23 February, 1926.]

Funds which had not been given by Parliament power to borrow from the Post Office.

118. I quite agree with that.—That is the point of regularity. (Sir Malcolm Ramsay.) I might also suggest to the Committee that if the Post Office hal floating balances of £1,000,000 more than they needed they ought to have paid more over to the Exchequer.

119. Do not be too hard on the Insurance Fund; be generous.-I mean if their floating balances were too big.

120. I think the Post Office might very well be as fair and accommodating as our bankers are to us occasionally, and not be too meticulous.-(Sir Henry Bunbury.) I could not indorse altogether Sir Malcolm Ramsay's point on that. There was more in it than appears to Sir Malcolm Ramsay. I do not altogether agree with him.

Mr. Gillett.

121. Supposing this £1,000,000 had been paid over to the Exchequer, would the Post Office get interest on it?-No. (Sir Malcolm Ramsay.) It would have saved us borrowing on Ways and Means. Sir Henry Craik.] It would have been lying in your coffers.

Major Salmon.

122. The object of keeping that £1,000,000 in the Post Office was to give the Insurance Fund a million of money without paying any interest on it?-(Sir Henry Bunbury.) That was not the object of it, that was the effect of it.

123. That was the effect, therefore the Ministry of Labour were out of that sum of money, and if they wanted the money they would have to go to the Treasury and borrow the money, which they would have to pay for. That is really the position. How did it occur? Is this the first time it has occurred, or did it occur before? (Sir Malcolm Ramsay.) Only this once.

124. How could it have occurred if there is a system in existence which ought to prevent it occurring?-(Sir Henry Bunbury.) It was due to a misunderstanding between the two Departments. 125. As to this particular sum?—Yes. 126. Was this found out by the Department or by the Comptroller and Auditor General? It was found out by the Post Office.

[Continued.

(Sir Malcolm

127. Themselves?—Yes. Ramsay.) Then I came along. (Sir Henry Bunbury.) At some date in February our attention was drawn to the largeness of the balance due from the Ministry of Labour, and we then demanded an immediate payment.

Chairman.] The account of the Post Office commences on page 24, and I will leave it for questions by the Committee.

Major Salmon.

128. I should like to ask what system have we got for dealing with the nonexistent capital when you are doing away with overhead telephones and putting in underground telephones. What system exists for writing off that capital, or having it depreciated, so that you can show that in your capital account at the end of the year?-I ought perhaps to explain first that it would not be correct to say that we are doing away with overhead telephones; although an enormous amount of telephone underground plant is being provided, the overhead lines are used for local telephone circuits.

129. And in no case are you dismantling any lines? Do they all exist? Do you have a duplicate service?Except, it may be, in a very special case, but in general the amount of plant is increasing, not diminishing; and that applies both to underground plant and, to a less extent, to overhead plant. I can give the honourable Member some figures : at the end of this year overhead plant had grown since 1914 from 947,000 miles to 1,106,000 miles; underground plant had grown from 1,900,000 miles to 4,095,000 miles. The process which I think the honourable Member has in mind is the dismantling of over-head telegraph circuits.

When

130. Telephone circuits?-Telegraph circuits chiefly; to a less extent, overhead trunk telephone circuits. they are released they are almost invariably taken up for the development of the local telephone lines, and local and short trunk lines; but there is very little abandonment of lines.

131. I suppose the day will come when there will be an abandonment, if you find it is more economical to have the automatic system and to work it on the underground system. My point is, what system have you, without going into the merits of it, for ear-marking it for the purpose of meeting that contingency?-

23 February, 1926.]

Each kind of plant is depreciated according to its average life. If there were such an amount of dismantling as to affect the average period of life of that class of plant, then the depreciation charge would be adjusted accordingly; it would be increased.

Chairman.

