6 March, 1928.]

of Works, and not out of the Vote for the Post Office.

414. So that the cost of that expenditure on behalf of the Post Office must be looked into on the Vote of the Office of Works and not on this Account?-That is so. The Office of Works is the accounting department responsible for those services. (Sir Malcolm Ramsay.) A debit is raised in these Accounts. These accounts are intended to reflect

the true position. Although no cash passes a debit is raised againt the respective services in these accounts for the building work. That is so, is it not? (Sir Henry Bunbury.) Precisely. Perhaps I ought to have explained that. That is what these Accounts are for. These Accounts are in order that Parliament may be informed of the cost of all services conducted by the Post Office whether provided in the Post Office Vote or in some other Vote.

415. But you do not show in this Account what profit the Office of Works make on the work they do for you?-No. I imagine that they do not make any profit.

416. What I mean is there was the question of this commission-which is a profit. No, it was merely a percentage calculated to cover their general expenses in doing work for other Departments.

In so

417. It is a percentage placed in your accounts equally?-That is so. far as the percentage was chargeable to Post Office work it is included in these Accounts.

418. On page 6 reference is made to the buildings. Might I ask where one can see a list of the new telephone buildings ?-No list is published. (Mr. Watson.) In the Office of Works Votes there is a statement of new works carried out. It is in the Revenue Buildings Vote, Class I. That is as regards Post Office Buildings generally, but telephone buildings are paid for from telephone capital and are not there.

419. I knew I had seen it somewhere. -(Sir Henry Bunbury.) It only includes Postal and Telegraph buildings.

420. Where shall I find the telephone buildings?-No list is published at all. 421. Does that mean one cannot get them at all?-No. They are paid for out of telephone capital, and details of expenditure out of telephone capital are not submitted to the House. At the end of the Commercial Accounts, page

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[Continued.

37, there is a figure of the expenditure out of telephone capital, but in that statement buildings are not separated from plant. The expenditure in the year ended 31st March, 1927, was £10,615,482. A little over £1,000,000 of that would represent land and buildings.

422. If I desire, therefore, to get information on the particular point I have in mind it would be a question for the Minister? That is so, as regards purely telephone buildings.

423. On page 7 reference is made to paper and materials held by the Savings Bank Department for printing and bookbinding purposes being shown at cost price. It has been raised in this Committee on several occasions that cost price was hardly the right figure to take stocks at; it should be cost or day's price, whichever were the lower.-That would be so, I agree, if this were a trading concern. That is to say, if the paper and printed matter were bought and manufactured for sale. In fact they are bought and manufactured for use, and I would suggest there is not the same necessity to re-value stocks which are held for use in work at the market price of the day.

424. Do they not appear in these Accounts to draw a balance?-They are an item in the balance sheet, yes.

425. Then they would affect the balance sheet? They would if they entered into the profit or loss, but the profit or loss is not brought into the balance sheet. That is the point in which these Commercial Accounts differ from the accounts of a public company.

426. It is almost a misnomer?-I think not. It is due to this fact. The profit or loss on Post Office operations is not divisible in dividends to shareholders, nor can the Post Office retain any profit. It all goes automatically into the Exchequer as realised, and the loss in the case of the telegraph service is borne by the Exchequer day by day as incurred. These Accounts show statistically what that profit and loss is, but they do not deal with the allocation or distribution of the loss

Major Salmon.

427. On page 4 it says Telegraph and telephone services are, with few exceptions, paid for in cash at public tariff rates." Would you mind telling me first the value of the telegrams that are charged departmentally ?-Telegrams sent by public Departments?

B 2

6 March, 1928.]

423. Yes. Inland telegrams, I think I am right in saying, speaking from memory, come to about £25,000 a year.

429. That is the total? That is the tetal. Foreign telegrams we have no knowledge of.

430. And as regards the telephone?As regards the telephone we have no knowledge. The accounts are rendered

in the ordinary way as though the Department were a member of the public.

430A. As regards the Post Office (London) Tube Railway, which is referred to on page 5, shall we have an opportunity in the detailed accounts to go into the cost of that, and what it is saving, if anything, or whether it answers the purpose for which it was put in ?--It is included in the general Accounts on pages 10-11; or I should say it will be included from the date when it began to operate; but it was not operating in the year before the Committee.

