for thinking that equal facilities could have been obtained on more favourable 1 See Amiual Local Taxation 2 ggg Annual Local Taxation Returns, 1 908-9, part v. pp. 9, 16, Returns, 1908-9, part v. pp. lO, 18, 30, 62. The revenue of the under- 32, 66. The revenue of the under- taking was ;[^29i,o6o, the working taking was ^^65,487, the working expenses ;i^i8i,852, and the loan expenses ;i^5 1,387, and the loan charges charges ;^223,630. The outstanding ;i^54,229. The outstanding loans in loans in respect of the undertaking on respect of the undertaking were March 31, 1909, were ;^5,93i,437. ;{^i, 106,284 at the end of 1908-9. 3IO MUNICIPAL TKAP/XG CHAr. terms had some other form of management been adopted, the arranfjcmcnt may he accepted as being the best which is |K)ssihlc utulcr the circumstances. Taking municipal gas, electricity, tramways and market undertakings in the aggregate, a surplus was i in each case, though, if the trading results of the in .v. under- takings were examined separately, as is done to some extent below, it would be found that some incurred a loss ; the f)pposite position is, of course, equally true of water and harbour unilertakings : some realised a surplus, though in the aggregate there was a deficiency. If the aggregate surpluses are compared with the aggregate turnovers, it will be seen that the best results are given by the market under- takings, the surplus representing nearly i 3 jx-r cent of the turnover, the corresponding figures in the case of tramways Ix'iiig nearly 8 per cent, of gas works a little over 7 jK-r cent, and of electricity works only 3^ |)er cent. The com- paratively unrcinunerative character of municipal electrical unilcrtakings will call for some comment after more cvi.!« nrr bearing on the subject has been examined. In interpreting this table two points call for especial attention ; in the first place the aggregate exjKrnditure does not appear to include the sums paid to reserve, depreciation, or insurance funds,' so that the surpluses shown in the last column arc gross and not net ; and in the second place, the total surpluses realised by the successful undertakings exceed those indicated in the last column by the amounts deducted from them in respect of the deficits incurred by the un- ' The aggregate expenditures arc " Total expenditure dcfr.iycd otherwise taken from a table (A O Tt Cu r: o P 1) >, s c Ou c 3 rt r/0 _c a; u j: >-l O o w g I: .So. 3 V- O cu i-i •<-• O rt i2 ^ '5 "^ o *-. C c 3 rt O >~. o a < s-. -£ ^ 00 o L ° 2 o 2" c " b -" rv OJ -2 "^>i n a c Qi &> 0) Qi ^ e s o V ^u o NO o ^ 3-S. U^ F m' 3 4) ri ^ Qi V? s? - o ^ .i-, o ^ V? bo B O c/) i O W ^ ^ V "S! S? >, o Xi rt o- D « :0 ^ < u 314 Mi'NlCIPAl. TRAniNG cwsv. viii tributions to or received contributions from tr.idin^ under- takings during 1908-9. The table relates to the 568 trading undertakings the financial results of which are embodied \\\ the previous table ; of these 568 undertakings in which Knglish and Welsh boroughs were interested, 46 per cent neither assisted nor received assistance from the rates, 3 1 per cent devoted a surplus to the relief of the rates, and 23 per cent had tieficits which were made good out of the rates. Hy combining these two tables it is {xjssible to construct another which shi)ws the average contributions received from or paid to the rates by such umlertakings as received or made contributions. Amongst those enterprises which do more than pay their way. it is the tramways and the gas works belonging to county boroughs which afford the largest relief to the rates ; on the average, each of the former contributed £\(i,'j\o and each «)f the latter i^ 13,280 in relief of the rates. On the other hanil, it is the water undertakings of the county boroughs which make the biggest claim on the rates, each undertaking which received assistance requiring on the average /T 10,960. In order to throw more light upon the financial results of municipal trading the net sums transferred to or from the rates may be compared with the loans outstanding in respect of the undertakings. It would be much m^rc satisfactory, of course, to compare them with the capital invested in the enterprises, but this cannot be ascertained from the official returns. The great objection to taking loans outstanding as a basis is that more debt will have been paid off in the case of older undertakings, e.g., gas works, than in the case of modern enterprises, e.g., electricity works, which will tend to make the percentage of earnings higher in the former case than in the latter case. Con- siderable caution must therefore be exercised in using the figures. It must also be remembered that the net surpluses are available after paying interest on capital, and after making provision for the repayment of capital borrowed ; so that to ascertain the " earnings " of the undertakings on a basis comparable with the sums devoted to the payment of interest and dividends by trading companies, it would be J= bO o 2^ J^ -a j: S ,,^ f-i 1) U C n <: H •= ~ 2 -r- ;^ u 3 V sag' 1- if 8 CS-- o 2 2: ^5 H '^ = O « B > . u O <— Sr l_ i) .- o = -5 = vl a < o o i g UP O o IV. 00 00 i<-i — CO N -"T - O O vO — rv ri 0> — O O "^ Cv — O tv rt =^ rt ^ ^ H ^ O W " o S c ^ O * c y o c •n -J o •• ^ t, J. U o O "" r2 -^ •- c j:^ o ]u rt 3 u C £ -3 C !fl u a u jr 'ft c — V 3 •* O >■ S.rt *1 >» O ■^ - .E c 5 i: o 5 = c i: 2^ o 7 ±^ 5 p = =•£ S 2 - c £ "? ji — C -^ rt " 2 £ - O .t; => •-' -:3 '^ O c ^ " til u 3'6 MUXlCirAI. TKAI^l.W. Taiu.k showing the Average Contril)Utions juid in Relief of the Rates, or received from the Rales, in connection with such Trading Undertakings of County Horoiighs anti non-County Horoughs as made or received (.'ontributions in iwoS «),• Un(l(-rtakiiii;v Wrr.K"- ^"7" «'»"•- ■ Avrr..Kc .Sum, rr.^v«d Rate' tulcf. I L'n.WukmK^ a, rr. ''^•""^ ' »"• 1 c«v«l ( ..ntnlmLon*. » ininty Boroughs. County Borotif^hs. * Noo- Coontjr Boroughs. 1,250 1,520 980 Tramways .md Light Railways . Water Supply Ciub Supply . Electricity Supply . /l6,7IO 3,656 13,280 3,780 Z500 1 i;2,i3o 1,200 10,960 1.990 580 2,320 tiecessary to add the amount of interest paid, and the sums devoted to the repayment of tlebt, to the sums transferred in relief of the rates, and the resulting amount would have to be expressed as a percentage of the capital outlay to ascertain the rate of earnings. For e.xample, in the ca.sc of the tramway undertakings of county boroughs the net sum transferred to the relief of the rates was ^^260,65 2, or 1.30 per cent of the outstanding loans, the interest paid was ^67 1, 90 1,- or 3.34 per cent of the outstanding capital, and the sum devoted to the repayment of debt was ^^649,7 1 I,- or 3.23 per cent of the outstanding loans, so that the " earnings " would have to be described as the sum of these three amounts, namely ;{^i,582,264, or 7.87 per cent of the outstanding loans. Another point which must be remembered in considering these "earnings," is that they may be considerably ex- aggerated on account of inadequate provision having been made for depreciation. On the ground that the extent to which the rates are burdened or relieved by the operations of trading undertakings gives a false impression of the 1 This table is calculated from the - Annual Local Taxation Returns, material published in the Annual Local 1908-9, part v. p. 44. Taxation Keturns, 1908-9, part v. VIM THE RESULTS OF MUNICIPAL TRADING earning capacity of the different undertakings, there has been nicorporated in the table which has been prepared to show the relationship of the net surpluses or deficiencies to the loans outstanding, the loan charges and their relationship to the loans outstanding. Finally, in column 7 the loan charges and the net sums transferred to or from the rates have been added to indicate the "earnings," and in the last column these earnings arc expressed as percentages of the outstanding loans. § 4- From the table on page 3 1 8 it seems possible to draw certam conclusions, whilst bearing in mind the reserva- tions which have been made above concerning the use of the figures, {a) The large sum transferred from the rates to make up deficiencies \n connection with the water under- takings of county boroughs represents only one quarter per cent of the outstanding loans, and viewed in this light appears very small. It will also be noted that the rate of earnmgs in the case of these water undertakings appears to be much lower than in the case of the tramway gas or electricity undertakings of county boroughs This is doubtless accounted for to a considerable extent by the comparatively larger provision for debt redemption which it is necessary to make in the latter cases than in the former case {b) The very poor results obtained by the tramway and light railway undertakings of the non-county borou-hs are clearly revealed by the table. The rate of earning.^ is not quite 4^ per cent on the outstanding loans, or something less than that on the capital invested. This yield for the capital mvested in tramway undertakings, which involve a distinct element of risk, is not at all adequate ; and when It IS remembered that this yield of some 4 per cent is obtamed by largely ignoring the provision which should be made for depreciation,^ the whole position with regard to the tramway undertakings of the non-county borouc^hs can only be described as eminently unsatisfactory. J During 1908-9 the sum set aside ing in the depreciation and reserve by the tramway undertakmgs of non- funds at the end of .908-9 was^nlv county boroughs for depreciation and ^27.901. which represents aTiut | reserve was only ^11 2, 7, which repre- per cent of the outstanding capital sents about one -half per cent on the (Annual Local Taxation \^T outstanding capital. The sum remain- 90S -9 part v) ^'^"''"^ '^ 5 rt O 2 '^ « -5 o j= J' o •£ *^ £ c o j3 -05 « o o o ^ — o 3 O J= C ' rt u 3 a; ^- ■^ bO (U c ^ too >^'^ o - g www pa < i J^l 1 3^^ - fi , z 4«d^ 1 »;.i>i| Mtf ^3:v 1 i i . ! •2? SS & 30 r* >** Ui U ? Hi n S! _■ _ - T •< O "" ^ 1 1 S OA o 1 tl^-5 " ■" "" y. 5+7 ■ ' •* -^ Til- O jD;?a 'v?3»l 5 L r^ »/\ 0> »« « j.>d<0 ri i^S "T ' ♦A ji o o r^ <^ «>> 2 tx 1 3 M N M •as:^ /. ■O - r^ fn u 11411 V. 1 rt — — * -' '1 \r\ a« 1 9 '^l "It f^ r^O \r\f^ S SIg 1 »^ a"? A C> wn « 1 <0 »/% — ir» ""^ O •»«/» 2 O » ri — M « « «A >oS ^ '^ M o" «A rC ri" d" fj M - - mw^ •■I -r -r o' o ^ J" '« 1 rt ' C" ■ ^ i rt . '5 ■/ -/" ai CC "" o K c ■?i > i->. i ■ 5? ^•- ^ • > Undcrt ( ^ Ir 2 i rj ^5 i; rt rt 5 w rt I k- rt -^ •^3. w rt _ .._ r-ow :? f--JW j: J g e - << O 3 * s ^ 3 t; " ^ ■3 S. "^ E 5 O '■ - i!-5 f ; i 111 cH. VIII THE RESULTS OF MUNICIPAL TRADING 319 It is a doubtful point whether any tramway undertaking in a small town really pays its way. Two non-county boroughs in 1908-9 received contributions in relief of the rates from their tramway undertakings. In the one case nothing was paid to a depreciation fund, nor was there anything standing to the credit of such a fund at the end of the year ; in the other case, where the outstanding capital was ;^ 108,000, a sum oi £^00 was contributed to a depreciation fund, and that was all that stood to the credit of the fund at the end of the year.' In view of these facts it seems fairly safe to treat these so-called net surpluses as non-existent for the purpose of the present discussion. On the other hand, sixteen of the twenty -five non- county boroughs, which owned and managed tramway undertakings, had to contribute to their upkeep out of the rates. As far as the count)' boroughs are concerned, twenty-four, which had a population of less than 100,000 in 1901, owned and managed tramway undertakings : four of these, all with populations exceeding 85,000, paid sums in relief of the rates in 1908-9," eight received sums from the rates to make good deficiencies, and twelve neither relieved nor burdened the rates.^ In many of these cases no proper provision was made for depreciation, so that the results are unduly favourable, but even overlooking this fact, it is quite clear that tramway undertakings in small towns are barely self-supporting, if not actually unremunerative. There are various causes which probably tend to bring about these unfavourable results. In the first place, the heavy loan charges overburden many of the undertakings. The cost of preparing the track is much more considerable in the case of electric than of horse traction, and in many towns the traffic is not sufficient to justify the large outla\-. An important saving in capital expenditure can be effected if trackless electric tramways are used instead of those now generally in use ; an overhead electrical equipment has still to be provided from which the cars obtain their current, but they are supplied with rubber-tyred wheels and run on the ' See returns for Southend-on-Sea 2 Bumley, Huddersfield, North- and Ashtonunder-Lyne in the Local ampton, Stockport. Taxation Returns, 1 908-9, part v. ^ See Local Taxation Retiirtis, p. 173- 190S-9, part V. pp. 42-45- 320 MUNICH' A I. TRADIiWi CMAr. ordinary roads, no s(>ccial track bcin^; laid. The system is not suited for a heavy traffic, as the cars do not carry nearly as many passengers as the orchnary ones,' but seems very well adapted fur small towns, ami tor routes which are likely to be but lightly frequented in large towns. The first trackless tramways to be established in this country were those openeil in Leeds and in Hradford in June 191 I. A special advantage of the system is that it docs not call for much road widening, as the cars can move about from one side of the road to the other. Trackless tramways not merely require less capital outlay than ordinary tramways,' in consequence of which they arc burdened with smaller loan charges, but they involve the setting aside of smaller sums for depreciation, as it is the wearing away of the track against which provision has principally to be made. On the other hand, where this new system is adopted the division of the cost of the upkeep and the maintenance of the roads between the tramway departments ami the highway departments c(»ncerned will call for attention. Quite aj)art from the question of tracks or no tracks, the capital outl.iy of some tramway undertakings has probably been unnecessarily increased by the failure to have the plant constructed under the immediate supervision and advice of the man who was ultimately to manage the undertaking. It would be essentially to his interest to effect every possible economy in construction, so as to be able to show good working results when the system was put in operation. To secure the services of an expert to advise in the construction of the tramways on the under- standing that he is to sever his connection with the under- taking as soon as it is completed, is unlikely to prove economical. ' The trackless tramcars recently amounted to £,\2^(} per mile, and at introduced in Leeds and Biadloril are Hradford to ^^1734 jier mile (Report arranged to carry twenty passengers. of a Deputation of the Edinburgh The double-decked cars in general use Corporation, quoted in the Kngincer- in this country carry from forty to ing Notes of the MamhesUr Guardian, eighty passengers, and occasionally October 10, 191 1 ). The cost of con- even more. structing the permanent way alone of an ordinary electric tramway is some - In Leeds the capital outlay, which ;i^4500 or /5000 per mile of single is mainly en overhead equipment, track. VIII THE RESULTS OF MUNICIPAL TRADING 321 In the second place, the working expenses are often higher than the undertakings can reasonably bear. A frequent cause of high working expenses is the price at which current is purchased from municipal electricity departments. During 1908-9, the year to which the figures given above relate, many tramway undertakings in the smaller towns were paying i ^d. or more per unit for their current. In Lowestoft and Nelson the price was even as high as 2d. per unit.' In the former case the electricity bill of the tramway undertaking was ^^3122, and the loss made good out of the rates was £\GC>%. If the charge per unit had only been a penny, ^^1560 would have been saved, and the undertaking would almost have been self-supporting. As a result, however, the Electricity Department would probably have required a subsidy of about a similar sum ; the burden to the rates would still have existed, but it would have been attributed to the proper cause. In Nelson, where the tramways purcha.sed 231,926 units from the Electricity Department at 2d. per unit, a reduction in the price to a penny would have saved the undertaking some £(^6C, which would have removed the need for a contribution of £797 from the rates, though this saving would, of course, have diminished the receipts of the electricity undertaking. Another way in which a saving could be effected in the working expenses on routes where the traffic is small, is by making the motorman responsible for the collection of the fares ; by this means the wages bill can be reduced. This system is adopted on the Osnabruck municipal tramways in Germany, and also on the new trackless tramways in Leeds and in Bradford. In the former case passengers pay their fares into a box in the front of the car, the inside of which is under the observation of the motorman from where he stands by means of a looking-glass device. When necessary, change is given by the driver. The tramway undertaking is small, and a universal lo-pfennigs fare is in force which makes matters comparatively simple. A certain number of pas.sengers, doubtless, escape payment, but the loss to the undertaking on this account is nothing like as great as the saving ' Municipal Year Book, igti, p. 504. 322 MUNICIPAL TRADING cuAf. effected by not paying conductors' wages. In Ixcds and in Bradford passengers enter the trackless cars by the front and pay their fares to the motormen. This necessarily causes some delay, but this is not very serious on routes which are not largely frequented. In the third place, the receipts arc not always as great as they might be on some of the smaller tramway system^ owing to the ailoption of iil-adviseil fare ix)licics ; there i^ a tendency to make concessions to the public without considering sufjlciently the effects on the revenue. The question of halfpenny fares and workmen's fares has alrcad>- been fully discussed ' and need not be eritcred into hen- again. If a tramway system is to be self-supi)orting in a small town, it is necessary, on the one hand, that every possible economy should be effected in the matter of capital expenditure and working expenses, and on the other hand, that no effort should be spared to secure as large a revenue as possible ; it is time enough to think of making concessions to the public when it is ascertained that a genuine net surplus is being realised ; experience shows that it is generally very difficult to withdraw a concession which has once been made, so that great caution should be exercised in the matter of granting new facilities. The habit of using a tramway only grows upon people by degrees ; they require time in which to adapt their habits to the new conditions. In the future, tramway traffic is likely to develop, quite apart from the increase in the population. So far as existing tramways are concerned, the capital outlay has been incurred, and the trackless system offers no relief ; on the other hand, working expenses can doubtless be reduced, and if a firm attitude is adopted by tramway committees, the fare policies of some undertakings could be placed on a sounder basis. In this way the revenue might be made to exceed the expenditure by a sufficient sum to meet all loan charges and to make adequate provision for depreciation. This seems to be the utmost results which a small town can hope to achieve ; any sum devoted to the relief of the rates is almost certain to be obtained by neglecting to maintain the plant in proper 1 See pages 242-255 and 265-271 above. vMi THE RESULTS OF MUNICIPAL TRADING 323 condition or at the expense of the depreciation funds. To sum up the position : the present financial situation of tramway undertakings in most towns of less than 100,000 inhabitants — and in some larger towns as well — is distinctly unsatisfactory, but there is reason to think that by the exercise of economy and by careful administration these undertakings might be placed on a much sounder financial footing. {c) The results achieved by municipal electrical under- takings next call for consideration. In the case of those belonging to non-county boroughs it has already been noted that the number receiving assistance from the rates con- siderably exceeds those transferring sums to the relief of the rates, and from the last table it will be seen that the net deficiency in respect of these undertakings which had to be made good out of the rates in 1908-9 was some .^21,000, which represented about one-half per cent of the outstanding loans. The position is really much more serious than is suggested by the figures. In the first place, it does not seem possible, on the ground of social expediency or of the universal character of the demand for current, to justify the incurring of any deficiency at all in connection with an electrical undertaking. In the second place, the real deficiency in connection with these undertakings is very much greater than is indicated by the returns. There are at least two reasons for making this statement. More than half the electrical undertakings of non-county boroughs neither set aside any sum for depreciation during 1908-9, nor had they any sum standing to the credit of a deprecia- tion or reserve fund at the end of that ycar.^ In view of the heavy wear and tear and the rapidity of obsolescence in this industry, for which absolutely no provision is being made, it is evident that the true financial positions of these undertakings is very much worse than is suggested by any tables containing the summarised annual trading results. Another reason for thinking that the electrical undertakings of non-county boroughs are really in an even more un- favourable position than appears from a casual examination of their accounts, has already been indicated in what was ' See Annual Local Taxation Returns, 1908-9, part v. pp. 206-215. 324 Ml'MCIPAL Th'APIXO ciur. said above alxiut the hi^h prices charged to tramway depart- ments for the current supplied by electricity departments. The price charj^cd by these departments for current used by the towns for street h'ljhting or other purposes may also be unduly high. Where an electricity undertaking overcharges the other municipal departments, either intentionally or unintentionally, it is being bolstered up at their exi>cnsc, and there are good grounds for thinking that this actually occurs in many cases.' If the Tramway Department is able to realise a net surplus and the Electricity Department is not, there is a strong temptation to fi.\ the price of current for traction purposes so that both undertakings at least pay their way. If this is not j)ossiblc, the local authority may well consitler it preferable that the tramway rather than the electricity undertaking should show a deficiency, and, if necessary, be assisted out of the rates, as it is possible to make out a much better case for a rate-aiiled tramway than for a rate-aided electrical works. Where too much is paid to an electrical undertaking for public lighting, this is clearly equivalent to the grant of a subsidy out of the rates, as it is out of the rates that the street lighting is paid for. To show how great the efTccts on the electricity finances may be of any system of overcharging other municipal depart- ments, it need only be pointed out that of the total receipts of ;^7i3,ii8 obtained by the undertakings of non-county boroughs in 1908-9 for the supply of electricity and rents of meters, motors, stoves and fittings, i^ 180,9 16, O'' j""^^ over 25 per cent, represented payments from other accounts of the Councils, and the bulk of this sum would doubtless be in respect of current used for traction purposes '" and for street lighting. If the extent to which the electricity departments actually overcharged the other municipal departments was only 10 per cent, this would account for an increase in the receipts of the electricity departments of ^ I make this statement as the result page 129. of conversations I have had with the - In 1908-9 ;i{i'62,765 of the ex- managers of various municipal under- penditure of the tramway undertakings takings. The negotiations between of non-county boroughs consisted of the Municipal Tramways and the transfers to other accounts of the Municipal Electrical Associations con- Councils. Probably between ;if 50,000 cerning the determination of the price and ;^6o,ooo of this amount repre- of current have been referred to on sented payment for current. VIII THE RESULTS OF MUNICIPAL TRADING 325 some i^i 8,000, the elimination of which would almost have doubled the deficit to be made good out of the rates. If, as is not at all impossible, the percentage by which municipal departments were overcharged for their current was more than ten on the average, the amount by which the receipts of the electricity departments were unduly increased and the deficiencies unduly decreased would be correspondingly greater than ;i^i 8,000. What has been said about the electrical undertakings of non-county boroughs applies in a lesser degree to those of county boroughs. The provision made for depreciation is about twice as great, in proportion to the loans outstand- ing, as that made in the non-county boroughs, but it still appears to be far too small.' Also, there is reason for thinking that the system of overcharging other municipal departments is practised to .some extent at least. As one- third of all the revenue of the electrical undertakings of county boroughs from the sale of current and from the rents of meters, etc., is obtained from other municipal depart- ments, in particular from the tramway departments,^ the effect on the accounts of even a very small overcharge is immediately evident. The principal causes of the unfavourable results obtained by so many electrical undertakings are the comparatively high costs of production in small power stations, the large outlay on mains in proportion to the number of consumers, the difficulty of obtaining suitable day-time customers who will contribute to a better utilisation of the plant, and the very small demand for current which is comparatively independent of the price charged.