How would that appear in the figures? That building, I think, is the old Savings Bank building. It is not the present Savings Bank building, but the old building which is now used for the Telephone Service.

173. Where can we see the apportionment debited against the Post Office Savings Bank? There is no account for the Post Office Savings Bank in this volume, and no expenses chargeable against the Post Office Savings Bank are included in these figures.

174. But have you a separate account for the Post Office Savings Bank?-Yes.

175. Does that come before this Committee? Yes. The Post Office does not answer for it. The National Debt Commissioners have to answer for the account of the Savings Bank Fund.

176. It is treated as a separate entity entirely? Entirely.

177. That would apply to premises which are partly occupied for the purposes of the Post Office and partly used for the business of the Post Office Savings Bank? -That account includes the expenses of management of the Post Office Savings Bank, and in the figures given for expenses of management, of course, the cost of accommodation is included.

178. It is one figure as a whole? Yes, it is one figure. The position is explained on page 8.

I

179. The other point I should like to ask you is on the question of capital. I notice that you say there are various other amounts which might be regarded as capital, such as uniform clothing. suppose you do not really mean that to be capital as it is understood in commercial undertakings? It is not treated as capital in these accounts. Stocks of engineering stores are treated as capital; stocks of uniform clothing are not.

180. As a matter of fact you earmark it as capital on the explanatory note? -No; what the note says is there are assets which might be regarded capital, but they are not so treated in these accounts.

as

181. How is it arrived at that, say, the stock of clothing might be treated as capital? It is a theory of accountancy, is it not?

182. Is it? If this is an explanatory note to explain the figures, and these are supposed to be commercial accounts, it did strike me as rather strange that clothing should be ear-marked as capital, although it is true you pay out of revenue for the clothing which you produce?-I

[Continued.

think the item of "stock" seems to me to be fairly familiar as an item in the balance sheets of commercial undertakings, amongst the assets. This explanation was put in to satisfy the inquiries of this Committee some years ago. It was, I think, the criticism then that no Capital Account was produced for the Postal Services, and what we are trying, perhaps not very happily, to explain here is, that items of this sort theoretically might be treated as capital; but it is not thought worth while to treat them as capital; they are purchased, and charged off as purchased.

Mr. Baker.

183. Is there a statement anywhere showing the basis of the apportionment? -Nothing more than is stated in this paragraph.

184. What I was really asking was whether a detailed explanation of the basis of the apportionment was obtainable? No. Of coure, the report of the Apportionment Committee explains how the results were arrived at. The detailed calculations which were applied to the various classes of expenditure would make a very long story indeed.

185. It would be true to say, would not it, that the basis on which the apportionment takes place, does determine to some extent whether a sectional service is successful or unsuccessful from a financial point of view? Perhaps I might say this (I think I know what the hon. Member has in mind): that the object of the apportionment, as I think of all accounting apportionments, is to show how much of each kind of apportioned expenditure is in fact taken up by each service. It does not attempt to show, and I do not think an apportionment could attempt to show, what is the differential cost, as it is called, of any particular Service. I think that is what you have in mind.

186. But for accountancy purposes, I take it that the Post Office would take a particular type of office and they would allocate a certain proportion of the cost to that office to each of the services performed within the office? Yes, taking each kind of expenditure separately: wages, supervision, accommodation, light and heat, stationery; they are treated separately, and the outlay is apportioned to the three heads of business conducted at that office.

all

187. That, of course, is not done for each office separately; it must be done on

a basis which is common to the whole Postal Service? With regard to "Salaries and wages," which is much the biggest item, it is done on the basis of a return made by each office once a year.

188. If there is any document which goes into the details of the theory on which the apportionment is based, would it be possible to put that in? I do not think that even the report of the Common Services Apportionment Committee would explain the whole system to the hon. Member's satisfaction; but if he would come and see me, I should be very happy to explain the whole thing to him. We are dealing here with an expenditure of many millions of pounds, which is scattered over a great number of different units, offices, and so forth, and I do not think you could put in the detailed results, but I shall be very happy to explain the system, or to put in a Paper explaining the system, if the Committee prefers it.