431. What amount of money was involved under the head of capital for the Post Office Tube Railway?-£1,319,000.

432. That includes not only equipment but property as well? That includes all expenditure treated as capital outlay.

433. Have you any other expenditure that you are not treating as capital outlay?-No.

434. What does it cost for maintenance in addition?-It was only opened two or three months ago, and I do not think we have enough experience really to enable one to judge. Mr. Watson has just pointed out that in the Appropriation Account it is stated that the total cost of construction and equipment to the 31st. March was £1,528,000.

435. How is it your figures only give £1,319,000?—The lower figure is a depreciated figure; a certain amount has been written off. The £1,528,000 was the gross cash outlay on the railway.

436. The £200,000 being the amount depreciated ?-Yes. Also I think there are some small differences due probably to the fact I am speaking without the book-that some of the expenditure may have been treated under the Land and Buildings Account or treated under Electric Light and Plant, or something of that sort.

437. But I understood you to say that the figure you gave me originally was a figure including all capital charges. Now I understand that is not quite correct. the gross figure being £1,500,000?-Yes.

438. Less £200,000 for depreciation.I beg your pardon, I am afraid I have

[Continued.

The

not got it quite right yet. £1,500,000 was divided between plant, a little for land and buildings-not very much-and possibly (though I will not be sure of this) something for stores in stock. And the £1,319,000, which I gave the Committee a moment ago, is the depreciated figure for plant only.

439. What has that to do with the capital sum?-If the honourable Member will look at page 13 there is a figure there of £88,631,000 for plant. Of that figure £1,319,000 represents the Tube Railway and its plant, but it excludes land and buildings. There is not very much in land and buildings. It also excludes stores in stock, which is also shown as a separate item. And it is also a figure which has been subject to a little depreciation.

440. Shall we have for the future a special account showing what it really costs to operate the Post Offic Tube Railway? That has not been contemplated.

441. Would there be any difficulty in showing that as a separate figure?-The operating cost of the Tube Railway, no. There will be a little apportionment in it, but not a great deal. Most of it is selfcontained. It is a self-contained unit.

442. But on the other side of the balance sheet, if I may so describe it, would you have any savings because of the Tube Railway?-No. The credit side of the operating account of the Tube Railway would be very difficult. In the first place it was never contemplated as a source of savings. The object of the railway was to expedite the handling of mails in central London. Then in the second place it would be necessary to find some basis for crediting the railway, and there is no firm basis on which to found credits for work done.

443. On the other hand, will there be any means of seeing that it is not really costing more than the old system?-Of course, that question arises whenever, for instance, the Post Office operates a mail service by its own vans as distinct from a contractor's vans. When you employ a contractor you know that it costs you as what you pay the contractor; when you employ your own vans you know what it costs you, but you do not know what it would then cost if you put that service out to a contractor. You can say what it did cost at the time when it was put out to contract, but that is not the same thing.

444. But you get a pretty shrewd idea. If you are delivering a certain weight of mail during a certain period of the day

6 March, 1928.]

and it cost you before the tube was in operation £x, and when you consider, on the other hand, it cost you so much for capital charges and so much for running charges, it is fair to assume that you should be able to show whether it is cost

ing you more or less? Yes, but the weight of mail that is carried on that Tube, and the weight of mail handled in London generally increases from 2 to 5 per cent. per annum. That is the fundamental difficulty. You have no means by which you can judge the commercial value of the services rendered by the Tube at any given date.

445. I should have thought you could have that on a percentage basis?-Well, I am afraid that would be very complicated.

446. It is a matter that I suggest you might just consider between now and next year's Accounts, to see if we could have something? That will be examined very carefully, because it is important.

447. If we have some observations from you when next year's Accounts are presented I am prepared to leave it as it is at the moment. On the question of depreciation you say in the memorandum on page 6: "In the case of trans-Atlantic Cables the amounts for depreciation included in the main Telegraph Account and the Imperial Cable Service Account are calculated on the basis of current replacement cost." Would you mind just explaining that? Have we a large sum of money involved in the trans-Atlantic Cables-Yes, the book value is about £800,000. That appears on page 31.

448. We can get all the details from page 31 when we come to that?-That is

So.