^ In small towns there is little demand for current except for domestic purposes ; to most house- holders electric light is a moderate luxury, and its use will depend very largely upon the price charged. In other 1 For the exact figures see table ments was ^^753,874, of which prob- on page 162. ably some ;^70o,ooo was for current - Total revenue from sale of current supplied. The figures are from the and rents of meters, motors, stoves Local Taxation Returns^ 1908-9. part and fittings in 1908-9 was /^2, 852, 460, v. pp. 44, 45, 58, 59. of which £<^i,'],Ztb was from other ^ E.g., the demand for current by accounts of Councils. The payments theatres, music and concert halls, by the tramway undertakings of county hotels, restaurants, shops and offices, boroughs to other municipal depart- See page 205 above. 326 MUNICIPAI. TRADING cuAr. words, the demand for current for this purpose will be elastic.' To bring about its introduction in private houses, where other illuminants arc already established, can only be achieved by offering it at low prices, and small sales at low prices arc not compatible with immediate financial success. Nevertheless, in the long run this is doubtless the right policy to pursue, because it is only by increasing the number of customers, and consequently the number of units sold, that the cost of distributing the current per unit of output can be reduced to a minimum. There arc various other expenses in connection with an electrical undertaking which do not vary directly with the output, so that a growth in the use of current is bound to lead to more favourable results. The important question is whether municipal electricity works are adopting an enlightened selling policy with a view to securing on the capital in- vested an adccjuate return in the future, even if it cannot be secured in the present ? The management of some of the untlcrtakings is undoubtetily of an enterf^rising and progressive character ; the introduction in Norwich of a new method of selling current for domestic purposes based partly on the rateable value of the house and partly on the consumption," is a good illustration of this type of management. In other undertakings much more could be done to bring about a more extensive use of electricity ; the adoption of a vigorous house-to-house canvass in favour of electricity, carried out by men capable of explaining its advantages, would be almost certain to give good results if reasonable terms were offered. The matter of the management and the selling policy adopted touches on one aspect only of the problem of small electrical undertakings. The question of the high costs of production, quite apart from the costs of distribution, remains to be considered. The proper solution here appears to lie in the purchase of current in bulk from large producers.^ Since it is possible to transmit current at a high voltage over long distances with very little loss of ^ See footnote on page 20. 3 Compare also what is said on this subject in the chapter on the Manage- 2 See p. 230 above. ment of Municipal Trades, pp. 113-115. VIII THE RESULTS OF MUNICIPAL TRADING 327 voltage, it is much more economical to generate the electricity in large power-stations, which are favourably situated in respect to a supply of coal or water power, and to transmit it at high voltage to the various distributing centres where it can be transformed down, than to produce current in every little town. A large central power-station can also secure a much better utilisation of its plant than a small power-station, which is very restricted in its sphere of operations, this being another point in favour of the former system. In larger towns and their immediate neighbour- hoods sufficient current can probably be sold to allow electricity to be generated economically on the spot ; in smaller towns the system of purchasing current in bulk is likely to prove advantageous. If the retailing of the current remains in the hands of the local authority, the principal objects in municipalising an electrical undertaking arc achieved with a far better chance of escaping unsatis- factory financial results than if the local authority generates the current itself In many cases where the latter system has been adopted it might be advantageous to convert the present power-station into a transforming station and to purchase current in bulk instead, either from a large Corporation, or from an Electric Power Supply Company. Various companies of this type exist in this country, organised under special Acts of Parliament. The movement in favour of the establishment of such companies began about 1899, when it met with great opposition from the municipalities.' Nevertheless a certain number of these companies have been established during the last ten years. They have secured a fair number of electric lighting orders either direct from the central authority or by transfer from the local authorities. In this way they have come to retail current for lighting purposes in some districts within their areas, either directly or indirectly through affiliated or subsidiary lighting companies. On the other hand, the system of a local authority distributing the current which it has purchased in bulk is still exceptional.^ 1 See paper read before the Society with additions, from iht Journal 0/ (he of .\rts in 1899 by Dixon Henry Society of Arts. Davies, pp. 19 - 23, of the reprint, 2 Qne or two illustrations may be 3-8 MUNICIPAL TRADING cmaf. This system will, however, have to be greatly extended and much more attention devoted to the adoption of an enli'^htcned selling policy if better financial results arc to be obtained. Even under the most favourable circumstances, great economy will have to be exercised for a good many years before the inadequate provision which has been made in the past for wear and tear and obsolescence can be made good. During those years all idea of contributions in aid of the rates should be given up ; the first object of local authorities sh(niUl be to strengthen the financial position of their electrical undertakings ; some of these arc probably in a moderately sound position to-day, but a large number appear to be in an unhealthy coniiition which calls for prompt attention. The sooner the need for reform is admitted and strong measures are taken to effect a remedy, the easier it will be to place them on a sound footing, as every delay is likely to involve a further loss of capital.* {({) The position of gas undertakings as revealed in the table on page 318 is more favourable than that of tramway or electricity undertakings. It must be remembered that the former have been carried on longer under municipal manai^ement than the latter, so that the burden of debt must be comparatively smaller, as a larger proportion of the loans will already have been repaid. This enables a bigger part of the earnings to be devoted to the relief of the rates than in the other cases, where the loan charges are still high. In the gas industry it is more possible to maintain the plant in good repair out of current revenue, than in the case of tramways or electrical works, and con- sequently the same provision for depreciation is not necessary. Hence there is less reason for doubting how far the returns represent the true position of the under- takings. It is noteworthy that the smaller undertakings given, taken from Electrical Review purchase their current in bulk at 7000 List of Electricity Supply Works in the volts from the South Lancashire United Kingdom, June 1909. Tramways Co., Ltd. Acton Urban District Council and Bridgend Urban District Council the Stoke Newington Corporations purchase their current in bulk from the purchase their current in bulk at South Wales Electric Power Distribut- ro,ooo volts from the Metropolitan ing Company at i.375d. per unit. Electric Power Supply Company. ' On this subject see pp. 157- Atherton Urban District Council 1 59. VIII THE RESULTS OF MUNICIPAL TRADING 329 of non-county boroughs are practically as successful as the larger undertakings of the county boroughs. The explanation probably lies in the fact that the demand for gas, which has become a sort of conventional necessity, is comparatively inelastic;^ in other words, the consumption is not closely affected by price m.ovcments. Small gas undertakings are able to pay their way by charging high prices, if necessary, an expedient which cannot be adopted by small electricity undertakings, as they would find it almost impossible to sell any current. On the whole, the price of gas is higher in small towns than in large towns, though there are important exceptions, as, for example, the small town of Widnes, where the local authority sells gas for a lower price" than any other gas undertaking, municipal or private, in the United Kingdom. S 5. In order to estimate the importance of the sums paid in relief of the rates by trading undertakings, they may be expressed as being the equivalent of so many pence in the £ of rateable value ; in this way the amounts by which the rates are reduced as a result of municipal trading are perhaps put in the clearest light. The relief afforded to the county boroughs by their tramway, gas and electricity under- takings in 1908-9, viz., ;^7i 5,561, was equivalent to a rate of 3.3 5d. in the ;^ ; ^ if the deficiency on the water under- takings is deducted, the relief was only equivalent to a rate of 2.79d.in the;^. The relief afforded to the non-countyboroughs by their tramway, gas and electricity undertakings, viz., ;^2 5, 6 I I, was equivalent to a rate of 0.2 8d. in the i^.^ If the results of the water undertakings are included in the calcula- ■ See footnote on page 20. as no borough rates were levied. The - IS. 2d. to IS. od. per 1000 cubic total assessable value was ;^5 1,261,694. feet, according to the quantity con- See Annual Local Taxation Returns, sumed. Even at these prices the under- 1908-9, part v. pp. 62-67. taking is able to pay sums in relief of * The assessable value of the non- the rates. The low price is largely county boroughs for the borough rate brought about by the very favourable on April i, 1908, is taken as a basis, local market for the gas by-products. In the case of Chepping Wycombe, See pp. 215-222 above. Grantham and Newport the assessable 2 The assessable value of the county value for purposes of the general dis- boroughs for the borough rates on trict rate had to be taken, as no borough April I, 1908, is taken as a basis. In rates were levied. The total assessable the case of Leicester and Oxford the value was ^^22, 093, 472. See Annual assessable value for purposes of the Local Taxation Returns, 1908-9, general district rate had to be taken, part v. pp. 218-239. 330 MUNICIPAL TRADING tions, the relief was only equivalent to a rate of o. i id. in the C. If th(,' making of profits were the sole, or even the principal object of municipal tradinj^, it is fairly cviilent that the game would not be worth the candle, so far as the non-county T.MU.K showing for certain English Towns the Sums transferred from Trading Accounts to the Relief of the Rates during 1908-9.* Town. Underuking. Sum traa ifcrred in Relief of Rates. AsrerccntaKc As Pence m ofOuUUnd. ^- by which 1 mg Loan, of r„,„ ^„^ | Amount. UnucrtakinK relieved. concerned. Per Cent. Rirtningham Tramways ^^35.000 3.5 2.9d. Hull . >i 20,000 5 ' 4. id. Leeds »i 47,557 3.8 5.5d. Liverpool n 24,858 1.6 I.3C1. Manchester. >» 70,000 4.6 4.od. Sheffield " 26,356 2.4 3.5d. Birmingham Gas 65,3'3 3.' 5-4d. Leicester M 34,065 3-2 7.7d. Manchester. >» 60,000 4.9 3-4d. Nottingham n 30,000 2.8 6. Id. Stockport . »> 1 5,000 5.2 8. Id. Warrington . »j 11,862 7-5 10. 2d. Blackpool . Electricity 4,000 2. 1 2.od. Bolton )i 6,500 2.6 i.9d Liverpool » 20,000 1.2 i.od. Manchester >» 12,000 0.6 o.yd. Nottingham i» 1 1,500 3-2 j 2.3d. Salford » 6,500 1.3 i.5d. boroughs at least are concerned. In the case of the county boroughs, individual towns appear to secure considerable relief to their rates from their trading undertakings, although the average relief obtained is not very great. In order to give some indication of the results obtained, the sums trans- ' Compiled from the Annual Local Taxation Returns, 190S-9, part v. pp. 43-57, 62-67. VIII THE RESULTS OF MUNICIPAL TRADING 331 fcrred to the relief of the rates by some of the more success- ful tramway, gas and electricity undertakings in 1908-9 have been tabulated. In addition to the actual amounts contributed to the rates, these amounts have been expressed as percentages of the outstanding loans of the undertakings concerned, and also as the equivalent rate in the £, by which the rates were relieved. This latter figure affords probably the best indication of the part played by the different under- takings in the finance of the various towns ; but it is no indication of the comparative efficiency of the different undertakings, as it leaves entirely out of account the state of repair in which the various plants are maintained, and also the provision which is made for depreciation ; further, it makes no allowance for the price charged, or the character of the service rendered by the individual undertakings. In the case of each industry the more successful undertakings have been chosen. It is amongst the gas works that the largest relief to the rates occurs, the highest rate to which a trading contribution was equivalent slightly exceeding lod. in the £ in Warrington, 8d. in the £, in Stockport, and 7^d. in the £ in Leicester. In Leeds the relief to the rates from the contribution of the Tramway Department was 5|^d., whereas in Manchester and Hull it was about 4d. The most successful electricity undertakings afforded less relief; Nottingham benefited to the extent of about 2^d. in the £\ and Blackpool by 2d. in the £. In order to give a fair representation of the case, a second table is given, showing for a few of the larger towns the sums transferred from the rates to make up deficiencies in the revenue of tramway, water and electricity undertakings. The heaviest burden was imposed by the water undertakings, the contribution in Swansea being equivalent to a rate of over is. id. in the £. In the case of tramways a rate of 3id. in the £ had to be levied in Gloucester and Wigan. As far as electricity works were concerned a rate of i^d. in the £ was required in Hastings.^ ' A small publication, which gives of Preston. It appears about Novem- useful information concerning the ber and contains the rates levied in effects of municipal trading on the various towns for the current year, municipal finances, is that prepared by together with the charges for gas, Mr. James Carter, Borough Treasurer water and electricity, and the estimated 332 MUNICIPAL TRADING Table showing for certain English and Welsh Towns the Sums transferred from the Rates to make up the Deficiencies of Trading Undertakings during 1908-9.^ Sums transferred from the Rates to make up Town, Undertaking. Deficiencies. As Percentage As Pence in £, Amount. of Outstanding Loans. by which Kates were increased. Per Cent. Gloucester Tramways ilA\2> 4-4 3.7d. Ipswich . M 2,715 2.3 r.gd. Rochdale n 3,298 0.9 i.9d. Wigan . >> 5,000 1.2 3.5'i- Birmingham . Water 65,000 0.8 5-4d Halifax . )) 15,933 1-7 7.9cl. Huddersfield . 55 16,831 0.9 8.4d. Swansea )J 26,381 2.7 »3.3d. Hastings Electricity 3,241 2.7 i.7d. West Ham . >» 4,670 1-4 o.9d. In some towns a net surplus, available in relief of the rates, is realised in connection with municipal undertakings other than tramways, gas, water and electricity, such as markets, docks, and estates and property of various kinds, but no complete official information on this subject is available." § 6. Before leaving the question of the surpluses realised by the trading undertakings of local authorities and the sums devoted to the relief of the rates, a few figures relating to the results achieved in Germany call for consideration. In the table which follows will be found the outstanding loans, printed in the Municipal Year Book, iQii . 1 Compiled from the Annual Local Taxation Returns, 1 908-9, part v. pp. 43-57, 62-67. 2 See Parliameniary Return on Alunicipal Trading {^United Kingdom), 1902-6. Also Mr. James Carter's publication referred to in the previous footnote. profits and losses on municipal under- takings for the current year, and the amounts by which rates in those towns will be reduced or increased in conse- quence. Most of the English and Welsh county boroughs, and some metropolitan and non-county boroughs, are included in the return. The omis- sion of Birmingham is somewhat strik- ing. The return for 1910-11 is re- THE RESULTS OF MUNICIPAL TRADING 12>2> Table showing the Outstanding Loans and Net Surpluses realised in respect of certain Trading Enterprises by Prussian Towns during 1905.^ Enterprise. Loans outstand- ing at End of 1905. Loan Charges during 1905. Net surplus realised during 1905- Gas Supply .... Electricity Supply . Water Supply Tramways and Light Railways Market Halls and Slaughter- houses .... Harbours and Quays All the above . ^I 1,400,000 6,490,000 15,340,000 4,800,000 8,980,000 5,480,000 ^640,000 370,000 920,000 250,000 520,000 280,000 ^2, 000,000 440,000 810,000 170,000 180,000 i;52, 490,000 ;^2, 980,000 ^3,600,000 Table showing the Loans outstanding and the Surpluses or Deficits realised in respect of certain Trading Enterprises by Local Authorities 2 in England and Wales during the Year 1907-8.^ Enterprise. Loans outstand- ing at End of 1907-8. Loan Charges during 1907-8. Surplus ( -)- ) or Deficit ( - ) in 1907-8. Gas Supply .... Electricity Supply . Water Supply - . . . Tramways and Light Railways Markets .... Harbours, Docks, etc. . All the above . ^23,358,000 28,667,000 74,424,000 33,300,000 7,590,000 46,874,000 >^I, 473,000 1,990,000 3,463,000 2,093,000 370,000 1,839,000 i^H- 55 1,000 -t- 121,000 - 484,000 + 626,000 -^ 127,000 - 567,000 i;2 1 4,2 1 3,000 ;^I 1,228,000 ^H- 374,000 the loan charges and the net surpluses * realised by certain trading enterprises of Prussian towns during 1905. For I am inclined to think implies that provision for depreciation had previ- ously been deducted. In confirmation of this view, I may say that in most, if not all, of the German Municipal Trading Accounts that I have ex- amined, provision for depreciation was made by writing down the value of the assets before ascertaining the net surpluses. ^ Preussische Statistik, Heft 217, quoted in Konimunales Jahrbuch, igio, P- 596. 2 Excluding the figures relating to the Metropolitan Water Board. 3 Compiled from the Annual Local Taxation Returns, 1907-8, part viii. * The German expression is " Hohe des 1905 erzielten Reinertrags," which 334 MUNICIPAL TRADING chap. purposes of comparison a similar table, so far as the published material will allow, has been constructed relating to the trading enterprises of English and W^clsh local authorities. The figures relating to trading enterprises in rural areas in Prussia are excluded from the first table, but their influence on the figures quoted could only be very slight. It is not evident from the return whether the Prussian harbours and quays just paid their way or whether they incurred a deficit, consequently the total of the surpluses realised which is indicated at the foot of the last column may be somewhat greater than that actually realised. The contrast in the figures contained in the two tables is very striking. The outstanding loans in Prussia in respect of trading enterprises arc very much less than in this country, and the surpluses realised are very much greater. This state of affairs is probably due, in the first place, to a more rapid repayment of outstanding loans, it being fairly common in Germany for part of a trading surplus to be used to accelerate the reduction of debt due to the operation of a sinking fund ; in the second place, to extensions having been charged to revenue account, or to surplus being devoted to this purpose, which amounts to the same thing ; and in the third place, to higher prices being charged for the commodities sold or ser\'ices rendered. Particularly noticeable is the fact that whereas in Prussia there is a large surplus on the water undertakings, in England there is a large deficit. The explanation of this was indicated previously when it was pointed out that nearly all water for domestic purposes is charged for in Germany according to the quantity consumed, as contrasted with the system of levying water rates in England.^ The former method enables a much larger revenue to be raised in proportion to the quantity sold ; it also limits the con- sumption of water very considerably, and thus checks the need for a large capital expenditure. This is a very important consideration, as it is the costly schemes which a few large towns have been obliged to enter upon in order ' See Chapter VI. on the Selling Policies of Municipal Trades. VIII THE RESULTS OF MUNICIPAL TRADING 335 to secure a practically unlimited supply of water for their inhabitants which have occasioned most of the deficits incurred by water undertakings in this country. It must also be remembered that it is the deliberate intention of many English local authorities that their water works shall merely pay their way ; there is no desire to secure from them sums in relief of the rates. In Germany the attitude towards water undertakings is different ; most local authorities wish to obtain some assistance at least from them. As far as other undertakings are concerned, the desire for profits with which to relieve the rates is probably stronger in Germany than in England, with the possible exception of tramways. The maintenance of comparatively high prices in Germany may be attributed to this desire, but not the adoption of unsound financial expedients, such as inadequate provision for depreciation ; as in this respect the finance of municipal trading in Germany appears to be distinctly more sound than it is in England. To give an idea of the assistance which individual German towns receive from their trading undertakings, information concerning sums transferred from trading departments in relief of the rates is given for a few towns, which have been selected without special reference to their success, which, on the contrary, was done in the case of the English towns given in the table on page 330. Nevertheless, the sums transferred in relief of the rates were very large, especially when it is borne in mind that in the case of each gas undertaking and of two electricity undertakings the street lighting was provided free of charge, and the value of the service is not included in the amounts given in the first column of figures. The assistance received by the town of Cologne from its trading undertakings is remarkable. The gas undertaking contributes some ;^i 25,000 if the value of the free street lighting is added to the sum actually trans- ferred ; the electricity undertaking contributes some ^€^37,500, including the value of the free lighting, and the water works, i^50,ooo. On the other hand, the tramways undertaking pays nothing in relief of the rates ; but this cannot be attributed to any overcharging by the Electricity Department for the current supplied, as the price charged, namely 0.7 8d. 336 MUNICIPAL TRADING CHAP. Table showing for certain German i'owns the Sums transferred from Trading Accounts to the Relief of the Rates during 1908-9.' Town. Undertaking. Sum transferred in Relief of Rates. Amount. Percentage of Outstanding Loans. Bonn 2 . Gas / 1 4,000 8 No outstanding loans. Cologne . Diisseldorf 83,000 3 2 1,000 3 II. s 6.8 Mannheim >» 2 2,000 3 7.8 Cologne . Diisseldorf Electricity >> 34,000 3 16,0008 6.5 4-3 Mannheim >> 10,000 = •9 Mayence . )) 17,000 I 1.2 Cologne , Diisseldorf Water 50,000 2,000 * 16.9 ••3 Mannheim 1> 12,500 4-9 per unit, appears to be a very reasonable one.* The total assistance given by the three undertakings was equivalent to some ^217,500. Owing to the method employed of raising the local revenues in Germany, this assistance cannot be expressed as the equivalent of a rate of so many pence in the £. No gas, electricity, or water undertaking be- longing to an English town appears to have handed over such large sums to the Borough funds. § 7. At the beginning of this chapter a distinction was drawn between the direct and indirect methods of measuring the results of municipal trading ; so far the first method only has been applied, and various returns have been examined with a view to ascertaining how far municipal trading has been financially successful. There now remains the other * Compiled from the Annual Re- ports of the trading departments con- cerned. 2 The figures relate to 1909-10. 3 In addition the streets were lighted free of charge. * In addition, the whole deficit in connection with the swimming baths was borne by the Water Department, which also supplied the town with some ;i^3500 of water free of charge. * Geschdftsbericht der Gas-, Elek- t7-izitdts- und IVasserwerke der Stadt Coin fur das Jahr igo8-g, p. 40. The price charged in 190S-9 was 6.66 pf. per k.w. h. viii THE RESULTS OF MUNICIPAL TRADING 337 method, which consists in comparing and contrasting the working of municipal and private enterprise in order to show, if possible, wherein the one is superior or inferior to the other. There are various ways in which comparisons between municipal and private trading may be made. In the first place, a particular municipal undertaking may be selected, which at some previous time was under private management ; the prices charged before and after municipal- isation may be compared, and possibly the progress made or the conditions granted under the two forms of manage- ment may also be contrasted. In the second place, a few undertakings engaged in a particular industry may be selected, some organised under municipal and some under private management, and the results obtained may be compared. In the third place, the average results obtained by all municipal and all private undertakings in a particular industry may be contrasted. In the fourth place, inter- national comparisons may be made between a country where there is little or no municipal trading and a country where there is much municipal trading. All these indirect methods of measuring the results of municipal trading are employed by various students of the problem, and it is necessary to consider what conclusions are drawn from them and how far they can be regarded as sound. (i.) The first of these indirect methods, which consists in making a comparison of the conditions prevailing in a particular undertaking before and after municipalisation, is not very easy to apply. If the conditions, immediately before the transfer of the management, are compared with those immediately after the transfer, it is quite likely that no change will have occurred, as, for example, was the case with the price of gas after the Glasgow and the Leicester gas undertakings were municipalised in the " seventies." ^ On the other hand, if a considerable period is allowed to elapse after the introduction of municipal management before the new prices and conditions are ascertained for the purpose of the comparison, general changes may have occurred in the conditions of the industry, so that the effects, if any, * Report of the National Civic Ownership, part ii. v(j1. ii. pp. 214, Federation Commission on Public 215. Z 338 MUNICIPAL TRADING caused by the change in the form of management cannot be isolated. There are other dilTiculties in connection with this method, but they may best be considered in connection with some illustrations of its application. Although many undertakings have been municipalised in their time, it is often not possible to ascertain the details necessary for making a full comparison, and here the e.xampics arc chosen from amongst a few large towns for which information has been published. The city of Liverpool purchased its electricity under- taking as a going concern from a company in 1896 before the lease had expired. Immediately before the transfer the charge for current was 7.