The year 1845 was a time of great activity in railway promotion, and the Birmingham Canal Company, who already had a canal between that town and Wolverhampton, proposed to supplement it by a railway through the Stour Valley, using for the purpose a certain amount of spare land which they already owned. A similar proposal, however, in respect to a line of railway to take practically the same route between Birmingham and Wolverhampton, was brought forward by an independent company, who seem to have had the support of the London and Birmingham Railway Company; and in the result it was arranged among the different parties concerned (1) that the Birmingham Canal Company should not proceed with their scheme, but that they and the London and Birmingham Railway Company should each subscribe a fourth part of the capital for the construction of the line projected by the independent Birmingham, Wolverhampton, and Stour Valley Railway Company; and (2) that the London and Birmingham Railway Company should, subject to certain terms and conditions, guarantee the future dividend of the Canal Company, whenever the net income was insufficient to produce a dividend of £4 per share on the capital, the Canal Company thus being insured against loss resulting from competition.

The building of the Stour Valley Line between Birmingham and Wolverhampton, with a branch to Dudley, was sanctioned by an Act of 1846, which further authorised the Birmingham Canal Company and the London and Birmingham Railway Company to contribute each one quarter of the necessary capital. The canal company raised their quarter, amounting to £190,087, by means of mortgages. In return for their guarantee of the canal company's dividend, the London and Birmingham Railway Company obtained certain rights and privileges in regard to the working of the canal. These were authorised by the London and Birmingham Railway and Birmingham Canal Arrangement Act, 1846, which empowered the two companies each to appoint five persons as a committee of management of the Birmingham Canal Company. Those members of the committee chosen by the London and Birmingham Railway Company were to have the same powers, etc., as the members elected by the canal company; but the canal company were restricted from expending, without the consent of the railway company, "any sum which shall exceed the sum of five hundred pounds in the formation of any new canal, or extension, or branch canal or otherwise, for the purpose of any single work to be hereafter undertaken by the same company"; nor, without consent of the railway company, could the canal company make any alterations in the tolls, rates, or dues charged. In the event of differences of opinion arising between the two sections of the committee of management, the final decision was to be given by the railway representatives in such year or years as the railway company was called upon to make good a deficiency in the dividends, and by the canal representatives when no such demand had been made upon the railway company. In other words the canal company retained the deciding vote so long as they could pay their way, and in any case they could spend up to £500 on any single work without asking the consent of the railway company.

In course of time the Stour Valley Line, as well as the London and Birmingham Company, became part of the system of the London and North-Western Railway Company, which thus took over the responsibilities and obligations, in regard to the waterways, already assumed; while the mortgages issued by the Birmingham Canal Company, when they undertook to raise one-fourth of the capital for the Stour Valley Railway, were exchanged for £126,725 of ordinary stock in the London and North-Western Railway.

The Birmingham Canal Company was able down to 1873 (except only in one year, 1868, when it required £835 from the London and North-Western Company) to pay its dividend of £4 per annum on each share, without calling on the railway company to make good a deficiency. In 1874, however, there was a substantial shortage of revenue, and since that time the London and North-Western Railway Company, under the agreement already mentioned, have had to pay considerable sums to the canal company, as the following table shows:—

Year
1874 £10,528180
1875nil.
18764,796109
187736179
187811,37057
187920,22505
188013,534196
188115,02893
18826,82671
18838,87947
188414,19679
188525,4601910
188635,16996
188731,491141
188815,3501011
18895,341193
189022,06998
189117,62623
189229,50842
189331,618194
189427,93589
189539,065152
189622,994010
189710,186197
189810,286133
189918,470181
190034,075196
190162,64428
190227,64523
190334,04746
190437,83258
190539,860130

The sum total of these figures is £685,265, 2s. 11d.

It will have been seen, from the facts already narrated, that for a period of over twenty years from the date of the agreement the canal company continued to earn their own dividend without requiring any assistance from the railway company. Meantime, however, various local, in addition to general, causes had been in operation tending to affect the prosperity of the canals. The decline of the pig-iron industry in the Black Country had set in, while though the conversion of manufactured iron into plates, implements, etc., largely took its place, the raw materials came more and more from districts not served by the canals, and the finished goods were carried mainly by the railways then rapidly spreading through the district, affording facilities in the way of sidings to a considerable number of manufacturers whose works were not on the canal route. Then the local iron ore deposits were either worked out or ceased to be remunerative, in view of the competition of other districts, again facilitated by the railways; and the extension of the Bessemer process of steel-making also affected the Staffordshire iron industry.

These changes were quite sufficient in themselves to account for the increasing unprofitableness of the canals, without any need for suggestions of hostility towards them on the part of the railways. In point of fact, the extension of the railways and the provision of "railway basins" brought the canals a certain amount of traffic they might not otherwise have got. It was, indeed, due less to an actual decrease in the tonnage than to a decrease in the distance carried that the amount received in tolls fell off, that the traffic ceased to be remunerative, and that the deficiencies arose which, under their statutory obligations, the London and North-Western Railway Company had to meet. The more that the traffic actually left the canals, the greater was the deficiency which, as shown by the figures I have given, the railway company had to make good.[6]

The condition of the canals in 1874, when the responsibilities assumed by the London and North-Western Railway Company began to fall more heavily upon them, left a good deal to be desired, and the railway company found themselves faced with the necessity of finding money for improvements which eventually represented a very heavy expenditure, apart altogether from the making up of a guaranteed dividend. They proceeded, all the same, to acquit themselves of these responsibilities, and it is no exaggeration to say that, during the thirty years which have since elapsed, they have spent enormous sums in improving the canals, and in maintaining them in what—adverse critics notwithstanding—is their present high state of efficiency, considering the peculiarities of their position.

One of the greatest difficulties in the situation was in regard to water supply. At Birmingham, portions of the canal are 453 feet above ordnance datum; Wolverhampton, Wednesfield, Tipton, Dudley, and Oldbury are higher still, for their elevation is 473 feet, while Walsall, Darlaston, and Wednesbury are at a height of 408 feet. On high-lands like these there are naturally no powerful streams, and such is the lack of local water supplies that, as every one knows, the city of Birmingham has recently had to go as far as Wales in order to obtain sufficient water to meet the needs of its citizens.