132. May I intervene for one moment just to suggest that if you intend to pursue that subject it would be so much better grounded, from your own point of view, probably, on the Commercial Accounts. I think I am right in saying you have a provision of this kind in the specific headings, say, of Telegrams, on page 15 of the Commercial Accounts?-That is so.

Chairman.] You will then have the material for your questions before you?

Major Salmon.] I do not mind in the least postponing this until we come to that particular Account.

Chairman.] I think it will be more appropriate there.

Major Salmon.] Just as you like.

Mr. Gillett.

133. I suppose this item of Stores at G, £866,000, is just the actual cost of the stores when they were purchased?—Yes, that is so.

134. The actual cost ?-Yes.

Major Salmon.

135. With regard to Sub-head G 2, on page 28, I should like to ask if, as a matter of fact, your department has consulted any other Government Department as to the cost of cloth for the purpose of buying wholesale?

I know

the quantities consumed are large. Do you treat the Post Office as an entity entirely by itself?-No, I believe that there are quite close relations between the Post Office Stores Department and the other departments which buy uniform clothing.

136. On paper?-More than on paper, I think. I am speaking on general knowledge, and I have had a good deal of evidence that there is close communication.

137. Is that functioning at the present time? I think I had better inquire before I answer so specific a question as that. I have no reason to suppose it is not.*

* See Appendix 3.

[Continued.

Chairman.] Pages 30 and 31 refer to Losses by Default, Accident, etc.

Mr. Briggs.

138. Have any of those losses been recovered to any extent, subsequently?— There may have been some small recoveries, but in general the figures that appear here are the figures of the

ultimate losses.

139. Some of them are fairly large. There is one here, I see, at Mansfield, a sorting clerk, £1,019, which looks a very large sum?-It is.

140. How does a sorting clerk come to be able to manipulate over £1,000?—He was in charge of the Post Office during the night, and had access to the safe; and in the safe were a large number of remittances from sub-offices at the colliery villages round Mansfield, and he took that money and disappeared with it.

141. There is another one here, I see, for £1,372 at Euston?-That was a burglary.

142. Do the Post Office take any action, or make any pretence of taking action, against these persons ?-The Post Office prosecutes wherever there is any reasonable prospect of a conviction. In most of these cases the thieves were prosecuted and convicted. (Sir Malcolm Ramsay.) The Mansfield man was arrested and sentenced to 20 months' imprisonment with hard labour.

Mr. Gillett.

143. With reference to T 9 (b), on page 37, may I know why these repayments by the Irish Free State were so large compared with what was estimated? (Sir Henry Bunbury.) No provision was made in respect of that item. That was a bye-product of the Pensions (Increase) Act. In order that these pensioners might have the benefit of the Pensions (Increase) Act, which it was intended by Parliament they should have, their pensions were paid out of the Post Office Vote and recovered from the Irish Free State as Appropriations in Aid.

Chairman.

144. I think, Mr. Phillips, you have some documents to hand in?-(Mr. Phillips.) I should like to hand in the usual papers, namely, the Treasury Minute on

Chairman.

145. We begin to-day, Sir Henry, the other stage of your work: the Post-Office Commercial Accounts, 1924-1925. Members will notice, first of all, that on page 38 there are two short reports by Sir Malcolm Ramsay. The first report, I think, is merely formal, and then you direct our attention in paragraph 1, the question of the percentages of the total expenditure and spectively. Perhaps I had better ask the Treasury for a statement on that point? (Mr. Phillips.) On the point of printing the figures of percentages?

to

revenue re

146. Yes; that is really the point?-A circular letter is going out instructing Departments to make that alteration for the 1925-1926 accounts.

147. Have you anything to add, Sir Malcolm? (Sir Malcolm Ramsay.) No, Sir; I gather that was not introduced into this year's accounts because it would

have caused a great deal of extra expense to do it. Before next year the present contract will expire, and they will be setting up the type afresh, and therefore a good deal of money will be saved if the change is postponed. That is why I understand the change was not introduced in the accounts now before the Committee.