^d. per unit for lighting and 5d. |)cr unit for power ; immediately after the transfer the charge for current was fixed at 6d. and 4d. per uiut for lighting, and to 3d. and 2d. per unit for power.' The Birmingham Corporation municipalised the gas works in 1876 ; the price of gas, which had been from 3s. to 3s. 6d. per 1000 cubic feet, was at once reduced to from 2s, Qd. to 3s. 3d. per 1000 cubic feet." The Glasgow Corporation took over the working of the horse trams in 1894. The fares charged by the Company just before and by the City just after the change were as follows : — ^ Fare. Average distance in Miles travelled for each Fare. Under Company. Under Municipality. I \\ 2 2h 3' Miles. I. I 2 1.80 2.20 3.23 Miles. 0.58 1. 17 1.80 2.28 2.81 341 During the twelve years previous to the transfer, the - /fiid. p. 214. 3 fdnl p. 4 So. 1 Report OJ the National Civic Federation Commission on Public Ownership, part ii. vol. ii. p. 345. VIII THE RESULTS OF MUNICIPAL TRADING 339 mileage of tram line in Glasgow increased from 22.2 to 30, or 3 5 per cent, whilst during the twelve years subsequent' to the transfer, the mileage increased from 30 to 80.5, or 168 per cent.^ During the last twelve years of Company management the number of passengers increased from 34,150,000 to 53.730,000, or 57 per cent, whilst during the first twelve years of municipal management the number of passengers increased from 53,730,000 to 208,060,000, or 287 per cent.- The hours of work under the Company were from 71 to 84 hours per week, but on taking over the system the Corporation reduced the hours to 60 per week and at the same time increased the wages i 5 to 25 per cent. Sub- sequently the hours have been further reduced to 54 per wcek.^ In Manchester the Corporation first began to run tramcars in 1901, but the whole system was not muni- cipalised until I 903. The new scale of fares then introduced and that previously in force under the Company were as follows : — ^ Fare. Average distance in Miles travelled for each Fare. Under Company. Under Municipality. Inside. Outside. Inside or Outside. Miles. Miles. Miles. id. 0.72 I 1.08 1. 21 2.10 'i 2.61 -.1 2.06 2.23 3-34 403 -> 1 308 3.08 4.68 3i 1 5-43 4 4-30 ' 1 6.06 6.45 During the four years prior to the opening of the first municipal tramway in Manchester, the miles of line worked by the Company increased from 80.5 to 87.5, or 8.7 per ' Report of the National Civic Federation Commission on Public Ownership, part ii. vol. ii. p. 705. 2 Ibid. p. 710. 3 Ibid. p. 711. * Ibid. p. 481. 340 MUNICIPAL TRADING cwkv. cent. During the first four years of municipal management the mileage increased from 557' to 87, or 56 per cent.' Between 1897 and 1 901 the number of passengers carried by the Company grew from 54,950,000 to 63,500,000, or 16 per cent. Between 1901 and 1905 the passengers carried by the Corporation increased from 23,590,000 to 133,920,000, or 467 per cent.' As far as the wages and hours of labour of the employees are concerned, the Corpora- tion reduced the hours from 70 to 54 per week when it municipali.sed the undertaking and at the same time raised wages by from 43 to 63 per cent.* So far as these particular undertakings arc concerned the tendency for prices to fall, for the undertakings to make more rapid progress, and for labour conditions to improve after they had been municipalised seems to be clearly marked. The material is not sufficient to show whether this tendency is general or not ; in any case it has not been shown that the change in the form of management was the cause of the fall in prices or of the more rapid progress. The years which form the basis of the comparison, so far as the Companies arc concerned, were the last years of their existence ; the likelihood of a change in the form of manage- ment would be known some time beforehand, and this fact would naturally discourage progress of any kind ; the approaching lapse of a short lease, where such existed, imdcr which the undertaking could be taken over by a municipality at the structural value, nothing being paid for goodwill or for potential earning capacity, would act as an even stronger check on progress. The undertakings would no longer seek to expand, by lowering prices or otherwise, as some time would elapse before the. benefits of such a policy could be reaped ; in the long run the increase of business resulting from a reduction in the charges might more than justify the reduction, but the immediate result would probably be a loss of revenue, which a Company on the point of being wound up, in order to be taken over by a 1 A good deal of the Company's Federation Comntission on Public track was outside the municipal Ownership, part ii. vol. ii. p. 705. boundary and was never taken over , „ . , by the Corporation. '^ ' 2 Report of the National Civic * Ibid. p. 71 1. VIII THE RESULTS OF MUNICIPAL TRADING 34' municipality, would be very unwise to incur. In connection with the tramways a special point arises. The Companies were organised for horse traction, the municipalities for electric traction, during part of the time in one case and all in the other. In the case of the Manchester tramways the Company's fares relate to horse trams, the Corporation's fares to electric trams, as the electrification of the system coincided with the municipalisation. The reduction in fares was much greater there than in Glasgow, where the Corporation continued the old horse-tram system for some years after it had taken over the management. Owing to the greater speeds which can be obtained, electric cars can work successfully over much longer distances than horse cars, so that it is not astonishing to find that the miles of line and the number of passengers carried have increased greatly since the electrification of the tramway systems. It has been possible to tap entirely new suburban traffic, which formerly was catered for almost exclusively by the railway companies. Much of their new traffic could never have been secured by the electric tramways unless the distance which could be travelled for the various fares had been increased. A reduction in fares is always likely to lead to more passengers being carried, though not necessarily to more revenue being received, but where the takings do increase, at some point the increase in the working expenses due to the need of providing additional service will equal and finally exceed the extra takings, and the undertaking will then be less remunerative than it was before. The extent to which a reduction of fares will benefit a tramway undertaking depends largely upon the population of the area served and the character of the daily movements amongst that population. In large towns like Glasgow and Manchester it would undoubtedly have been to the interest of newly introduced electric tramway undertakings, however they were managed, to have reduced the fares after displacing the old horse tramways, in order to expand the traffic, and it is incorrect to attribute to municipalisation of the systems what was largely, if not wholly, due to their electrification. Another point which must be considered in every case 342 MUNICIPAL TRADING chap. is, whether the facilities granted by the municipalities are being subsidised directly or indirectly out of the rates. If they are, the municipal undertaking is on quite a different footing from a company, and their charges, etc., cannot fairly be compared. So far as Glasgow and Manchester are concerned, the accounts clearly show that the tramway undertakings receive no assistance of any kind from the rates. It is quite possible that these particular municipalities did more in the way of reducing fares and granting better conditions than any electric tramway companies would have done, but it must not be forgotten that a company operating under a twenty-one years' lease occupies a less favourable position than a municipal tramway department, and cannot reasonably be expected to grant the same facilities. Enough has been said to show that it is comparatively simple to compare and contrast the prices charged and the conditions imposed by an undertaking before and after its municipalisation, but the differences in circumstances, often very considerable, which prevail under the two regimes make it next to impossible to say to what extent the changes in prices and conditions have been caused by the municipalisation of the undertaking. Some, if not all the changes, are probably due to other circumstances than the mere change of management, and on this account any deduc- tions drawn from such figures, whether they be to the advan- tage or disadvantage of municipal trading, must be regarded as very inconclusive, even if they be not entirely rejected. (ii.) A second way of indirectly measuring the results achieved by municipal trading is to select various under- takings engaged in a particular industry, some managed by municipalities and some by companies, and to compare the prices charged. Tramways are not generally chosen for this purpose, as it is recognised that so much depends upon local conditions, affecting the daily movements of the population, that it is futile to make comparisons between different towns. In any case it would be difficult to know what to compare in the matter of tram fares, as the average distance which can be travelled for a penny, or any higher fare, will depend considerably upon the other facilities granted, as, for example, halfpenny fares and workmen's VIII THE RESULTS OF MUNICIPAL TRADING 343 fares, {a) In the case of gas and electricity works, especially the former, comparisons are frequently made between municipal and private undertakings. Various gas works are chosen, situated close to coal-fields, say, in Manchester, Nottingham and Leicester, to represent municipal enterprise, and in Bristol, Newcastle and Sheffield to represent private enterprise. It is then ascertained that for lighting purposes the municipality in Manchester charges 2s. 3d., in Nottingham 2s. 2d. to 2s. 6d., and in Leicester 2s. 4d. per 1000 cubic feet, whilst the company in Bristol charges 2s., in Newcastle IS. I id. on the average, and in Sheffield is. 3d. on the average, per 1000 cubic feet.^ These figures, it is some- times claimed, show how much better private management is than municipal management. This contention, however, is not sound. The prices charged for gas by different undertakings cannot be compared in such a simple fashion. It is necessary to take various factors into account. In the first place, allowance must be made for the rents of gas meters and stoves, as where such rents have to be paid, the individual consumer's gas bill is augmented to this extent, and the real price of gas is higher than the apparent price. Municipal gas departments in this country frequently lend meters and stoves to their customers free of charge, which tends to raise the price of gas by an amount which will provide the interest, depreciation allowance, and sinking fund in respect of the capital invested in meters and stoves.^ 1 The prices are quoted from Field's Analysis of the Accounts of the Principal Gas Undertakings in England, Scotland, and Ireland. 2 The following figures, relating to the six towns chosen as illustrations, may be quoted from Field's Analysis. Town. Year. Meter Rental per 1000 Cubic Feet sold. Stove Rental per 1000 Cubic Feet sold. Meter and Stove Rentaj per 1000 Cubic Feet sold. Leicester . Manchester Nottingham Bristol . Newcastle Sheffield . 1909-10 1909-10 1909-10 1909 1909 1909 .ood. .00 .84 1-54 1-54 IIS .4ld. .00 .48 •79 1.07 •15 .4id. .00 1.32 2-33 2.61 1.30 The figures indicate by how much each undertaking would have to raise the price of its gas if meter and stove rents were abolished. 344 MUNICIPAL TRADING chap. Companies generally distinguish in their charges between the price of gas and the rents for meters and stoves, which enables them to quote a lower price for gas than if the charge were inclusive ; ^ but the consumers have ultimately to pay for the use of the meters and stoves in either case. In the second place, the quality of the gas must be con- sidered. This is a question partly of lighting power and partly of heating power ; by degrees this latter consideration is becoming more important than the former with the great growth in the use of incandescent mantles for lighting purposes and the large extension in the use of gas for cook- ing and heating purposes. In the third place, the amount paid for rates by each undertaking must be allowed for, as some works may be situated in more highly rated areas than others, and consequently be obliged to recoup them- selves by charging somew^hat higher prices. In the fourth place, the level of standard wages differs from town to town, and prices will tend to be influenced. In comparing prices in two towns, one of which pays higher wages than the other, allowance should be made in respect of higher wages due to a higher standard prevailing in the locality, but not in respect of higher wages due to voluntary action on the part of the management, the former being a payment over which the management has no direct control. The fifth factor to be taken into consideration is of great importance, namely, the opportunities for purchasing coals suitable for use in gas works ; the mere fact that the works chosen for comparison are all situated on coal-fields means very little, in view of the fact that some kinds of coal are much more adapted for the production of gas than others. Manchester, for example, is situated on the South Lancashire coal-field ; yet the bulk of the coal used in the gas works there has to be brought by train from the Barnsley district of Yorkshire. In the sixth place, the sale of the by-products exercises a great influence on the prices of gas, and this is probably the most important consideration of all which has to be borne in mind in comparing gas prices in different towns. Gas is by no means the only product of a gas works ; coke, coal 1 With regard to the advantages and disadvantages of meters and stoves being lent free of charge, see pp. 187, 202, 203. THE RESULTS OF MUNICIPAL TRADING 345 tar and ammoniacal liquor, amongst other things, are produced simultaneously with gas, and the price at which gas can be sold depends very considerably on the price which can be realised for the by-products. The opportunities for dis- posing of coke on favourable terms vary greatly from town to town, the demand for the purpose of local industries being a most important factor in this country. The subject of the sale of gas by-products has already been discussed at some length in Chapter VI.,^ and here it will suffice to note that gas works have comparatively little control over the prices they can obtain. Some works are much more favourably situated than others in this respect. The more revenue a gas works can obtain from its by-products, the lower the net cost of its coal becomes and consequently the cost of producing gas, and the smaller the price for which the gas can be sold. In Sheffield on some occasions the net cost of the coal has been less than nothing, the revenue obtained from the sale of coke, tar and ammoniacal liquor having exceeded the cost of the coal,^ but in the great majority of towns this is not the case.^ The proportion of the total revenue of a gas works which is derived from the sale of by- products varies considerably. It varies from one works to another, and also from one year to another. In Manchester it may represent about one-fifth of all the receipts, in Sheffield as much as one-third.^ A seventh factor which affects the 1 See pp. 215-222. 2 £g^ in 1910. See Field's Analysis, 1910. 3 The cost of coal and the sums realised by the residuals in the above- mentioned towns during 1909-10 were as follows : — Amount Cost of Coal realised by Net Cost of Town. Year. per 1000 Cubic By-products Coal per looo Feet of Gas per 1000 Cubic Cubic Feet of sold. Feet of Gas sold. Gas sold. Leicester . 1909-10 11.73d. 8.24d. 3-49d. Manchester 1909-10 12.86 6.51 6.35 Nottingham 1909-10 10.76 7.70 3.06 Bristol 1909 16.14 8.49 7.6s Newcastle 1909 12.26 8.84 3-42 Sheffield . 1909 9.48 8.83 0.65 The figures are from Field's Analysis, 1909, 1910. * The exact figures for 1909-10, based upon the information given in Field's Analysis, were 19.2 per cent in Manchester and 36.3 per cent in Sheffield. 346 MUNICIPAL TRADING chap. price at which gas can be sold is the cost of distribution. This depends upon various things. The larger the supply- area and the further the mains have to be laid away from the gas works, the greater the leakage will tend to be and the higher the price will have to be to compensate for it. The more densely populated the supply area is, the more consumers per mile of main there will probably be, and the higher the consumption is per mile of main, the smaller the distributing costs will be per unit of gas sold. Thus the number of consumers and their average consumption in relation to the length of mains laid, which depend largely upon the planning of the town supplied and the pursuits of its inhabitants, have a distinct influence on the price. In the eighth and last place, where a gas undertaking, as a matter of social expediency, sells gas by automatic meter at the ordinary price, or at one which is only slightly above this, it incurs a loss,^ which will tend to keep the ordinary price of gas somewhat higher than would otherwise be necessary. It may be noted in this connection that in Sheffield no automatic meters are used. It will be seen that many things help to account for the variations in the prices charged for gas in different towns. Amongst municipal undertakings the extent to which it is desired to relieve the rates is also an important factor. To regard the selling price as a direct measure of the efficiency of the management is absolutely unsound. That undertaking which sells gas at the lowest price in the United Kingdom happens to belong to a municipality ^ and not to a company. It is only a small works, and probably cannot even avail itself of all the economies of large-scale production, yet it would be absurd to deduce from the price charged in Widnes that the gas companies in Sheffield, Newcastle and elsewhere are less efficiently managed. As between some gas undertakings, price dif- ferences may be partially due to differences in the ability of the managements, but the explanation of the great part, if not of the whole differences, in prices must be sought in the very varying conditions under which gas works 1 See pp. 21 1 -2 1 3 above. charged is only is. 2d. per looo cubic 2 Widnes, where the highest price feet. VIII THE RESULTS OF MUNICIPAL TRADING 347 operate, some being much more favourably situated than others. The difficulty of measuring, with anything approaching accuracy, the effect on the price of gas of some of the factors which have been enumerated above, makes it almost im- possible to show statistically the comparative efficiency of two gas undertakings. Even with the exercise of the greatest patience and ingenuity, it does not seem possible to determine, for example, how much of the price obtained for coke was due to the direct efforts of the management, and how much to local conditions over which the manage- ment had no control, and for which, consequently, allowance would have to be made. The same sort of questions would arise with regard to various other business operations of each undertaking, and in each case no definite answer could be given. To make an accurate comparison of gas prices with a view to reaching some conclusions about the results of municipal trading seems hardly possible, and to make a rough comparison, without making a proper allowance for varying conditions, is worthless ; consequently this particular method, so far as it relates to gas, can only be discarded as impracticable. ib) The application to electrical undertakings of the method of comparing the prices charged by municipal and private enterprises for lighting purposes has now to be considered. At the outset it may be noted that it is difficult to institute such a comparison at all, as the methods of charging for electricity have a tendency to be somewhat complex ; ^ the only rates which appear to lend themselves conveniently for comparison are uniform or flat rates, yet in many cases no such rates are quoted at all. Again, the consumer may be offered a choice of two methods of being charged, for example, a flat rate and a maximum demand rate, one of which will be more favourable to him than the other, according to the character of his demand. Under these latter circumstances it is hardly accurate to regard the flat rate as representing the charge made for current for lighting purposes. Even where the only method of charging 1 See the account of the various chapter on the Selling Policies of methods of charging for current in the Municipal Trades, pp. 224-231. 348 MUNICIPAL TRADING chap. for current for lighting purposes is a flat rate, prices may be largely reduced, or big discounts may be granted as a customer's consumption increases. The result of the exist- ence of such a scale of prices in a town will tend to be that the highest price will be somewhat higher than if there were only a single price independent of the consumption. Where a scale of prices or discounts based upon the consump- tion is established, the whole scale is an integral part of the selling policy of the undertaking, and one price out of that scale cannot be isolated for the purpose of comparing it with the charge made by another undertaking. Consequently the comparisons must be restricted to the prices charged by such undertakings as quote a flat rate, not subject to discounts or reductions, and where no other methods of being charged are available to the consumer. Even if all these preliminary precautions are taken, it is almost impossible to obtain conclusive results from such a comparison. Several of the considerations which influence the prices of gas, and for which allowance must be made, also influence the prices of current, e.g. meter rents, the amounts paid in rates, differences in standard wages and the cost of distribution. The cost of obtaining coal, water pressure, or other power with which to generate the electricity is naturally a most important factor in determining the prices, and one over which the management has little control. Finally, an undertaking, which sells a large amount of current for power purposes during the day-time, can afford to sell current for lighting purposes at a lower rate than an undertaking which has few day-time consumers, owing to the fact that the former is able to utilise its plant better than the latter. In so far as the day-time demand for current is due to local conditions, and not merely to the direct efforts of the management, any reduction on this account in the price of current for lighting purposes must not be overlooked. Sometimes, to remove the difficulty caused by the complicated schedules of charges, a comparison is instituted between different undertakings of the average receipts per unit of current sold for lighting and power purposes. This method is equally unsatisfactory, because beside ignoring all of the above-mentioned considerations concerning differ- VIII THE RESULTS OF MUNICIPAL TRADING 349 ences in prices, with the exception that it recognises the existence of power as well as light consumers, it ignores a new one of a fundamental character. It fails to take into account the proportion of current sold for lighting and power purposes respectively. As the price of current for power purposes is often only one-third or one-quarter of that charged for lighting purposes, it is easy to see that the average receipts per unit sold will be much lower in the case of an undertaking which caters principally for power consumers than in the case of an undertaking which sells the bulk of its current for lighting purposes. Even where it is possible to obtain the average receipts per unit sold for lighting purposes only, which frequently is not the case, an undertaking which has many large lighting consumers, in receipt of preferential treatment, will presumably show lower receipts per unit sold than an undertaking with no large customers, yet the more favourable results in the former case can hardly be ascribed to the efficiency of the management. Were it not that this method of selecting a few under- takings, some organised under public and some under private management, and of comparing the prices charged, with a view to showing the advantages or disadvantages of municipal trading, was one commonly employed, it would not have been necessary to consider its defects in such detail. Alone on quite general considerations, such as the difficulty of being sure that the undertakings chosen were typical and the danger of generalising from a few odd cases, the validity of any conclusions reached by this method could be regarded only with a good deal of doubt. When, how- ever, it is realised how impossible it is to get two under- takings which operate under identical conditions, and the prices of the products of which are subject to the influence of all the same factors, except one, namely, the form of the management, so that any difference in price might be definitely attributed to the difference in the form of manage- ment, nothing remains but to dismiss this method, when applied to estimating the results of municipal trading, as being absolutely unsound. (iii.) The third indirect method of measuring the results 3SO MUNICIPAL TRADING chap. of municipal trading is to compare the average results obtained by all municipal and all private undertakings in a particular industry. Such comparisons can be made only in the case of the gas and of the tramway industries, as these are the only two for which the necessary official returns exist.