Railway Rates: English and Foreign

by James Grierson

The Managers of English railways have not assumed that they could fix rates on a “Scientific” or “Natural” basis. But they have endeavoured, after consulting merchants, manufacturers and traders, to fix such rates as were required to develop the largest amount of trade; and it is submitted that they have been carrying out principles which will, on the whole, bear the closest examination. They probably have made mistakes, and in some cases entered into undue competition with each other, or fostered it too much between producers or ports. But the principles upon which they have acted are sound; and the instances in which they have erred are exceptional. It has been the aim of railway companies to make rates conform to the requirements of trade, or, according to a popular expression, to charge what the traffic will bear.[30] It is easy to misrepresent this principle. The commonest misrepresentation is to assume that it means charging what the traffic will not bear. Rightly understood, this, it is contended, is the only fair working principle; the only scientific rule, if that phrase has any clear meaning. It is only another way of saying that rates should be so fixed as to enable a manufacturer or a trader and the railway company to obtain a reasonable profit, and that rates should ultimately be determined by the law of supply and demand. The value of conveyance, like the value of any other service, is not necessarily what it costs, but what it is worth to him who wishes his goods carried. On supply and demand, the available means of transport and the demand for it depends what it is worth while to give for carrying an article from A to B. Obviously the demand will be affected by the nature of the merchandise. If it be of a costly nature, such as manufactured articles, producers of it or dealers in it can afford to pay a higher rate than if it were of low value; a rate of 3d. a ton per mile, which might be prohibitive of the carriage of sand or lime, would add to the value of silk or velvet only an insignificant percentage.[31]

The capital of English railways amounts to upwards of £800,000,000. One of the problems to be considered is how to raise a revenue sufficient to pay on this sum even a moderate rate of interest? The Companies might perhaps obtain it by charging for conveyance according to equal mileage rates or according to cost of service. Following such a course they might probably levy charges which a great portion of the traffic would not bear; they might charge, for example, as much for a consignment of pig iron as for a consignment of copper of equal weight carried equal distances—which is generally what cost of service implies. If their sole object were to obtain the necessary revenue, they might cease to regard the effect of rates upon the interests of traders, districts, or ports, and, while conforming to the statutory maximum, they might levy rates detrimental to particular kinds of traffic. Their practice has been altogether different: they have sought to give full effect to the intention which Parliament had in view in framing the rude statutory classifications. They have endeavoured to suit the charges to the capacity of the traders, and in the words of Section 90 of the Railways Clauses Consolidation Act of 1845, “To accommodate them (the rates) to the circumstances of the traffic.” Such is the only sound principle working to the interest alike of railways and their customers. If rates were too high, and the traffic could not bear them, traders would suffer; the companies themselves would also suffer; their traffic would diminish, or would not expand as it might do. Such was the principle, speaking generally, on which the classification in railway Acts was framed. Such, too, is the principle of existing rates, only instead of being an hypothesis as to what will suit particular kinds of traffic, the existing classification and rates are based on facts carefully ascertained, verified by long experience, and corrected from time to time.

It is not unimportant to bear in mind that much the same principle as that which we have discussed is applied in regard to indirect taxation, or the taxation of commodities.[32] What an article will bear—in other words what the owner can with convenience pay—is a rule alike applicable to taxation and railway rates. In more civilised countries articles of prime necessity are not taxed, or very little; articles of luxury and of great value are taxed more. A distinction is made between wheat and tobacco, sugar and wine; and whenever it is practicable, without opening the door to fraud, to put indirect taxes on ad valorem basis, it is done. A similar rule is observed, so far as possible, with respect to direct taxation. Income tax, for example, is payable only by those whose incomes exceed £150. An endeavour is made to obtain the revenue of the country from the persons who can best afford to pay, and to levy it upon articles, the taxation of which will, to the least practicable extent, be a burden on the trade of the country. To fix railway rates on any other principle than that described above would be much like raising the national revenue from all persons alike, rich or poor, to impose the Customs and Excise upon all commodities, whether articles of luxury or necessity, and irrespective of their value.

