Histories of British railways have often presented the decline of freight in terms of missed chances, some specific to the service, others deriving from the wider legal and administrative framework. If only the companies had bought out the interests of the colliery owners and set about upgrading their wagon fleets, running speeds and track layouts in earnest. If only all those duplicate routes had not been built, leaving many companies unable to run a profitable service from their share of the divided traffic. If only rival companies had been permitted to amalgamate earlier, to achieve better economies of scale. If only the Big Four companies produced by the merger of 1923 had worked harder and faster to shed some of these surplus assets. If only the railways had made a better fist of developing their own door-to-door collection and delivery services, in conjunction with rail-borne traffic. Above all: if only the railways had been released sooner from the regulatory straitjacket imposed in Victorian times, once it was clear that they were facing genuine and rising competition from the roads. Instead, they were legally defined as ‘common carriers’ until as late as 1962: obliged to accept traffic regardless of profitability, to treat all customers without undue preference and to publish their standard charges – not to mention the employment of unionised staff on regulated wages and conditions. Just when the government was about to loosen these bonds, in response to a well-argued campaign for ‘A Square Deal for the Railways’, the Second World War broke out. In peacetime the railways became state-owned and were subjected over several years to an ill-defined project for integrated transport instead.
Yet it is hard to see how things might have turned out differently in the end. At best, more of the heavy industries that had grown up symbiotically with the railways might have escaped closure or decline. As for the trade in sundries, the garden gates, sheepskin boots and other miscellanea of Fully Fitted Freight all eventually went over to road haulage because it offered a better and (usually) cheaper service. Even the container trains that carry the imported consumer goods and supermarket foodstuffs of the post-industrial economy will keep running only as long as Network Rail is permitted by its political masters to keep track access charges at a competitive level.
Behind this long tale of decline is a larger story concerning the railways’ finances. Back in the 1840s, the bigger companies allotted only around 35 per cent of annual revenue to meeting the costs of operation. By the early 1870s the national figure still stood at a healthy 51 per cent. In other words, almost half of the railways’ income was still available for dividends, servicing debts (for the industry depended on borrowing as well as share capital) and investment in new lines, buildings and equipment. From that point onwards, almost everything that happened to the railways served to shrink this surplus. Some of these changes, such as reduced working hours and safer, heavier and better-equipped carriages, have already been described. By the late 1890s the share of revenue taken by operating costs had risen to 57 per cent, by the mid 1900s to 62 per cent.
These shrinking returns were not so apparent externally, as the railways boomed in terms of size and turnover. Between 1870 and 1914 passenger numbers and gross revenue both rose by a factor of four, freight tonnage increased threefold, route mileage grew by half as much again and the total capital invested grew by 150 per cent. Yet the new lines, infrastructure and improved rolling stock no longer delivered the same rates of return that had excited earlier generations of investors. Especially expensive projects included the enormous new stations and goods depots that were required to service the ever-growing cities. John Kellett’s classic study of railways and urban change cites the example of Huskisson goods station, built in the 1870s in Liverpool’s docks at a cost of £712,527.** If the traffic handled there had been surcharged at a rate to reflect the interest on this investment, the increase would have amounted to a prohibitive 3s 10½d per ton. In effect, the more highly capitalised the railways became, the less capitalist were the attitudes of their directors and managers towards fresh investment. The supreme example was the Great Central Railway, at once a splendid creation in terms of engineering, rolling stock and operation, and a bad dream in terms of outcomes for its investors. In a parallel development, the companies quietly withdrew from competing against one another in favour of pooling resources and revenues and agreeing uniform rates and fares – becoming, in the words of one transport historian, a ‘collusive oligopoly’.
This situation was by no means bad news for everyone. Passengers enjoyed faster journeys in better carriages without facing a rise in fares. Industrial customers paid the same predictable rates whether the railway was making or losing money from their custom. Overall, it could be said that the railways were being run in the national interest, rather than as the creature of their own shareholders.
As if to endorse this view of the broader economic benefits of railway transport, an Act was passed in 1896 to encourage construction of so-called light railways in rural areas. A licence from the Board of Trade was sufficient authority to undertake a light railway, which saved the costs of the usual Act of Parliament. They were built to less demanding standards than usual and could draw on grants or loans from the Treasury for the capital costs. The compensation paid to landowners was even adjusted to take account of the benefits the railway was expected to bring. Some 900 extra miles were added to the network by lines of this type up to 1918. One of the biggest of the new companies served the Isle of Axholme in the agrarian depths of north Lincolnshire, constructed 1903–9. Banners displayed at one of its stations on the opening day caught the mood of having joined the modern world at last: ‘Progress and prosperity’, ‘Patience Rewarded’. Getting a railway connection was like securing mains electricity, radio reception or broadband coverage today: the provision of a basic utility that put the district on a more level footing with everywhere else.
When real competition arrived from the roads, the railways therefore struggled to find a coherent response. Even if they had been free to charge what the market would bear, the government, their business customers and the travelling public would have had none of it. Yet the resulting decline was severe: receipts from freight were £36 million in 1923, falling to £26.5 million in 1932 (an especially bad year). By the late 1930s, operating costs were swallowing 81 per cent of everything the railways could earn.