^ (a) In the table which follows a summary is given of the accounts and the operations of public and private gas under- takings in the United Kingdom. These figures, it is frequently claimed, show, firstly, that public enterprise gives a cheaper service ; secondly, that public enterprise is more economically and efficiently conducted, and thirdly, that public enterprise is more profitable than private enterprise. The first deduction is apparently based on the lower approxi- mate average charges made by municipal undertakings,^ the second on their slightly lower ratio of working expenses to receipts ; ^ and the third on the higher equivalent return represented by their net receipts on their capital outlay,^ and particularly on their capital outstanding.^ It is necessary to distinguish carefully between the deductions made from the figures and the implication arising out of the deductions. This latter may be con- sidered first. It is suggested that the lower prices charged and the more favourable results obtained by the municipal undertakings are due to the fact that they are under muni- cipal management. If the plants to be municipalised and those to be conducted by private enterprise had originally been selected at random, and the undertakings of the local authorities then showed better results, this would point strongly to more efficient management, provided the number of enterprises were sufficient to minimise the risk of an undue proportion of favourably situated enterprises being allotted to one group or the other. But as a matter of fact the municipal undertakings have not on the whole been selected at random ; they have been specially chosen, the 1 The Board of Trade publish annual Order. No similar return for electricity returns relating to all authorised Gas supply undertakings is published. Undertakings in the United Kingdom 2 gee line i "J of table. belonging to Local Authorities and to 3 „ ,. ,^ r ^ ui Ci 1 , occ line o oi 13. Die. ompanies and an annual return relating to Street and Road Tramways * See line 8 of table, and Light Railways authorised by Act or ^ See line 9 of table. THE RESULTS OF MUNICIPAL TRADING 351 Table giving Summary of the Accounts and the Operations of all Authorised Gas Undertakings belonging to Local Authorities and to Companies in the United Kingdom during 1909-10.^ Local Authorities, 1909-10. Companies, 1909. I. Number of Undertakings 293 501 2. Capital Outlay ^42,002,322 ^90,120,962 3. Capital Outstanding ^27,861,7012 ;i^90, I 20,962 4. Receipts ^10,398,263 ^19,951, 779 5. Working Expenses ^7,710,985 i^i 5,097,658 6. Ratio of Expenditure to Receipts 74. 1 5 per cent 75.67 per cent 7. Net Revenue ^2,687,278 ^4,854,121 8. Equivalent Return on Capital Outlay 6| per cent 5| per cent 9. Equivalent Return on Capital Outstanding 9| per cent ^ 5| per cent 10. Coal carbonised 6,049,788 tons 9,175,532 tons II. Gas sold (Cubic Feet) . 65,352,790,000 112,334,153,000 12. Length of Mains . 13,757 miles 21,473 miles 13. Number of Consumers . 2,590,270 3,573,796 14. Public Lamps 343,021 369,882 15. Approximate Average Charge per 1000 Cubic Feet .... 2s. sfd. 2s. 9|d. majority of the gas works to be municipalised having been selected from amongst those which were most successful when in private hands. Further, there is a bigger proportion of large works amongst the undertakings managed by local authorities than amongst those managed by companies. If the figures relating to the two great London Companies, the Gas Light and Coke Company and the South Metropolitan Gas Company, are eliminated from the second column of the the " Loan repaid, Annuities redeemed, and amount placed in sinking fund " (;i^l4, 140,621). In the Municipal Year Book a different figure will be found, viz. ^30,478,862. It is not clear how it was obtained. ^ In the Rhmicipal Year Book the return is given as 8| per cent, which is based on the higher outstanding capital mentioned in the note above. 1 Compiled from the Board of Trade Returns relating to Authorised Gas Undertakings in the United KingdoiJi. The Returns for Municipalities relate to the year ending March 31, 19 10, those for companies to the year ending December 31, 1909. The approxi- mate average charges are those given in the Municipal Year Book, igii. 2 This sum is the capital outlay less 352 MUNICIPAL TRADING table, the size of an average company undertaking will prove to be much smaller than that of an average municipal under- taking. The justification for separating the returns relating to two concerns before ascertaining the average, lies in the fact that these two undertakings are in a class by themselves, being so much greater than any other gas undertakings/ Table giving a Summary of the Average Operations of the Authorised Gas Undertakings of Local Authorities and Companies (other than the Gas Light and Coke Company and the South Metropolitan Gas Company) during 1909- 10.2 Companies (other than the Gas Light Local Authorities, and Coke Company 1909-10. and the South Metro- politan Gas Company), 1909. Number of Undertakings 293 499 Average Capital Outlay ^143,000 ;{^io8,ooo Average Amount of Coal carbonised 20,600 tons 14,800 tons Average Quantity of Gas sold (Cubic Feet) . 223,000,000 154,800,000 Average Length of Mains 47 miles 36 miles Average Number of Customers 8800 5300 Average Number of Public Lamps .... 1 170 600 ^ A few of the figures for 1909 relating to these two Companies may be quoted from the Board of Trade return : Gas Light and Coke Company. South Metropolitan Gas Company. Capital Outlay Total Receipts Working Expenses Net Revenue Coal carbonised . Gas sold (Cubic Feet) Length of Mains . Number of Consumers Public Lamps ;^27,4S2,i93 ^^4, 123,021 ^^2,935,837 ;^i,i87,i84 1,655, 140 tons 22,540,035,000 2, 188 miles 586,569 46,863 ;^8,934,569 ^^2,052,632 ;^i,569,i63 ^^483. 469 1,133,280 tons 12,540,439,000 1,231 miles 346,589 23.754 The remaining London Gas Companies cannot rank with these two. The next largest, the Commercial Gas Company, carbonised only some 200,000 tons of coal in 1909. 2 Based on the Board oj Trade Returns relating to Authorised Gas Under- takings in ike United Kingdom, VIII THE RESULTS OF MUNICIPAL TRADING 353 private or municipal, that their inclusion gives an entirely- false impression of the average size of the gas works managed by companies. The average size of gas works is indicated in the table opposite by means of their average capital outlay and of their average operations during 1909-10. It will be noted that the undertakings of the local authorities are roughly half as large again as those belonging to companies. In view of the fact that municipal gas works, on the whole, are larger than company gas works, and that local authorities have generally municipalised only the more success- ful of existing undertakings, it is not astonishing if they show better results, which they actually appear to do. Whether the better results are due entirely to the more favourable conditions enjoyed by municipal gas works, or whether they are partly accounted for by better management, or whether they are obtained in spite of less efficient management, thanks to the favoured conditions, it is impossible to say. In the absence of any evidence to the contrary in one direction or the other, the only safe conclusion to accept is that the better average results obtained by municipal gas works are due entirely to the more favourable conditions under which they operate, and have not been increased by more efficient, nor diminished by less efficient, management than that displayed by company gas works. With regard to the deductions made from the figures, there is some danger of exaggerating their importance. The approximate average charges per 1000 cubic feet for gas are not official figures. They are calculated from the materials published in the Board of Trade returns, and these are inadequate for ascertaining a properly weighted average, for where an undertaking sells gas at different prices, the quantities sold at each are not indicated.^ The charges are described as approximate, and it is quite possible that the element of error is larger in the one case than in the other, though there is nothing to indicate in which price the 1 So far as the writer is aware, the distinguished from the revenue approximate average price is calculated oljtained fiom other sources, an by the staff of the Municipal Year accurate average price could, of course, Book. If in the returns the revenue be obtained, but unfortunately only the obtained by the sale of gas were total revenue is given. 2 A 354 MUNICIPAL TRADING chap. element of error is greater. It is also conceivable that the error might have tended to augment the one price and to diminish the other, thereby increasing or decreasing the difference between the two, according as the price to be augmented was the higher or the lower. How accurate these average prices are is uncertain, but there is another way in which the question can be approached. If, instead of considering the receipts from the sale of gas alone, the total receipts are considered, it requires a very simple division sum only to ascertain that these represent 3s. 2^d. per 1000 cubic feet of gas sold in the case of municipal undertakings and 3s. 6fd. per 1000 cubic feet of gas sold in the case of the undertakings of companies. These amounts are respectively 8fd. and 9fd. higher than the approximate prices charged for gas by municipal and company under- takings. The Sfd. and pfd. represent the amount realised per 1000 cubic feet of gas sold by meter and stove rents and the sale of by-products. When it is remembered that a much larger proportion of local authorities provide meters free of charge than of companies,^ and that in some cases stove rents are not even charged, it is only to be expected that their average revenue from rents and by-products should be somewhat less than that of the companies, and the fact that this expectation is realised by the figures points to the relationship established between the approximate prices charged by local authorities and companies as being substantially correct ; in other words, the only way in which the higher average receipts, per 1000 cubic feet of gas sold, realised by the companies, as compared with the local authorities, amounting to 4^d. per 1000 cubic feet sold, can be accounted for, is partly by the higher receipts for meter rents, and possibly to some extent for by-products, but mostly by the higher charge made for gas. A second point relates to the equivalent return on 1 According to the Board of Trade amongst those where no meter rents Returns, 107 local authorities, or 36.5 are charged, so that the effect on the per cent of those possessing gas average receipts from meter rents, etc., undertakings, provide meters free of will be more considerable than is sug- charge, whereas only 23 companies, or gested by the fact that only a little over 4.6 per cent of those possessing gas one-third of the municipalities charge undertakings, do so. Many of the no meter rents, larger municipal undertakings are VIII THE RESULTS OF MUNICIPAL TRADING 355 capital represented by the net revenue. It need hardly be said that to take the capital outstanding as the basis on which to calculate the return in the case of local authorities, and to take the capital outlay as the basis in the case of companies is entirely misleading, yet this is commonly done. As more and more of the capital borrowed is paid off, the return on what remains outstanding naturally increases, until when the whole of the loans have been repaid by means of sinking funds or otherwise, and the undertakings are entirely free from debt, the net revenue will then present an infinite return on the loans outstanding,^ but, of course, only a moderate return on the capital invested in the undertakings, which, under these circumstances, will all belong to the local authorities, and not partly to them and partly to the capitalists who have provided the loans, as is now the case, when about one-third of the debts contracted by the local authorities in respect of their gas undertakings have been paid off. Where it is not possible to ascertain the amount of capital invested, it is sometimes necessary to take the capital outstanding as the basis of the calculation relating to the return on capital,^ but partly to employ the one basis and partly to employ the other and then to compare the results is quite unsound. Consequently the figure in the ninth line of the table on page 351, showing a return of 9^ per cent on the capital outstanding, must be ignored for purposes of a comparison with the results achieved by companies, and the lower figure of 6| per cent shown in the line above can be contrasted with the 5-| per cent, which is the ratio of net revenue to the capital employed by companies. A third point is concerned with the ratio of working expenses to income ; the difference of i^ per cent in favour of the undertakings of local authorities in 1909-10 is hardly large enough to serve as a basis for any very positive ^ This is the only method adopted results quoted in the Municipal Year in the Municipal Year Book, for Book, from which many writers rely example. Nothing corresponding to entirely for their facts, the eighth line in the table on p. 351, ^ This is the position of the Bonn giving the equivalent return on capital Gas Works ; see table on p. 336. outlay represented by the net revenue, ^ See what is said above on the is included in the table of summary subject, p. 314. 356 MUNICIPAL TRADING chap. deductions concerning greater economy and efficiency in management. In any case, the figures constitute no proof that greater efficiency in management exists ; they may indicate greater economy, due entirely to the larger scale on which, on the average, the municipal undertakings produce. Taken as a whole, the figures in the table on page 3 5 i show that the gas undertakings of local authorities do obtain better results than those of companies, though the difference is not very great. So far as the explanation of these better results is concerned, it must be attributed to the fact that local authorities have refrained from municipalising un- successful private undertakings, and that amongst the public gas works there is a larger proportion of big undertakings than amongst the private gas works. No sort of evidence is forthcoming to show that the more favourable results obtained by the gas undertakings of local authorities are due to municipal management ; and to suggest in any way that the better results are caused by the public management being more efficient than the private management, is to advance a proposition in support of which no facts can be produced. {h^ As has been already stated, the other industry which can be studied by this method is the tramway industry. In the table which follows there will be found a summary of the accounts and the operations of all authorised tramway and light railway undertakings in the United Kingdom. The difference between the number of undertakings owned and those worked by local authorities is accounted for by some which are authorised, not having yet been constructed, and others having been leased to companies. This, of course, increased the number of undertakings worked by companies. There were, however, one or two companies which have not constructed their lines, and one which has leased its lines to two local authorities. But for this the number of under- takings worked by companies would have exceeded the number owned by companies by rather more. Of the undertakings worked, a good many of those belonging to local authorities, and a few of those belonging to companies, were not worked independently, but were managed by other local authorities or other companies respectively. Thus the THE RESULTS OF MUNICIPAL TRADING 357 Table giving Summary of the Accounts and the Operations of all Authorised Tramway and Light Railway Undertakings belong- ing to Local Authorities and to Companies in the United Kingdom during 1909-10.^ Local Authorities, Companies, 1909-10. 1909. I. Number of Undertakings owned ..... 176 124 2. Total Capital Outlay i;49,568,775 £24,372,884 3. Lines open .... 1,710^ miles 851^ miles 4. Average Cost per Mile . ^^28,983 i;28,623 5. Number of Undertakings Worked .... 136 141 6. Capital Outlay i;44,io8,25o £29,556,166 7. Track operated ^ . i,502| miles 1,059 miles 8. Gross Receipts ^9,487,434 £3,590,467 9. Working Expenses ^5,887,243 £2,244,871 10. Ratio of Expenditure to Receipts .... 62.05 per cent 62.52 per cent 1 1. Net Revenue .... ^3,600,191 £1,345,596 12. Equivalent Return on Capital Outlay .... %\ per cent 4^ per cent 13. Number of Miles run by Cars 212,465,787 85,378,899 14. Net Revenue per Car Mile 4.o6d. 3.78d. I 5. Net Revenue per Track Mile ^ ^^2,395 £1,271 16. Number of Passengers carried 2,102,438,010 640,751,429 17. Average Fare per Passenger . i.o5d. i.24d. 136 tramway undertakings worked by local authorities were actually managed by 94 local authorities. In the case of tramways, even more than in the case of gas works, the majority of the larger and more favourably situated undertakings have been municipalised. The popula- tion of the area served is a far more important consideration 1 The figures in this table are partly taken direct from the Board of Trade Returfi on Street and Road Tramways and Light Railways, and are partly calculated from them. In most cases the calculations made in the Municipal Year Book have been used. 2 The figures in the Municipal Year Book are 1503 J and 105 ij, the total of which does not agree with the total length of line open (line 3 of table), which is correct in the Municipal Year Book. The figures in the table coincide with those in the Board of Trade Return. 3 These figures differ slightly from those in the Municipal Year Book, owing to the small difference in the track operated mentioned in the previous note. 358 MUNICIPAL TRADING chap. in the case of tramway than of gas finance. The difficulty of making tramway undertakings which are situated in small towns pay their way has already been discussed in an earlier part of this chapter/ and it is only to be expected that the companies, which serve so many small towns, should show somewhat poor results. A net revenue equivalent to a return of 4^ per cent on the capital outlay would be inadequate under any circumstances as the return on money invested in a trading undertaking, but in view of the fact that the net revenue is ascertained before any provision for depreciation has been made, it is distinctly more unsatisfactory than even appears at first sight. The local authorities, thanks largely to the inclusion of a much bigger proportion of large undertakings,^ are able to show a net revenue equivalent to a return of 8^ per cent on the capital outlay. The lower average fare per passenger in the case of local authorities really means very little in the absence of all information concerning the distance which the passengers were carried. The existence of the halfpenny fare system on a few large municipal undertakings, such as those of the London County Council, Glasgow and Sheffield, undoubtedly helps to reduce the average fare per passenger. The difference in the results achieved by the tramway undertakings of local authorities and of companies can be fully accounted for by the majority of the areas best suited for tramway enterprise having been secured by the local authorities for their undertakings. The more favourable terms with regard to tenure under which local authorities work, may also to some extent explain the better results they obtain. Taking all the circumstances into consideration which affect the tramway undertakings of local authorities and of companies, it is impossible to draw any deduction concerning the effects of public and private management. (iv.) The fourth and last indirect method of measuring the results of municipal trading is by means of international ^ See pages 317-323. exceeding 100,000. Of these, two 2 Of the tramway undertakings of (London United and Metropolitan local authorities in the United King- Electric) are in the London area, where dom, 37 appear to serve towns with the London County Council has the populations exceeding 100,000, where- bulk of the traffic, and one is in Birming- as in the case of company undertakings ham, where the Corporation has a more only 10 serve towns with populations remunerative system of its own. THE RESULTS OF MUNICIPAL TRADING 359 comparisons between a country where there is little or no municipal trading and a country where there is much municipal trading. For this purpose the United States and the United Kingdom are nearly always selected. Various information concerning the electricity and the tramway industries can be produced, with the object of showing that they are much more developed in the United States than in this country. As an illustration of this method a few figares relating to tramway undertakings have been collected together in the table given below. The figures unfortunately are somewhat antiquated as they relate to 1902, but as between 1902 and 1905 the rate of increase in the length of track and in the number of cars in use was roughly the same in the United States as in the United Kingdom/ the figures may be accepted as approximately representing the relative development of tramway enterprise in the two Table showing the Relative Position of Tramway Undertakings in the United Kingdom and in the United States in 1902.^ United Kingdom. United States. Total Length of Tramway Track . 2,336 miles 22,328 miles Urban Population per Mile of Track 12,476 1,516 Number of Cars in use 7,752 59,000 Urban Population per Car . 3,760 574 Number of Passengers carried 1,394,452,983 5,521,509,521 Average Annual Number of Rides per •' capita of Urban Population 48 161 Average Fare per Passenger 1.13d. i.88d. countries as late as 1905. That far greater tramway facilities existed in the United States than in the United Kingdom is clearly revealed by the table. In proportion to their urban population the United States had eight times as many miles of track and about seven times as 1 Report of the National Civic greater in the United States than in Federation Commission on Public the United Kingdom. Ownership, part i. vol. i. p. 447. - Ibid, part i. vol. i. pp. 445, The rate of increase was slightly 446. 36o MUNICIPAL TRADING chap. many cars in use as the United Kingdom. The only thing which appears to have been in favour of the latter country was the lower average fare per passenger. This was undoubtedly accounted for by the difference in selling policy : the graded fares in this country as contrasted with the uniform fares charged in America. There is nothing to show the average length of journey travelled by each passenger, which was probably much longer in America than over here. Another indication of the fewer tramway facilities which this country possessed as compared with the United States in 1902 is given by an inquiry showing the number of towns with different populations which were not served by tramways. In the United Kingdom there were two towns with populations exceeding 1 00,000, seven with populations between 50,000 and 100,000, and thirty-nine with popula- tions between 25,000 and 50,000 which had no tramways. At the same date in the United States there were no towns of these sizes without tramways.^ During the last ten years several of these British towns have doubtless obtained tramway facilities, but a good many are probably still without them. A comparison between individual British and American towns shows that the latter have a much longer tramway track in proportion to their populations than the former. For example, in Boston in 1902 there were 253 miles of track, or i for every 2073 of the population served.^ In Manchester in 1905 there were 146 miles of track, or i for every 5^30 of the population served.^ In the twenty largest towns in the United States with a combined popula- tion of nearly thirteen millions there were 5966 miles of tramway track in 1902, or i for every 2155 of their population. In the twenty largest towns in the United Kingdom, with a combined population of fourteen and three quarter millions, there were 1567 miles of tramway track in 1905, or i for every 9426 of their population.* 1 Report of the National Civic ^ The population served was Federation Coiiiniissioit on Pttblic 850,000. Owttership, part i. vol. i. p. 446. * Report of the National Civic ^ The population served was Federation Comtnission on Public 594, 618. Ownership, part i. vol. i. pp. 448, 449. viii THE RESULTS OF MUNICIPAL TRADING 361 It now remains to be considered what deductions can be drawn from these various figures. They undoubtedly throw much light on the relative progress in the two countries in the matter of electric traction, but they cannot be held to prove the superiority of private over public management. To draw such an inference from the figures is to ignore entirely the great differences in the conditions prevailing in the two countries. Attention may be drawn to a few of these. In the first place, the very dense net- work of railways in this country does away to a considerable extent with the need which exists in the United States for trams to provide for distant suburban and also inter-urban traffic. In the second place, American towns are generally far less compact than British towns, so that the need for tramway facilities is much greater in the former than in the latter. Further, towns in this country are generally so planned that people are able to live close to their work, and the need for tramways often does not exist. If the area, instead of the population, served were taken as a basis for comparison, British tramways would compare much more favourably with American tramways. In the third place, the standard of construction is much higher in the United Kingdom than in the United States ; from a financial point of view it may be better not to lay the permanent way so thoroughly or to employ such substantial overhead equipment, as these things entail a heavy expenditure and seriously increase the capital charges of such undertakings as are entered upon, and the prospect of these heavy capital charges prevents other lines from being constructed at all, and thus checks the expansion of tramway facilities. On the other hand, from the point of view of the safety, comfort and convenience of the passengers and of the general public who use the streets, it is hardly possible to adopt too high a standard of construction. The higher value attached to life in this country and the stricter control exercised by the Central Government over the construction of tramways undoubtedly account largely, if not entirely, for the cost of construction being higher in the United Kingdom than in the United States. Differences in the habits of the people, and also of the law in the two countries, have probably 362 MUNICIPAL TRADING helped to bring about the greater expansion of the tramway system on the other side of the Atlantic than on this. There is no evidence to show that public ownership has had the effect of checking the growth of tramway facilities in this country. At the time when this industry was entirely managed by companies, it was conducted on a very small scale only. However progressive private enterprise may have been in the United States, it did not effect very much in the United Kingdom. This was doubtless partly due to the law, as indicated above, the limitation of leases to twenty-one years under the Tramway Act, 1870, being likely to check the development of tramways to some extent. This piece of legislation was enacted by Parliament, for good or for evil, and the local authorities cannot be held responsible for any consequences which may be attributed to the short-lease system. Since the days of the municipalisa- tion and of the electrification of tramways, progress has been much more rapid, though it is impossible to say how much is due to the one cause and how much to the other. In any case it can safely be asserted that municipal enter- prise has done as much, if not more, than private enterprise to help on the development of the British tramway system. In the table which follows, the expansion of tramways in Table showing the Development of the Tramway Systems of the United Kingdom from 1886 to 1910.