When railways were first authorised, it was everywhere anticipated, strange though it may now appear, that the companies would be merely toll takers, and that the public, or carriers, would use them in the same manner as turnpike roads. Every railway was to be a highway; every one of the King or Queen’s subjects was to be free to use it. Many statutes bear traces of this, now apparently, curious assumption. The private Acts, as a rule, contained no provision for the companies themselves acting as carriers. The classification of the articles to be carried and the tolls to be taken were borrowed from the canal Acts. No very clear principle of classification ran through the special Acts. The classification in the main, however, probably accorded with the considerations pointed out by Adam Smith, who drew attention to the inconvenience of levying tolls on turnpike roads solely according to weight.[33] Speaking broadly, the tolls were in accordance with the ideas as to indirect taxation prevalent at the time when canals began to be largely constructed. In the original classification one may trace a desire to encourage agriculture, and the manufacture of iron, and such articles as were, generally speaking, carried in large quantities. Articles of general use in manufactures and raw materials were to be carried cheaply. The omissions from the lists of articles are remarkable. Such commodities as coal, iron ore, bricks, clay, manure, slates, stone, bar and pig iron, heavy iron castings, anvils, chains, timber, grain, flour, sugar, hides, dye-woods, earthenware, drugs, cotton and wool, were enumerated. On the other hand, machinery, hardware, hollow-ware, cutlery, glass, ale, wines and spirits, grease, oils, soap, drysalteries, paints, colours, paper, leather, floor-cloth, and textile fabrics, were not named; they came under the general description of “manufactured goods, articles, matters or things,” and might be charged the highest maximum rates. The special Acts contained, as a rule, an enumeration of only 40 to 50 articles in three to five classes.

In a few years, experience proved that the theories on which Parliament had proceeded were impracticable. In the first place, the notion that railways could be used by all comers in much the same way as canals or roads was found to be erroneous. Railway companies accordingly applied, in their special Acts, for powers not only to find locomotive power and wagons, but also to convey traffic as common carriers. In 1845, the Railways Clauses Act (s. 86) authorised every company to convey on their railway all such passengers and goods as might be offered to them for that purpose, and to make such reasonable charges in respect thereof as might be from time to time determined upon, not exceeding the tolls by the special Act authorised to be taken. The special Acts contained, as has been stated, imperfect classifications of merchandise, the maximum rates chargeable for conveyance, and powers to charge for loading, unloading, and other services incidental to the business of a carrier. About 1845 a second great change in the mode of charging for conveyance came to pass; and it is a circumstance worth noting that about that date a similar change took place, without concert, in France, Belgium and wherever railways existed. Up to that time railways had, as a rule, acted on the principle of equal mileage rates. This proved disadvantageous; it did not meet the requirements of trade; it was particularly unsatisfactory to distant traders; it prevented the opening up of new districts; and it needlessly limited the amount of traffic.

About the time which we have mentioned, the imperfection of the statutory classifications became manifest. Such rates as were intended to be ad valorem were not in fact on that basis; so far as it was intended to favour raw produce this object was not sufficiently accomplished. The advantages of differential rates, the necessity of adapting charges to the traffic, the power of railways to open up new districts, and develop new industries, began to be understood. Accordingly the Legislature enacted the following provision, the words of which merit attention:[34]

S. 90, “And whereas it is expedient that the company should be enabled to vary the tolls upon the railway so as to accommodate them to the circumstances of the traffic, but that such power of varying should not be used for the purpose of prejudicing or favouring particular parties, or for the purpose of collusively and unfairly creating a monopoly either in the hands of the company or of particular parties, it shall be lawful, therefore, for the company, subject to the provisions and limitations hereinafter and in the special Acts contained, from time to time to alter or vary the tolls by the special Act authorised to be taken, either upon the whole or upon any particular portion of the railway as they shall think fit; provided that all such tolls be at all times charged equally to all persons, and after the same rate, whether per ton, per mile or otherwise, in respect of all passengers, and of all goods or carriages of the same description, and conveyed or propelled by a like carriage or engine passing over the same portion of the line of railway under the same circumstances, and no reduction or advance in any such toll shall be made either directly or indirectly in favour of any particular company or person travelling upon or using the line.”

Personal preferences were forbidden. But the companies were to accommodate their rates to the circumstances of the traffic, the Legislature’s mode of expressing the rule that the traffic should pay what it could bear; and within the statutory maxima, the companies were to be free to alter their tolls as they thought fit.

How far this was altered by s. 2 of the “Railway and Canal Traffic Act, 1854,” need not here be considered. It is enough to say here that, so far as s. 90 was concerned, differential rates were not only not prohibited, but distinctly sanctioned. S.90 required equality only in regard to traffic “passing between the same points of departure and arrival, and passing over no other part of the line.”[35]

For more than forty years railway companies have been conforming to these principles. They have been developing long as well as short distance traffic, and aiding the opening of new industries. They have done so to their own advantage, for though the return on the capital expended on railways has been small, it has been obtained on a large volume of traffic. They have been able to benefit the commerce of the country to a degree which would have been impracticable if, instead of rates being elastic and freely accommodated to traffic, the traffic had been forced to adapt itself to the rates. Producers pay what they find it worth while to pay; they pay no more. In framing the statutory classification, the Legislature assumed that producers would probably find it worth while to pay the authorised charges. The companies find out what such producers can in fact pay, and what rates will best promote traffic. What preferable rule could be substituted?