189. That is what I would be glad to have; that is, always provided it can be put into a short memorandum; that is what I had in mind? The shortness is the difficulty.

Mr. Gillett.

190. Do I understand that the balance sheet at page 11 has nothing whatever to do with the Postal Service; is that purely Telegraph and Telephone? The assets are entirely Telegraph and Telephone, except that they include the Post Office Tube Railway.

191. Then all the buildings which are built for the Postal Service are paid for out of the revenue of the year, is that it? -I beg your pardon; I fear I misled you. We keep a separate land and buildings account, which is a common account for the three services; and the land and buildings are shown here as assets.

192. You mean this second item relates to land and buildings?—Yes; freehold £14,000,000 odd.

193. That includes the Post Offices?— That is so. What we do not attempt to do is to say that such and such a building belongs to the postal service or the telegraph service, and such and such a building belongs to the Telephone Service; the expenditure is treated in a common land and buildings account.

194. Where does the money come from? Are these Exchequer advances ?-The Postal and Telegraph buildings, or parts of buildings, are provided cut of annual

[Continued.

Votes, and their cost is treated as Exchequer advances. The Telephone buildings are provided for out of the Telephone loans.

195. Do you repay for the Post Office buildings so much a year, or how is the capital repaid? They are provided out of voted moneys which are never repaid, but in these accounts we write off the value year by year through the Depreciation Account. Parliament

having voted, let us say, £10,000 for a post office, and that money having been paid, there is no question of repaying to anybody, and it becomes a purely theoretical transaction for the purpose of getting at the commercial working of the undertaking; so far as the cash goes, it has been paid and done with.

196. I was only thinking out how it compares with commercial accounts. Is not it rather like, in form, a gift?—No; in these accounts it is brought in as an asset, and written down year by year through the depreciation account, and the money which was voted to pay for the buildings is treated in these accounts as an advance from the Exchequer.

197. That really comes to what I asked you just now, whether it was paid off gradually. It is a kind of gradual repayment of the advance. You write it down, and the money represented by the writing down is really a repayment of the amount of the advance? That is s0; the postal user pays for that building annually.

Chairman.

198. Before leaving this point, will you put in to the Committee the statement requested by Mr. Baker?-Yes.*

Chairman.] We will take the paragraphs on interest, depreciation, land and buildings, together.

Major Salmon.

199. With regard to depreciation, I was asking you on the last occasion if you would kindly explain how you deal with the overhead telephone service which is not in use to the same extent as it was before you started the underground system, and what funds have you to meet what is not really capital in hand, but is a depreciating quantity. What system have you for getting the depreciation of that which has been abandoned which has already been charged on capital?_ As I explained last time, what is actually

* See Appendix 4.

happening is not that overhead telegraph circuits are being abandoned as the system grows underground, but that overhead telegraph circuits are being transferred to local telephone services. With that general reservation, the answer to the hon. Member's question is this: the revenue of the year is charged with a depreciation charge which is based on the average life of each class of plant, and if experience shows that those lives are wrong, the depreciation charge is adjusted accordingly from time to time. If, let us say, a life of 40 years is taken for a particular class of plant, in respect of all the plant of that class a depreciation charge is made for these 40

years.

The money so charged against revenue is carried to a Depreciation Account, and renewals of all plant are charged against the account, or, if the plant is dismantled or abandoned, it is written off against that account.

200. You do not add it to the Capital Account, you write it off the Depreciation Account for renewals?—Yes. (Sir Malcolm Ramsay.) There is an actual case in these accounts on page 18. Statement C. shows that plant to the value of £1,500 was permanently displaced, and that is specially written off. (Sir Henry Bunbury.) But there is very little of it. What is happening all the time is that the overhead telegraph circuit, which is replaced by an underground one, is being used for local telephone services.

or

201. What I had in mind was what will happen in your switch room when you have the automatic telephones against the ordinary telephones with your attendants in attendance; there must be a certain amount of obsolete plant obsolete capital. Is that written right off? The general policy (I think there are no exceptions to it) is to convert exchanges from manual to automatic when their useful life as manual exchanges has expired. By the time that they come to be converted to automatic the cost of the manual equipment will all have been written off.