^ Year. Length of Route open for Public Traffic. Number of Cars. Total Number of Passengers carried. Miles. 1886 .... 865 3,440 384,157,524 1894 . . . . 975 4,179 616,972,830 Percentage increase since 1886. 12.7 per cent 21.5 per cent 60.6 per cent 1902 .... 1,484 7,752 1,394,452,983 Percentage increase since 1894 . 52.0 per cent 85.5 per cent 126.0 per cent 1910 .... 2,562 12,350 2,743,189,439 Percentage increase since 1902 .... 72.6 per cent 59.3 per cent 96.7 per cent ' Board of Trade Returns 7-elaiing to Tratmvays and Light Railways. VIII THE RESULTS OF MUNICIPAL TRADING 363 the United Kingdom since 1886 is briefly indicated. The year 1886 represents company management at its prime. By 1894 the first cases of the introduction of municipal management had occurred the Corporation of Glasgow, for example, taking over its tramways in that year. Between 1894 and 1902 the processes of municipalisation and electrification made considerable progress, and this has been continued since 1902. One further comparison which is sometimes made between American and British tramway undertakings relates to the distance which can be travelled for 5 cents or 2:|d. In Baltimore, for example, a passenger for 5 cents can ride 10.6 miles without changing cars, and 17.3 miles by means of a transfer. In Glasgow the longest journey which can be made for 2^d. is 5.88 miles.'^ Such a comparison is absolutely worthless so far as the results of municipal trading are concerned, just as much as the converse pro- position would be, that in Glasgow a passenger can ride 2 miles for a penny, whilst in Baltimore it costs 5 cents to ride 2 miles. On the one system graded fares have been established, and on the other a uniform 5 cent fare. The advantages and disadvantages of the two fare policies have already been discussed ; " the adoption of the one or the other depends largely upon local conditions ; the intention of the one is to favour short or medium-distance travellers ; the intention of the other is to favour long-distance travellers ; a contrast between the cost of travelling a particular distance under the two systems conveys no information whatever concerning the efficiency of the two managements, it merely illustrates the effects of adopting the particular fare policies. In this country both local authorities and companies adopt graded fares, as they seem most suited to British conditions. In the United States uniform 5 cent fares predominate presumably because they are best suited to American conditions. The results of adopting the one fare policy or the other are, of course, different, as it is intended that they should be, but to base arguments in favour of public or private ownership on these differences is absurd. ^ Report of the National Civic Owne7-ship, part i. vol. i. p. 475. Federation Commission on Ptiblic ^ See pp. 236-238. 364 MUNICIPAL TRADING chap. The position with regard to the deductions which can be made concerning the results of municipal trading from international comparisons, the detailed application of which to British and American tramways has just been considered, may be summarised as follows : the conditions prevailing in any two countries are necessarily so diverse that it is impossible to attribute any differences, which may be noted in the results achieved by an industry in two selected countries, to any one particular cause, such as a predomin- ance of public ownership in one country, and private owner- ship in the other. The probability is that the different results achieved in two countries are due to the co-operation of many causes, and there is nothing to show to what extent, if at all, the form of management influences the results. It may be readily admitted that international comparisons are both instructive and suggestive, but they do not enable any definite conclusions to be drawn concerning the advantages and disadvantages of municipal trading. § 8. Sufficient details have been given concerning the various methods of measuring the results of municipal trading to bear out the statement at the beginning of the chapter, with regard to the difficulties involved in the employment of existing statistics for this purpose. Uncertainty about the completeness or accuracy of some of the figures employed, together with the complexity of the causes at work in many cases, make it almost impossible to form absolutely reliable conclusions on the basis of statistics about the effects of public ownership. Many of the statements commonly made about municipal trading on the strength of figures, similar to those examined in this chapter, cannot be justified, as more careful inquiries into all the surrounding circum- stances make other explanations equally, if not more, likely. This refers particularly to the indirect methods of measuring the results of municipal trading by comparing them with the results achieved by private trading. The application of the direct method of gauging the effects of public owner- ship is rendered difficult by the uncertainties associated with municipal accounting ; an undertaking which is apparently a financial success may really be in receipt of assistance from the rates, or in any case be barely paying VIII THE RESULTS OF MUNICIPAL TRADING 365 its way when it appears to be flourishing. Under any circumstances, the success of municipal trading cannot be fully measured by the net surplus realised, so long as the industry concerned is monopolistic in character. An undertaking of a local authority might quite well earn a large surplus by tendering an inefficient service and by charging high prices, and in this case the results could certainly not be described as satisfactory. What constitutes an inefficient service, and what must be regarded as high prices, depend entirely upon local conditions. There is no one standard of adequate service and reasonable prices. Prices which could be described as reasonable in one town might be extortionate in another. Often it is not even possible to compare directly the prices charged in different towns, as the same selling policy may not be adopted in each. Summarised data referring to a large number of undertakings, if interpreted with caution, may give useful indications concerning the results obtained, but can hardly do more. Too much reliance, however, must not be placed upon collective results, so far as the public utility services are concerned. Each local authority has its own problems to deal with, which are to a considerable extent related to the physical characteristics of the area served. The conditions in any one town are certain to be at least slightly different from the conditions in every other town, so that each town can fairly claim that its trading undertakings should be judged by themselves. To do this in the absence of any clearly defined standard of success, by which each under- taking could be immediately judged, and in view of the uncertainty concerning the accuracy of municipal trading accounts, would necessitate a detailed inquiry concerning every trading department, including an elaborate research into its financial history, to ascertain whether capital ex- penditure had been properly booked. The appalling proportions which such an investigation would reach, make the acceptance of collective results necessary ; but it must never be forgotten that these ignore local conditions, and that they are based upon material which at the best is not very accurate, and in some cases is probably distinctly inaccurate. CHAPTER IX SUMMARY AND CONCLUSION 8 I . In the course of the preceding chapters, in which the very large field of Municipal Trading has been briefly surveyed, the more important of the various reasons which account for the introduction of municipal trading in its different forms have been considered, and attention has also been devoted to the policies adopted by local authorities in managing their trading undertakings. Some of these are conducted on purely commercial lines, and others with a view to effecting social reforms, by supplying some sections of the population with products or services on more favourable terms than others. In many cases a municipality is prepared to manage reproductive undertakings at a loss in order to further the securing of conditions which are in the best interest of sanitation, of the public health, or of the general welfare. Such enterprises lie outside the scope of municipal trading, as they are deliberately subsidised from the rates, and are not conducted with the intention of being self-supporting. The first question which must be asked with regard to them, is not whether they are suitable for municipal management, but whether there is any justification for subsidising them from the rates. In attempting to answer this question it is not sufficient to consider each particular enterprise on its own merits. It is necessary to review the whole sphere of activities, present and future, of the local authority concerned. It is impossible to contemplate the great rise which has occurred of recent years in the rates of certain towns except with the gravest concern. Industries tend to migrate from those towns and new works 366 CH. IX SUMMARY AND CONCLUSION 367 will no longer be erected there. The local authority, far from benefiting the inhabitants by its well-intended schemes, may do them serious harm. The rates cannot be indefinitely increased without affecting the prosperity of a town, and as a consequence the undertaking by a municipality of any new function, which imposes a burden on the rates, wall tend to check the assumption of other functions which may be even more desirable. A local authority must fulfil certain obligatory functions which have been entrusted to it by the central authority, such as the maintenance, cleansing and lighting of the public roads and streets, the upkeep of police, the administration of justice, the sewering of the streets and the disposal of sewage, and the provision of facilities for elementary and higher education, and in every area rate- payers will have to contribute to the relief of the destitute. It is only after the cost of fulfilling the various obligatory functions has been met, that a municipality is able to judge what expenditure it is in a position to incur voluntarily without placing an unreasonable burden upon the ratepayers. The large increase in the expenditure of local authorities on education since the passing of the Education Act of 1902 has considerably restricted the resources of these authorities available for other purposes, and this only emphasises the need for making the most careful inquiries before embarking on any scheme which will impose a more or less permanent burden on the rates. §2. If, on account of the fact that the resources of local authorities are practically limited, it is necessary to examine every proposal to subsidise an undertaking from the rates in respect both of the urgency with which it is required, and of the position it occupies as compared with other schemes that may call for assistance at that time or at some future date, before it can be approved of, it is evident that a municipal undertaking which is established with the intention of being self-supporting, but which actually imposes a burden on the rates, is in an eminently unsatisfactory posi- tion. The local authority is forced into aiding such an undertaking, either without any opportunity of deciding whether it deserves assistance or not, or after previously considering the situation and reaching; the conclusion that 368 MUNICIPAL TRADING chap. the enterprise must be managed on self-supporting lines, if it is to be conducted as a public undertaking at all. A municipal electricity works is a case in point ; it is difficult to conceive of any ground on which the subsidising of such an undertaking from the rates can even be urged, let alone justified ; yet quite a number of local authorities find themselves compelled to make good deficiencies incurred by such enterprises. The existence of such a situation is probably due to one or both of two causes : to incompetent management and to misestimates as to the prospects of the enterprise when the plans for its establishment were under discussion. For the former, the responsibility rests entirely with the local authority, but for the latter, the central authority which authorises the undertaking and permits the necessary money to be borrowed is considerably to blame. Where the necessary powers are obtained by means of a provisional order, the department which is entrusted by Parliament with the granting of such order, the Board of Trade, for example, in the case of electricity and tramv,ays, should make more careful preliminary inquiries before granting orders which are applied for. The Board refuse to grant some electric lighting orders because they are not satisfied that the undertakings can be established without involving the local authorities in losses,^ but it is clear from the unsatisfactory results obtained by many municipal electricity works, either that the Board have not always acted according to this essentially sound policy, or that they have not been nearly strict enough in their requirements as to what constitute indications of a reasonable prospect that an undertaking will prove itself self-supporting. Experience shows that the councils of local authorities are often ambitious concerning the enterprises they would like to manage, that they are very optimistic with regard to the financial success which could be achieved by such enter- prises, and that at all times they are much more anxious to minimise the burdens of present ratepayers than to deal equitably by future generations of ratepayers. Under these circumstances, it is the duty of the central authority, through whatever agency it acts, in the first place, to take a sober and ' See page lo above. IX SUMMARY AND CONCLUSION 369 conservative view of the functions of local authorities and of the financial prospects of any enterprises which they may propose to undertake, and in the second place, to represent the interest of future generations of ratepayers, so that they may not be unduly burdened by the transactions of their predecessors. The Board of Trade, by sanctioning some of the more or less financially unsound proposals in connection with tramway and electricity undertakings which have been submitted to them from time to time by local authorities, share with the local authorities concerned the responsibility for the losses which have been incurred. The fact that an unfavourable decision on the part of the Board is not absolutely final, as a local authority can always proceed by way of a private bill, should make them very careful to err on the side of safety, whenever there is uncertainty as to the financial stability of any scheme which may be brought forward ; but, to judge by the results achieved, it is very doubtful if this is the view taken by the Board. Whatever blame attaches to the central authority for originally sanctioning schemes which have since proved to be unsound, a considerable share always, and in some cases the whole of the responsibility must rest with the local authorities. They have to answer for the planning and the management of the undertakings. It has been pointed out in the previous chapter that the purchase of current in bulk at high voltage from electric power companies appears to offer to many small towns a much better prospect of conducting electricity supply undertakings on a self-supporting basis than the maintenance of small municipal power stations. The adoption of this system is not restricted to undertakings to be established in the future. It would probably pay many local authorities to convert their existing generating stations into transforming stations and to purchase their current in bulk, yet they seem loath to adopt this course, presumably owing to the mistaken idea that it would be an undignified course for a local authority to adopt. Again, if the management of some of these undertakings displayed more initiative, it should be possible to increase considerably the sale of current with little or no increase in the fixed costs. Whether the plans of the electricity supply scheme 2 B 37° MUNICIPAL TRAIUNG thxp. as originally sanctioned were unsound or not, there seems little doubt that it rests with a good many local authorities to make a better financial showing than they are doing at present. The position with regard to tramways is somewhat different ; if once the mistake has been made of incurring a too great capital expenditure, it is almost impossible to remedy this until the permanent way and rolling stock wear out. Then, in a district with a small population a system of trackless tramways with its much lower capital costs, offers the best prospect of maintaining mechanical transit facilities on a self-supporting basis. In the meantime a good deal could be done in such towns, and even more in towns where the population is sufficient to justify ordinary electric tramways, by adopting a sounder policy with regard to the fi.xing of fares. To carry workpeople at certain hours of the da}' at cost price or even less than cost price, in a town which is composed almost cntirel)* of working-class people, is a suicidal policy to adopt. Vet this appears to be what is happening in a good many industrial towns. It is true that by law they arc generally limited with regard to the fares they may charge workpeople at certain times, but often they give much longer rides for workmen's fares than they are compelled to give.^ The limit is a halfpenny per mile or fraction of a mile, with a minimum fare of one penny. Many local authorities would be well advised to keep much closer to this limit and to allow little more than one mile to be travelled for a penny, little more than two for three halfpence, and little more than three for twopence. In this way it would be possible to grant more favourable terms to ordinary passengers than is now the case, and by this means remunerative traffic might be developed. Where it could be arranged to abolish work- men's fares entirely by making the ordinary fares comply with the conditions prescribed by law for workmen's fares, and in this manner to do away with all preferential treat- ment of certain passengers, the undertakings would probably be placed on a much sounder financial footing. 1 See Table of Fares in the Report regard to the Proposed Extension of of the General Manager of the Man- Workpeople' s Fares. Chester Corporation Tramways in IX SUMMARY AND CONCLUSION 371 § 3. If the deficits incurred by certain municipal trading enterprises were really measured by the debit balances shown in their annual accounts, the position of these under- takings would not be nearly so serious as it actually is, because there is good reason for thinking that the losses in many cases considerably exceed the nominal deficiencies. This subject was discussed at some length in the chapter on the Financial Aspects of Municipal Trading ; it was shown there that not infrequently items which should be charged to the capital or the revenue accounts of trading under- takings are not so charged, and further, that the provision for depreciation is often quite inadequate. There are some industries in which the cost of repairs and renewals varies very little from year to year, and in these cases an under- taking can be maintained in a high state of efficiency out of revenue without causing undue fluctuations in the annual surplus. But there are other industries in which the cost of renewals will be very heavy in some years and light in others ; under these circumstances it is essential that sums should be set aside out of revenue each year to meet future expenditure on replacements, in order that the finances of an undertaking may not be periodically disorganised, and that the annual financial statements may represent the position of the enterprise more accurately. Tramway and electricity undertakings are most distinctly of this latter type. The making of provision for renewals and replace- ments is very seldom obligatory in England and Ireland, and the Select Committee on the Repa)ment of Loans by Local Authorities recommended that power should be given to the sanctioning authority to make it a condition of their sanction that provision should be made for the probable annual average cost of repairs during the currency of a loan.^ They recommended, further, that the amount of such necessary provision should be fixed by the sanctioning authority, and should depend upon the character of the purpose for which the loan is required and the method by which it is to be repaid, and that compliance with this condition should in all cases be enforced by Government audit." Up to the ^ Report from the Select Committee Authorities, 1902, § 40. on the Repayment of Loans by Local ^ Ibid. § 40. 372 MUNICIPAL TRADING ruAP. present nothing appears to have been done to give effect to this recommendation, which is a matter for regret. The effect of making inadequate provision out of revenue to pay for the cost of renewals and replacements in the case of industries, where current revenue will not suffice for this purpose, will be that fresh loans will have to be contracted for the purpose. In this way one of three situations will be brought about. Firstly, if the new loans together with the outstanding loans in respect of the undertaking are less than the original loans, the burden of debt is presumably some- what less than it was at the outset ; secondly, if the new loans together with the outstanding loans are equal in amount to the original loans, the debt is practically perpetuated, and in this way the policy wisely adopted by the central authority in the interests of future generations, that local authorities shall not establish permanent debts, is defeated ; thirdly, if the new loans together with the outstand- ing loans exceed the original loans, the burden of debt has been increased, unaccompanied by any corresponding increase in the earning capacity of the undertaking. This is a most unenviable position for any enterprise to occupy ; it implies that very considerable assistance from the rates will be required sooner or later. All these situations are caused primarily by the failure of the local authority to make good the wear and tear out of revenue, but the last and most unsatisfactory of all, is due in a secondary measure to the fact that the period granted for the repayment of the loan was too long. For this, of course, the authority which sanctioned the loan is responsible; but their task of estimating the probable life of an undertaking is not infrequently one of extreme difficulty, as the actual life of any works must depend so much upon circumstances over which the central authority has no control, as, for example, upon the way in which the works are used and the state of repair in which they are kept by the local authority, and upon scientific and technical discoveries which may be made. The probable life of an undertaking, or preferably something less than that, so as to reserve a margin of safety, appears to be the only feasible basis to adopt in fixing the period of repayment for unproductive undertakings, but in the case of trading enter- IX SUMMARY AND CONCLUSION 373 prises this basis, with its attendant uncertainties, could very well be abandoned in favour of adapting the period of repayment to the financial circumstances of the local authority concerned, or to the trading prospects of the particular trading undertaking, provided that provision for depreciation on ajt adequate scale were made compulsory. The basis on which depreciation must be provided would be fixed at the outset by the sanctioning authority, as far as possible in a manner which would lead automatically to larger provision being made, the larger the use which was made of the plant. Thus a tramway undertaking might be compelled to contribute annually at least one penny per car mile run to a depreciation fund. In any case, however, the sanctioning authority would have to have power to re- adjust the depreciation basis at any time, if it was considered desirable to do so. S 4. Assuming proper provision were made for deprecia- tion, a trading undertaking could be treated as an institution of permanent utility. As has been pointed out elsewhere, this would be no reason for allowing the formation of a per- petual debt in respect of it, but the sanctioning authority would be left with greater freedom in fixing the repayment period than if the works were only of temporary utility. Under these circumstances, the first thing the sanctioning authority should look to would be the probable earning capacity of the undertaking. The estimated balance of net revenue, after debiting the obligatory depreciation allowance and all proper charges to the net revenue account, should be ascertained, and