[Continued.

10 March, 1927.]

Major Salmon.

325. If you see no difficulty in that, then the only other observation I should like to make is with regard to page 9, where one observes that the deficit on the telegraph service is £1,299,214. suggest that, as a matter of fact, that figure would be higher were it not for the fact that in the year under review there was a less expenditure as regards the arrears of bonus, which amounted last year to £318,000. Therefore the loss under the heading of telegraph service is really higher, in fact, than it looks when you compare it with the year ended 31st March, 1925; because in that year you did have, I think, the payment of the arrears of bonus, and that was shown in the figure of £1,645,525. Would it not have been as well to make a note as regards the year ended 31st March, 1926, saying that that had ceased, and would not be a recurring amount ?-May I put it in this way. It is not that the deficit in 1926 is under-stated, but that the deficit in 1925 was abnormally high.

326. That being attributable to the bonus?—Yes. It included quite exceptional expenditure which was a war liability amounting to £318,000, and that is included in the £1,645,525.

327. The object of my raising the point is this. Anyone reading this document and observing that there is a little over £300,000 saving would rather think, on the face of it, that the telegraph service

was

as making some real effort to economise and save a deficiency, but, as a matter of fact, it does not work out quite in that way, does it?-I quite agree that, unless the detailed telegraph service accounts on pages 16 and 17 are examined, that point would escape notice. But it is brought out quite clearly in the account itself. We have never adopted the practice of putting explanatory notes on to these accounts. When you start explaining accounts you never quite know where you are going to stop. I quite agree, if it were the practice to put in explanatory notes, this is a very clear case for an explanatory note. I would only say that we do not do it.

328. I quite appreciate it is always difficult to give explanatory notes as regards ordinary accounts, because it would mean doing it in connection with so many items, but this is a considerable

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item of £300,000, and that is something quite unusual and different from the ordinary amounts ?-I agree, though I would point out that, if you look at the telegraph account itself, the state of affairs is apparent, I think. The principle we have gone on is to leave the accounts to speak for themselves. At the bottom of page 16 it is apparent that these arrears of bonus amounted to £318,000 in 1924, and nothing in 1925. 329. We can deal with that when we arrive at that particular account.

Sir Fredric Wise.

330. With regard to page 7 of the memorandum dealing with land and buildings, you say that interest is calculated: "On expenditure from 1st April, 1923-for all years subsequent to the year of expenditure, at the minimum rate ruling for loans from the Local Loans fund on 31st March of the year of expenditure." How does that work out?-Do you mean what is the actual rate of interest paid?

331. Yes. It was 5 per cent. on the 1st January, 1926.

332. What was it when these accounts were made out? It was not 5 per cent. then, was it?-I think it would be. I do not think there was any alteration between the 1st January and the 31st

March.

333. The 1st January of what year?— 1926.

334. But this is on expenditure from 1st April, 1923?-I beg pardon. You are speaking of previous years as well?

335. I am taking this account?-This account includes interest on all capital expenditure still represented by assets since 1st April, 1923. Interest on the Exchequer money provided to meet that expenditure has been calculated at the Local Loans rate prevailing at the end of the financial year.

336. How do you get your Local Loans rate?-From the National Debt Commissioners.

337. Do

you check it? No, the Treasury fix it. (Mr. Phillips.) It is in substance the rate yielded by Local Loans stock plus a trifling addition. Since chis arrangement came into force it has always been either 4 or 5 per cent. (Sir Henry Bunbury.) It does not purport to represent the averago market rate for the year; it purports to represent the rate at which the National Debt Commissioners would make advances. 338. Is that a satisfactory way of getting at it?-I think it is.

Ꭰ

of

339. With regard to the arrears bonus mentioned in the account, there are no further arrears of bonus, are there, arising out of the judgment in the case of Pidduck and Ors v. Attorney-General?-In the opinion of the Department there is nothing of importance. I believe there are people who are going to make claims which might involve a considerable liability if they were successful, but the view of the Government's legal advisers is that those claims are not warranted in law.

340. But a certain amount of litigation is still pending?-I do not know whether the claimants will take the matter to litigation or not. There are small remanets. I am afraid we have not quite seen the end of the matter yet, but the amounts still outstanding are pretty small.

