A financial history of the Metropolitan Railway, 1853–1933 By Tony Sheward © Tony Sheward 2019 A FINANCIAL HISTORY OF THE METROPOLITAN RAILWAY 1853-1933 1. Introduction Although the literature covering numerous aspects of the history of the Metropolitan Railway (MR) is extensive, there is no one work which deals with the financial performance of the company in a comprehensive way over its complete 80-year history. This is not to denigrate what has been written. For instance, Alan Jacksoni gives many financial statistics in the chapters of his book, including a two-page examination of the financial history of the company. Similarly, Barker and Robbins two volume History of London Transportii only includes a limited amount of financial information about the MR. Nevertheless, these works have been invaluable sources for the historical background to the figures. A History of the Metropolitan Railway & Metrolandiii published in 2018 by Irene Hawkes does not contain any new material on financial matters. Mention should also be made of Douglas Rose’s Diagrammatical Historyiv, which has been a useful source of reference for the opening of the MR’s stations. This article takes as its basis the annual reportsv of the MR and the Railway Returnsvi and attempts to chart the financial history of the MR in a continuous way over its life starting with the act of incorporation for the North Metropolitan Railway in August 1853 (name changed to the MR in 1854) and ending with its absorption by the London Passenger Transport Board (LPTB) in July 1933. The importance of presenting a financial history of the MR may not be readily apparent, given the prominence of its other achievements. The original investors and those that followed relied on the company to make regular reports indicating how capital works were progressing and whether the resulting revenue stream was capable of adequately rewarding the investors in its loans and shares. This was, of course, an ongoing process as the company as the company expanded and new tranches of capital were required. The confidence of the investors in the MR was key to its progress. The directors and managers of the MR of course also needed a regular stream of financial information to fulfil their roles. Later on, the various booms and busts in railway development led the government to move away from its normal laissez faire approach to commerce and industry and in the Regulation of the Railways Act 1868 (the 1868 Act) specify the formats that railway companies were to use in their reports to shareholders and to the Board of Trade. This went considerably beyond the requirements for joint stock companies in general and remained so for the rest of the MR’s existence, supplemented by the Railway Companies (Accounts and Returns) Act 1911 (the 1911 Act) and the Railway Companies (Accounts and Returns) Order 1928 (the 1928 Order). In the late Victorian period concern grew about the level of railway charges and whether they were exploiting their monopoly position in inland transport. The Railway Commission established by the Regulation of the Railways Act 1873 to investigate complaints of malpractice and its later incarnations were able to rely on the reporting formats specified by the above legislation as part of the evidence for their work. By the same token, the company and the shareholders could 1 point to the accounts to refute accusations of excess profits. The accounts for 1913 were to have an important role in calculating an adequate return for the railway companies following takeover by the Railway Executive Committee in World War I and forming the basis for rates and charges under the Railways Act 1921. Last but not least, the MR’s accounts in the years before 1933 provided part of the justification for the compensation to shareholders on the takeover by the LPTB. Presenting the financial information in a consistent way is difficult, because of the changes in financial reporting over the 80 years, as outlined by Tony Shewardvii. The period 1868-1912 was governed by the 1868 Act and an attempt has been made to present the figures for the years 1853-67 in a similar fashion. The period 1913-33 was governed by the 1911 Act, with minor changes made the 1928 Order. Again, an attempt has been made to provide some consistency between the pre and post 1913 periods. The period of government control during and immediately after World War I saw some of the information being withheld for security purposes. The published accounts of the MR complied with the government regulations, but private and confidential accounts were produced for the Board members, which contained a full set of schedules. Copies of these, apart from 1921, are in TNA. Thus, there are gaps for 1921 in the graphs and tables below. To aid understanding of the figures, Appendix 1 gives an overview of capital financing structure and Appendix 2 of running powers, leased lines and joint lines. Although up to 1912, the annual reports were prepared in two half yearly tranches, the information in this article is presented by calendar year for ease of understanding and comparison. Where possible, the narrative tries to provide explanations for the most significant figures. However, the annual reports often do not make it clear what exactly has been happening. The quality of financial information provided to shareholders has improved radically since 1933, but the pace of change has accelerated considerably since the issue of the first Statement of Standard Accounting Practice in 1971 and the formation of the Financial Reporting Council in 1990. Even as late as the 1930s directors of limited companies were very paternalistic in their attitude to shareholders and expected them to have faith in their judgement and not question their decisions. 2. An Overview Before looking in detail at the figures for the 80 years concerned, it is useful to take a bird’s eye view of what happened to the MR during that period. The following graphs are set out in Graphs A-F: A. Total Receipts from Passenger and Freight Trains B. Number of Passengers C. Total Capital Receipts D. Net Revenue before Interest on Debentures and Loans, and Dividends E. Percentage Dividend on Ordinary Stock and Surplus Land Stock 2 F. Percentage Return on Capital versus Return on Government Long Term Debt and Consumer Prices Index In Graphs A and B, the figures for 1921 have been estimated, because the accounts for that year are incomplete. The monetary figures are as reported in the accounts, but of course inflation over the period distorts the picture. The Bank of England’s inflation calculator gives some indication of the impact that it has had. The figures below show the purchasing power of £1 in 2018 pounds at ten-year intervals during the MR’s history and for 1932 its last full year of operations: Year Equivalent in 2018 Pounds £ 1863 123.42 1873 106.81 1883 119.44 1893 126.23 1903 119.44 1913 113.35 1923 59.40 1932 68.57 1933 70.30 Between 1863 and 1913, the overall impact of inflation was relatively modest with £1 in 1963 having purchasing power of £123.42 in 2018 pounds and £1 in 1913 £113.35. This was not a smooth progression due to the economic booms and slumps during that period. However, inflation was much more rapid during World War I and the years immediately afterwards with £1 in 1923 having a purchasing power of £59.40 in 2018 pounds. By 1933, there had been some deflation as a result of the Great Depression and £1 in 1933 had purchasing power of £70.30 in 2018 pounds (£68.57 in 1932 the last full year of operations). As reported, the MR’s total receipts from passenger and freight trains rose from £102k in 1863 to £1.454m in 1932. Even if the two figures were converted to 2018 pounds using the above inflation rates, this would still be a huge increase. There was not, of course, a steady increase over the whole period, as explained below, and receipts peaked at £1,950m in 1924, the year of the British Empire Exhibition at Wembley. The number of passengers carried rose from 9.455m in 1863 to 119.664m in 1932, an increase of more than 11½ times. As with receipts, the peak year was 1924 with 154.184m. At the beginning of 1863, the money that had been received into the capital account amounted to £1.342m and by 30 June 1933, the last day of the MR’s independent existence, this had risen to £22.713m. As this money was received in numerous tranches spread over the years concerned, it would be misleading to apply the above inflation rates to these two amounts. In crude terms, it would have cost over £165m in 2018 pounds to 3 complete the opening stretch of line and conceivably several billions of pounds to complete the network as it was in 1933. The MR developed a good reputation for servicing the various components of its capital and Graph D shows the money that was left after net revenue from operations, other receipts and other expenditures for payments to these components. From 1887, this includes the amount allocated by the Surplus Lands Committee for dividends on the Surplus Land Stock (see explanation of this below in the section covering 1885-92). The net revenue started as £72k in 1863 and rose to £875k in 1932, as with total receipts a huge increase. Again, 1924 was the peak year at £980m. In terms of dividends on its consolidated ordinary stock, the MR was always able to pay a dividend even in the most difficult years.