148. Have you anything to say on this, Sir Henry? (Sir Henry Bunbury.) I think not, Sir.

Sir John Marriott.

149. Do I understand that next year's accounts will show the percentages?-That is so; the accounts for the current financial year. (Mr. Phillips.) 1925-26.

Chairman.

150. Would you like to add anything to paragraph 2, Sir Malcolm ?-(Sir Malcolm Ramsay.) No, I think that

explains itself. They have relieved the account of the very high interest charges which have recently been charged in respect of certain moneys borrowed during the period of high bank-rates. It was felt that it would be unfair to continue those rates of interest permanently, and they have now re-calculated the interest on the money borrowed in those years, as stated here.

151. Have the Treasury any remarks to make upon this?-(Mr. Phillips.) No, Sir.

Colonel Assheton Pownall.

152. If this money was actually borrowed at those high rates, if those loans are still outstanding, there must surely be considerable difference between, say, the 6 or 6 per cent. at which the money was borrowed in 1920, and the 43 per cent. which the Post Office are now paying? (Sir Henry Bunbury.) It is not quite so simple as that. The money referred to here is money which is provided for capital purposes out of annual Votes; it covers the whole of the capital expenditure on the Telegraph Service, including wireless, and a comparatively small part of the expenditure of the Telephone Service; and the rule made by the Treasury some years ago was that in the Commercial Accounts of the Post Office money so voted should be treated as though borrowed at the average bank-rate for the year in which it was voted. It was pointed out to the Treasury that this was a rather unfair arrangement, because the money was invested in more or less permanent assets, and had it been the policy of the Government to finance the Services from loans, under the Telegraph Acts, the loans would have been borrowed on 20-year annuities. The Treasury accepted that view, and, in effect, for the purpose of the Commercial Accounts, they funded these advances at the Local Loans rate current at the date of funding them. That was done on a previous occasion; I am not sure whether it was in 1914 or 1920; but on previous occasions the same operation was gone through. It was what you might call a theoretical funding operation, and, of course, the money so funded was not entirely money borrowed at 7 per cent.; it was borrowed at varying rates of interest. The effect of the arrangement was to reduce the interest charged on the Telegraph Service by £31,000 a year, out of a total interest charge of £334,000, and to reduce the interest charge on the

some

[Continued.

Telephone Account by £65,000 a year, out of a total interest charge of £2,620,000. 153. In all, £96,000?-That is so.

154. Does not that mean that the Treasury has to make up more, because there is less charged up to the Post Office? Is that not the effect of it in practice? I think probably Mr. Phillips can answer that better than I can. (Mr. Phillips.) No; I think not; these advances were made from Votes and charged to revenue. It is simply for the purpose of making a rather theoretical charge in the Post Office Commercial Accounts that we have to fix a rate of interest for them. Where there has been real borrowing from the National Debt Commissioners we charge the Commercial Account with the rate at which the operation was carried out, the rate on which the annuity was calculated; but here we are dealing merely with sums which under our system are charged against revenue. For the purpose of producing Commercial Accounts we have to determine a rate of interest, and our old rule used to be to take the bank rate. As, however, the money goes largely into permanent assets, or assets with some considerable life, we now think it better to take the Local Loans rate. The Local Loans rate is more appropriate to long-term borrowings, because it is not so subject to wide fluctuations as the bank rate, and it is not changed at such frequent intervals; for that reason we thought that it was the more satisfactory method to adopt.

155. Surely the Local Loans rate was considerably above 43 per cent. for a long time when these moneys were borrowed? My recollection is it was 6 per cent. ?(Sir Henry Bunbury.) In the meantime, during the years when the interest was charged at bank rate, the telephone user was paying interest at bank rate.

156. You think this is fair as between the Post Office Account and the Nation's Account. I suppose the Treasury do consider it is a fair compromise as between the Post Office Commercial Account and the Nation? (Mr. Phillips.) Yes, I think it comes to that. We did go into the matter with great care at the time.