One of the biggest dilemmas was how to handle the distinction between profitable business and mere turnover. Wagonload freight is one perennial example. And what of those lightly used branch lines: were they sucking financial sap from the healthy trunk, or was it better to regard them as feeders, topping up the traffic on the main lines with enough extra business to make a significant difference to the operating margins? As long as local losses could be subsumed within the company’s headline figures, the temptation was to give such lines the benefit of the doubt. No other explanation can account for the longevity of some of the light railways built under the 1896 Act which happened to be swallowed up by the Grouping of 1923. The Mid-Suffolk Light Railway is an extreme case. Planned as a cross-country route to join two lines owned by the Great Eastern Railway, it failed to open all the way despite being built very cheaply indeed – part of the route was laid directly on the Suffolk earth and ballasted roughly over, there were 114 level crossings within eighteen miles to save the expense of bridges, and the terminus building at Laxfield was clad in zinc sheeting printed with a brick pattern, of the kind used for chicken coops. The project even bankrupted its own company chairman before the line opened in 1908; at one point he was reduced to buying jewellery on credit and pawning it the same day. Modest even in the best years, company receipts had almost halved by 1921. Rescued just in time by absorption into the new London & North Eastern Railway, the line somehow bumbled on until 1952.
Other financial handicaps were imposed by the custom of fixed pricing for passengers and freight according to distance carried. The Highland Railway’s line through the Grampians to Inverness is a case in point. As constructed in the 1860s, the route came at th
e town via a big loop to the east, into Morayshire. Twenty years later a rival company proposed an alternative route to Inverness, which the Highland decided to pre-empt by building its own more direct approach. Crossing mountainous territory via the gruelling Druimuachdar summit, and requiring two large viaducts and two deep cuttings, the new line was expensive to construct. Yet when it opened in 1898 the Grampian cut-off attracted no significant business from other railway companies, because Inverness was still served by the Highland alone. Nor did the line unlock substantial new traffic from the empty country along the way. But because the new route was so much shorter, it entailed an appreciable cut in passenger fares and goods tariffs to Inverness – traffic that would have come by rail anyway. Everyone benefited except the Highland Railway itself, which now had to maintain and operate two routes to Inverness instead of one.
Passenger fares on a network with hundreds of companies and thousands of stations were complicated enough, but at least the passengers themselves came in a manageable number of categories: adults, children, workmen, servicemen and so on. By comparison, the permutations for carrying freight were of mind-blowing complexity, especially before 1923. Even the basic categories established by the Railway Clearing House tended as time went by to split types of traffic rather than lumping them together. By 1886 there were 2,753 items on its lists, each classified under one of several rates of carriage. These rates were decided according to the value of the commodity or article (brandy was charged more than coal), its bulk in relation to weight (biscuits were charged more than sugar), ease of handling (outsize loads cost more than handy-sized ones; frozen meat more than fresh), liability to damage in transit and so on.
In parallel with these standard class rates, a separate system of charges was applied to important flows of traffic within the territory of each railway, with a greater margin of negotiation and discretion. For instance, imports and exports were commonly charged at lower rates than inland traffic for many years, to prevent shipowners taking their business to rival rail-served ports. Allowances also had to be made when a customer supplied the wagons and discounts were available too for cargoes carried at the owner’s risk. It was cheaper to collect and deliver goods at the station than to send them door-to-door via the railways’ own cartage service, and cheaper still when the traffic went to or from private sidings instead of public goods stations. Sometimes the goods were warehoused for a period by the railway itself, for which another charge was levied. All of this before the final calculation could be made on the basis of mileage carried, often with a discount for long-distance consignments. Finally, revenue from traffic that had been carried on the routes of two or more railway companies had to be shared out to general satisfaction. Small wonder that the London & North Western was at one point offering 20 million configurations of charges for the conveyance of goods.
An extract from the North Eastern Railway’s classification of goods traffic, 1892. The tables were meant to encompass every transportable commodity, from agrarian produce to obscure manufactures and exotic imports
It should not be thought that the railways were indifferent about economy, especially after the amalgamations of 1923. The initiatives of Sir Josiah Stamp (1880–1941; later Lord Stamp) as chairman of the London, Midland & Scottish are especially interesting, because he was the first outsider in generations to be appointed chief executive of a major British railway company. Beginning as a boy clerk in the Inland Revenue, Stamp became a crucial figure in Treasury circles during the First World War and its aftermath. In 1919 he left the Civil Service to direct Nobel Industries Ltd. In 1926, the same year in which the Nobel company was merged with others to form Dr Beeching’s future company ICI, Stamp took over at the LMS.
