more, has been to allow them to receive stamps on credit, and they pay after each settlement day, and naturally wherever you give credit a bankruptcy may cause you to lose a small sum of money. After all, most of the direct taxes of the country are collected on credit.

Major Salmon.

207. On page 24, under the heading of "Notes," it says: "This account includes a sum of approximately £10,300 for salaries, etc., of staff temporarily lent to other Departments." Does that mean that you have loaned a certain number of staff to other Departments and therefore you have a credit for that sum of money?—Yes, that is right.

208. And you are able to carry on without that staff?-Yes, as best we can. 209. Therefore I presume that would reduce your establishment accordingly?— Yes, upon the assumption that the other officers of the Department who were working hard in that Department would be glad to do so for the rest of their lives.

210. Is it seriously put forward, then, that staff, having been lent for some considerable period by your Department to other Departments, really means that the work is of such a character that it is not necessary to replace the whole of them, or that you might replace some but not the whole? What is seriously

[Continued.

contended is that, in fixing our normal staff for normal requirements, we do our level best to arrive at a fair balance between the necessary current requirements of the work day by day in order that the revenue should be reasonably raised at the proper time, and, on the other hand, the demands of the greatest possible economy in the number engaged.

211. Notwithstanding the economy exercised in your Department by cutting down the staff to as small a figure as reasonably possible, you can still at times loan for a considerable period a certain number of individuals?—Yes, but you will remember that the total sum here involved is £10,300. The officials in those cases happened to be officials of fairly responsible rank, and it affected five or six or seven people, or perhaps a few more, out of a total of 20,000.

Chairman.

212. Have you anything to say on this statement of losses, Sir Malcolm? (Sir Malcolm Ramsay.) Only last year the Committee reported that they were rather exercised at the increase. I think it is only fair to point out that the losses are infinitesimal compared with the revenue collected.

213. Has the Treasury anything to say? -(Mr. Phillips.) No, Sir.

Chairman.

214. Have you anything to say with regard to paragraph 8 of your Report, Sir Malcolm?-(Sir Malcolm Ramsay): This is not intended as a criticism of the Post Office, but I thought the Committee would be interested to hear that this particular subject has been engaging the attention of the Postmaster-General. The Committee has always set its face against the placing of contracts without effective competition, and for reasons

which Sir Henry can easily explain, there has been a considerable amount of Post Office work placed without competitive tender at all. The position has been reviewed by the present PostmasterGeneral, and special arrangements have been made that any cases where contracts are going to be placed without competition shall be specially scrutinised.

215. Have the Treasury anything to say?-(Mr. Phillips): No, Sir. We dislike the system generally, but it appears to be inevitable in this case.

8 March, 1927.]

Major Salmon.

216. Can we know what justified the expenditure during the year under review of £1,000,000 without tender? Under what heads is that large expenditure? (Sir Henry Bunbury): It is almost entirely telephone exchanges and telephone exchange extensions, and those mainly of the automatic type.

217. Because it is a particular patent? -Well, that applies to London. The patent question does arise in London. Some three or four years ago the Postmaster-General came to an agreement with the five manufacturers of apparatus of this type that the orders should be shared between them on a schedule of prices, and that they would pool their patents. That is with regard to London. Outside London the question of patents does not arise. But it is necessary to distinguish between new exchanges and extensions to existing exchanges. In the case of new exchanges competition would be practicable, and it would be highly desirable if competition could be obtained. In the case of exchange extensions it is practically necessary that the extensions should be carried out by the firm who provided and erected the original exchange, and, in fact, other firms are unwilling to com. pete with the original makers of the exchange.

218. I believe you have a very large maintenance staff in the telephone department? Yes.

219. Have your maintenance staff gone into the question at all of what it costs when giving out a contract of work for extension, and what you yourselves could do it for?-Yes, that question has been gone into. It was gone into last year. As the Honourable Member will understand, it is a somewhat speculative question. We were unable to come to any definite conclusion, I think quite naturally, as to whether we could supply exchange extensions more cheaply than contractors offered to supply them. this much was clear; it was not desirable that the Post Office itself should go into that work unless they were certain of making considerable savings, because there are considerable disadvantages in undertaking direct supply.

But

[Continued.

certain additions to an exchange, and you are not able to put that firm into competition. Unless you do have some means of checking, how are you to see that you are getting really fair value for money. One is often alarmed to see the enormous amount of capital whcih, it may be very rightly, is being spent by the Post Office for the extension of telephones, and it is a serious problem when millions of pounds are spent without any opportunity of competition in connection with the spending of that money. becomes a grave question to see that the State are getting good value for that money?-I could not dissent from what the Honourable Member has said, and I know the Postmaster-General would not dissent either. Exchange extensions, however, that is extensions to existing switchboards, usually do not involve anything like the expenditure that is involved in a new exchange.

It

221. You have the opportunity of making comparisons with what the prices are in other countries. You have the opportunity of making comparisons with what telephones cost here as compared with the cost of telephones in America, or any other part of the world?-Yes.

