LTSR-why did it become part of the LMS?

[Compound2632]

27 minutes ago, DenysW said:

buying rolling-stock on the never-never. It could happen if the borrower was desperate enough.

 

I've been looking at the minutes and accounts for the Somerset Central Railway, Somerset & Dorset Railway, and Somerset & Dorset Joint Committee. The SCR / SDR bought much of its rolling stock on deferred purchase, generally going for the longest term on offer - 15 years - even though that was the most expensive in the long run but at least it meant there was enough stock to get things going - revenue in the short term. When the SDR went into Chancery in 1866, the rolling stock and other equipment was assigned to trustees, virtually the day before the crunch. This prevented creditors from seizing the stock and, again, enabled the railway to continue to function.

 

When the Joint Committee took over in 1875, there outstanding debts to the rolling stock suppliers - notably Metropolitan RC&W Co. - to be paid off.

 

But it wasn't that unusual for railway companies to hire additional mineral wagons at times when they either couldn't afford to buy additional stock or when the demand was seen as relatively short-term.

[johnofwessex]

1 hour ago, Nearholmer said:

Are you delving into the financial history of Britain’s railways with a particular question in mind?

 

If not, can I tee one up that I’ve always been intrigued by: any feel for what the overall return to investors per £ invested in railways between the start of the game and nationalisation was?
 

I’m not sure I’d understand the answer without a meaningful comparator, or what such a meaningful comparator might be, but …….

 

I’m intrigued by it, because I’ve always had a sneaking suspicion that railways were a poor investment in a direct sense, although in an indirect sense they were beneficial by acting as an enabler of earning from investment in manufacture and trading.

 

 

 

 

AFAIK Football Clubs in days past were valueable not because they were profitable - they were not but because of the profits to be made from catering.

 

In the same was P&A Campbell (White Funnel Fleet) basically survived because its shareholders were also its suppliers and then it was bought up for its unused tax allowances

[DenysW]

1 hour ago, Nearholmer said:

Are you delving into the financial history of Britain’s railways with a particular question in mind?

Emotionally I've always rejected assertions not supported by evidence. The one that caught my attention on this was the one that "the North-Eastern was regarded at the time as the best of the Big Four pre-Grouping railways". Why not the Midland (via my wife's emotional attachment to the LMS)? Why not the self-styled 'Premier Line', which did not  actually descend from the (passenger-carrying) Stockton & Darlington? Why not the case presented by the insufferable portion of the supporters of the GWR so accurately lampooned by the Rev. Awdry?

 

1 hour ago, Nearholmer said:

what the overall return to investors per £ invested in railways between the start of the game and nationalisation was?

This is intrinsically not answerable, as was pointed out in "English Railways: Statistically Considered" by John Fraser,  (1903, publ, Effingham Wilson, London, digitised by Microsoft 2010). What you have  numerically is the amount of money put into the railways (from both Capital and Revenue accounts), and the amount of money taken out - as dividends. This omits the true residual value of the assets created by the railways, which is difficult or impossible to appraise because there's no reliable data, and although the early Victorians were fully conversant with the idea of assets depreciating over time (there's text in the L&Y accounts from when its mergers/takeover stopped it being the Manchester & Leeds in the 1840s) none of the blighters attempted to give a true, depreciated value of the company's assets.

 

As a simplistic illustration from modern times, it was pointed out to me in about 2001 that Yorkshire Water had  by then borrowed about £1 Bn from its formation and also paid dividends of about £1 Bn. Conclusion: it had borrowed the money to pay dividends and had never actually made a profit. BUT: if it had improved its asset base by £1 Bn (who can tell? this is subject to as much personal opinion as a house estimate) then it would have all been legit.

 

You have the same with railways, compounded by Government interference (1914-1922, 1938-1945), inflation (very tricky, and estimates I've seen tend to focus on headline inflation, not underlying inflation), and the general lack of detail in the Railway accounts. If you take conventional Civil Engineering wisdom, then probably 90%+ of our Victorian railway assets are time-expired and need replacing (that's based on 125 years life for reservoirs and aqueducts, not 60 years for structures, and 25 years for mechanical/electrical). But we keep on using them and we keep on failing to replace them when they are no longer fit-for-purpose (aka built to a correct-at-the-time loading gauge). The French upgraded to Bern gauge - over at least 40 years. We have not.

 

Gloom, Doom, Alarm, Despondency.

[DenysW]

2 hours ago, Compound2632 said:

But it wasn't that unusual for railway companies to hire additional mineral wagons at times when they either couldn't afford to buy additional stock or when the demand was seen as relatively short-term.

