by Charles Loft
Having failed to get to grips with the investment programmes of the nationalised industries when they were launched in the mid-1950s, the Treasury was keen to rectify this in the second half of the decade. Officials recognised that the existing machinery of investment control, under which a public spending total emerged from an annual series of individual discussions with departments (such as those which had failed to shed much light on the Modernisation Plan in 1955), did not provide an effective mechanism for controlling public expenditure as a whole or allocating cuts in times of crisis. The key, but by no means only, shaper of Treasury thought on what to do about this was Otto Clarke, the man who had invented the FTSE index and who, by 1958, was the head of the Treasury’s Home and Overseas Planning Staff where he oversaw the move to a rolling five-year spending programme from 1961. Clarke believed that if the Treasury was to allocate limited funds effectively between spending departments it would need to understand the investment programmes it was funding and therefore the likely shape of future demand in various sectors of the economy.
Ministers’ desire for a distinctive policy on nationalisation for the 1959 general election provided officials with an opportunity to get a firmer grip on nationalised industry investment. Watkinson flirted with thoughts of denationalisation, his colleagues would probably have settled for something to do with decentralisation, but the Treasury took a more sophisticated line. In January 1959 the Padmore committee (a group of civil servants including Clarke, led by a senior Treasury official, Sir Thomas Padmore), was asked to produce a report, which reached the Cabinet in June 1959 and eventually led to the 1961 White Paper The Financial and Economic Obligations of the Nationalised Industries. Officials were worried about the position of several of the nationalised boards by 1959, but it was already clear that the BTC was in a league of its own in terms of financial disaster, as had been anticipated at the Treasury in the wake of the 1955 wages settlement. The White Paper argued that while the nationalised industries’ social role meant they should not be expected to yield the same rate of return as private investment, if their prices were too low demand for their services would be artificially stimulated, thereby increasing their investment requirements. As the industries were failing to fund their own investments, such demand would restrict the finance available for profitable private investment and damage the economy. The implication of all this was greater Treasury control of nationalised investment and the setting of clear financial targets for the nationalised boards.
It was not so much the extension of the Treasury’s power that boded ill for the railways as the consequences of its attempts to understand the future demand for transport. The rush to publish Proposals for the Railways in 1956 had prevented Clarke from examining it beforehand. It was not until June 1957 that he arranged a survey of long-term transport requirements, covering the period to 1970. This was just one of several long-term studies Clarke initiated, but as the first transport study of its kind within Whitehall, it had difficulty in making predictions even for 1960. The statistics were inadequate: the post-war years were abnormal and officials were as unsure how to estimate the impact of different investments as they were unsuccessful in seeking a common unit for the measurement of commuting, pleasure motoring and flying. In charting the growth of road freight, for example, the report relied on one survey carried out over a week in 1952 and multiplied the average ton-mileage carried by each class of vehicle by the number of vehicles licensed in that class in each year between 1948 and 1956; there was no information on what the lorries were carrying. The BTC lobbied successfully to have a representative added to the group and to ensure the report backed up its own estimates. Nevertheless, the erosion of Treasury confidence in railway investment had begun. Clarke’s deputy, Matthew Stevenson, expressed his dissatisfaction that the vast investment in modernisation would only increase rail freight traffic by 11 per cent and passenger traffic by 7; this, in his view, typified a tendency to treat capital expenditure as the solution to national problems and to ignore cheaper alternatives. The ministry’s estimates of demand for road space – exposed as the products of inadequate machinery – were judged to be too low. Most importantly, a tendency developed to see total transport demand as something which could be met ‘by any number of combinations of road and rail investment plans’: the growth of road transport could be slowed to encourage more traffic onto the railways and maximise the return on their investment – or the rate of investment in rail could be slowed.135 This spelled trouble for the railways because restricting road transport was always likely to run into political difficulties; the justification for investing in rail depended increasingly on the hope that it would reduce the railways’ deficit. Unfortunately faith in this prospect was also fading.
In the early summer of 1958, Clarke, influenced by the financial difficulties of American railways, told Stevenson that ‘the evidence points increasingly to the need for cutting down the whole system to what is commercially viable on a basis to charge what the traffic will bear’.136 This was not government policy, it may not even have been a definite conclusion in Clarke’s mind, but it is significant. It illustrates how, quite independently of debates around the viability of individual lines, the consultative procedure and the BTC balance sheet, the Treasury’s efforts to manage public investment were heading in the direction of a large-scale closure programme. This process was accelerated by the annual discussion on investment during the summer of 1958. Until this point the Treasury had expected 1964 to be the peak year of spending on railway modernisation, with a significant decline thereafter freeing resources for other ends. Now it turned out that not only had the cost of the plan increased but that this was just the latest estimate of what the BTC thought was desirable to spend by 1970; it did not cover everything. The prospect of substantial modernisation spending continuing throughout the 1960s put the Treasury’s doubts about its value into a new context. If the BTC’s representatives had given the impression that it knew what it was doing, officials might have been less concerned. However, while the Commission said it wanted to spend £210 million in 1960, it could not say what that expenditure would be on until the area boards told it at the end of the year. The BTC’s grasp of the revenue position in the regions was no better. The fact that the Commission turned up at the Treasury to discuss investment not only so ill-prepared but so willing to admit to it, says much about the way things had been done in the mid-1950s and how great a change was now underway. There was immediate talk of cutting the Commission’s investment programme.