202. It is already written off?-Yes. 203. And that is a guide to the Exchanges being so dealt with ?—Yes.

204. It depends on how many years they have been in existence, and how much is written off ?-That is so.

Sir Fredric Wise.

205. I would like to ask you with regard to the interest on the Exchequer Bonds on which interest is charged at

[Continued.

3 per cent., the rate at which the Bonds were issued. Was that an issue to the public? They were issued to the National Telephone Company in part payment of the purchase price of the Company's undertaking.

206. When are they redeemable?— 1930.

Colonel Assheton Pownall.

207. On page 6 you refer to the straight-line method of depreciation; I do not think you have told us about that. What is the straight-line method?—The straight-line method is: you take the first cost and you write it down by an equal amount each year during its anticipated life.

Chairman.

208. The same sum annually?—Yes, the same sum annually.

Chairman.] I will now put the paragraphs dealing with pension liability, insurance, and valuation of stocks.

Mr. Briggs.

209. Does the insurance scheme show a satisfactory balance; does it work out in a profitable way? I feel sure it does. One scarcely ever has a fire loss in the Post Office Service.

210. I am not very clear about this statement on the valuation of stocks; there are two paragraphs, one with relation to engineering stocks, which you say are not taken in as trading stocks. Do I understand by that that, therefore, they do not appear in your balance sheet at all as an asset ?-No. The engineering stocks do appear as an asset. The object of this paragraph was to meet a point, again raised at this Committee some years ago, that the stocks were over-valued in the balance sheet because prices had fallen since they were purchased; and the answer that was made is that, as they are not merchandise, not trading stocks, but stocks for consumption, they are carried in the books at average cost and charged out at average cost.

211. The price at which they are carried at in the books in no way affects the profit balance as shown by the Post Office at the end of the year?-Not at all.

212. With regard to the second paragraph, which deals with paper and materials, is not that rather different. That is a trading account, is it not? The price at which you take those in will affect the profit or loss of the Post Office? -Yes, it would affect any comparison

between the cost at which the Savings Bank, or the Power Station, produced their commodity, with the cost at which it could be obtained outside at current prices. There is very little in it. I should have thought that strictly, perhaps, these stocks ought to be brought in at cost or current value, whichever is less; but I do not imagine that there is any great difference between those two figures.

213. Do you mean there is very little in it because the total value of them is so small it is not worth considering?Because they are turned over so quickly. 214. So there is not much dormant stock there?-That is so.

215. The stock is pretty well up-todate? Yes. Whereas in the case of engineering stores, some types of engineering stores have to be carried for years: telegraph poles for instance.

216. It would not be the case with regard to that paper and materials that any of that stock was bought, we will say, in 1920 or 1921?-I feel sure that that is substantially correct.

217. Because I would suggest, if it were so, the value at cost price is not a true value?-I agree. I feel sure that that stock of paper is turned over very quickly indeed.

Major Salmon.

218. I should like to ask what value of Engineering stores would you think exists at the present moment, which was purchased during the War period at high figures? I have a figure as at the 1st of April, 1924. If I had anticipated the question I could have brought a later figure, but perhaps that will do, because it does not vary very greatly. The Stores obtained for War requirements, at 1st of April, 1924, were £24,400; and I think that must cover the great bulk of the high priced material, except possibly poles. Poles are carried in stock for many years, because they have to be seasoned and matured, and there were heavy purchases of poles in and about 1920 and 1921.

219. Would it be fair to say, then, that all the Engineering stores have been turned over since the War, and there is not more than £24,000 worth of old stock in hand, other than poles? There is a fairly substantial amount of pre-war apparatus carried, such as magnetos

220. Post-war I mean?-It is magneto telephone equipment which is just kept for renewals. It is not now purchased.

[Continued.

225. Not in this General Account?-Yes

it would also appear on the General Balance Sheet on page 11.