it should be arranged if possible that the sinking fund contribution should be something less than the estimated balance of net revenue, so that the undertaking might be entirely self-supporting. In small towns it would frequently be necessary to make the repayment period fairly long, say forty-five, fifty, or even sixty years, in order to reduce the sum to be devoted for debt repayment to such dimensions as could be met out of the net surplus revenue. In larger towns where the net surplus revenue would probably suffice to repay the loans in a much shorter period, perhaps in twenty to thirty years, or even less, the other consideration in fixing the period for loan repayments, namely, the general 374 MUNIC/PAI. TRADIXC. lha' financial circumstances of the local authority concerned, should be taken into consideration ; and if the rates are hi<;h, if the loan charges are very considerable, if heavy capital or annual expenditure is likely to be required in the future in connection with improvement schemes or otherwise, unduly long repayment periods should not be sanctioned, especially as these must always involve a certain element of risk owing to the possibility of works becoming obsolete before they arc worn out. Kven if the obligations of a local authority arc comparatively small, so that the urgency for repayment is not very great, it is probably well not to allow a jicriod exceeding forty >'cars for repayment, providing it is anticipated that the net surplus revenue will prove sufficient to allow the loans to be paid back in that number of years without imposing a burden on the rates. In any case, for however long a loan for trading purposes may be sanctioned, it would be well that the instalment system of repayment should be adopted,' in view of the fact that a much smaller total payment of capital and interest is involved than on the other systems, and that the debt charges remaining will be less, if obsolescence or some unforeseen contingency renders the works useless, or if the provision made for depreciation ultimately proves to be inadequate. If the provision of a renewals and replacement fund were obligatory, in all cases where an undertaking cannot be efficiently maintained out of current revenue, a town council would no longer be in a position to act so unfairly towards future generations as they do now, if they require one of their trading undertakings to pay over a sum in relief of the rates, when cither no provision or grossly inadequate provision has been made for depreciation. Illustrations of such transactions in connection with municipal electricity and tramway undertakings have been given in a previous chapter. In some of these cases the net revenue, after meeting other charges, might just be sufficient to enable a suitable sum to be set aside for renewals and repairs and to leave over the balance necessary for debt repayment ' See page 151 above, and also the Ref^aytiient of Loans by Local Report from the Select Committee on Authorities, 1902, § 19. IX SUMMARY AND CONCLUSION 375 purposes. In other cases it would not suffice, but a suitable sum should be set aside, nevertheless, to meet future renewals and replacements, and the consequent deficiency in the amount necessary for debt repayment should be made good out of the rates, or carried forward to be eliminated out of future surplus revenue. Instead of leaving the trading committee to dispose of its revenue in the proper manner, and if necessary making good a deficiency out of the rates, the town councils demand contributions from these depart- ments which, strictly speaking, they are not justified in paying. Such contributions represent the exploitation of future ratepayers for the advantage of the present ratcpaxers ; momentarily the rates are relieved at the expense of the capital invested in the trading undertakings, and the un- pleasant necessity of raising the rates to meet the outlay incurred by local authorities in fulfilling their functions is postponed. Ultimately a day of settlement must come, and the burdens will be shifted on to shoulders where they ought never to have rested ; expenditure which should have been met out of current revenue at the time when it was incurred, has been capitalised, and to meet it what are practically forced loans have been raised from the trading undertakings concerned, which are thereby placed in unsound financial positions which might have been largely, if not entirely, avoided if the undertakings had been fairly treated by the local authorities which owned them. Although many town councillors and present ratepayers, in their efforts to secure their immediate objects with the least expense to themselves, may be utterly indifferent to the financial interests of future generations, these are entitled to consideration, and it is the duty of the central authority to protect their interests, if a local authority fails to do so. The making compulsory of an adequate provision out of revenue for depreciation in cases where such is necessary', would, in addition to encourag- ing sounder finance, possess the advantage of affording to future generations some protection from an abuse in respect to which the central authority is at present powerless to help them. 8 5. Owing to the complicated character of municipal trading finance and the difficulty which exists at present in l-jd MUNICirAL JKJ/'IXr, CHAP. obtaining accurate information conccrninf:;^ the true position of these trading undertakings, the introduction of a really comprehensive and efficient system of auditing is badly needed. The recommendations on this subject made by the Joint Select Committee on Municipal Trading in 1903 have been considered elsewhere ' and need not be repeated here. But it is worth while noting that if the formation of depreciation funds were made obligatory, some new system of auditing would have to be introduced, as it would otherwise be impossible to ascertain whether adequate provision for future renewals and replacements was being made or not. To express an opinion on this subject, as well as to see that all expenditure incurred in connection with trading undertakings was properly debited to the trading accounts, would be included amongst the functions of the auditors of local authorities, if the recommendations of the Joint Committee were followed. § 6. One other matter in connection with finance calls for brief mention. In certain cases local authorities are expressly authorised to accumulate reserve funds up to a certain amount in connection with specified trading under- takings. The expression reserve fund is here used in the strict sense of sums set aside out of surplus net revenue, or profits, in order to strengthen the financial position of an undertaking. As far as the enterprise is concerned to which this limitation is applied, the limitation is objectionable in two ways. In the first place, it may easily be misunderstood and be regarded as applying to depreciation funds and other reserves which are set aside from net revenue to meet future liabilities, and which must be provided for before surplus net revenue, or profits, can be ascertained. There is good reason for thinking that the restriction frequently is misunderstood in this way, and that this is one reason why adequate provision is not made for renewals and replacements in certain cases. In the second place, the limitation upon the size of the reserve funds seems quite uncalled for under existing circumstances ; the accumulation of a large reserve fund out of profits would represent a provision for the relief of future ratepayers at ^ See pages 176-179 above. IX SUMMARY AND CONCLUSION 377 the expense of present ratepayers. It is quite contrary to the policy generally adopted by local authorities, and is very unlikely to occur ; but if it did, it would represent a comparatively small compensation only to future generations for the many burdens which are being bequeathed to them by the present generation. The effect upon municipal trading undertakings in general, of granting permission to accumulate reserve funds in certain cases, and of limiting the amount of such funds, must be considered. It may be assumed by an enterprise which is not expressly authorised to form a reserve fund that it has no right to do so, although actually there does not appear to be anything to prevent a local authority from building up a reserve fund out of the profits of its trading undertaking, if it wishes to use some or all of the profits in this way. Nevertheless, there do not appear to be very many enterprises which, without express authorisation, have formed such a fund, or paid for extensions out of profits, which practically comes to the same thing. If the expression reserve funds is misinter- preted to imply depreciation funds and other reserves against future liabilities, a local authority which is not expressly authorised to form a reserve fund may not merely set nothing aside out of profits to strengthen the financial position of its undertakings, but may not even charge provision for depreciation against net revenue, in the belief that it is not empowered to do so. No difficulty, real or imaginary, should be placed in the way of a municipality which wishes to conduct the finances of its trading under- takings on sound lines such as are approved of by the best commercial practice. Well-managed companies nearly always seek to accumulate good reserve funds out of profits so as to strengthen their positions and to increase their resources ; by this means the inconveniences arising out of fluctuations in annual profits are minimised, and any heavy unforeseen losses, which have not been specially provided for out of net revenue, can be written off out of accumulated profits instead of burdening current profits or even necessitating a reduction of capital. Amongst the alterations in the law in connection with the financial 37^ MUNICrrA L TRA DING .ma v. aspects of municipal trading which are desirable, re- moving all limitations on the size of reserve funds, and according to all trading undertakings the power to accumulate reserve funds, should be included, so that all doubt might be removed concerning what enterprises may form reserve funds. If at the same time the provision of a depreciation fund were made compulsory, in all cases where the provision of such a fund was desirable, the present confusion which appears to exist between such funds and reserve funds would be removed, or in any case would be rendered comparatively harmless in its effects. § 7. It is impossible to study the details concerning the management of municipal trading undertakings without feeling that the method of conducting their finances, in many cases, leaves much to be desired. There are various causes for this unsatisfactory state of affairs. In the first place, the wish of many local authorities to show favourable results with their trading enterprises frequently deters them from debiting various items to their trading accounts, which ought properly to be charged to them, and may lead them to credit too much to these accounts in respect of products sold or services rendered to themselves by these enterprises. In the second place, the absolute ignorance of many town councillors of the most rudimentary principles of accountancy, leads them to oppose proposals made on the advice of financial and technical experts with a view to securing the financial stability of the trading undertakings. In the third place, the possibility of shifting, to a considerable extent at least, the burdens arising out of present operations of local authorities on to the shoulders of future ratepayers, is a temptation to which many people, who are always only too anxious to postpone the unpleasantness associated with a day of settlement of any kind, give way very readily. In the fourth place, the anxiety of town councillors to gain popularity amongst the ratepayers and voters influences the finances of the trading departments in two ways : in October, before election time, it leads to concessions being made to the customers of the trading departments, without proper consideration having been given to the cost of the concessions, and in April, when the budget for the new IX SUMMARY AND CONCLUSION 379 financial year is being discussed, it leads to unreason- able claims being made on the trading departments for contributions in relief of the rates, in order to avoid the necessity of making heavier demands upon the ratepayers. The October policy has at least one advantage as compared with the April policy ; its effects are very quickly felt ; the decrease in revenue will soon be apparent, and if the decrease is too serious to be compatible with sound finance, the over-generous facilities will presumably be very shortly withdrawn.^ The situation is worse if the concessions are greater than an undertaking can really stand, but not so great as to make the financial unsoundness of the enterprise apparent to even the most casual observer. Under these circumstances town councillors may hesitate about withdrawing concessions once granted, for fear of incurring unpopularity, and the position of the undertaking may be allowed to grow steadily from bad to worse. The April policy is always dangerous, because years may elapse before the consequences of encroachments upon the depreciation funds will be clearly revealed. § 8. The unsatisfactory character of municipal trading finance in many towns is one very serious drawback to local authorities engaging in trading enterprises, in this country at least." Another drawback of municipal trading is that it involves the employment b\- local authorities of large bodies of labour. It is perfectly right that municipalities should be good employers, and that they should give their workpeople adequate wages and fair conditions with regard to hours, holidays, etc., in accordance with the generally accepted standards in the various districts. In skilled occupations, where trade union rates of pay and hours of labour are adopted by private employers, ^ The experience of Salford Cor- undertakings and from .studying a good poration Tramways, mentioned on deal of published information on the p. 266, is a case in point of conces- subject, is that the trading enterprises sions granted and then withdrawn after are conducted on distinctly sounder a year. financial bases than in this country ; 2 My general impression with regard but as my inquiries were chiefly re- to municipal trading in Germany, stricted to larger German towns, and gathered from the interviews I had cannot be said to have been representa- over there with various municipal live, I refrain from drawing any definite officials, from examining the Annual distinctions between English and Reports and accounts of numerous German conditions. 38o MUNICIPAL TRADING chap. a municipality can employ its labour on the same terms and probably no difficulties will arise. Unfortunately, most workpeople in the employ of municipalities are of the unskilled or semi-skilled type, in connection with whom a recognised standard of wages or of hours of labour seldom exists. As a consequence, unduly favourable terms may be granted to these workpeople at the expense of the general body of ratepayers, and in this way a small privileged class of wage-earners may be created. This may be brought about by the direct agitation of the municipal workpeople or by the advocacy of their claims on the town councils by particular members, who make themselves the spokesmen of the workpeople. A municipality is really a co-operative society, of which all ratepayers are members, yet the councillors sometimes forget their duties to the ratepayers, and seek to exploit that body in the interests of particular people. Their conduct in this respect may be contrasted with that of the committee men of a distributive co-operative society ; the employees of such a society are treated well by the working-class people who constitute its membership, but any attempt by the committee to offer employees over-generous terms would be certain to arouse strong opposition among the members. The committee men realise this, and do not forget that they manage the society on behalf of the members. Working men, who, as members or officials of a co-operative store, will act reasonably and fairly by their employees and resent any attempt to over-pay them, will often, as rate- payers or town councillors, support movements to improve the positions of municipal labourers, without any reference to the value of the services rendered. Whether it is because they personally will suffer less financially if the municipal wages bill is increased at the expense of the rates, than if a co-operative society's v/ages bill is increased at the expense of the " dividend," or, in the case of councillors, because they are anxious to curry favour with those municipal employees who are ratepayers, or for other reasons, it is difficult to say. The same thing applies to many town councillors who do not especially represent labour interests ; they adopt one scale of wages as fair and IX SUMMARY AND CONCLUSION 381 reasonable in any firm or company in which they may be interested, and another and higher scale on the Town Council. It is not quite certain how the general body of ratepayers regards these attempts to create a highly favoured and privileged class of municipal employees, but it does not appear to give very much consideration to the matter, the interest at stake being so small in the case of most individual ratepayers. On general principles, the employment of a large body of unskilled labour by a local authority cannot be approved of ; in the first place, it fosters a somewhat loose standard of honesty according to which people are prepared to spend ratepayers' money freely, if not extravagantly, in a way in which they would never do if it were their own, instead of acting in the true interests of the present and future rate- payers, for whom they are practically trustees. In the second place, the growth in the number of municipal employees increases the danger of corruption ; the tempta- tion to councillors to act in a manner which will please those ratepayers who are municipal employees, instead of in the best interests of the ratepayers in general, becomes greater. In the third place, the existence of a highly favoured and privileged class of municipal employees affords most undesirable opportunities for nepotism and jobbery ; wherever a local authority engages its workpeople on the recommendation of the councillors, as is not uncommonly the case, the multiplication of jobs under a council offers dangerous facilities for abuse. There are other drawbacks to municipal trading in addition to its financial and labour aspects. With the continual increase in the duties imposed upon, or voluntarily undertaken by, the councils of local authorities, there is a serious danger of these bodies being overworked. The list of committees and sub-committees in connection with commercial administrations grows, and council meetings last longer, and have to be held more frequently to deal with the additional business involved by the new functions. One effect of this will tend to be that many able, experienced men, whose knowledge of finance and business organisation render them most suitable to share in the local administra- 382 MUNICIPAL TRADING uiai-. tion, will find themselves unable to spare the requisite time. Another effect may be that town councils will devote insufficient attention to carrying out some of their functions. A further drawback to municipal trading, which is one that applies to all government trading, is that less initiative and enterprise is likely to be shown by the management than would be the case if the undertakings were managed privately. S 9. Taking all the attendant circumstances and conditions into consideration, municipal trading in itself cannot be regarded as a desirable institution ; the management of industrial undertakings is not really a suitable sphere of activity for a local authority. Nevertheless, in certain cases it may offer a reasonable prospect of serving the general public better than private enterprise, and in consequence the municipalisation of particular industries may be justified. These industries are such as have a strong tendency to become local monopolies, which is generally true of tramways and of water, gas, and electricity supply under- takings. As water is an absolute necessary of life, and tramways and gas are used very largely by the general public, a private monopohst could not be left absolutely free to charge what he liked, and to provide such service as he chose. It would hardly be fair, in view of the local monopoly it possesses, to leave an electricity company entirely unrestricted in the matter of the treatment it may give to its actual customers and would-be customers, even o though electric current does not partake of the character of a necessity from the point of view of the majority of rate- payers. The need arises to control the private monopolists in some way ; the fact that they require the use of the streets for the purpose of conducting their businesses, which is often put forward as a reason for municipalising these undertakings, compels them to seek authorisation from the central or local authorities. This affords an opportunity for imposing restrictions upon the monopolists, but un- fortunately experience shows that it is practically impossible to draft a lease or franchise embodying the various con- ditions, in which, sooner or later, one or more serious defects may not prove to exist. The difficulty of exercising IX SUMMARY AND CONCLUSION 383 satisfactory control over many monopolistic tramway, water, gas, and electricity undertakings affords the principal justification for their municipalisation. There can be no general rule on the subject, each individual case must be considered on its own merits. If there is a reasonable prospect that a local authority, whilst conducting the undertaking on a self-supporting basis, will be able to provide a better service on more favourable terms than a company, which is already in existence or which is about to be formed, a municipality will probably be justified in managing a tramway, water, gas, or electricity undertaking. In the case of water, and to some extent in the case of tramways ^ and gas, considerations of the public health and general welfare strengthen the movement in favour of municipalisation. Apart from water, gas, electricity, and tramway under- takings, and also market undertakings, which occupy a somewhat special position, as was pointed out in Chapter II., there are certain industries, subsidiary to these undertakings, the engaging in which by local authorities appears to be justifiable, although the industries may be actually com- petitive in character. If the conduct of these industries by local authorities is essential to the successful management of gas and other local monopolistic undertakings by them, or if it evolves directly out of such management, it would not be fair to refuse the local authorities permission to carry on the industries. Under any other circumstances, with one or two small exceptions, the management of competitive enterprises by municipalities is strongly to be deprecated. The exceptions have been fully discussed in a previous chapter ; here it may be mentioned that they include a small amount of experimental house-building, where such is necessary to form a basis for new and better building regulations, or for town-planning schemes, and the provision of savings banks where suitable facilities for the safe keeping of small sums of money are not provided by the central government or by private undertakings of high-class standing. 1 I do not refer to the granting of opposed, but to the arrangement of the assistance to certain classes by means fares in such a w ay as to combat as far of preferential treatment, to which, as as possible the tendency to congestion will have been noted previously, I am in the centre of larger towns. 