449. In the next paragraph but one you say in the memorandum: "In the case of the Telegraph service, however, as the revenue is insufficient to provide the sums required for depreciation, interest is not allowed, but the depreciation account 's maintained pro forma in order that the real value of the plant may be made evident." Do I understand by that first of all you do not charge any interest, and secondly you do not depreciate?—No. What that means is this: The telegraph plant is depreciated in the Accounts like any other plant, but as there is a deficit on the telegraph service we cannot assume that there is an accumulating depreciation fund earning interest.

[Continued.

450. You have a wasting asset?-That is so, and that appears in the telegraph balance sheet, page 21.

451. How is that wasting asset provided for? I cannot follow the logic that because you have a department that loses money on running, because you lose money you should not treat it in the same way by the same methods that you would adopt if the department were making money?-I am afraid that the paragraph in the memorandum is not very happily expressed. What it means is this. In the case of postal and telephone services where the department is making a profit these Accounts assume that the accumulating depreciation fund earns interest on its accumulations, and that interest is brought into the account. In the case of the telegraph service the department is working at a loss and that assumption, therefore, that there is an accumulating depreciation fund earning interest, is not made, correctly. Nevertheless the depreciation on telegraph plant is shown in the account in order that the exhaustion of that asset may be made apparent. That is what the paragraph means.

452. Is it a distinct charge against the telegraph service ?--Yes. It is shown on the bottom of page 18.

453. The provision for depreciation is roughly £400,000?-That is right.

454. The whole extent by which it has grown in one year is £14,000?-That is

So.

455. How much more in capital have you put into it during that year in the way of plant?-£195,000.

456. So that you have put £195,000 more capital in, but you have only depreciated to the extent of £14,000?The depreciation was £428,000. Expenditure on renewals and permanent displacements £230,000, leaving approximately £200,000 net depreciation.

457. I do not quite follow that?There was £200,000 of net depreciation of existing plant. On the other hand, there were additions in the year of £195,000.

Sir John Marriott.

458. Where does the £195,000 appear? -Page 21, the second item in the balance sheet. The balance to credit of depreciation account has increased by roughly £200,000; on the other hand £195,000 has been spent in capital additions. The result is a decrease in the depreciated value of the plant of B 3

6 March, 1928.]

about £5,000, speaking in round figures. £197,000 is the net increase in the depreciation account.

Major Salmon.

459. The net increase is £197,000 on how great a capital sum?-£10,000,000 at prime cost.

460. Do you work it on a given percentage every year for depreciation ?— Yes, according to the class of plant involved. Various classes of plant are depreciated at various rates which are based on ascertained experience where experience is available.

461. Under the same heading of depreciation you have a paragraph in your memorandum, page 6, which says: "The calculation in respect of Savings Bank printing and book-binding plant is on the straight-line method and is based on lives assigned after consultation with representatives of the Stationery Office and the printing trade." Do you run a printing department of your own?-The Savings Bank does.

462. Is it considered as an economic unit to run a special entity as well as the Stationery Office entity?-The case for the Savings Bank printing press is based mainly on the fact that by printing on the premises they save the cost of packing and distribution and some storage.

463. Is the amount of work that you do for the local Savings Bank printing very large in value?-Oh yes.

464. What does it amount to roughly? -£25,000 in the year.

465. One would have thought that that additional trade done by the Stationery Office would have helped to reduce the overhead charges and would more than justify them in whatever cost there may be for the transmission of these books to the various Savings Banks in the country? That may or may not be so. I believe it is being considered by the Treasury at the present time. But I should like to say this. There is only one Post Office Savings Bank, and that is at West Kensington.

466. That is actually done on the spot at West Kensington ?-Yes.

467. At the time it was installed at West Kensington you never did, I presume, printing and stationery to the large extent that you do it to-day?-I should doubt if there has been any material alteration in the Savings Bank consumption of forms and so forth.

[Continued.

468. I am not speaking of the Savings Bank forms, but the Stationery Office. -The alternative when the Savings Bank press was set up would have been printing by contract.

469. Does that section show any savings against which you would have to purchase outside?--Yes, about £5,600 a year, it is shown on page 34.

470. There is a surplus?—Yes, about 20 per cent. on the turnover.

471. That is what it shows there, but there is no comparison with what you would have to pay outside contractors? -Yes, that is based on contractors prices. The work is valued by the Stationery Office at current contractors prices, and the figure of profit here is the difference between the work so valued and what it actually cost.