226. Where does it appear in that?"Value of Engineering Stores in stock."

227. I have got that, but I want to see where you increase that; it must appear in the Cash Statement somewhere. If you take £100,000 of that it must surely appear in the Statement above that. Under which heading does it come?-It would not appear in the Revenue Account.

228. Then where does it appear? Where does the money come from?-The money would come from the Post Office Vote, and the increase or decrease of stock each year is brought out in Appendix E. to the Post Office Estimates. That deals with the provision for purchase of stores.

229. How would it affect this surplus for the year? Would it have no effect on that? Supposing one year you used £1,000,000 worth of the stores which you now have in hand, would that have no effect whatever upon the surplus. Supposing you used an unusually large amount, twice as much in one year as another, does it have no effect whatever on the surplus?-Everything else being equal it would. The consumption of Stores for maintenance is brought into the Revenue Account, and the consumption

of stores for capital purposes affects the Capital Account.

230. Then I understand it does come upon this?—Yes. (Sir Malcolm Ramsay.) In the General Account you will see they used "Uniform Clothing and Miscellaneous Stores" to the extent of £478,000 in the year. (Sir Henry Bunbury.) And on the Engineering side you will find it under "Maintenance of Telegraph and Telephone Systems."

231. Those have come out of these Stores? They have come out of the Stores purchased. There are always two transactions with Stores, there is the purchase of the stores and the issue or consumption of them.

232. I understand these Stores remain valued at what they were bought at, quite irrespective of whether they may have depreciated in value, and then they are put on to this General Account, I suppose, on the same footing, at their original price? -That broadly speaking is so.

Sir Robert Hamilton.

233. Under the heading "Post Office Savings Bank" there is the statement: "The expenditure is off-set by a credit for National Debt services," which 1 believe is about £640,000. Can you tell me how that figure is arrived at?-That represents, chiefly, the Salaries, Wages, Pensions and Accommodation of the Department of the Post Office Savings Bank which deals with the Post Office Register of Government Stocks; then it also includes the salaries wages and so forth of that Department of the Money Order Office which deals with National Savings Certificates, and then it also includes the local cost at Post Offices of dealing with transactions relating to the Post Office Register of Government Stocks, and with National Savings Certificates. That covers the great bulk of it.

234. Mostly Salaries?-Mostly Salaries and Wages.

Chairman.

We will now take the General Account on pages 10 and 11.

Major Salmon.

235. I notice the amourt for the conveyance of mails is considerably reduced? -That is so.

[Continued.

236. What is the cause of that?-It is mainly reduced payments to contractors and railway companies.

237. You have made better terms for the year under account?-Yes, that is sɔ. This has been falling for some years past. Perhaps I should mention that savings have been realised by using Post Office vehicles in the place of Contractors' services.

238. Motor vehicles ?-Motor vehicles. 239. With regard to the heading of "Uniform Clothing," I asked on the last occasion if you were able to say when you consulted the other Departments?—Yes. I have a statement from the Controller of Stores, which perhaps I might read: "There is a Contracts Co-ordinating Committee for the Fighting Services, and, by a standing arrangement, the Post Office Stores Department is invited to attend whenever matters likely to affect Post Office purchases are to be discussed. Such invitations are always accepted. The Post Office is represented on a technical Coordinating Sub-Committee on Textiles, and thus is in close touch with the Fighting Services on clothing materials, but the Post Office requirements differ in detail from those of the Fighting Services, and a direct comparison of prices is not practicable. The Post Office is buying its clothing materials very advantageously, the quantities required are considerable, there is a good field of competition, and the orders being spread over the year make good fill-up orders, and are keenly sought after. As regards tailoring, the Post Office garments differ considerably from those of the Fighting Services, and here again no direct comparison is practicable -moreover, since the war, the War Office orders have been very small. There is good competition for the Post Office Tailoring work, the orders, being spread over the year, are keenly sought after, and prices are very favourable to the Department."

Sir John Marriott.

240. Who is that Statement from?-The Controller of Stores.

241. In the Post Office?—Yes.

Major Salmon.

242. It does not state now the last time they had a consultation?-He does not give the date.

243. It would be rather interesting to see the last date of consultation. That