Agreed, but the numbers appear in the accounts, and for the not-poor railways were probably not great. I attach the first one I looked at (the Midland, 1909, Jan-June) which shows outgoing (debit) payments for the period in question, but in-coming (Credit) payments for the equivalent period during the previous year. It also shows that the Victorian accountants were quite capable of putting debits in the credit column if they thought it made sense, and vice versa. Try looking at the North London Railway, if you want a particularly confusing example.

 

 

[Compound2632]

14 minutes ago, DenysW said:

If you take conventional Civil Engineering wisdom, then probably 90%+ of our Victorian railway assets are time-expired and need replacing (that's based on 125 years life for reservoirs and aqueducts, not 60 years for structures, and 25 years for mechanical/electrical).

 

A well-built and continuously used and maintained structure can have an essentially indefinite lifetime - vide the Pantheon.

[DenysW]

7 minutes ago, Compound2632 said:

A well-built and continuously used and maintained structure can have an essentially indefinite lifetime

Also true. Some don't even need maintenance (the Pyramids).

 

However, most of our Railway infrastructure does not fit into 'continuously used and maintained'. The proponents of the Woodhead route haven't got two safe workable single bores to resurrect (the modern double bore being used for high voltage cables). The older of the two Monsal Dale viaducts is reported as being less likely to fall down than the newer. I could go on.

 

The entire infrastructure (except probably some of the originally-Broad Gauge) was simply built too small for the needs of 150 years later and needs all tunnels, embankments and cuttings widened, most of the overbridges replaced, and major surgery at all stations. And we've been choking on the cost since before WW1.

[Nearholmer]

1 hour ago, DenysW said:

What you have  numerically is the amount of money put into the railways (from both Capital and Revenue accounts), and the amount of money taken out - as dividends.

That’s the question I’m asking - it’s a question from the perspective of the investors in the creation of our railway network, not a question from the viewpoint of someone considering overall economic benefit, residual utility, or residual earning power at nationalisation, or anything else.

[DenysW]

5 minutes ago, Nearholmer said:

That’s the question I’m asking

That one is simpler, at least pre-1912, but still vastly more complex than you'd expect. Bear in mind:

 

-     The Shares could be sold from new at a discount. There's text in the Midland accounts of Hudson berating investors (complaining about dividends %-ages calculated against the face value) and pointing out that they'd been given a discount and should use the purchase price instead

-     The Shares could be sold at a premium from new. There's text in the NER accounts showing how much over the face value they'd raised in late-Victorian issues

-     The shares could be split, consolidated or duplicated, meaning the face value did not retain a 1:1 ratio with cash invested. A lot of this happened in the 1870s except on the Midland (1897). Thus the Midland first buried its OTT purchase price for the Leeds & Bradford Railway, by paying 'Line Rental', then by paying out 10% Guaranteed on stock, then (in the 1860s) splitting the Guaranteed stock into twice the (nominal) value, but only paying 4%. Not sure how they got away with that one. They finally buried the 8% on the Leicester & Swannington and the 6% on the Bristol & Birmingham in the 1897 sort-out.

-     Especially in the early days there could be a 3-5 year gap between investing and the railway opening and this was typically plugged by paying interest (at 5-10%) out of Capital. Note that the Forth Bridge Railway was explicitly proposing doing this at 4% for 5 years (later extended). Nowadays I think we'd be close to calling that a fraudulent Ponzi scheme.

 

As examples of the split/consolidate/duplicate confusion I give you the track-miles and capitalisation/trackmile of the Midland and the MSL/GCR. Although the trackmiles data is poor (often confusing Owned, Part-Owned & Foreign) you can see that neither company was expanding much (MSL/GCR in the 1870s, Midland after 1897) when their market capitalisation vastly increased meaning their cost/trackmile vastly increased. You can also see the uptick in trackmiles with the Midland taking over the LT&S and the (now) GCR building its London Extensions - the latter actually reducing its Capital/Mile-owned!

 

 

Edited January 24 by DenysW

[Compound2632]

50 minutes ago, DenysW said:

I give you the track-miles

 

Is that actual miles of track, or route miles? (Surely the latter.)

 

The Midland did a lot of route widening - two to four tracks, four to six in the London area - in the 1890s which could account for some of the increased capital per route mile.

[The Stationmaster]

2 hours ago, Nearholmer said:

That’s the question I’m asking - it’s a question from the perspective of the investors in the creation of our railway network, not a question from the viewpoint of someone considering overall economic benefit, residual utility, or residual earning power at nationalisation, or anything else.

