COMMITTEE ON THE INLAND TELEGRAPH SERVICE, 1927. REPORT. THE RIGHT HON. SIR WILLIAM MITCHELL-THOMSON, BART., 1. The Committee were appointed with the following terms of reference: "To examine the possibility of effecting substantial economies in the working by the State of the Inland Telegraph Service. The Committee, accepting the scales of pay awarded by the Industrial Court, will report what changes, if any, in the tariff would be necessary in order to extinguish or substantially to reduce the continuing deficit on the Service." 2. At the outset the Committee felt it desirable to discuss the terms of reference with you and Sir Evelyn Murray. You explained that you wished the Committee to confine their purview to the Inland Telegraph Service, eliminating the Beam, Wireless and Foreign Telegraph Services. You did not expect the Committee to make a detailed enquiry into technical and engineering questions. The Committee proceeded to hold their enquiry and to hear evidence accordingly. 3. The Telegraph Service was taken over by the State in 1870, compensation being paid to the Telegraph Companies and Railway Companies which had previously conducted or were interested in public telegraph business. The cost of acquisition was approximately £8,000,000. In addition, certain contractual liabilities in perpetuity were entered into with the Railway Companies. The main liability relevant to the present enquiry which survives to the present day is a perpetual right of the Railway Companies to send annually without payment a fixed number of messages subject to a limit. placed on the number of words. At the present tariff the messages sent in 1926 if paid for would have produced a revenue of about £93,000. This continuing liability forms part of the purchase price of the monopoly acquired by the Post Office in the conduct of inland telegraph business, and the Committee understand that the arrangement cannot be changed except by mutual consent. The value of the plant acquired (exclusive of land and buildings) was, on the basis of prime cost less depreciation, about £1,500,000, the difference between this figure and the £8,000,000 mentioned above representing Stores, Land and Buildings, Goodwill, Pensions and compensation to officers of the Telegraph Companies, Legal and other expenses of transfer, and Purchase of the undertakings of minor Telegraph Companies. Up to 1873, when the cost of extensions ceased to be met from borrowed monies, the Post Office had. spent about £2,130,000 upon extensions and improvements, giving a total capital expenditure of £10,130,000, which was raised by the creation of Consols and became merged in the National Debt. The cost of subsequent extensions has been voted annually by Parliament on the Post Office Estimates. 4. It is a fallacy to suppose that the existing telegraph deficit is attributable to the excessive price paid for the system. The plant then in use was revalued in 1912, and for the last 15 years the capital charges debited to the Telegraph Account have been based upon the value of that plant so ascertained, modified by subsequent additions. Up till 1883 the business grew steadily and showed some prospects of operating without loss, but in 1883 a private Member's motion advocating the immediate introduction of 6d. telegrams was carried in the House of Commons against the advice of the Government, and a 6d. rate was introduced on 1st October, 1885. The number of telegrams soon rose from 30 millions to 50 millions a year. The 6d. telegram held the field for 30 years until under pressure of war conditions the minimum was first raised to 9d. and in 1920 was further increased to 1s. for 12 words with an extra penny for each additional word. 5. In 1870 the pay of a telegraphist averaged about 5d. an hour. In 1885 it had risen to over 6d. ; in 1914 to about 9d. ; and it now exceeds 1s. 6d., including Civil Service bonus based on the cost of living index figure. 6. Before the War the deficit for the Telegraph Service as a whole, after providing for interest on capital, had risen to about £1,250,000, the number of telegrams in 1913-14 being 89,089,000; and in round figures the deficit on the Telegraph Services proper, excluding Wireless Licences, in recent years has been as follows: 7. The revenue of the Telegraph Service is paid weekly into the Exchequer as collected, and its expenditure, whether capital or operating expenditure, is met out of the annual Post Office Vote. In this respect it differs from the Telephone Service, as the capital expenditure of the latter is financed from Loan. The annual programme of capital expenditure in the Telephone Service is subject to Treasury control, but does not require specific Parliamentary sanction except for further borrowing powers. The position is incongruous, and Telegraph finance might be brought into line with Telephone finance with some advantage. 8. The Finance Accounts of the United Kingdom and the National Revenue returns show only the Cash Receipts which are classified as derived from Telegraph Services. Besides the Inland Services these include the Foreign and Wireless Services and the proceeds of Wireless Receiving Licences. These Accounts are therefore no guide to the revenue, either gross or net, earned by the Inland Telegraph Service. The Post Office Appropriation Account is only a statement of cash authorisation, and therefore makes no attempt to separate the cost of the Telegraph Service from that of other Post Office Services, nor does it include expenditure which is not represented by actual cash payment out of the Post Office Vote in the year of the account. 