This, then, was the context in which Whitehall received the news in the autumn of 1958 that the Commission’s performance was making a nonsense of the path to solvency set out in 1956. Publicly, this was blamed on a temporary slump in coal and minerals traffic, and a Reappraisal of the modernisation plan, published in July 1959, simply wrote off 1958 as an aberration and moved the break-even date back a year to 1963, while the 1957 Railway Finances Act was amended to increase the amount of debt the BTC could run up. Watkinson made his usual call for short-term savings, the Commission made its usual attempt to bypass the consultative procedure on the grounds that only closures could achieve them (this time the proposal was to close small stations without consultation) and there was the usual lack of progress as this was rejected by the consultative committees, many of whose members seem by this point to have been demoralised by the increasing workload and by pressure from the public on one side and the government on the other.
The Reappraisal referred to a possible reduction of another 1,800 route miles and 1,000 passenger and goods stations by 1963. If this was the writing on the wall for many lines, much larger writing was on the wall at the Treasury. Keen observers would have noticed that the Reappraisal was published without government endorsement. The truth was that it had destroyed any credibility the BTC had left in Whitehall. Remembering 1956, the Treasury made a determined effort to investigate the BTC’s position itself, and Watkinson was only able to assert his department’
s independence because of a series of personnel changes, in particular the arrival of James Dunnett as deputy secretary in preparation for his replacing Gilmour Jenkins as permanent secretary in April 1959. Dunnett’s arrival signalled a change in the ministry’s attitude which, in the words of one of the officials he brought in, had been ‘pretty fuddy-duddy’ under Gilmour Jenkins, when the ministry had tended to make
a basic assumption that the railways were the railways were the railways … the whole attitude of the ministry was to back up the railways … no one had really appreciated the vast expansion of road traffic … it’s easy to think now ‘they must have been blind’, but it wasn’t quite like that at the time… [One] should not underestimate the difficulty of turning a government department round … the inherited attitudes just go on and [are] passed on from the seniors down to the juniors.137
Dunnett ordered a study of future transport needs to see just how large a railway system was actually needed. The new mood at the ministry meant that senior officials were more receptive to the doubts its statistician, Kenneth Glover, had been voicing about the railways’ prospects for years (including during the 1957 study). By the end of January 1959, Glover had produced a paper based on three different sets of assumptions about the economy and the railways’ performance, which concluded that ‘there is no prospect of profitable employment for a railway system of the size the Modernisation Plan is creating’, and estimated an overall loss in 1970 of between £247 million and £432 million.138
By the time the Reappraisal was published, efforts to rectify the lack of knowledge about freight trends revealed by the 1957 study had undermined the assumptions about rail freight prospects that study had made. Road freight was growing in an almost inverse proportion to rail’s decline; the economy was becoming more transport efficient than had been thought (in other words the growth in demand for transport generated by a I per cent rise in GDP was smaller); coal output would be lower. Now it appeared that the deterioration in the BTC’s position during 1958 was generally in line with traffic trends that had been disguised in 1956 and 1957 by the effects of the Suez crisis, in particular through petrol rationing. Investment aimed at maintaining the railways’ share of general freight was beginning to look like ‘large expenditure on a task which may be hopeless and indeed pointless’.139 Glover’s recommendation could have been cut and pasted into Beeching’s report:
there are wide ranges of activity carried on by the railways which do not pay and these activities can now be fairly well identified … cutting out these activities would seem to be a much more promising line of approach to railway solvency than further heavy investment. It is certainly difficult to see why the Commission should make any effort to increase merchandise and stopping passenger traffic in the way that the plan contemplates.140
By the end of the year these dire warnings had been reinforced by the results of further Treasury work on the economic case for road building. This argued that as car ownership would inevitably grow and as the trend of traffic appeared to be from rail to road, demands for spending on motorways could not be ignored and, if met, would call into question the competitiveness of the railways. Although officials still wanted a viable system of comparing road and rail investment and were unconvinced by the Road Research Laboratory’s methods for justifying road schemes, Whitehall opinion was now increasingly moving towards the view that investment in the railways should enable them to do ‘as economically as possible what only they can do and no more’, and that ‘no railway line outside the main network should be kept open where public road transport can do the job’.141
Having published the Reappraisal as quietly as it could, the Cabinet asked officials to study it in detail. The ministry’s estimate that the BTC would earn a working surplus of £35–50 million in 1963, produced two days before the 1959 general election, seems optimistic today, given the BRB’s operating loss of over £80 million in 1963, but the important point was that future surpluses would be too low to meet the increase in the BTC’s expenses as the interest-free period under the 1957 Railway Finances Act began to expire. This was a crucial point because the government had no legal power to subsidise the BTC, only to lend it money. If Dunnett, as the person responsible to the House of Commons Public Accounts Committee, could not say he believed the loans would be replayed, he was left in a ‘most unsatisfactory’ position.142 In early 1960 the Treasury, further discouraged by its questioning of the Commission on its investment programme the previous autumn, endorsed the ministry’s findings and added a warning that the financial implications of Guillebaud’s report on pay alone would probably be enough to render the Commission’s forecast invalid.