One interesting reflection on earning power is the new  interest payments payments from British Transport stock based on the valuation of the previous  to be  paid to shareholders after nationalisation with certain GWR and SR debeture holders getting by far the best deal apart from certain LPTB stocks.  The best overall was Shrewsbury & Hereford 6% Rent Charge Stock valued at £159/10/0 per £100 holding.  Forth Bridge Co Debenture Stock was valued at £109/0/0 per £100 holding  while The GWR, Bristol & Exeter and South Devon Railway Co.s 4.5% Joint Rent Charge stock was valued at  £115/10/0 per £100 holdng.  At the other end of the scale of guaranteed holdings transferred into British Transport stock £100 face value of LNER deferred ordinary stock was valued at £3/12/6

 

 

Another way of looking at return to shareholders is what they got back from their investment if the railway or whatever company was wound up.  So far as I know the only company to repay all shareholders in full at 100% of the face value of their shares was the Wantage Tramway Company.  And as various of the original investors were still alive they quite literally got their money back (albeit with its value eroded by inflation).

[Nearholmer]

I haven’t read this yet, but it looks like something of interest to followers of this thread: https://warwick.ac.uk/fac/soc/economics/staff/nfrcrafts/working_papers/mitchell_et_al.pdf

[DenysW]

There are a couple of those, with some very interesting details and approaches, ending in the conclusion that a 'rational' investor would have stopped holding investments in UK Railways by about 1900. I couldn't follow that, because it wasn't actually supported by data. That doesn't mean it was wrong, of course.

 

I think it simply means that the better UK railway companies (mostly centred in the middle and the north of England) suffered catastrophic declines in their share prices between the peak in 1898 and their minimum in 1922, losing about 70% of their value, and making it essentially impossible for them to raise new capital. As there don't seem to be corresponding  changes-in-profitability issues (other than the long-established gradual squeeze on operating margins) I think this implies that competing investments, especially Government bonds were now paying the same or better than the railways at lower risk.

[DenysW]

The simplest answer to @Nearholmer's question, which I believe to be 'did the cumulative dividends ever cover the capital cost of the railway?'. If you say that the Midland's increase in capital after 1897 was almost all an illusion, then Yes, for the Midland, by about 1900. The MS&L/Great Central: No, Never even close.

 

I'm still extracting the cash-value-of-dividends for some of the other companies. I'm ignoring dividends paid by ancestor companies, and I've bodged the MSL/GCR numbers because I do not (yet?) have the cash dividend before 1854.

 

 

[Nearholmer]

That makes sense.

 

The other thing I’ll look for when I do get a screen in front of me that’s big enough to read it properly on, is whether it mentions pre-1870 investments. My perception is that a noticeable proportion of the capital invested before 1870 simply disappeared, in the very early years some of it without even resulting in any physical legacy (no railway!) at all, but even after that in creating railways that could never pay on what they’d cost, and were consolidated into the big firms at “sixpence in the pound”, so that the issued shares in circulation in 1870 didn’t represent anything like the total amount invested over the preceding forty years.

[rodent279]

So, if the Grouping in 1921 was a means of ensuring smaller less financially sound railways did not go bust, was the Grouping a missed opportunity? Did the railways really need a kind of Beeching MK1 in 1921?

Edited January 25 by rodent279

[Compound2632]

23 minutes ago, Nearholmer said:

My perception is that a noticeable proportion of the capital invested before 1870 simply disappeared

 

There's a school of thought that says that the railway boom was financed by the government compensation to slave-owners, so if you believe that, you can console yourself that (a) those who lost money had been slave-owners and so not deserving of sympathy and (b) it was all government money anyway, so in effect the state paid for the railway system.

 

But I don't myself think this holds water. The amount of compensation - £20 million I think - wasn't great enough and the role of Quakers in the early railway boom is overlooked.

 

I suspect many early investors thought they were going to see the sorts of returns the canals had given. 

[burgundy]

53 minutes ago, Nearholmer said:

That makes sense.

 

The other thing I’ll look for when I do get a screen in front of me that’s big enough to read it properly on, is whether it mentions pre-1870 investments. My perception is that a noticeable proportion of the capital invested before 1870 simply disappeared, in the very early years some of it without even resulting in any physical legacy (no railway!) at all, but even after that in creating railways that could never pay on what they’d cost, and were consolidated into the big firms at “sixpence in the pound”, so that the issued shares in circulation in 1870 didn’t represent anything like the total amount invested over the preceding forty years.

Did any other European country rely entirely on private capital to develop its railway network? All of the countries that I have looked at so far required substantial government involvement.