341. In the year which ended twelve months ago it is £74,624, which is a very large sum?-Yes.

Sir Robert Hamilton.

342. With regard to the loss on the telegraph service, is it expected that the loss will continue at about £1,300,000? -I should expect the tendency to be for the loss to increase rather than to diminish.

343. You regard it as likely to increase? -Yes.

344. Has anything been done with regard to the cost of press telegrams?— A large amount of press traffic has been taken off the Post Office wires altogether, and is dealt with by the press organisations concerned on their own system of wires which they rent from the Post Office. They do the operating themselves. That is one cause which has led to the press traffic being, I think, less than onefourth of what it was before the war.

[Continued.

I have not con

think that would be so. sidered that aspect of it. The press claim that by taking traffic off the Post Office wires they are reducing the so-called subsidy, and I think that is probably

true.

348. Do you have to keep their wires in order?-Yes.

349. They paying so much a year for the hire of the wires?-That is so.

350. When the wires are once up does the actual transaction work out profitably to you or not?-The Post Office does not lose money on what we call private wires.

351. They only pay expenses ?—No, I should not say that. There is probably a margin of profit to the Post Office services in it. But like all these things, it depends a little on the particular case. Private wires in the aggregate are remunerative to the Post Office. Particular private wires may or may not be profitable, because the rate charged is a flat rate per mile.

352. I meant taking the whole thing? -The whole thing is remunerative to the Post Office.

353. The loss on the press telegraph service must have been considerably reduced if you say the amount of the press traffic is only one-fourth of what it was pre-war?-I think the press traffic is less than one-fourth of what it was before

the war. On the other hand, the expense of handling this traffic has gone up very greatly since pre-war time, as has the cost of handling all traffic, and in fact the cost of nearly everything. As against that, however, the tariff of prices charged has not been increased proportionately.

354. What would the percentage be of the increase in the cost, and also the percentage of the increase in the tariff charges? I can only give a figure for the cost of telegrams generally. I am not able off-hand to give a separate figure for the cost of press telegrams. The average cost of a telegram in 1913-14 was 11.4d., whereas in 1925-26 it was 22.58d. That is just about double.

10 March, 1927.]

Mr. Gillett,

356. Do you know what the total sum would be that you receive from the press?-About £80,000 a year.

Sir Assheton Pownall.

357. That is what you receive at present?-Yes, at present.

Mr. Briggs.

358. Do you know the actual loss incurred owing to the lower rate as against the average rate, or is it merely an estimated loss that you calculate -The loss may mean one of two things. It may mean the proportion of the total known loss on the telegraph service arrived at by a proportion sum, treating the press traffic as bearing its proportion of the total cost according to the volume of press traffic and of ordinary traffic; or it may mean the difference between what you lose on press traffic and what you would lose if you had no press traffic. I can give the honourable Member the first figure, but I cannot give him the second.

Sir Assheton Pownall.

359. Was it not possible to increase the tariff for press telegrams by, say, 100 per cent., as was done with the general telegrams? The actual increase was arrived at after, I believe, discussions with the bodies representing the press, and I should imagine that it was the highest rate of increase which the Government or the Postmaster-General had felt able to carry.

360. About how long ago would that be?-1920.

361. Could that rate be revised upwards without Parliamentary sanction? -I think all telegraph rates have to be approved by Act of Parliament. That is to say, in the existing Act there are maximum charges which I think apply to press rates as well as to ordinary

rates.

362. So that if the House wished to increase this charge for press telegrams, and possibly thereby decrease the loss, it would be necessary to give Parliamentary sanction?-Yes, in the form of an Act.

363. I do not think you have given us the total figure of the loss as far as you can ascertain it of the press telegram service? The loss calculated on the basis of the press traffic taking its pro rata share of all working expenses and standing charges is round about £220,000 a

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year.

[Continued.

That is a result of a recent very thorough examination of the subject, because the press have maintained for some time that the loss was fictitious and the ca'culations incorrect, and the matter has accordingly been re-examined very carefully quite lately.