384 MUNICIPAL TRADING chap. ^10. If a certain amount of municipal trading is to be permitted, in spite of the drawbacks which arc connected with it, it becomes necessary to inquire how these draw- backs can be minimised. As far as the weaknesses associated with municipal trading finance are concerned, various suggestions have already been made whicii, if carried into effect, should add greatly to the financial stability of the trading undertakings of local authorities. It is difficult to put forward any scheme by which the objections to the direct employment of large bodies of labour by municipalities can be overcome, but the danger of nepotism and jobbery can at least be considerably reduced, if the appointment of all workpeople is left entirely in the hands of the principal officials of the different departments, and if it is expressly understood that a recommendation from a councillor is to disqualify any applicant. In what concerns the overworking of town councils, the German system of appointing a certain number of salaried aldermen, who devote their whole time to the municipal service, and act as chairmen of the different committees, probably offers the best solution ; this would really amount to adopting in a modified form the arrangement by which a Member of the House of Commons or of the House of Lords is head of the great State trading department in this country, viz. the Post Office ; only instead of making the chairmanship of a municipal trading committee a political office, the occupation of which would depend upon what party happened to be in power, as is the case with the Postmaster-Generalship, it would be occupied by that salaried alderman w^ho appeared to be best qualified to fill the position successfully. If the different committees were presided over by paid chairmen, who v^rere also members of the councils, it should be possible for town councils to exercise a general control over each department without concerning themselves with such small details of departmental administration as they do at present, and in this way the amount of work which they have to do would be reduced to more reasonable proportions than is often the case at present. Further, the difficulty of finding councillors, who have the ability and requisite amount of spare time to make good chairmen of IX SUMMARY AND CONCLUSION 385 committees, would be largely overcome. Already a good deal of the work, which has nominally to be done by committees, is left to the chairmen because the members of the committees cannot afford to give the necessary time ; if the chairmen were salaried aldermen, giving their whole time to the municipal service, even more duties might be allotted to them than are at present undertaken by them voluntarily, and in consequence more moderate claims might be made upon the time of the members of committees. That the management of municipal trading undertakings lacks enterprise and initiative is due, of course, to the fact that those who are responsible for the conduct of the management have no direct financial interest in the success of the undertaking ; such a direct financial interest is not merely an incentive to people to do their utmost to develop a business, but acts involuntarily as a break upon any inclination towards recklessness and extravagance ; it both encourages and restrains men in their business transactions, and enables them to conduct undertakings so that their efforts neither run in grooves nor savour of speculation and rashness. The directors and officials of companies frequently have not enough at stake to call for the best that is in them, however hard they may try, and in the case of a municipal undertaking the committee and manager have practically nothing at stake at all. Under the circum- stances, the only course which seems to offer a reasonable chance of introducing a progressive spirit into the manage- ment of such undertakings is to pay good salaries to the high officials, so that men of first-rate ability may be attracted into the service. There are undoubtedly many able men in the service of British municipalities at the present time, but the salaries paid to the managers of trading undertakings, by the smaller local authorities in any case, are often absurdly inadequate in view of the responsibility of the positions, if good men are to be attracted and kept. It is a great mistake to think that because an undertaking is not large it is easy to manage ; to make a tramway or electricity undertaking self-supporting in a small town calls for very considerable ability in the 2 C 386 MUNICIPAL TRADING chap. manager, and it would often pay local authorities to offer better salaries than they do at present. In this country, the final decision whether a local authority shall engage in a particular trading enterprise rests with the central authority, but before any bill or provisional order is promoted by a corporation those local ratepayers, who have a vote, have an opportunity of express- ing an opinion upon it, either at a public meeting or at an inquiry held by an inspector of one of the Government departments. In some cases a poll of the voters is taken. In view of the fact that it is the people who pay the rates who are ultimately responsible for any municipal under- taking, both as guarantors of any loans raised and as the source from which any deficits incurred will have to be made good, it is only right that they should be consulted before any new enterprise is established with their money. Under the present system they are not all consulted, and, on the other hand, very often some people are, who pay no rates directly. The former situation is due to the fact that many large ratepayers are incorporated companies which possess no votes. The latter situation is due to the compounding system by which landlords pay the rates in respect of small dwellings and let them at inclusive weekly rents. The tenants pay rates indirectly only, and do not feel movements in the rates due to unsuccessful trading results, or to subsidies granted to reproductive undertakings, in the same way in which they would if they paid rates directly. That large ratepayers, like railway companies and limited companies, should have no say in the establishment of new municipal trading undertakings, whilst tenants of small property, who pay no direct rates, have a say in the matter, is quite inequitable. It would be much fairer if individuals and firms, however organised, who reside or who carry on business in a local area, were consulted in their capacity as ratepayers and not simply as voters. § 1 1. The subject of municipal trading is very complex ; in connection with some aspects of the problem a very fair amount of material is available in official or semi-official publications, but with regard to other points all information IX SUMMARY AND CONCLUSION 387 must be collected at first hand, and it is impossible for a private investigator to secure enough on which to base anything more than suggestions of what such facts as have been ascertained appear to point to. The opinions expressed in this book have been gradually formulated as a result of several years' study of the practical working of municipal trading. If more complete and more detailed information on the subject could be ascertained, it might be established that some of the conclusions drawn here are not based on representative facts, or, in other words, that the undertakings selected at hazard for the study of particular points were not typical. Subject to this reserve, and in the hope that a thorough and systematic official investiga- tion of the whole subject may be made before long, the general conclusion reached in this book may be repeated, namely, that municipal trading in itself is undesirable, but that nevertheless a certain amount of it may be justified, owing to the fact that in certain industries private enter- prise may give even less satisfactory results than municipal enterprise. APPENDIX A BIBLIOGRAPHICAL NOTE The number of publications bearing on municipal trading is very great, and it is only possible to indicate here some of the more important sources of information. The Report from the Joint Select Comtnittee of the House of Lords and the House of Commons on Municipal Tradings 1900, consists of only ten lines, but the Minutes of Evidence and the Appendix contain much valuable information bearing on almost all aspects of the problem. The most comprehensive official collection of material relating to municipal trading in practice is a Farlia?netitary Return for the years 1902-3, 1903-4, 1904-5, and 1905-6. The scope of this return can best be indicated by its full title : " Return showing for the London County Council, the Corporation of the City of London, the Council of each Metropolitan Borough, the Corporations of the Municipal Boroughs of Liverpool, Manchester, Birmingham, Leeds, Sheffield, Bristol, Bradford, West Ham, Newcastle-upon-Tyne, Kingston-upon-Hull, Nottingham, Salford, Leicester, Portsmouth, Bolton, Cardiff, Sunderland, Oldham, Croydon, Blackburn, Brighton, Derby, Preston, Norwich, Birkenhead, Gateshead, Plymouth, HaUfax, Southampton, South Shields, Burnley, East Ham, Huddersfield, Swansea, Wolverhampton, Stockport, Middlesbrough, Stockton-on-Tees and Blackpool, and the Corporations of Edinburgh, Glasgow, Dundee and Aberdeen, the nature and extent and, for each of the last four years for which figures are available, the financial results of reproductive municipal undertakings, including, for each undertaking separately, a short description thereof, date and terms of original acquisition or establishment or subsequent extension, how managed, capital employed and how obtained, value of the undertaking, capital paid off and outstanding, loan charges, provision for depreciation, gross income and expenditure, net profit or loss, how profit is allocated or loss met, amount of relief or burden to rates, number and salaries of the chief paid officials, number of workpeople, rate of wages paid in chief classes of labour, and prices charged for products or services supplied or rendered." 389 390 MUNICIPAL TRADING The return, which occupies over a thousand pages of folio size, was published in six parts (171, 171 I., 171 IL, 171 HI., 171 IV., 171 V.) during 1909 and 19 10, so that it was somewhat out of date already when it appeared. The Report from the Joint Select Committee of the House of Lords and the House of Cofnmons on Municipal Trading, 1903, deals almost exclusively with municipal accounts, with regard both to the form in which they are prepared and the systems under which they are audited. The report is only short, but there is a considerable amount of evidence and a long appendix. Another Parliamentary paper which is concerned with the financial aspect of municipal trading is the Report from the Select Committee on the Repayment of Loans by Local Authorities, 1902. Much in- formation concerning labour conditions in gas, electricity, water and tramway undertakings, without reference to the form of management, is contained in the Report of an Enquiry by the Board of Trade into the Earnmgs and Hours of Labour of Work- people of the United Kingdom, vol. iv.. Public Utility Sendees in I go 6. Amongst the annual official publications are the Return relating to all Authorised Gas Undertakings in the United Kingdom belonging to Local Authorities, the Return of Street and Road Tramways and Light Railways, authorised by Act or Order and the Report by the Board of Trade respecting the Applicatiofis to and the Proceedifigs of the Board of Trade under the Electric Lighting Acts, 1882 to igo2. The first two give information concerning the revenue and expenditure of the undertakings, and the charges imposed and the quantity of gas sold or car miles run. No similar detailed returns for water and electricity are published, but summary statements concerning revenue and expenditure and loans outstanding of all the principal trading undertakings will be found in the Annual Local Taxation Returns. For many purposes it is absolutely necessary to refer to the Annual Reports and Financial Statements, the Regulations and the Scales of Charges issued by the various trading undertakings. In the case of the larger towns these Annual Reports are often most elaborate and comprehensive documents. Particularly valuable are the Special Reports issued from time to time in connection with particular trading departments, such as the Reports prepared by Mr. W. B. Peat, President of the Institute of Chartered Accountants, and Mr. F. W. Pixley, F.C.A., upon the Accounts of the London County Council's Tramways and upon the Accounts of the London County Council's Working-class Dwellings and Steamboats ; the Reports of Mr. J. Dalrymple, General Manager of the Glasgow Corporation Tramways, on Transfers and on Halfpenny Fares ; the Reports of Mr. J. M. McElroy, General Manager of the Manchester APPENDICES 391 Corporation Tramways, in regard to {a) halfpenny fares, {b) extension of the time during which workmen's fares are in operation, (f) special fares for working women, and (d) children's fares, published in April 1909, and in regard to the Proposed Extension of the Time during which Workpeople's Fares are in Operation, published in April 191 1 ; and the Report of Mr. G. W. Holford, General Manager of the Salford Corporation Tramways, with regard to the Depreciation and Renewals Fund. Sometimes these special publications do not take the form of reports, but merely contain information collected from various sources. Thus the Reading Corporation Tramways have published Summaries of Information from various Tramway Undertakings respecting Season Tickets and Books of Discount Tickets, and the Croydon Corpora- tion Tramways have published Information respecting Halfpenny Fares. A most useful and indispensable work is the Municipal Year Book, an annual publication containing a great variety of financial, statistical, and other information bearing on municipal trading in the United Kingdom. Another annual publication which is essential when dealing with the gas industry is Field's Analysis of Gas Accounts. For other sources of information the reader must be referred to foreign publications. The Report to the National Civic Federa- tion Commission on Public Ownership and Operation, entitled Municipal and Private Operation of Public Utilities (New York City, 1907), is a lengthy work in three volumes. The first contains the general conclusions and reports, the second is devoted to the reports of experts upon conditions in the United States, and the third is devoted similarly to the situation in Great Britain. The Committee of Investigation was formed of persons about equally divided into three groups, those regarded as " pros," those regarded as "antis," and those who were classed as having taken no pro- nounced position whatever. The method adopted was to select a certain number of public and private plants for examination, and experts were appointed to report upon the engineering and financial aspects of each undertaking. The undertakings selected for examination in this country were as follows : — Gas. — Municipal : Glasgow, Manchester, Birmingham, Leicester. Private : South Metropolitan Gas Company (London), Newcastle and Gateshead, Sheffield. Electric Lighting and Power. — Municipal : Glasgow, Manchester, Metropolitan Borough of St. Pancras, Liverpool. Private : Newcastle (both companies), London (Westminster Company, St. James and Pall Mall Company, Central Company, City of London Company). 392 MUNICIPAL TRADING Tramways. — Municipal : Glasgow, Manchester, Liverpool, London (Southern System of the London County Council). Private : Dublin, Norwich, London (London United Tramways), Bristol. As is only to be expected from the constitution of the committee of inquiry, some of the reports are favourable and some unfavourable to municipal trading. Amongst the German sources of information two call for special notice. The one is the Kommicnales Jahrbuch, edited by Dr. H. Lindemann and Dr. A. Siidekum (Gustav Fischer, Jena). It corresponds to the Municipal Year Book in this country, and is an equally useful publication. The other is a most comprehensive series of monographs edited by Professor C. J. Fuchs in connection with the Verein fiir Socialpolitik. It contains general surveys of the development of municipal trading in different countries, and detailed accounts of municipal trading in particular towns. There are also essays dealing with certain special points. The three volumes {Schriften des Vereins fiir Socialpolitik, vols. 128, 129, 130, Duncker and Humblot, Leipzig, 1908, 1909, 19 10) are entitled "Gemeindebetriebe. Neuere Versuche und Erfahrungen iiber die Ausdehnung der kommunalen Tatigkeit in Deutschland und im Ausland." The scope of the inquiry can best be indicated by a brief summary of the contents : — Vol. I. (pp. 440) Paul Mombert. Die Gemeindebetriebe in Deutschland. Theodor Kutzer. Erneuerungsfonds bei gemeindlichen gewerblichen Betrieben. Heinrich Silbergleit. Stadtische Betriebe zur Lebensmittelversorgung. Emil V. Dunker. Die kommunalen Einrichtungen Deutschlands fiir Fischversorgung. Leopold Spiegel. Kommunale Milchversorgung. Joseph Ehrler. Gemeindeschlachtereien. Emil V. Fiirth. Die stadtische tjbernahmstelle fiir Vieh und Fleisch in Wien und die erste Wiener Grosschlachterei-Aktiengesellschaft. Leo Wormser. Die kommunale Schweinemast in Karlsruhe. Wilhelm Weis. Die Verwertung der Gasnebenprodukte in den stadtischen Gasanstalten. Joseph Ehrler. Gemeindezeitungen, Druckereien und Plakatinstitute. Carl Mollwo. Kommunale Lagerhaiiser. M. Spiegel. Ledigenheime. Philipp Stein. Das Verhaltnis der freiwilligen und zwangsgemeinschaft- lichen Korperschaften in der Wohlfahrtspflege. APPENDICES 393 Vol. II. (pp. 1330) Ernst Busse. Die Gemeindebetriebe Miinchens. Otto Most. ,, „ der Stadt Diisseldorf. O. Landsberg. ,, ,, ,, Magdeburg. E. W. Schiele. ,, ,, „ Naumburg a/S. A. Busch. „ „ ,, Frankfort a/M. Otto Moericke. „ ,, Mannheims. Joseph Ehrler. „ ,, der Stadt Freiburg i/B. Dr. Bucerius. ,, ,, „ Remscheid. Paul Weigel. ,, ,, ,, Leipzig. Hugo Wasmuth.^l Georg Goldstein. V ,, ,, ,, Halle a/S. Paul Ochse. J Georg Neuhaus. ,, ,, ,, Konigsberg i/Pr. Heinrich Liicker. Die Gemeindebetriebe in den Stadten und Kreisen und Landgemeinden des Oberschlesischen Industriebezirks. Vol. III. (pp. 695) C. Horacek, Carl Schwarz, K. T. Wachter, L. Bernhard, and Julius Sylvester. Die Gemeindebetriebe in Osterreich. Gisela Michels-Lindner. Geschichte der modernen Gemeindebetriebe in Italien. Eugen Grossmann. Die Gemeindebetriebe der Stadt Ziirich. Ernest Brees. Les Regies communales en Belgique. Robert Schachner. Die kommunale Sozialpolitik in Australasien. H. Berthelemy. Les Industries communales en France. Douglas Knoop. The Trading Enterprises of Manchester. There are various books dealing with municipal trading ; the principal one is Leonard Darwin's Mtmicipal Trade; a smaller book by the same author is entitled Municipal Oivnerskip. Major Darwin takes an unfavourable view of Municipal Trading, and this attitude is even more strongly represented by Lord Avebury, On Mtmicipal and National Trading; Hugo R. Meyer, Mufiicipal Ownership i?t Great Britain ; Robert P. Porter, The Dangers of Municipal Trading, and W. G. Towler, Socialistn in Local Govern- ment. Two writers who favour municipal management are Bernard Shaw, The Commonsense of Municipal Trading, and R. B. Suthers, Mind your own Business. APPENDIX B LIST OF MUNICIPAL TRAMWAY UNDERTAKINGS IN THE UNITED KINGDOM la. On which Halfpenny Fares have been entirely adopted:^ — Aberdeen. Glasgow. Nelson. Ashton-under-Lyne. Ilford. Rotherham. Ayr. Kilmarnock. Sheffield. Darlington. Leeds. Stalybridge. Dundee. Leyton. Walthamstow. East Ham. London Count :y Council. West Ham. I^. On which Halfpenny Fares have been partially adopted : — Barking. Birkenhead. Ilkeston. Manchester. Plymouth. Preston. Southend. Stockport. Swindon. Ic. On which Halfpenny Fares have not been adopted : — Accrington. Belfast. Bexley. Birmingham. Blackburn. Blackpool. Bolton. Bournemouth. Bradford. Brighton. Burnley. Burton-on-Trent. Bury. Cardiff. Chester. Chesterfield. Colchester. Darwen. Derby. Doncaster. Dover. Erith. Exeter. Great Yarmouth. Gloucester. Halifax. Huddersfield. Hull. Ipswich. Keighley. Kirkcaldy. Lancaster. Leicester. Leith. Lincoln. Liverpool. Lowestoft. Maidstone. Newcastle. Newport. Northampton. Nottingham. Oldham. Perth. Pontypridd, Portsmouth. Rawtenstall. Reading. Rochdale. Salford. Southampton. Southport. South Shields. Sunderland. Wallasey. Walsall. Warrington. Wigan. Wolverhampton. York. ^ Croydon Corporation Tramways, hiformation respecting Halfpenny Fares, February 191 1. 394 APPENDICES 395 Ilfl. On which Transfers are issued on the Whole System : ^ — Burnley. Halifax. Leith. Southampton. Cardiff. Hull. Northampton. Stockport. Croydon. Ipswich. Perth. Sunderland. Dover. Keighley. Preston. Walthamstow. Gloucester. Wb. On which Transfers are issued on Certain Sections :- Barking. Chester. Lancaster. Maidstone. Bexley. Darwen. Leyton. Newport. Birkenhead. Dundee. London County Pontypridd. Bournemouth. Ilkeston. Council. Southend-on-Sea. Bury. lie On which Transfers were issued, but have been discontinued: — Belfast. Liverpool. Wigan. Wd. On which no Transfers are issued : — Aberdeen. Accrington. Ashton-under- Lyne. Ayr. Birmingham. Blackburn. Blackpool. Bolton. Bradford. Brighton. Burton-on-Trent. Chesterfield. Colchester. Darlington. Derby. Doncaster. East Ham. Erith. Exeter. Glasgow. Great Yarmouth. Huddersfield. Ilford. Kilmarnock. Kirkcaldy. Leeds. Leicester. Lincoln. Lowestoft. Manchester. Nelson. Newcastle-on- Tyne. Nottingham. Plymouth. Portsmouth. Rawtenstall. Reading. Rochdale. Rotherham. Salford. Sheffield. Southport. Stalybridge. Wallasey. Walsall. Warrington. West Ham. Wolverhampton. York. ^ Report of the General Manager of the Glasgoiv Corporation Tramways on Transfers, July 1910. APPENDIX C HOURLY TRAFFIC ON TYPICAL MANCHESTER AND GLASGOW TRAM ROUTES The following are the figures upon which the Traffic Diagrams on page 244 are based. The Manchester Route is that between Levenshulme and the City, the Glasgow Route that between Kelvinside and Dennistoun. Manchester. Glasgow. Inward Journey. Outward Journey. Inward Journey. Ou tward Joiu-ney. Total Total Passengers carried. Passengers carried. Passengers Passengers Half. Penny Half- Penny carried. carried. penny Fares. 107 Fares and Upwards. Total. penny Fares. Fares and Upwards. Total. Up to 7 A.M. 7-8 „ 8-9 „ 1040 370 330 437 81 160 241 1330 230 188 553 741 37 71 108 2760 630 423 1 159 1582 195 273 468 9-10 „ 1340 610 261 729 990 259 290 549 lO-II ,, 460 390 146 448 594 170 224 394 11-12 noon 480 560 170 446 616 162 184 346 1 2- 1 P.M. 660 920 292 589 881 388 647 1035 1-2 ,, 900 750 3S8 983 1371 541 665 1206 2-3 -> 1 100 670 405 822 1227 337 460 797 3-4 „ 650 770 317 720 1037 281 321 602 4-5 >, 5-6 „ 6-7 „ 7-8 „ 8-9 „ 600 1080 334 726 1060 333 396 729 810 2280 335 764 1099 461 775 1236 930 2030 329 851 1 180 366 667 1033 740 1 140 314 787 IIOI 368 428 796 780 920 176 466 642 258 239 497 9-10 ,, 420 680 154 440 594 206 354 560 lO-II ,, After II „ 460 740 1060 470 139 29 329 lOI 468 130 244 58 330 216 574 274 306 APPENDIX D SUPPLEMENTARY STATISTICS CONCERNING MUNICIPAL TRADING DURING 19 I O- I I "he most recent figures concerning Municipal Water, Gas, Electricity, and Tran Jndertakings in England and Wales, which appeared too late to be embodiei Chapter VIII., are given in the Table which follows. Table showing for the Year 1910-11 the Receipts and Expenditure of the Prin Classes of Rate-spending Local Authorities in England and Wales in respe< Water, Gas, Electricity, and Tramway Undertakings : ^ — Items. Water Undertakings.2 Gas Undertakings. Electricity Undertakings. Tramway Undertakings. All Undertak £ £ £ £ £ Receipts in Respect of Pro- ducts or Services sold 5,305,000 8,351,000 5,425,000 9,041,000 28,122, Sums transferred from Rates to meet Deficiencies 516,000 7,000 66,000 128,000 717 Total Receipts from Sources other than Loans . Expenditure, including Loan Charges and Cost of Maintenance 5,821,000 8,358,000 5,491,000 9,169,000 28,839 5.543.000 7,489,000 4,967,000 8,229,000 26,228 Payment to Reserve, De- preciation or Insurance Funds . • • • 109,000 197,000 245,000 633,000 1,184 Surplus Revenue devoted to Relief of Rates Total Expenditure met other- wise than out of Loans . Outstanding Loans . 174,000 560,000 192,000 387,000 1. 313 5,826,000 8,246,000 5,404,000 9,249,000 28,725 70,392,000 22,442,000 29,542,000 36,216,000 158,592 1 Compiled from Statement shoining forthe year ended in March ign the Amount of the Rt Expenditure, and Outstanding Loans of the Principal Classes of Local Authorities [England and h 2 The sums accounted for by the Metropolitan Water Board are not included in this column. 397 INDEX n " refers to footnotes. Abattoirs, 43 Aberdeen, 137, 143, 175 «. , 189, 197, 263, 268, 394, 395 Accounts of local authorities, 165-167, 176-179. 371. 372, 376 Accrington, 120, 394, 395 Accrington Gas and Water Board, 120 Acton, 328 n. Advertisements, 7, 8 Aix-la-Chapelle, 194, 219 Allotments, 66, 67 Altona, 81 Amalgamated Association of Tramway and Vehicle Workers, 299, 300, 302 Amiens, 274 Ammoniacal liquor, 52, 220-222, 345 Ammonia sulphate, 52, 221 Annuity system of repaying loans, 151 April policy of municipalities, 180, 378, 379 Aquarium, 91, 102 Arbitration, 299-302 Ardrossan, Saltcoats and District Electric Lighting Order, 1910, 35 Arosa, 224 n. Ashton-under-Lyne, 117, 255 n., 319 n., 394. 395 Association of German Gas Works, 218- 220, 221 Atherton, 328 n. Auction-clauses in gas companies' leases, 25 Auditing of municipal accounts, 176-179, 376 Automatic gas meters, 211-213 Ayr, 394. 395 Azienda speciale, 121 Bakehouses, 68, 69, 71 Bakers' shops, co-operative, 75 Baltimore, 259, 363 Bank of England, 92, 93 Banks, 83 Barking, 394, 395 Barmen, 64, 99, 219 Bath, 8, 135 Bathing establishments, 7, 8 270, Baths, 2, 96, 102 Battersea, 3 «., 189 Belfast, 64 «. , 165 n., 227, 255 «. 272, 282, 285 «., 394, 395 Berlin, 80, 91, 99, 211, 215 n. Berlin Tramwa}' Company, 34 Bexley, 394, 395 Bielefeld, 219, 221 Birkenhead, 43, 90, 113, 140, 282, 394, 395 Birmingham, 19, 38, 40, 98, 113, 127, 128, 132, 133, 146, 189, 190, 191, 210, 214, 217, 221 n., 227, 25572., 278, 282, 285, 330, 332, 338, 394, 395 Blackburn, 136, 188, 189, 190, 196, 197, 282, 394, 395 Blackpool, 91, 113, 114, 139, 214 71., 261, 263, 330, 394, 395 Board of Trade, appoint arbitrators, 300, 301, 302 approve of transfer of electric lighting orders, 36, 113 fi.x period for loan repayments, 154, 158 fix standard price of gas, 24 issue electric lighting orders with provisions re reserve funds, 145, 147/2. may override veto of local authorities in case of electricity undertakings, 34. 35 may revise restrictions on prices, 26 no power to authorise tramways beyond municipal boundaries, 113 provisional orders granted, 31 n. refusal to grant electric lighting order, 10 should make more careful inquiries before granting provisional orders, 368, 369 unit, 225 n. Bochum, 221 Bochumer Ammoniakverkaufsvereini- gung, 222 Bolton, 48 n., 113, 139, i8g, 212, 221 n., 242, 330, 394.J39S 399 400 MUNICIPAL TRADING Bonn, 73, 109, 119, 123, 138, 208, 210, 219, 221, 228 n., 258, 336, 355 71. Bonus system of paying wages, 282, 283 Boston, 360 Boundaries, higher prices charged out- side than inside, 181-184, 199, 200, 213, 214, 235, 236 municipalities trading outside their, 111-114, 115-117 Bournemouth, 176, 261 «. , 394, 395 Bradford, 3 «., 12, 57, 91, 98, 113, 117, 132, 165 «. , 189, 198 «., 221 «. , 230, 231, 234 n., 269, 272, 273, 278, 320, 321, 322, 394, 395 Brandenburg, 209 Bread supply, 68-72, 75 Breeze, 215 Breslau, 83, 91 Bridgend, 328 n. Bridges, 5 Brighton, 45 «., 91, 144, 189, 394, 395 Bristol, 42, 98, 121, 139, 157, 158, 277, 278, 309. 343. 345 n. British Electric Traction Company, 241 British Gas Light Company, 114 Building by-laws and regulations, 60-63 Building plots, departments dealing in, 64-66 undertakings in Prussia, 103 Buildings, erection of, by local authorities, 58 Burial-grounds, 5 Burnley, 3 n., 146, 190, 199, 214, 256 n.^ 257 «., 261, 269, 319 «. , 394. 395 Burton-on-Trent, 268, 394, 395 Bury, 120, 394, 395 Bury and District Joint Water Board, 120 Butchers' shops, co-operative, 75 Buxton, 8, 209 By-products of gas, 52, 53, 215-222, 344. 345. 354 Calbe a S. , 198 k. Calmiere, 72 n. Canals, 96, 100 Cardiff, 24, 127, 195, 198 n., 227 234 «., 256 «., 285, 394, 395 Carlisle, 188, 221 n. Carlsruhe, 197, 219 Cassel, 211 Catania, 71 Cemeteries, 5, 96, 102 Chamberlain, Mr. J., 40 Charges made by trading departments to other municipal departments, 127- 129, 214, 321, 324, 325 Charlottenburg, 99 Cheltenham, 24 Chemnitz, 83, 225 n. Chester, 285 n., 394, 395 Chesterfield, 394, 395 Chicago, 259 Church, 120 Clayton-le-Moors, 120 Coke, 52, 215-220, 344, 345 Coke-works sell gas in bulk to local authorities, 114, 115 Colchester, 91, 394, 395 Cold-air stores, 47, 48 Colne, 127 Cologne, 99, 109, 116, 123, 137, 186, 204 n., 206, 207, 209, 217, 219, 220, 228 n., 234, 242, 256 «. , 258, 263, 271, 272, 335, 336 Commissions, special, for management of municipal trading undertakings, 121 Committees of Town Councils as bodies controlling municipal trades, 107- iir Common lodging-houses, 64 Companies with local authorities as share- holders, 122-125 Compounding system, 386 Concessions, duration of, 27-30 manner of obtaining, 30-36 restrictions embodied in, 23-27 sale to companies, 40 Conciliation Boards, 301, 302 Conditioning house, 91, 102 Consumers, large, more favourably treated than small, 184-186 Contingencies, provision for, 144 Contributions in relief of the rates, 167- 176, 311-316, 318, 322, 328-331, 335. 