Office bought the site in that year; they held it under D.O.R.A. till then. This was one of the few War factories that were permanently retained.

ARMY (ORDNANCE FACTORIES)

Chairman.

[Continued.

7044. Then in this year you had to pay money for the land you had taken before? (Sir Herbert Creedy.) Yes. It is a reserve Filling Factory.

7045. We will deal first with the Comptroller and Auditor General's Report, which commences on page 34. Is what is referred to in paragraph 2 the end of your re-valuation?-(Sir Herbert Creedy.) Yes, this is the end. There were two reports by the Committee, on which the Treasury were represented. This is as regards Woolwich; possibly one or two of the other factories may still have to be dealt with.

7046. It is likely that an over-valuation will again be found, so that you will have to re-value, in future years? (Mr. Osborn.) There will not be any considerable further revaluation in future years. (Sir Herbert Creedy.) This was really writing down after the War.

Sir George McCrae,

7047. Perhaps we might have a statement with regard to the locomotives and other alternative work dealt with in paragraph 5; Sir Malcolm can probably tell us about that? (Sir Malcolm Ramsay.) I can tell you briefly the position, unless the Accounting Officer wishes to make a statement. These locomotives, as the Committee knows, were undertaken as a matter of general policy to avoid unemployment. During the year 50 locomotives were completed, and there was another 50 in parts but not erected. During the year 1922-23 I understand no sales were effected at all; but since then 12 sets of parts have been sold, and quite recently 20 completed locomotives have been sold.

7048. Do I understand that the total expenditure up to the 31st March, 1923, £1,339,415, represents the whole of the expenditure likely to be incurred on the 100 locomotives?—Yes.

7049. I assume some are still under construction? (Sir Herbert Creedy.) No, we have discontinued that.

7050. So this £1,339,000 is the total expenditure?—Yes.

Mr. Townsend.] There will be a small item in the next year of about £150 for storage; that is all.

7051. At what sum do you include these locomotives in your assets in the Balance Sheets? (Sir Herbert Creedy.) At cost. Chairman.

7052. Have they gone to the Disposals Commission?-We are actually holding them; you will find them in the Arsenal; we could not get the Disposals Board to take them away.

7053. Might I ask what type of men was employed in the building of those locomotives; were they locomotive engineers? (Mr. Townsend.) Skilled fitters.

7054. Men employed by the War Office before? Oh yes. (Sir Herbert Creedy.) It was to give employment to our own

men.

7055. Why, if they are good locomotives, cannot they be sold?-I think it is because the Railway Companies want to find employment for their own men, and they do not want to buy the finished articles; they would sooner make them in their own workshops. (Mr. Townsend.) That, I believe, is the position.

7056. (Sir Henry Craik.) Even if they made a large saving? (Sir Herbert Creedy.) They would make a large saving, but they probably do not want to put their men on half-time or make them stand down altogether. (Mr. Townsend.) I understand that many locomotive shops are half idle, and they are in the same position as we were.

Chairman.

7057. Generally speaking, do all the British users of locomotive engines make their own?-(Sir Herbert Creedy.) The Railway Companies mostly make their

own.

7058. Sir George McCrae.] There may be a difference in type, too, that the different Railway Companies might not care to have?-(Mr. Townsend.) Ours is the exact type of the Southern Railway. (Sir Herbert Creedy.) It is the standard type as used on the Southern Railway.

Mr. Leif Jones.

7059. This work, I understand, was done to meet the unemployment situation? Yes, to prevent unemployment.

24 June, 1924.]

[Continued.

7060. Are you going to make that very clear in your accounts, because it seems a little hard on your Ordnance factory, because presently you will have to write off a million pounds or so for this work done in the factory ?-I am not sure that it has not been done.

7061. It has not yet been written off? -No, it has not been written off, but it has all been provided for.

Chairman.

7062. Was this mentioned in the Report last year? (Sir Malcolm Ramsay.) There have been references to it in previous Reports.

7063. It is made clear that it was not for any purpose except for the relief of unemployment, and keeping on skilled men? Yes.

Mr. Leif Jones.

7064. The accounts do not explain themselves. On the one side there is, "Locomotives made in parts," and the amount expended on them, and in the assets they are put down as being that amount of stock in hand; presumably there will be a writing off of, I suppose, £1,000,000 presently, and it is not fair to the Ordnance Factory, who are open enough to criticism,—or at any rate receive enough criticism-that this should stand against them. It was definitely work undertaken for the relief of unemployment, and somehow it should be so stated in the accounts? (Sir Herbert Creedy.) This Committee last year did make that clear. In the Report it says: "It will be remembered that when the demand for war munitions suddenly fell off after the Armistice it was decided that His Majesty's Government," and so on. (Sir Malcolm Ramsay.) I think you may trust the Accounting Officer to make a note on the account next year. (Sir Herbert Creedy.) Yes, I am very grateful for the suggestion.

for Departmental control within a month, or perhaps six weeks, of the completion of each job, and sometimes within 18 or 20 days. The object was to bring the system at the Ordnance Factories into line with modern practice, in order that short period costs and detailed information might be produced. It has not been working very long, but last year I went down and was shown over the system by the courtesy of the people at Woolwich, and it certainly seemed extraordinarily efficient, and likely to lead to economy. At present it has not been instituted long enough for us to say very definitely.