222. You could give a return to show whether the cost of new exchanges in England is higher or lower than the cost of those erected in other Countries of the world? We know roughly the cost of exchange stations in America, and I have no doubt we could obtain contract prices. I think we could. I should also expect to find that contractors' prices in America are much the same as they are here. If you consider the Continental manufacturers of telephone exchanges, I think I would express this opinion. If Continental manufacturers were prepared to supply and erect exchange equipment to the British Post Office on the same terms as they supply in their own Countries, or in other foreign Countries, our exchanges would cost us less than they do.

223. What is the objection to asking the prices with a view to forcing down an undue price in this Country?-I think there are two objections. The first isand I think it has been announced in Parliament from time to time-that it is the policy of His Majesty's Government to give preference to British manufacturers. In the second place, it is by no means certain that Continental manufacturers of telephone exchanges would

be willing to enter into effective competition with British manufacturers.

Mr. Ellis.

224. It is certain they would not, is it not? I would not go so far as that, but I do not think it is certain that they would.

Major Salmon.

225. It comes to this then, in effect. The Chief Engineer is only to a certain extent able to satisfy himself, or report to the Postmaster-General, that in his view the prices are as reasonable as you can expect? No, he goes further than that. He certifies that the prices are reasonable. I was assuming from your question that you were asking whether they were strictly competitive prices, and cut in the way in which really competitive prices are cut. If asked that question I should be unable to say yes.

226. It would be rather useless, after hearing what you have said, to put that question to you. It is obvious it is not a cut price?-That is so; it is, I suppose, what would be regarded as a fair and reasonable price.

227. How are you, therefore, going to meet the point that the PostmasterGeneral lays down-that no contract over £50,000 is to be given unless at competitive prices?-In the case of a contract over £50,000 the case has to go to the Postmaster-General personally. He takes personal responsibility for placing any contract without competi

tion.

228. But below £50,000 the department do it?-Below that figure it rests with the department.

229. Therefore we are simply going on as we have done hitherto? I think I ought to say that the matter is being very constantly watched. There is a Committee which has been examining this subject for a year and more, and every six months all the contracts placed, and all the contracts completed, which were made without competition, are examined in my own department.

Sir John Marriott.

230. Is that a Departmental Committee?-Yes. That is done with the object of satisfying ourselves as far as we can that we are not being unfairly treated. We have one hold over these

[Continued.

prices, and that is this. For manual exchanges there has hitherto been, and so far as we know there will continue to be, effective competition between a considerable number of manufacturers. Now the parts which go to make up an automatic exchange are to an important extent the same as those which go into a manual exchange. The automatic apparatus contains a good deal of special work, but to a large extent it employs common parts with a manual exchange. There we consider we have a good test of competitive prices. The way in which the thing is examined is this. The detailed specifications and schedules of components which go to make up an automatic exchange when tendered for, are priced out by the engineering staff at the prices for manual components so far as those are known. In fact, we have agreed schedules of prices with the contractors for non-competitive work. that basis the opinion is formed whether the price quoted is reasonable. 1 ought also to add this. Quite recently competitive tenders have been asked for for two or three London exchanges, and prices have been obtained; and they do not differ materially from the previous non-competitive prices. You have, however, to distinguish-and it is a vital distinction between formal competition and effective competition.

contracts

On

on

231. As a matter of fact, you give all your non-competitive schedules prices ?-The non-competitive prices are based on detailed schedules.

Mr. Ellis.

232. It really comes to this, does it not? So far as electric equipment materials are concerned, you are in the hands of what is in effect a manufacturers combine? I cannot quite say that.

233. Is it not working out like that? -That is true of electric cables. That is an absolute ring.

234. There is an absolute ring, I agree, but in the case of a great many other parts they are practically in the same position-a considerable number of them, at any rate?-Not so far as I am aware. In connection with the London automatic group of contracts we have an omnibus agreement with the five big manufacturers, but apart from that I have no effective knowledge that there is an combination between them. The omnibus agreement applies to London.

235. Is not an omnibus agreement the same thing as an agreed selling price?Yes, but agreed with the knowledge and consent of the Post Office. When it was decided-as it had to be decided-to adopt one system for London, and that system was a system of which one company held the patents, only two courses were possible, namely, either to give all the work to the one company (and they could never have carried it all) or, alternatively, to come to an arrangement that that company should divide the contracts with other companies, and in effect pool their patents. That is the arrangement made.

236. I suppose it really comes to this. The only thing you could do if it came to extremes would be to apply for revocation of the patent?-Yes, I suppose so. I do not know whether that is ever done or not.

237. I only really wanted to try to find out what the position was.-Yes.

Mr. Pethick-Lawrence.

238. This sum of £1,000,000 is, I understand, the contract in the year ending 30th June, 1926. Have you any data so far as the period subsequent to June, 1926 is concerned? Do you know whether the amount of contracts of that character is increasing or diminishing? -At present it is beginning to diminish. The large manufacturers of telephone equipment have added to their productive capacity a good deal in recent years, and they are now in a position to take more work than the Post Office needs to give them. The result of that is that it is now possible to ask for competitive tenders for work that comes under this category.t

Major Salmon.