The suspicion that the railways had overestimated the amount of traffic they could win back from the roads and that investment proposals were based on technical, operational or social, rather than financial considerations, was no longer a suspicion, it was a fact. Even the flagship electrification of the Euston to Manchester main line was of questionable value and fears that the Commission was simply spending as much as it could (and the government could be persuaded to part with) were not allayed by the news that it wanted to invest £1,000 million on top of the existing £1,660 million cost of modernisation by 1970. Far from offering a route to solvency, the modernisation programme was producing such a poor return that it seemed more likely to add to the Commission’s debts than expunge them. On 4 January 1960 Dunnett signed a memorandum entitled ‘The Railway Problem’, informing ministers of the urgent need for a new policy on the railways and recommending that ‘we will have to approve in detail their capital investment programmes for the future. This will give us control over the parts of the railway system that are to be modernised.’143 This was a logical response to what the ministry had learned in the preceding twelve months, but it also drew on the desire of the Padmore committee on the nationalised industries to increase ministerial supervision of nationalised industry borrowing in order to ensure a clear distinction between those investments that were socially desirable but unremunerative and those that were simply commercial failures. It is impossible to pinpoint the extent to which this was an example of the reform of the BTC being conducted within a new policy framework established for the nationalised sector, rather than that framework being born out of experience of addressing the railways’ problems. The two processes informed each other.
Officials recognised that questions were now being raised about what purpose the railways served that could not be answered purely in financial terms. Ministers would have to decide ‘whether the railway system … is to be regarded as a social service, a commercial undertaking or a mixture of both’.144 The principle of applying cost–benefit techniques to the railways’ role in reducing road congestion had been raised in the Treasury and the Padmore committee had recognised that the BTC might require ‘a special subsidy related to its uneconomic services which were kept in operation for social needs’; as had ministers.145 The Padmore committee had also considered whether the lines north of Perth and Dundee should be treated as a separate accounting unit as they were socially necessary but would always lose money. It had reached no conclusion, because the whole question of reorganising railway accounts on a regional basis was being looked at as part of the ongoing debate over the nationalised industries. But the idea had not been ruled out. In August, Dunnett tried unsuccessfully to get an idea of how far the Commission would rationalise the railway system if it did so on a purely commercial basis, the question Beeching was eventually brought in to answer. Dunnett also asked whether there were any particular areas in which railway services could be subsidised and, if so, what amounts might be involved? The Commission agreed to consider studying three areas: Scotland north of Perth; central Wales; and the former Southern Railway lines west of Exeter.
The Commission’s response to Dunnett’s request was a memorandum, ‘Fringe Areas’, which reached the ministry in December. Unfortunately, as its treatment of the former Southern Railway lines west of Ex
eter illustrates, ‘Fringe Areas’ was a wasted opportunity to make the case for socially necessary railways. The former Southern route headed north-west from Exeter, skirting Dartmoor to run via Okehampton and Tavistock to Plymouth. It threw off various branches on the way to serve Barnstaple and the coastal towns of Ilfracombe, Bideford, Bude and (via Launceston and Wadebridge) Padstow. From Bideford a line ran back inland to Torrington, which was also served by a line from Halwill Junction on the Bude branch. From Wadebridge a short branch served Bodmin (this section, originally opened in 1834, had been acquired by the London and South Western Railway in 1846 but remained isolated from its parent company until the line from Okehampton arrived almost fifty years later). The Atlantic Coast Express, which left Waterloo for Padstow with portions detached en route for most of the above-named destinations, was a favourite of Betjeman’s.
Because ‘Fringe Areas’ attributed losses to areas rather than to services, the existence of (probably profitable) bulk freight traffic on parts of this network was submerged within the overall operating loss (several quarries and clay-pits in the area kept their rail connections long after the passenger services had gone). Equally, the case for providing rail connections to the otherwise remote resorts and towns of reasonable size was surely weakened by the inclusion of the little-used services between Launceston and Wadebridge and Halwill and Torrington. On the latter line – engineered by Colonel Stephens and one of the last railways to open in England – ‘a single empty coach … passed through Hatherleigh each way twice daily, the driver, fireman, guard and signalman being amazed if a passenger was seen’.146 Most significantly the memorandum ignored the fact that the area was also served by former GWR lines. If there had ever been a need for two railways to Barnstaple or Launceston, the existence of parallel lines between Tavistock and Plymouth more than a decade after nationalisation illustrated the limited extent to which rationalisation had taken place. Rival routes between Exeter and Wadebridge and between Wadebridge and Bodmin merely served as a memorial to the occasional bouts of insanity that afflicted Victorian railway promoters (and the failure of the Western and Southern regions to notice nationalisation!). A schoolboy with a map and a pen could have saved the taxpayer a good deal at any time after nationalisation.