7066. Turning to the accounts, at the top of page 5 you show the true cost of the various Departments. This is all built up from your costings, is not it? Is it only lately you have been able to get this true cost. In former years how used you to charge; was it by comparison with outside work? (Sir Herbert Creedy.) It was not quite so accurately worked out; the price charged has always depended on our estimate of the cost of production. 7067. It has not depended in any way on outside comparisons?—No.

Sir Henry Craik.

7068. You could not institute a comparison such as you do in the Army Clothing Department?—No, except with the armament firms like Vickers and so on; that would be the only other comparable establishment.

Sir George McCrae.

7069. I observe that in these accounts you do not include the rent of land, interest on capital, or other trade charges and risks not incurred in Government manufacture; how comes it that interest on capital is not charged to the cost of production ?—(Mr. Osborn.) It is not an expense that is incurred. (Sir Herbert Creedy.) It is not actually a charge on the account; interest is not paid; the money is provided from the Exchequer.

7070. It is provided by the Exchequer, but in all the other Trading Accounts we have had before us, I think, where the money has been provided by the Exchequer interest is charged.

Chairman.] Is not this the difference: in those other accounts they have been financed in the first place by a loan, and in this case it is paid for out of the Vote. Is not that the distinction ?

Sir George McCrae.] The capital. expenditure is money raised by loan, is not it?

Chairman.

7071. It is always voted every year, is not it? Yes. (Mr. Osborn.) The money is advanced by the customers of the factories. (Sir Malcolm Ramsay.) The factories really work on advances made by their customers; in normal times they cost the public nothing.

7072. In the case of the other Trading Accounts, the loans are still outstanding? That is so; there has actually been money advanced from the Exchequer which has not been re-paid. (Sir Herbert Creedy.) I believe the question of charging interest was discussed a good many years ago, and the decision was against it.

Sir George McCrae.

7073. Does that apply also to the question of the rent of the land ?-Yes.

Chairman.

7074. Is the Treasury satisfied that it is reasonable to charge interest in the case of the other Trading Accounts, but to leave it out in this case?-(Mr. Watson.) I think that is so. This account is got out mainly for the purpose of distributing the costs incurred at the Ordnance Factories among the three fighting Departments. It is a matter of charging them a share of the cost of running the place. This account is not got out as a Trading Account, but as a Production Account, for the purpose of splitting the account in that way.

Sir George McCrae.

7075. Surely in the cost of production you must take the rent of land into consideration, and also the question of any money got as capital?-That would be the case ordinarily. The fact of the

matter is that if the production were for sale, as it is in an ordinary trading concern, that would be so; but this is production for the three fighting Departments, and consequently it is only necessary to split the actual cash expenditure. (Sir Herbert Creedy.) It does not really compete in the open market against other similar establishments.

[Continued.

7084. On page 11 we get what are, in fact, subsidies for work which is not productive, and no record of that is kept from year to year. The percentage of total factory expenses to total productive labour seems astonishingly high: 237 per cent. in one case?-(Mr. Townsend.) On that point there is no real comparison; the basis is entirely different.

7085. You have got such a small output in comparison to your big staff; is that it? No, it is an entirely different basis of reckoning. You are referring to the 70 in the previous year?

7086. I am taking these as they stand; the percentages seem remarkably high; how do they compare with the previous year?-In point of fact they are very much less than the old basis of 80 and

70; that is the point. (Sir Herbert Creedy.) It is a new basis of calculation. (Mr. Townsend.) They take certain items of what in the old days we used to call indirect labour as direct labour now, and they also put the indirect labour on the direct labour, and on those two items they reckoned the basis of on-cost; whereas now we take a limited amount only for direct labour and the whole of the rest is on-cost. On a strict comparison we are very much better than in the prior year.

7087. Can you get any comparison with the accounts of other undertakings?—I think the 73 per cent. on the ordnance factories in this year under discussion, on a comparable basis would be 63.37 per cent., as far as one can tell.

7088. What are the new factors that have been brought in to change the basis so much? Savings.

7089. You show it in the 60's one year and then this year it is over 200?-As Sir Malcolm says, a complete change has been made in the costing system.

7090. So your first figures were wrong? -They may not have been wrong, but they were not on the same basis as to-day. (Mr. Watson.) It is frankly a total alteration of the classification of the expenditure incurred at the factories, as compared with the system previously in operation.

[Continued.

Sir George McCrae.

7091. On page 21, with regard to the production of Webley pistols, there is a footnote "Exclusive of initial expenditure.' What does that mean?—(Mr. Townsend.) That is the first capital outlay. 7092. Which represents ?-Off-hand, I believe, about £5,000 or £6,000. (Sir Herbert Creedy.) Would that be in machinery? (Mr. Townsend.) Yes.

7093. Why is that not included in the cost ?-As a matter of fact, at this

period there very few pistols made.

They were just starting making them, so it was decided they should write the £7,000 off over the orders in sight (that would be for the next two years, I think it was), at £1 a time.

Sir Henry Craik.

7094. Is this price £7, with something to be added to it?-That I believe is the correct price including its proportion of initial outlay.

7095. No, in addition; this is exclusive of initial expenditure. You mean that each pistol cost £7?-Yes, at that time.

7096. And in addition something for the initial expenditure?—Yes; that was the first 2,000; to-day I believe they are under £4.