336. 397 relation to provision for depreciation, 136, 141, 142, 156, 157, 374, 375 Control of monopolies, 23-30 Cookers, 49, 202-204 Co-operation, comparison with municipal trading, 41, 380 Co-operative bakeries, 69, 70, 72, 75 butchers' shops, 75 Corn mill, 71 Coventry, 135 Credit institutions, 79-89 Crefeld, 81, 87, 123, 198 Creusot, le, 115 Croydon, 146, 256 n., 285, 395 Dalrymple, Mr. J., 252, 259 Darlington, 261, 282, 394, 395 Darwen, 394, 395 Debt, reduction of, 150-152 Deficits of trading departments made good from rates, 312-316, 318, 331, 332, 367-370, 397 Demands, elastic and inelastic, 20 «. Depreciation, attitude of central authori- ties, 143 INDEX 401 Depreciation charged to appropriation instead of net revenue account, 165 compulsory provision for, 371, 373- 376 fund confused with reserve fund, 145- 149. 376-378 fund confused with sinking fund, 155, 156 made good out of capital, 157-159, 372 need of provision for, 133-135 of electricity undertakings, 323 of tramway undertakings, 317 policies adopted by local authorities, 135-143 provision actually made by English and Welsh local authorities, 161-164, 397 provision made affected by repayment of loans, 155 provision made dependent upon sums contributed in relief of the rates, 140- 143. 374. 375 reasons why provision inadequate, 149, 150 should be charged against gross revenue, 144 Derby, 120, 136, 285, 394, 395 Derwent Valley Water Board, 120 Development of municipal trading, 18- 94 Dewsbury, 127 Diedenhofen, 73 Directors" fees, 93 Disallowances, 177, 178 Discounts, granted for prompt payment, 186, 187 granted to large consumers, 184-186, 194, 195, 208, 209, 231-233 Docks, 6, 7, 96, 100 Doncaster, 67, 174, 175, 261, 285 n., 394. 395 Donoughmore's Committee, Lord, 171- 173 Dortmund, 80, 99, 219 Dover, 256 «., 257 n., 394, 395 Dresden, 19, 56, 91, 116, 117, 194 n., 195, 210 n., 241, 258, 264, 271, 272, 274, 275, 292 71. Duisburg, 65, 80 Dundee, 143, 144, 175 «., 196, 200, 255 n., 394, 395 Diisseldorf, 64, 65, 80, 82, 87, 99, 123, 137. 138. 195. 199. 202 n., 207, 208 n., 219, 220, 229, 234 «., 240, 242, 256 «. , 258, 263, 270, 271, 273-275. 336 Ealing, 227 East Ham, 139, 190, 284, 285 «., 394, 395 Eberswalde, 194 n. Edinburgh, 42, 120, 195 Edinburgh and District Tramways Com- pany, 33 and Leith Corporations Gas Com- missioners, 120, 121, 146, 147 Elastic demand, 20 «., 21 Elberfeld, 90, 99, 219, 220 Elections, undue influence of municipal employees, 302, 303 Electric Lighting Acts, 1882 to 1902, 19 w., 27, 29, 31, 35, 14s Electric Lighting (Clauses) Act, 1899, 147 n., 148 n. , lyi n. Electric Lighting Orders, numbers held publicly and privately, 100 Electricity, advantages of a single elec- tricity and gas committee, no, in Board of Trade unit, 225 n. charges based on capacit)' of con- sumer to pay, 224, 230, 231 charges based on estimated consump- tion, 224 charges based on purposes for which used, 233, 234 charges immediately before and after municipalisation, 338, 340 companies, restrictions on prices, 24,26 companies, valuation of undertakings at end of leases, 28 companies, veto of local authorities, 34. 35 comparison between extent of muni- cipal trading in England and Ger- many, 106 comparison between prices charged by selected municipal and private under- takings, 347-349 competition with gas, 22, 35, no, ni, 204-206 considerations underlying tariffs, 222- 224 contributions in relief of the rates, 171, 174, 176, 311-316, 318, 328, 329- 331. 335. 336. 397 deficits made good from the rates, 312- 316, 318, 331, 332, 368-370, 397 departments charged share of general expenses, 132 depreciation, 134, 136, 137, 139, 140, 158, 162, 163, 397 difference in selling policies as com- pared with gas, 222 discounts to large consumers, 231-233 financial position of many undertakings unsatisfactory, 318, 323-328 fittings, 50 flat rate, 225 grounds for municipalising, 36-41 high prices charged to tramway depart- ments, 128, 129, 321, 324, 325 2 D 402 MUNICIPAL TRADING Electricity, higher prices charged outside than inside boundaries, 235, 236 hours of labour, 286, 287 Joint Boards of Management, 117, 119 justification for municipalising, 382, 383 load of a generating station, 223, 228, 229 loans outstanding, 96, 97, 333, 334, 397 long-hour consumers, 227 maximum demand rate, 227 meters, 49 methods of charging, 224-231 need for restricting private monopolists, 21-23 no distinction in charges for lighting and power purposes, 234, 235 number of municipal employees in certain towns, 278, 279 number of municipal and private under- takings, 99-101, 103, 105 obsolescence, 134 overcharged to other municipal depart- ments, 128, 129, 321, 324, 325 purchased in bulk by a local authority, 113-115, 226, 227, 369 receipts and expenditure of local authorities, 308, 310, 311, 397 reduction in charges to large con- sumers, 231-233 reserve funds, 145-149 restrictions of profits to 5 per cent, 171. 174 restrictions on prices which may be charged, 189 seasonal fluctuations in employment, 294-296 supply beyond boundary, 112-114, 235, 236 undercharged to municipal depart- ments, 127 uniform price, 223 wages, 281 "wiring," 5° Employees, number in municipal service, 277-280 Employment, seasonal fluctuations in, 293-296 Enterprise, lack of, in municipal manage- ment, 382, 385 Erfurt, 219 Erith, 261 «. , 394, 395 Essen, 80, 114, 219 Exeter, 394, 395 Expenditure charged properly or other- wise in municipal trading accounts, 130-133 Expenses, general, of local authority debited to trading accounts, 132, 133 Extent of municipal trading, 95-106 Fairs, 42 Ferries, 5, 6, 90, 102 Feuerbach, 196 n. Financial aspect of municipal trading, 126-179, 378, 379 Fittings for gas and electricity, 48-52 Flag-making, 102 Flat rates (electricity), 225 Frankfort-on-the-Main, 8, 54«., 80, 99, 109, 123, 124, 195, 197, 2ig, 229, 231, 240, 241, 256 n., 258, 263, 270-272, 274, 275, 292 Frankfort-on-the-Oder, 8i Freibank, 73 Freiburg i. B. , 8, 9, 80, 91 Fiirth, 213 Gas, advantage of a single gas and electricity committee, no, iii association of German works, 218- 220 automatic meters, 21 1-2 13 by-products, 52, 53, 215-222 charges based on probable consump- tion, 214 charges for lighting, heating, cooking and power purposes, 208-211 charges immediately before and after municipalisation, 337, 338, 340 companies, restrictions imposed on, 23-26 comparison between extent of muni- cipal trading in England and Ger- many, 106 comparison between prices charged by selected municipal and privateunder- takings, 343-347. 349 comparison between results obtained by municipal and private under- takings in the United Kingdom, 350-356 competition of electricity, 22, 35, no, III, 204-206 contributions in relief of the rates, 170-173. 175. 176. 311-316, 318, 329-331. 335. 336, 397 cookers, 49, 51 deficits made good from rates, 312- 316, 318, 397 departments charged share of general expenses, 132 depreciation, 135, 137-139, 162, 163, 397 discounts to large consumers, 208, 209 factors governing prices, 343-346 financial position of undertakings, 318, 328, 329 fittings, 48-52 free of charge, 127, 335, 336 «. grounds for municipalising, 36-41 INDEX 403 Gas, higher prices outside than inside boundaries, 213, 214 hours of labour, 286, 287 incandescent mantles, 204 increasing sale for cooking and heat- ing purposes, 206-208 Joint Boards of Management, 117, 118, 120, 121 justification for municipalising, 382, 383 loans outstanding, 96, 333, 334, 397 lower prices in summer than winter, 211 meter rents, 187, 343, 344 meters, 49, 211-213 need for restricting private monopolists, 20 number of municipal employees in certain towns, 278, 279 number of municipal and private undertakings, 99, loi, 103, 105 prepayment meters, 211-213 "profits," suggested restriction to 1 per cent on outstanding capital, 171-173 purchased in bulk by a local authority, 114. 115 reasons for encouraging power, cook- ing and heating consumers, 200- 206 receipts and expenditure of local authorities, 308, 310, 311, 397 reductions in charges to large con- sumers, 210 reserve funds, 146, 147 restrictions on prices which may be charged, 188, 189 seasonal fluctuations in employment, 293-296 shift system, 288-290 sliding scales, 24, 25 small consumers favoured, 212, 213 street lighting, 214 stoves, 49, 51 supply beyond boundary, 112, 113, 213, 214 undercharged to municipal depart- ments, 127, 128, 214 uniform price, 200, 207, 208 used for generating electricity, 210 utilisation of the plant, 201 wages, 281 Gas and Water Works Facilities Act, 1870, 31 Gas Light and Coke Company, 19, 351, 352 Gelsenkirchen, 64 General expenses of local authority, share of, debited to trading accounts, 132. 133 Germany, extent of municipal trading as compared with England and Wales, 106 Germany, results of municipal trading as compared with England and Wales, 333-335 Giessen, 194 n. Glasgow, 44 n., 45 n., 55 n., 64 «. , 113, 116, 136, 137, 145, 146, 164, 189, 196, 227, 234 n., 241, 244, 246-254, 259, 268, 282, 297 «., 337-339. 341. 342. 358. 363. 394- 396 Gloucester, 136, 282, 331, 332, 394, 395 Godesberg, 119 Gottingen, 219 Great Harwood, 120 Great Yarmouth, 394, 395 Grillers, 49 Grimsby, 24, 136 Halfpenny tram fares, 243-255, 394 Halifax, 198, 257 «., 284, 285 n., 332, 394. 395 Halle a. S. , 80, 194 n. Hamburg, 200 Hampstead, 146, 189 Hanau, 213 Hanover, 80, 99, 219 Harbours, 6, 7, 96, 102, 103, 121, 308, 309. 333. 334 Harrel, Sir David, 300 Harrogate, 8, 175 Haslingden, 120 Hastings, 331, 332 Heidelberg, 109, 123, 137, 138, 198, 210 Heidenheim, 196 «. Heilbronn, 211 Hertford, 112 Hoists, electricity rates for, 233 Holzminden, 197 n. Homburg, 195 Hours of labour, 286-293 Housing of the Working Classes Act, 1890, 4, 63, 64, 88 Housing, Town Planning, etc., Act, 1909, 63 Housing undertakings, financial aspect, 12-15 in unhealthy areas, 4 loans outstanding, 96 loans to assist in the erection of small dwellings, 81, 82, 86-88 number in Prussia, 103 reasons for and against, 59-64 Huddersfield, 138, 188, 191, 198 n., 209, 285, 302, 319 n., 332. 394, 395 Hull, 42, 45 «., 98, 114, 122, 127, 188, 214, 227, 238, 256 n., 257 n., 273, 330. 394. 395 404 MUNICIPAL TRADING Hull and Barnsley Railway Company, 122 Hydraulic power, 54 Ice, 48, 75, 76, 102 Ilford, 282, 394, 395 Ilkeston, 255 «., 268, 394, 395 Imperial Continental Gas Company, 124 Inelastic demand, 20 Initiative, lack of, in municipal manage- ment, 382, 385 Instalment system of repaying loans, 151, 152. 374 International comparisons to ascertain results of municipal trading, 358-364 Ipswich, 282, 332, 394, 395 Ironmongers' opposition to municipalities supplying fittings, etc., 49 Islington, 189 Joint Boards or Committees of Manage- ment, 117-121 Justification for municipal trading, 382, 383 Keighley, 394, 395 Kiel, 211 Kilmarnock, 394, 395 Kilowatt hour, 225 v. Kingston-upon-HuU. See Hull Kirkcaldy, 394, 395 Koln-Bonner Kreisbahn, 123 Konigsberg, 80 Konigshiitte, 115 Konigswinter, 119 Kosten, 197 n. Kursaals, 8 Labour, desire to improve conditions in municipal services, 92, 297-305 policy of municipal trades, 277-305, 379-381 Lancashire Electric Power Company, 36 n. Lancaster, 394, 395 Landsberg a. L. , 73 Leamington, 8 Leases, difficulty of drafting satisfactory ones a cause of municipal trading, 36, 37 duration of, 27-30 manner of obtaining, 30-36 of tramway track, 37, 116 restrictions embodied in, 23-27 Leeds, 98, 113, 117, 132, 133, 221 «. , 278, 285 n., 320-322, 330, 394, 395 Leicester, 113, 120, 132, 133, 140, 146, 221 «., 268, 278, 330, 337, 343, 345 n-. 394. 395 Leichlingen, 196 n. Leipzig, 19, 40 n., 80, 202 w. , 208, 214, 229 Leith, 120, 285, 394, 395 Leyton, 242, 255 «., 261 ;/., 394, 395 Li^ge, 82, 87 Limits of municipal trading, 382, 383 Lincoln, 282, 284, 394, 395 Little Lever, 120 Liverpool, 24, 38, 67, 98, 121, 127, 132, 140, 145, 189, 190, 195, 197, 235, 241, 268, 273, 278, 330, 338, 394, 395 Livorno (Leghorn), 71 Loans, cheap, argument in favour of municipalisation, 92, 93 municipal, to assist in erection of small dwellings, 81, 82, 86-88 outstanding, of certain local authorities, 95-99. 333. 334. 397 repayment of, 150-155, 157, 159-161, 165, 372-374 Local Government Board, 5, 33, 43, 63, 114, 157 audit, 176-178 Lodging-houses, common, 64 model, 102 London County Council, 6, 10 n., 12- 15, 19, 58, 63, 64, 83, 89, 90, 103, 131, 143, 160, 161, 163, 165, 254, 257, 261, 266, 268, 276, 301, 358, 394. 395 London, Port of, Authority, 121 London United Tramways Company, 19 Lowestoft, 321, 394, 395 Ludwigshafen a. R. , 116, 242 Liineburg, 194 n. Lyons, 8, 19, 274 Magdeburg, 60, 81, 87, 99, 219, 220 Maidstone, 394, 395 Management, inexpensive, an argument in favour of municipalisation, 93, 94 of municipal trades, 107-125 Manchester, 7, 15 «., 16, 38, 42, 47, 50 n., 54«. , 55-57. 62 «., 64 w., 77 71., 98, 113, 114, 116, 117, 122, I3I-I33, 135, 136, 145, 147, 154, 158 «. , 160, 163, 165 «., 169, 176, 182, 188-I9I, 196-198 «., 199, 202, 203, 209, 212-214 n., 217, 220, 221, 225, 226, 232, 233 n., 241, 242, 244-246, 254, 265, 267, 269, 272, 276, 278-280, 284, 285, 296, 299, 300, 301, 330. 339-345. 360 394-396 Manchester Ship Canal Company, 7, 16, 96, 98, 122 Mannheim, 80, 116, 123, 138, 201 n., 204 n., 207, 208 71., 219, 232, 242, 262, 271, 272, 336 INDEX 405 Manure, 53, 221 Markets, contributions in relief of the rates, 175 departments charged share of general expenses, 132 grounds for municipalisation, 42, 43 loans, outstanding, 96, 333, 334 number of municipal undertakings in Prussia, 103 receipts and expenditure of local authorities, 308, 310 Royal Commission on, 43 Maximum demand rates, 227 dividends of companies, 25 prices to be charged by companies, 23, 24 Mayence, 194, 202 n., 206, 207, 219, 229, 242, 262, 271, 272, 274, 275, 293 «• . 336 Meat, 72-75 Mersey Docks and Harbour Board, 96, 121 Messina, 194 Meter rents, 187, 343, 344, 354 Meters loaned by local authorities, 49 Metropolitan Electric Tramway Com- pany, 19 Metropolitan Water Board, 96, 97, 103, 119, 121 Middlesbrough, 6, 119, 121 n. Midland Railway Company, 12 Milan, 194 Milk, depots, 3, 102 supply, 76-79 Monks Ferry Company, 90 Monopolies, controlled by local authori- ties, 23-30 free from control, 20-23 grounds on which local authorities seek to manage, 36-41 Mont de piiU, 83 Monti di pietd, 88 Mortgages, as security for loans advanced by local authorities, 81, 82, 87, 88 as security for loans advanced by savings banks, 81, 82, 85, 86 Miilhausen, 194 Munich, 80 Municipal Electrical Association, 129 Municipal Employees Association, 297- 299 Municipal Tramways Association, 129 Naples, 74 National Telephone Company, 44, 45 Necessity, degree of, as criterion of desirability of municipalisation, yj Neisse, 194 n. Nelson, 321, 394, 395 "Net surplus revenue" credited to re- serve or depreciation fund, 139, 140 Neusalz, 195 n. Newcastle-upon-Tyne, 98, 284, 285, 343. 345 ''•. 346, 394. 395 Newcastle-upon-Tyne and Gateshead Gas Company, 25 Newport, 394, 395 Newspapers, 90, 91 New Windsor, 112 New York City, 259 Northampton, 256 n. , 257 n. , 272, 285 «., 319 n., 394, 395 North-Eastern Railway Company, 122 Norwich, 140, 230, 231, 326 Nottingham, 98, 113, 120, 132, 146, 188, 189, 195, 19S n., 221 n., 227, 234 «•- 255 n., 278, 330, 343, 345 «•• 394. 395 Niirnberg, 213 Obsolescence, 134, 159-161 October policy of municipalities, 180, 378, 379 Offenburg, 197 Official gazettes, 90, 91 Officials of municipalities inadequately paid, 93. 94, 304, 305, 38s Oldenburg, 194 n. Oldham, 117, 127, 188, 190, 198, 210, 221 «., 394 Omnibuses, 52 Osnabriick, 8, 114, 194, 219, 232, 321 Overcharging of municipal departments by a trading department, 128, 129 Overworking of councils of local authori- ties, 381, 384 Oyster beds, 91 Paid chairmen of trading committees, 108, 109, 384 Palermo, 71 Parcel carrying schemes, 55-57 Pasian di Prato, 71 Pawnshops, 83, 88, 89 Peat, Mr. W. B., 13 Pellagra, 70 Perth, 394, 395 Pforzheim, 220 Piece wages, 281 Piers, 96, 100 Pixley, Mr. F. W. , 14 Plymouth, 135, 136, 196, 255 «., 394, 395 Pontypridd, 394, 395 Poplar, 226 Port of London Authority, 121 Portsmouth, 45 n., 225, 261, 394, 395 Post Office Savings Bank, 84 Post Office telephones, 44-46 Prepayment gas meters, 211-213 4o6 MUNICIPAL TRADING Pressure brought to bear on local authori- ties in making appointments, etc., 296-305 Preston, 42, 121, 196, 284, 309, 394, 395 Prices, higher, charged outside than inside municipal boundaries, 181- 184, 199, 200, 213, 214, 235, 236 restrictions on those charged by com- panies, 23-26 restrictions on those charged by muni- cipalities, 188-190 Printing establishments, 90, 91 Profit, a reason for municipalising public utility services, 40 " Profits " of municipal trading, grounds for realising, 167-175 of municipal trading, methods of ascertaining, 126, 127 restricted by Parliament, 171-173, 175 sums available in relief of rates, 166, 167, 397 what constitute, 164-166 Provisional Orders issued under general Acts of Parliament, 31 Public Health Act, 1875, 43 Public-houses, 197, 233 Public stall for sale of meat, 73, 74 Public utility services, 19 Publishing business, 90, 91 Pump-rooms, 8 Quays, 96, 100, 102, 103 Race-course, 67, 174, 175 Radcliffe, 120 Ramsbottom, 120 Rates, contributions in relief of, from trading "profits," 167-176, 311- 316, 318, 322, 328-331, 335, 336 great rise in recent years, 366, 367 Ravenna, 71 Rawtenstall, 120, 394, 395 Reading, 394, 395 Receipts and expenditure of local authorities, 308, 310, 311, 397 Reggio Kmilia, 76 Rehousing operations, 4, 12-15 Remscheid, 80 Renewals, repairs and replacements. Sec Depreciation Repayment of loans, 150-155, 157, 159- 161, 165, 372-374 Reproductive debt, 96, 97 undertakings, 16, 17 Reserve funds, 144-149, 376-378 Restrictions, on prices which may be charged by local authorities, 183, 188-192 on profits which may be earned by local authorities, 171-173 Results of municipal trading, 306-365 on public service companies, 23-27 Rheinische Bahngesellschaft, 123 Rishton, 120 Rochdale, 136, 209, 332, 394, 395 Rotherham, 117, 135, 255 n., 268, 394, 395 Runcorn, 123 Running powers on tramways, 117 St. Anne's-on-Sea, 227 St. Helens, 3 «. , 114 Salford, 113, 114, 138, 141-143, 171- 173, 185, 188, 190, 197, 212, 221 71., 235, 266, 267, 278, 330, 394. 395 Savings banks, 79-81, 83-87 Scope of municipal trading, 1-17 Sea-water supply, 91, 102 Selling policies of municipal trades, 180- 279 Sewers, construction of, 57 Shares in companies held by local authorities, 122-125 Sheffield, 43, 98, 117, 120, 132, 133, 144, 198 n., 225. 238, 254, 255, 260, 268, 272, 273, 277, 278, 284, 285, 291, 330, 343, 345, 346, 353, 394, 395 Sheffield United Gas Company, 26 n. Shift system, 288-293 Ship canal, 7, 16, 96, 98, 122 Sinking fund, as substitute for deprecia- tion fund, 155, 156 system of repaying loans, 151 Slaughter-houses, 43, 72, 103 Sliding scales of prices, for gas companies, 24, 25, 27 for sale of tar, 220, 221 or discounts, 185, 186, 232, 233 ??. Small Holdings and Allotments Act 1908, 67 Socialism, influence on town councillors, 303-305 Southampton, 43, 188, 256;/., 394, 395 Southampton Harbour Board, 121 Southend-on-Sea, 319 n., 394, 395 . South Metropolitan Gas Company, 19, \ 24, 26 «., 351, 352 1 Southport, 227, 263 South Shields, 282, 394 Southwark, 227 " Split turns," 291 Stalybridge, 119, 394, 395 Stalybridge, Hyde, Mossley and Dukin- field Joint Tramway and Electricity Board, 119 Statistics relating to municipal trading must be used with nmch caution, 306, 307, 364. 365 Steamboats, 10, 89, 90, 102 INDEX 407 Stepney, 225 Stettin, 65 Stockport, 113, 190, 210, 319 w., 330, 394. 395 Stockton-on-Tees, 119, 182, 189, 214 Stoke Newington, 328 n. Stoves, 49-51 Strassburg, 219 Street paving, 57 Street widening, 32, 33, 130, 131 Streets, desire for exclusive control of, by local authorities, 37 Stuttgart, 91, 219, 220 Subsidiary undertakings managed by local authorities, 46-58 Subsidies from the rates to economic undertakings, 2-16, 366, 367 SiJddeutsche Eisenbahn Gesellschaft, 123 Sulphate of ammonia, 52, 221 Sunderland, 6, 139, 190, 394, 395 Superannuation schemes, 284, 285 Surcharges, 177, 178 Swansea, 45 «., 136, 188, 191, 196, 331, 332 Swimming baths. See Baths Swindon, 261 n., 394 Tar, 52, 220, 221, 345 Taunton, 112 Taxation, direct and indirect, 170, 174 Taxe officielle ou officieuse du pain, 72 n. Tees Valley Water Board, 119, 121 Telephones, 43-46, 102 Theatres, 8, 9 Thornaby-on-Tees, 119 Time wages, 281 Tottington, 120 Town-planning schemes, 63 Trackless tramways, 319-322 Trade Unions, 297-301 "Trading" debt, 96, 97 Tram cars built and repaired by local authorities, 53, 54 Tramway Act, 1870, 27, 28, 31, 362 Tramway Companies, conditions im- posed by local authorities, 31-34 restrictions on fares, 24, 26 valuation of undertakings at end of leases, 27, 28 Tramways, arbitration, 299-302 building of cars, 53, 54 children's tickets, 271. 272 comparison between extent of muni- cipal trading in England and Ger- many, 106 comparison between development in United Kingdom and in United States, 359-364 comparison between results obtained by municipal and private under takings in the United Kingdom, 356-358 Tramways, Conciliation Boards, 301, 302 contract tickets, 262-265, 270-272, 274 contributions in relief of the rates, 170, 171, 173, 175. 176, 311-316, 318, 322, 329-331, 335, 397 cost of generating own current as com- pared with purchasing, 129 n., 130 n. cost of street widening, 31-33, 130, 131 deficits made good from rates, 312- 316, 318, 331, 332, 370, 397 departments charged share of general expenses, 132 depreciation, 134-137, 139-142, 158, 162-164, 397 discount tickets, 261, 262 distances which may be travelled for different fares, 241, 242 distinction between first and second class, 273, 274 effects of preferential treatment, 274- 276 electrification leads to great expansion of traffic, 341 exchange tickets, 256 exposed to political and popular pressure, 124 fair fare system, 241 fares and conditions immediately before and after municipalisation, 338-341 financial position of small undertakings unsatisfactory, 317-323 graded fares, 238-241 grounds for municipalising, 36-41 halfpenny fares, 243-255, 394 high price of current purchased from municipal electrical departments, 128, 129, 321, 324, 325 hourly traffic on typical routes, 243- 245. 396 hours of labour, 286, 287, 299, 300 Joint Boards of Management, H7-119 justification for municipalising, 382, 383 loans outstanding, 96, 97, 333, 334. 397 motormen responsible for collection of fares, 321, 322 need for restricting private monopolists, 20, 21 number of municipal employees in certain towns, 278, 279 number of municipal and private under- takings, 99, loi, 103, 106 overcharged for current by municipal electricity departments, 128, 129, 321, 324, 325 4o8 MUNICIPAL TRADING Tramways, parcel carrying schemes, 55-57 passengers carried free, 273 prepaid tickets, 261 receipts and expenditure of local authorities, 308, 310, 311, 397 repairing of cars, 53 restrictions on fares which may be charged, 190 return tickets, 260, 268-270 running powers, 1 17 scale of fares based on distance, 238- 241 scholars' tickets, 272, 274 seasonal fluctuations in employment, 294-296 season tickets, 262-265, 270-272, 274 service beyond boundary, 112, 113, 115-119 shift system, 290-293 " split turns," 291 subsidised from rates, 9 trackless, 319-322, 370 transfer system, 256-260, 395 two-journey tickets, 268 two-stage fares, 248-250 uniform fares, 236-238, 363 unremunerative extensions, 39 wages, 281, 283-285, 299, 300 weekly tickets, 268, 270, 271 workpeoples' fares, 265-271, 370 Transfer system on tramways, 256-260, 395 Tubingen, 198 Udine, 71 Unit (Board of Trade) of electricity, 225 n. Undercharging by trading departments of other municipal departments, 127, 128, 214 Venice, 74 Veto of local authorities, on tramway schemes, 31-34 on electricity schemes, 34, 35 Wages, methods of paying, 280-283 rates of, 283-285 Wallasey, 394, 395 Walsall, 394, 395 Walthamstow, 394, 395 Warrington, 282, 330, 394, 395 Wash-houses, 96 Water, at high pressure, 54 charges based on actual consumption, 192-195, 199 charges based on number of rooms, 198 charges based on probable consump- tion, 192, 193, 195-199 charges based on rent, 196, 197 Water, comparison between extent of municipal trading in England and Germany, 106 contributions in relief of the rates, 168, 169, 311-316, 318, 335, 336, 397 deficits made good from the rates, 312- 318, 331. 332. 397 departments charged share of general expenses, 132 depreciation, 135, 138, 162, 163, 397 discounts to large consumers, 194, 195 domestic rates, 196, 197 free of charge, 127, 335, 336 u. grounds for municipalising, 5, 36-41 higher prices in summer than winter, 195 higher prices inside than outside boundaries, 199, 200 hours of labour, 286, 287 Joint Boards of Management, 117- 121 justification for municipalising, 382, 383 loans outstanding, 96, 97, 333, 334, 397 minimum quantity to be paid for, 193, 194 need for restricting private monopolists, 20 number of employees in certain towns, 278, 279 number of municipal and private undertakings, 99, loi, 103, 104 public rates, 196, 197 purchased in bulk by local authorities, 113. 114 receipts and expenditure of local authorities, 307, 308, 311, 397 reductions in charges to large con- sumers, 194-196 reductions in charges to small con- sumers, 194, 196 reserve funds, 146 restrictions on prices which may be charged, 188, 191 sea, 91, 102 seasonal fluctuations in employment, 294-296 sold by meter for domestic purposes, 193-195 sold by meter for trade purposes, 194, 19s special charges for baths and closets, 198 subsidised from rates, 5, 191 supply beyond boundary, 112-114, 199, 200 undercharged to municipal depart- ments, 127 undesirable to realise "profits," 168, 169 unremunerative extensions, 38 INDEX 409 Water, wages, 281 Wayleaves, 33, 34 West Ham, 225, 283, 332, 394, 395 Whitefield, 120 Widnes, 123, 329, 346 Widnes and Runcorn Bridge Company, 123 Wiesbaden, 193, 213, 219, 232 Wigan, 135, 285 «., 331. 332, 394, 395 Willesden, 225 " Wiring " of houses for electric lighting, 50 Wirtschaftliche \^ereinigung deutscher Gaswerke, 218-221 Wolverhampton, 48 «., 136, 233 v., 394, 395 Woodside Ferry Company, 90 Woolwich, 6, 143 Workpeople's fares on tramways, 265- 271, 370 Works department, 58, 304 Writing down assets to provide for depreciation, 133, 134, 137 Yarmouth. 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