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compensation payable in respect of any undertaking, the Board of
Arbitration are to have regard to the value of the undertaking prior to
the introduction of the Bill into Parliament, and are not to take into
consideration any claim for back dividends.
Purchase Stock.—The compensation agreed to be paid or awarded
by the Board of Arbitration is to be paid in purchase stock (clause 14
et scq.), power being reserved to individual shareholders to claim payment
in cash (clause 15). A sinking fund must be commenced not
later than 12 years from the passing of the Act, and the debt is to be
extinguished within 80 years from the date of the creation of this fund
(clause 24). The sinking fund may be used to redeem the Stock in the
open market. Arrangements may be made with the Bank of England1
for the management of the Stock (clause 20), and Trustees are
empowered to hold it as a recognised investment (clause 25). The Stock
may bear a varying rate of interest (clause 14), and the importance of
this proviso will be readily seen. For instance, whether the undertakings
continue under private management or are transferred to a
public authority, further capital will be required as new mains are laid
to meet increased demands. Possibly in the course of the next
generation a large sum will have to be raised to open up new sources of
supply, and the value of the undertakings as now existing will then be
little more than the value of the mains and pipes for the purposes of
distribution. It may be assumed, therefore, that the value of the
water undertakings, on their present basis, will diminish as time goes
on, and, for that reason, it is not unfair that the present shareholders
should receive the full advantage of their holdings in the Companies
while the interest at definite periods is automatically reduced, in the
same way as the interest on Government securities will diminish under
the Act for the conversion of the National Debt. As an illustration,
but as an illustration only, of one manner in which this provision will
work, the following figures are given:—
Amount of Purchase Stock, say £33,500,000
Initial rate of interest, say 3£ per cent.
Annual charge £1,172,500
In 20 years, say, further capital is required and
comes into charge.
In 20 years, the rate of interest is reduced to 3
per cent., and the annual charge on the
original Purchase Stock is £1,005,000