364. Have the calculations been submitted to the press, and do they agree that that is approximately the sum which is lost by the country on that service?So far as I am aware they have not been submitted to the press.†

Mr. Ellis.

365. Would it be practicable to separate your telegraph column into two sections and give us the wireless broadcasting figures each year separately? I ask that Question for a double purpose. First of all, wireless broadcasting is not really relevant to telegraphs at all, although for convenience it is placed in the telegraph service; secondly, it is matter exceedingly interesting to everyone watching the growth of that service. It would also give proper proportion to the amount of the loss on the telegraph service, which is at present £1,299,214, and which is, of course, too low by the amount of £284,000 which ought to be added to it? -Yes. The calculation can be made from the figures on page 17 showing the detailed account of the telegraph service.

366. I have been looking at those figures. What I was asking was whether for the future one could not see the real loss or the real gain better by having two columns, and seeing the increase in the broadcasting fees. That matter is interesting enough, I suggest, to warrant its being given a column by itself, less whatever amount is paid to the British Broadcasting Company. At present you are hiding yourself as regards the telegraph department under a subsidy?Admittedly. It was done in entire good faith because all revenue has to be brought in somewhere, and this fell under the heading of the telegraph service. But I quite agree it does tend to mask the true amount of the telegraph deficit.

367. You could take it out of the subheads A, B and C of the telegraph account and put it in a column by itself without upsetting the accounts?—Yes, putting it in a separate column on page 9. I see no objection to that if the Committee would wish it, and if the Treasury see no objection.

+ See Q. 520.

D 2

10 March, 1927.]

Mr. Briggs.

368. I take it that your reply just now was an answer to my question, was it not? Yes, that is the figure I should have given you.

Major Salmon.

369. Would it be correct to say that if you were to close down your press telegraph business the Department would save £220,000 a year?-No. That inference cannot be drawn. How much the Department would save is a difficult question, but I am personally quite convinced that it would save something; that is to say, that the press traffic is a dead loss to the Department.

370. There would be a saving, but what the figure would be is problematical ?— Yes.

371. On the question of the general account, I observe that on the expenditure side your expenses have gone up in round figures £2,000,000, and your turnover on the income side has increased

by 340 per cent. The total expenditure is £32,872,000, and when you compare that with the previous year, you will find it is, in round figures, £2,000,000 higher.-Yes. That is largely the expenses of the Savings Bank, which are brought into the accounts this year for the first time.

372. The expenses of the Savings Bank are brought in for the first time this year? Yes.

373. Why is that?-Hitherto the Savings Bank department has been left outside the Commercial Accounts. Various

statutory accounts of the Savings Bank are published, and for that reason they were left outside these accounts, but for several reasons it was decided last year to include them.

374. On the income side, do you show any larger income for that department? -It is shown as an agency service under the heading of "Sundry Agency ser

vices " on page 11. The figure for

increased from £2,094,984 to £3,308,819. That difference is due almost entirely to the inclusion in 1925 of the Savings Bank.

sundry agency services has

375. But may I point out to you that, although your income has gone up, as a matter of fact, your expenses have also gone up out of proportion, as I suggest. One would have thought that with a bigger income your expenditure

[Continued.

would have been less instead of more ?I think that is so. I think that the increase in revenue is greater than the increase in expenses.

376. Then would it not be fairer to the Department in presenting these accounts, where you have postal business, telephone business and telegraph business, to put under a similar head

66

Sundry Agency services" as a part of the income? If that new method of account were adopted, that would at once show that you have that income coming in. As you have just observed, it shows on the expenditure side the whole of the expenditure; it is only fair you should have it shown on the credit side too. I should like to consider that point. In the postal services account the free Government services are again treated as agency services, and it was thought best to treat the Savings Bank business as an agency service as distinct from the revenue-earning services. They are really per contras; you get the expenses on one side and an equivalent amount on the other side of the account.