239. I suppose it would not be very difficult for you to supply us with a list of comparative prices of what people pay in America and on the Continent for erecting new telephones with so many attachments? It would be quite impossible to quote comparable prices per exchange or per line, because no two exchanges are alike. The lay-out of an exchange depends on what I will call the load factor of that exchange-the traffic factor-the volume and character of the traffic. You can only get down to a comparative basis by taking the detailed

+ See also Qs. 514 et seq.

[Continued.

components, and many of them, as you know, are little bits of brass, and that sort of thing. But when you get down to the components you can compare prices. I will enquire, but I do not think, unfortunately, we have any knowledge of the prices actually paid by the American Telegraph and Telephone Company and its associates for components. We might be able to find out.

240. All the components are British, are they? Yes. No foreign apparatus is purchased.

241. Nor parts?-Nor parts.

Mr. Briggs.

242. They used to be?-I doubt if it

was ever so.

243. I seem to remember having one on my desk with the words "Made in Sweden " stamped upon it. Was that supplied by the Post Office? It might have been supplied by the National Telephone Company.

Major Salmon.

244. You say that all the switchboards that subscribers have are all made in England? Yes, if supplied by the Post Office.

Chairman.

245. Coming to paragraph 9 of your Report, Sir Malcolm, would you explain the second sentence which reads: "As the law at present stands no part of this expenditure is recoverable from the Local Authorities unless the works are carried out under a special Act."-(Sir Malcolm Ramsay.) Under the Telegraphs Act, 1877, the undertakers are liable to pay the cost of alterations to telegraph wires involved by works executed for an undertaking authorised by an Act of Parliament. Then the question came up, what was the position in regard to alterations necessitated by some of the general Acts like the Housing and Town Planning and Road Improvement Acts, and a case on this point was submitted to the Law Officers who have advised in effect that undertakers are only to pay for altering and interfering with the telegraph wires where the works concerned are carried out under the authority of a special Act, and not under the general Statutes. The result is that the Post Office have to stand the cost of a good deal of expenditure incurred in consequence of Housing

Schemes by Local Authorities, and they are unable to recover that from the undertakers. The question, I gather, has been submitted to the Treasury by the Post Office, and I do not think it has As far as I can progressed further. gather there is about £225,000 thrown upon the Post Office in this way.

Major Salmon.

246. Every year?-Yes, per annum. (Sir Henry Bunbury.) It is increasing; it is more than that now.

Mr. Ellis.

247. That is only because the Post Office takes precautions under the special Act to protect itself. There must be some clause in the special Act.-(Mr. Phillips.) This is a proposal for transferring from the shoulders of the Postmaster-General to the Local Authorities an expenditure which for the last 50 years the Post Office themselves have defrayed. We considered the Post Office representations very carefully, and also had the views of the Minister of Health and Minister of Transport. We came to the conclusion that on the whole we could do no more than we are doing at present. What we are doing at present is that in the case of any local Act under which a Local Authority seeks some special power for a special job a clause fully safeguarding the Postmaster-General is always inserted. regards what the Local Authorities do under their general housing powers it does not seem to us that we shall be able to carry that particular proposal.

Mr. Gillett.

of

a

As

Local 248. Supposing instead Authority it was a large landlord; who bears the expense in that case, the Post Office or the landlord ?-(Sir Henry Bunbury.) These are alterations to highways, I think.

249. Surely similar schemes are carried out on large private estates by some of the great landlords?-I think the position is this. If the Post Office wires run over private land through grant of a wayleave it depends on the conditions under which the wayleave was granted. Presumably the person who granted the wayleave would have power to revoke it.

Mr. Ellis.

[Continued.

250. There is no permanent wayleave, obviously?—No, he could compel the Postmaster-General to shift his telegraph

line.

Mr. Gillett.

251. There is a case in my constituency where one of the large landlords is altering his estate, and that is involving large alterations in roads. This is in London. Who will pay in that case?—I think that depends whether they are private roads, or public roads.

252. They are the ordinary roads in the middle of London. They are public roads? In that case they are adopted presumably by the road authority.

253. Then who pays?-In that case we have this position. If a road authority widens a road and that necessitates the removal of the Postmaster-General's telegraph wires, the Postmaster-General has to remove them at his own expense unless it is done under a special Act obtained by the Local Authority.

Mr. Briggs.

254. Generally speaking, if a telephone wire interferes with a private road, that is to say, if it runs over a piece of land of a private owner, and that private owner wants to fell a tree, and if in felling that tree there is a likelihood of the tree damaging the wires, it is not he who has to pay the further cost of removing the wires, but the Post Office?Speaking generally, I think that is so.

255. That seems to me to be a justifiable position too. If the Post Office have chosen to put their wires in such a situation that they prevent a man putting up a building, or pulling down a tree, the Post Office should remove the wires if occasion needs?-Yes. On private property the Postmaster-General can only erect his wires by virtue of wayleave granted to him by the owner of that private property. But what this paragraph in the Comptroller and Auditor General's Report is referring to is wires on public highways.

256. I think it goes further than that. Telephone wires may be along a public highway, and a private owner may want to fell his tree on the border of that am public highway?-I not familiar enough with the subject to say what the position would be in that case, if the