Best wishes 

Eric 

[Nearholmer]

36 minutes ago, Compound2632 said:

I suspect many early investors thought they were going to see the sorts of returns the canals had given. 

Some of the very early railways yielded astonishingly high rates of return in the short-run too. Somewhere I found figures for the first few years of the London & Birmingham and they were astonishing - the fares and freight rates must have been very high indeed to achieve them, given how much money was tied-up, but they clearly competed with the alternatives.

 

Stage coach travel must have been slow, uncomfortable, and possibly expensive, especially if it involved overnight stops - I’m not sure how many passengers fitted in/on a Mail stagecoach (about ten?), but the cost of oodles of horses, plus driver (and a guard?) had to be carried but that small group and whatever Royal Mail was paying.

[Tom Burnham]

On 23/01/2024 at 07:59, Nearholmer said:

True.

 

Didn't the GER take a lease the L&B at some stage?
 

The RCH must have had a convention on that point, because I can think of several other lines that were leased by “biggies”, and are shown on RCH plans as part of the bigger concern, Hayling Island for instance. Presumably what mattered to the RCH was which firms got allocated what proportions of income, on a mileage basis, rather than “second level” money flows such as lease payments.

 

 

Yes, I'm sure that would be so. The significant thing for users of the maps would be who was responsible for operation and maintenance, and legal ownership would not be of particular interest.  For instance I believe the North Cornwall Railway continued as a company until 1923 although it had always been worked as part of the LSWR system.

[JimC]

3 hours ago, rodent279 said:

So, if the Grouping in 1921 was a means of ensuring smaller less financially sound railways did not go bust, was the Grouping a missed opportunity? Did the railways really need a kind of Beeching MK1 in 1921?

But was there enough of a road system in 1921 to make a Beeching Mk1 possible? Could it be argued that Beeching was facilitated by 1930s/1950s road building?

[rodent279]

1 hour ago, Tom Burnham said:

Yes, I'm sure that would be so. The significant thing for users of the maps would be who was responsible for operation and maintenance, and legal ownership would not be of particular interest.  For instance I believe the North Cornwall Railway continued as a company until 1923 although it had always been worked as part of the LSWR system.

Didn't one of the Cornwall railways survive as a legal entity until Nationalisation, although leased/fully owned by the GW?

[rodent279]

2 minutes ago, JimC said:

But was there enough of a road system in 1921 to make a Beeching Mk1 possible? Could it be argued that Beeching was facilitated by 1930s/1950s road building?

Probably not, and probably yes, but there was a huge surplus of Army lorries post WW1, and a large number of Army personnel who had learnt to drive, so the driver was there, if you'll excuse the pun.

 

And a Beeching Mk1 need not have just been about closures, it could also have meant modernisation & improvement of inefficient outdated working practices. Some of that happened under the B4, but was enough done? Was there enough impetus to do more? Did the common carrier requirement stifle attempts at modernisation?

 

I guess another way of putting it would be was Beeching (and the 1955 Modernisation Plan) 30-odd years too late?

[The Stationmaster]

12 minutes ago, rodent279 said:

Didn't one of the Cornwall railways survive as a legal entity until Nationalisation, although leased/fully owned by the GW?

West Cornwall Railway Committee securities (5%% guaranteed stock) were still in existence at the time of nationalisation but were not guaranteed by The Treasury,.  Goodness only knows when they had last paid out as the line was leased in 1865 to a group of companies and became GWR property in 1878.

Edited January 25 by The Stationmaster

[phil-b259]

16 hours ago, DenysW said:

 If you take conventional Civil Engineering wisdom, then probably 90%+ of our Victorian railway assets are time-expired and need replacing (that's based on 125 years life for reservoirs and aqueducts, not 60 years for structures, and 25 years for mechanical/electrical). But we keep on using them and we keep on failing to replace them when they are no longer fit-for-purpose (aka built to a correct-at-the-time loading gauge). The French upgraded to Bern gauge - over at least 40 years. We have not.

 

Gloom, Doom, Alarm, Despondency.

 

Life expectancy of structures is very often intrinsically dependent on the structure type!

 

Arched bridges are VERY stable structures for example  - which is why we still have many buildings from Roman or Medieval times still standing or even in daily use!

[JimC]

17 minutes ago, rodent279 said:

Probably not, and probably yes, but there was a huge surplus of Army lorries post WW1, and a large number of Army personnel who had learnt to drive, so the driver was there, if you'll excuse the pun.

Which in turn was presumably the driver for updating a road system fit only for horse drawn vehicles...