377. If that is so, why not keep your administrative expenses also separate? 1 cannot quite follow the logic. You put the whole of your list of expenses in one lump figure, if I understand correctly, and on the other hand, you keep in two different parts of the

as

account the three main incomes, i.e., postal business, telephone business, and telegraph business. Then a little lower down you put in "sundry agency services," treating that a separate entity. It does not seem to me at first blush very logical. The principle on which the account rests is this. On the expenditure side you gather together the expenses under a number of the usual accounting heads. Take, for instance, salaries and wages. Under the head of salaries and wages you show the salaries and wages whether of the staff employed on revenue-earning services or on agency services. On the credit side you take credit for your revenue, and then you also take credit for the value of services which you render as agents for other That is the Government Departments. principle, and I submit that it is quite a logical principle. To do what the honourable Member wishes, I think, would mean a great deal of complication on the expenditure side of the account. I think it would destroy the intelligibility of the expenditure side.

[Continued.

10 March, 1927.]

378. It is very difficult to get a complete picture of what your expenditure is as regards your commercial business-that is, your postal, telegraph and telephone business. May I suggest, if you want to keep it as you have it, that you have a separate line on your expenditure side showing the expenditure earmarked purely in connection with the sundry agency services?-What I should prefer to do if a change were made, would be something of this sort: to treat the cost of agency services on page 11 as a deduction from the total on page 10.

379. By that means we would get a complete picture?—Yes. I should like to consider that.

380. On the question of wireless, do 1 understand you to say that you will show the wireless licences as a separate entity altogether and not bring them into the telegraph account?-Yes, that that is the suggestion.

381. And, of course, on the expenditure side you will then show the corresponding expense of dealing with that particular section of the business? There would have to be an entry in the telegraph service account, because the expense of collecting and administering the wireless licences is part of the expenditure of the telegraph service; and there would have to be a corresponding item on the income side. But we could keep out of it the surplus profits on licences which go to the Exchequer. We could exclude those from the telegraph account. should like to consider the best way of doing it. I think there is more than

one way.

382. I suppose you have appreciated that, if you were to extract from your figures on the expenditure side the arrears of bonus that have been paid in the particular years we are now dealing with, your expenditure would be shown to have gone up exactly one per cent. on the whole of your expenditure account?-Yes.

383. And that your income has gone up 5-65 per cent. It is rather strange, is it not, that when you get an increased business your expenditure should go up? One rather thought in commercial accounts expenditure went down in those circumstances?-Not if more business is handled, surely?

384. I am taking the percentage expenditure? I have not quite followed your calculation.

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385. If you take your total expenditure during the year 1924, as shown on page 10, and you deduct from that the arrears of bonus that were paid, and if you do the same for 1925, you will find that when you make a comparison of tho two columns your expenditure is a little more than one per cent. higher in 1924 than in 1925?-What you mean is the expense ratio. I was misled by the use of the word "expenditure." The explanation probably is the deficit on the telegraph service, and still more, the inclusion of the Savings Bank, where you have an expense ratio of 100 per cent. so far as these accounts are concerned.

386. That would affect adversely the account? Yes. You are bringing in a very large new service for the first time with an expense ratio of 100 per cent.

Sir Fredric Wise.

387. A very costly one, too?—No, a very cheap one.

388. Your rate per account with the Savings Bank is very costly? No. The cost per transaction is under 9d., and I believe that is quite a cheap cost. I have made some study of the cost of that sort of business, and the Post Office Savings Bank comes out very well in the comparison.

389. Compared to 4d. pre-war?—It was more than 4d. pre-war, I think.

390. It was 4.80d. ?-It is less than double pre-war. I believe, from such information as I have been able to get, that the joint stock banks, for instance, find their cost per transaction is higher.

391. You cannot compare it? It is difficult to get a close comparison, I agree.

Major Salmon.

392. The telephone service income seems to be increasing, does it not?—Yes.

393. I suppose it is fair to assume that an increase of business so far as the telephone service is concerned would tend to show a much higher ratio of surplus? --Not necessarily, because the proportion of post-war to pre-war plant in the telephone service is steadily rising. The post-war plant is 60 to 70 per cent. above the pre-war plant; and as the proportion of post-war plant steadily rises the expense ratio goes up.

394. On the question of advertisements and royalties, in connection with the telephone service, I notice that you seem to have an increase there of 3.15 per

D 3