472. It is a departmental valuation of the Stationery Office?-By the Stationery Office.

473. It is not an outside estimate by a ccntractor?-No.

474. To turn to the question of electric light and power plant, how many years do you take to write off the value of the plant in this department?-I am afraid I cannot say off hand. That is being searched for, and I will tell you in a

477. On that point, I suppose the cost of generating electricity in a small unit such as this will not pan out as economically sound for the department as it would be under the new scheme of the Government for the purchase of electricity in bulk?-The Post Office does not generate any electricity now for its own use. It had a power station at Blackfriars, which was closed down some time ago.

478. And you buy the "juice" now? Yes, it is all bought. This power plant is partly transmission plant and partly sub-stations. I think to a large extent it is sub-stations, with transformers. You asked about the life of the power plant. I can give it you now. Fourteen years is the life of the power plant.

[Continued.

6 March, 1928.]

479. Do you know the life that the Government suggest should be permitted for the new stations ?-No.

480. Perhaps the Treasury might tell us? (Mr. Phillips.) I could find it out; I have not the information here.

cases

481. It is ten years-in some less. On the valuation of stocks I was rather surprised to hear the answer you gave, Sir Henry, that the figures that appear in your books are not real assets at all? (Sir Henry Bunbury.) I hope I did not make that statement.

482. Well, if I understood you correctly that was what you said; because you say in the memorandum here that if valued at the then current buying prices the stock would have been worth in the aggregate somewhat less than the book value. Therefore, by your own statement, if I read it properly, you are putting on them a book value which in effect they are not worth ?-I see. I misunderstood you. The Post Office, like I suppose all other large public utility concerns handles its maintenance stores by means of a rate book or price list. If prices never altered the rate book prices, which represent average cost, would not differ materially from current buying prices, but in a period when prices move rather largely in one direction or the other you do get a difference between the prices shown in your rate book and the current buying price at any particular date. The problem then is whether a public utility concern is called upon to write down the value of its stocks valued at its rate book prices when it makes up its accounts. The answer which I have given to that question is that it would be necessary to write them down if the stores were going to be sold, because loss has occurred and that loss ought to be reflected in the profit and loss account. But in the case of a public utility concern the stores are not trading stores, but they are stocks for consumption on works, and therefore the problem is a much smaller one. It is, in what year shall the higher cost of the stores be reflected, and the answer which these accounts give is that that higher value of the stores will appear in the accounts of the year in which the stores are used on works. That means that in a period of falling prices it slightly retards the bringing of the loss of value into the accounts. It gets there in the end. But the difference is now so trifling that it makes practically no difference.

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Mr. Briggs.

483. I raised this point and let it drop because I took it that Sir Henry claimed that it was of no particular value seeing that this was not a commercial account. But if Sir Henry is now taking the point on the basis that variation in values is only trifling, then I entirely differ from him, and I should not have allowed the point to drop. Those are two different phases of the question.-I agree this is a difficult point, and I do not want to say anything which suggests that the way in which the point has been dealt with is essentially the right way. I think that if the Post Office were prepared to spend very considerable sums on clerical labour each year it would be better accounting to write down its stocks by the amount which represents the difference between the rate book prices, or the price-list prices and the current prices; but it would be a costly business, and the only effect would be to increase probably by a small amount the expenditure of capital, the expenditure on renewals, and the expenditure on maintenance this year, with correspondingly lower figure for those services in subsequent years.

Major Salmon.

a

484. The fact remains, Sir Henry, if I understand you correctly, that in every department of the Post Office where you have big engineering stores which run into millions of pounds the figures that we have presented to us to-day do not in effect show their real value because they really cost less. To use the words that you use in your memorandum"they really are somewhat less than their book value "?-No, they could be bought now for somewhat less than they were in fact bought at.

And you

485. That is what you say. say that rights itself automatically because you charge the departments when they receive those stores. At what do you charge those stores out?-We charge them out at the average cost of purchase. (Sir Malcolm Ramsay.) That is the book value.

486. Irrespective of the cost in the market? (Sir Henry Bunbury.) Yes.

487. Because they cost you that amount of money?-Yes. Speaking subject to correction, I think it would be found that most large public utility concerns do the same thing. I cannot speak B 4