This was the largest of the Big Four companies, and the one most afflicted by old rivalries that had suddenly been internalised. Nonetheless, the new company got some things right from the outset. It transformed the productivity of its workshops and shrank the stock of items purchased from around 30,000 types to 4,400; four kinds of sweeping brush instead of twenty-five, eight varieties of varnish instead of twenty-eight and so on. Stamp’s ability to get things done reflected a broader movement of power within railway management, away from the socially elevated board of directors and towards the senior staff. His distinctive contribution, inspired by American methods, was an enthusiasm for statistics as the key to efficiency. The new job offered plenty to get statistical about: in the early 1930s the LMS had 225,000 staff and 8,000 horses and was running 25,000 trains daily using its 9,000 locomotives, 18,700 carriages and 277,000 wagons. It operated twenty-seven hotels, as many docks, harbours and piers, and owned 537 miles of bought-out canals.
One of Stamp’s policies was to set targets for locomotive performance, based on systematic records of the maintenance and costs of each engine, as well as the overall rating of the type to which it belonged. Information was collected for eleven different sections of each locomotive, and for seven different sections of their tenders. Data was entered on record cards with holes in the margin, which were punched through to the edge of the card or left whole according to the information recorded. By pushing a rod through a drawerful of cards aligned with one or another of these holes and then lifting it, the cards with relevant details – repair costs to a particular boiler type, say – would drop out ready for scrutiny.
Stamp reassured his shareholders in 1932 that the costs of collecting and processing all this data were justified in terms of strategy and savings. A colder-eyed account of the new statistical culture of the LMS is given by Christian Hewison (born 1909), then a young shedmaster at Walton-onthe-Hill in Liverpool, a joint possession of the LMS and LNER. Hewison’s responsibilities lay with the latter company, which placed much greater store by local initiative and delegation. He noted the metaphorical new broom at work on the LMS side, where ‘the supervisors always seemed to be devoting so much effort and exertion to organising the organisation that they had no time to run the railway properly … clerical staff were making work for one another by inventing problems and then sending letters and requesting data in the pretence of seeking solutions’. As for Stamp’s beloved locomotive statistics, Hewison reckoned that shrewd LMS men were securing permission for overhauls by fabricating much of the information sent to head office, being careful to represent their engines as slightly more run-down each time.
Mere anecdotal evidence, perhaps; but the dilemma of how to understand what such a gigantic company was doing, let alone how it might be done more efficiently, was real enough – to say nothing of the overlapping distinctions between what was efficient, what was productive and what was profitable. Calculating the balance between costs and returns was a higher form of financial art altogether. Consider the despatch of a crate of machinery from Cornwall to Devon in the 1930s. A road haulier could offer a quotation based on relatively few costs: purchase and maintenance of a vehicle, fuel, a driver’s labour, road tax and licence fees, and other overheads represented by his business premises and any other staff. On the railways, costs multiplied in all directions. As well as the outlay represented by the wagon, something had to be allowed for locomotive and brake van too – perhaps more than one of each, if the crate was to be transhipped or the wagon re-marshalled. Locomotives needed coal, water and oil. Drivers, firemen, goods guards and shunters, as well as signalmen, station or depot staff and level-crossing keepers, had to be paid too. Track, signals, bridges, tunnels and cuttings along the way, station or depot buildings at each end – all represented fixed costs, both for construction or renewal and for everyday maintenance. If the crate was despatched door-to-door, the railways’ own lorries would be called in, each of which represented costs of purchase, maintenance, fuel, driver, tax and licence, etc. etc. Management and administration were costs in themselves. A sliver of the customer’s fee might go towards the railway’s subscription to the Railway Clearing House, if the crate happened to pass between the two railways, the Great Western and the Southern, which operate
d in the south-west after 1923. Another notional slice would be swallowed by the accountant, who was hardly in a position to say whether the carriage of crate-loads between Cornwall and Devon was profitable in itself.
What remained after all these deductions could be paid out as a dividend. In the lean and hungry 1930s only the Great Western managed to keep payments on its ordinary shares above the basic bank rate, at the cost of raiding its own reserves. The other Big Four companies came nowhere near the same level. Yet as long as dividends were still in play, it was possible to sustain the hope that the railways’ business model was basically sound. By this view, the solution lay in zealous efficiency at every level and an attentive attitude to passengers’ and customers’ needs, outflanking the road hauliers whenever possible. The dismaying truth – that the railways’ business model was grievously flawed and ultimately doomed – was not uttered publicly from within the industry until Beeching issued his report.
A fresh attempt to confront hard realities was made in 1968, when a new Transport Act at last recognised the principle that public transport, bus as well as rail, was a legitimate object of national subsidy. This was hardly a new idea, as the Light Railway Act of 1896 had made the same case, but it allowed expenditure to be planned more realistically. Local trains and commuter services were now acknowledged to show wider social and economic benefits and underwritten accordingly. In the same spirit, the 1968 Act also introduced the concept of subsidies for rail freight in the form of grants to companies wanting to invest in sidings and handling equipment, although these have not endured. In those sectors of the passenger business that are meant to show a profit, cross-subsidies remain inevitable, as a little thought will show. The journey of the passenger on a nine-tenths-empty Sunday evening train is effectively underwritten by the dozens who will cram into the same carriage the following Monday morning. Even at their simplest, railway economics remain quite complicated.
The Railways Page 52