9. The true financial results of the Telegraph Service can only be ascertained in the Post Office Commercial Accounts, which are published annually after audit by the Comptroller and Auditor General. Sectional Accounts are included for certain subsidiary services, but there is no separate account for the Inland Telegraph Service. 10. A separate account for the Inland Telegraph Service must rest to a considerable extent on the apportionment of the salaries and wages of a staff, and the cost of plant and accommodation, which are used in common by more than one service. The basis of the apportionment adopted is the proportionate staff time, plant, and accommodation actually used by the service; the account does not pretend to allow for the fact that to some extent staff, plant, etc., provided for one service can be used for another service without a full pro rata addition to cost. Of the total telegraph expenditure about 60 per cent. can be earmarked solely to one service; the remaining 40 per cent. is apportioned from estimates or measurements prepared by the executive departments of the proportionate staff time, plant, or accommodation actually used upon the particular service in question. So far as the expenditure represented by this 40 per cent. is concerned, the services forming the basis of the estimates fall outside the purview of the Committee and have not therefore come under investigation. 11. The Committee have accepted the methods of division, but during the course of their examination it seemed probable that on a very careful and detailed study some adjustments might prove desirable; they are inclined to think that the present division overweights the costs against the Inland Telegraph Service, but it is not thought that the adjustments would exceed £50,000. 12. The Post Office Commercial Accounts for 1926-27 show that the expenditure of the Telegraph Service as a whole (i.e., including Foreign telegrams and Wireless but excluding Wireless Licences) was about £6,263,000 with a corresponding revenue of about £4,834,000. If the expenditure and revenue of the Foreign, Wireless and other subsidiary Services are taken out, the Inland Telegraph Service is left with an expenditure of about £4,714,000 and a revenue of £3,143,000, or a deficit of £1,571,000. If allowance is made for the increased costs falling on the service due to the recent Wages award by the Industrial Court, the deficit becomes £1,600,000 a year. (11497 C) C 13. Accepting the method of apportionment on the basis of proportionate user, the costs of the Inland Telegraph Service for the financial year 1926-27 are made up as follows: Note.--* The numbers of Press and Railway Pass Telegrams and the number of Telegrams dealt with on the Anglo-Irish Direct Cables have been converted into their equivalent in terms of ordinary inland telegrams on the basis of cost. 14. The Committee have found difficulty in attempting to separate the Inland from the Foreign and Wireless Telegraph Services. These Services are so closely related that distinction is often artificial. Many of the Committee's recommendations will be found to apply to the Telegraph System as a whole. 15. The Committee's terms of reference naturally divide into two parts: (1) What savings can be effected on expenditure? (2) What change of tariff is desirable to extinguish or reduce substantially any deficit which remains ? 16. The chief adviser of the Postmaster-General is the Secretary to the Post Office, who, assisted by the Second Secretary, is responsible for the whole organisation of the Post Office. Under him the Director of Telegraphs and Telephones is in charge of that section of the Secretary's Office (consisting of three Branches, each under an Assistant Secretary) which administers (a) the Inland Telegraphs; (b) the Overseas Telegraphs, including Wireless Services; and (c) the Telephone System. The Inland Telegraph Branch exercises general managerial control over the Inland Telegraph Service, but certain matters, such as rates of pay and conditions of service, discipline, recruitment of staff, buildings, etc., which are common to the Post Office as a whole, are concentrated in other Branches of the Secretary's Office. While there are divided interests both above and below the Assistant Secretary in charge of the Inland Telegraph Branch, it so happens that this officer's interests are wholly concentrated on the Inland Telegraph Service. 17. The telegraph business is faced with peculiar difficulties. On the one side it has to meet competition from a Telephone Service of increasing favour, and this competition will become more and more severe as the telephone system grows; on the other side the Postal Service meets adequately many business and social requirements. A place has to be found for the Telegraph Service between these; to find and maintain such a place both speed and accuracy are essential. The Committee are not satisfied that the present service gives the speed which is essential. The fact that the Telegraph Service has come to be regarded as a diminishing business has introduced an atmosphere of inertia, and the resiliency which should be found in a progressive business is lacking. The Committee are of opinion that the present deficit can be attributed to a considerable extent to the foregoing causes, coupled with the factors of Civil Service conditions, to which reference will be made later, together with redundancy of staff, rotation of duties and grading of work. |