Mr. Gillett.

157. Is this money advanced from any funds that might be lying idle in the Post Office? Suppose the Post Office has a balance and the Telegraph Department wants a loan, do you lend the money to

the Telegraph Section from the Post Office, as between your two Departments, without ever referring to the Treasury, or would the balance of the Post Office be handed over to the Treasury, and then an advance asked for from the Treasury for the Telegraph Section ?-(Sir Henry Bunbury.) The Post Office cannot spend a penny without the authority of the Treasury and unless it has been authorised by Parliament, either in the form of a Vote or of a Loan Act. The Post Office balances are used, within the limits of those authorities, to finance the current requirements of the Post Office.

158. When you say 66 "Post Office," does that include Telegraph and Telephone Services as well?—Yes.

159. Anything in your Department?-That is so, except the Savings Bank.

160. So that when you go to the Treasury for money, it means for the sum that you are still short, making an allowance for any balance there may be on the Post Office Account?-That is so.

161. So that no question ever comes of what rate of interest is put on the balance in the Post Office on that account? That is so.

Sir Fredric Wise.

162. I still do not see why you took the Local Loans rate as the rate; why did not you take the ordinary Government security as the rate. It is a little better for the Post Office?-(Mr. Phillips.) It is really much the same thing; Local Loans rate is in practice the rate which Local Loans Stock yields, plus a small addition which covers, more or less, the expense of working the Local Loans fund, i.e., in making loans to local authorities.

163. There may be th in it? There may be more than th, perhaps a 1.

Sir John Marriott.

164. I want to pursue what Colonel Pownall was asking about. Do not you produce a fictitious appearance of profit in the Post Office?-(Sir Henry Bunbury.) No.

165. You are not borrowing at commercial rates?-It is true the Post Office undertakings have the security of the Exchequer behind them, and to that extent they can borrow at cheaper rates, more or less, than a private undertaking could. To that extent I agree with the hon. Member.

166. That is all I meant?-I thought you were on the difference between bank rate and Local Loans rate.

[Continued.

167. No, I was rather on the difference between the open market rate, if I may so put it, which would be something about bank rate, and the Local Loans rate. It does produce, at any rate a great advantage to the Post Office, if not a fictitious one? No, the Post Office gets its capital at the rate which the Exchequer guarantee can command for the time being.

168. That is to say, supposing, for the sake of argument, that the Post Office Telephone Service was in competition with a private telephone service of course, it is a monopoly, so it could not be, but supposing it were, then this would be very considerably to the advantage of the Post Office as a competitor?-It would be to the advantage of the Post Office, yes.

169. Then, all you take exception to is" considerably," is it?—Yes. I observe that the rate at which first-class public utility companies can borrow at the present time, on first mortgage, for instance, is not greatly different from the rate at which the Exchequer can borrow.

Chairman.

170. We will now turn to page 4, which is the beginning of an explanatory memorandum on the accounts. We will start with the general paragraph, and then go to the one regarding apportionment and No. 3 dealing with capital, because I think that is mainly explanatory matter? This memorandum is all explanatory; it does not comment on the results shown in the accounts. Most of it is repeated year after year.

Major Salmon.

171. I should like to ask you with reference to the apportionment. I suppose that has regard to the apportionments debited to the Post Office Savings Bank, for instance, for rent, rates and taxes, and for services rendered by the staff?— Yes; it applies to the apportionment to the Post Office Savings Bank, and also the apportionment between the other Post Office Services, Postal Telegraphs and Telephones.

172. Would you mind, to make the matter clear, turning to the General Account on page 10 with regard to apportionment? I observe that on the income side you have a sum there: "Rent (including rental value of Savings Bank buildings) £51,704." I do not see on that side any credit being given to the general Post Office business for rates or for staff.