How a long defunct, relatively small local railway company aimed high and ultimately was responsible for the poor financial state of the Great Central Railway!
I have been a bit of a NIMBY! All of my recent articles have looked far from home. I guess you could say it has been a case of, ‘Not In My Back Yard’.
I thought it best to put this right but I might have hoped for better things than this. …
I have been prompted to do so by reading a copy of BackTrack Magazine from May 1996 (Volume 10 No. 5)  which included the article that I have appended to this post at Appendix 1. It is an article about the Great Central which is now long-gone – sadly so, from an enthusiasts point of view. That article was itself a response to an earlier article in BackTrack Volume 9 No. 3 (March 1995) by Messrs. Emblin, Longbone and Jackson. 
It brought to mind the connections between Ashton-under-Lyne and the Manchester, Sheffield and Lincolnshire Railway (MS&L) evidenced by the name of its predecessor, the Sheffield, Aston-under-Lyne and Manchester Railway (SA&M). It also reminded me that early in my attempts to write interesting blogs I spent a little time on my present place of residence, Ashton-under-Lyne. I am wary of providing links to these posts, but they do pull together quite a bit of information about the early railway …… these are the links:
I am not sure, with the benefit of hindsight, that the second of the above posts was really necessary. An appendix to the third post would probably have covered the two links mentioned in the second post.
The article which grabbed my attention in the old BackTrack Magazine did so because it seems to root the significant problems of the Great Central Railway (GCR) in, what I could argue, is my local railway company’s own history. Hence the subtitle of this post!
The significant challenges faced by the SA&M Railway in being ahead of the game in providing rails across the northern backbone of the country led to a financial structure which seems to have dictated the future of its successors, the MS&L and, ultimately, the GCR. Heavily reliant, leveraged, on debentures and preferential stock is was difficult for the successive companies to attract ordinary investors.
The whole history of the GCR seems to have been dictated by the way in which the heavy capital expenditure necessary to cross the Pennines/Peaks was financed.The SA&M Railway was one of the first railways to tackle truly formidable and desolate terrain. Nowhere was the challenge more evident than at the West end of the Woodhead tunnels, seen herevst the turn of the 20th century. The SA&M and its successors were encumbered with the twin problems of high construction costs and low receipts from intermediate stations over a long section of line. 
It should be noted that Emblin reserved a right of reply and that he chose to do so in a later edition of the BackTrack Magazine. 
His principal argument in that article appears to be that things were really not that bad and that the GCR managed its way out of trouble in a very effective fashion. I am not sure that this negates the reasoning of the articles referred to above, and I am sure that it does not address the particular point that the GCR faced ongoing financial problems which had their birth in the companies it succeeded.
Emblin argues strongly that Sir Alexander Henderson managed his way out of trouble by expansion. [5: p711] That seems to have been that practice of his predecessors as well. The result being that the company was highly leveraged and still not the best investment for ordinary shareholders.
It also does not alter my opinion that my local railway company had a great part to play in the issues which has to be managed by the GCR throughout its life.
1. Emblin, Longbone & Jackson; Money Sunk & Lost; BackTrack Magazine Vol. 9 No. 3, p129-136, notes on this article are reproduced below at Appendix 2. 
2. Blossom & Hendry; Great Central – The Real Problem; BackTrack Magazine Vol. 10 No. 5, p266-271, reproduced below at Appendix 1. Further notes on this article are provided at Appendix 3. 
3. http://www.steamindex.com/backtrak/bt9.htm#1995-3, accessed on 4th May 2019.
4. http://www.steamindex.com/backtrak/bt10.htm#1996-5, accessed on 4th May 2019.
5. Emblin; An Edwardian Ozymandias; BackTrack Volume 15 No.12, p707-713.
Appendix 1 – BackTrack Magazine Vol. 10 No. 5, p266-271.
Great Central – the real problem. Martin Bloxsom and Robert Hendry.
In their article ‘Money Sunk and Lost’ (BACKTRACK, March 1995), Messrs. Emblin, Longbone and Jackson have rightly exploded the myth that the Great Central was financially “ramshackle”, but, in so doing, have gone to the opposite extreme and created an alternative myth.
Popular writers have written up the Great Central’s financial problems. This is not sur-prising, for even a cursory glance suggests that the Manchester, Sheffield & Lincolnshire Railway faced formidable financial difficulties and that its dividend record on its ordinary shares was one of the poorest of the major railway companies. An investor of 1846 putting £100 in LNWR ordinary stock, and the same in the MS&L, would have received little more than £80 in MS&L dividends by 1900. He would have received the same sum from the LNWR by 1860. The Furness Railway, the Great North of Scotland, the Great Eastern or even the South Eastern Railway, despite cut-throat competition with the London, Chatham & Dover, were better investments. Messrs. Emblin, Longbone & Jackson suggest that much of 1 the criticism of the MS&L and GCR is from popular modern writers or academics blessed with hindsight, or using modern investment criteria. Contemporary sources show that informed investors were aware of the problems of the MS&L/GCR, but not necessarily of their origins or exact nature. By the 1890s, a picture of squandermania under the chairmanship of Sir Edward Watkin had found its way into popular fancy and the London Extension was seen as the ultimate megalomania. When the GC dividend record was even worse than the MS&L, there were plenty of voices to say “I told you so”, not least from the railway industry which had not welcomed a rival rail route to London. Predictably, the London Extension was seen as a millstone around the neck of the GC.
Even as well-informed a writer as Lord Monkswell echoed these sentiments, albeit in moderate language, as long ago as 1913. In his important study The Railways of Great Britain he wrote “So now the Great Central has become one of the established main routes from the north to London, but not yet has it recovered from the financial strain which its extension imposed upon it. To effect an entry into London, capital had to be poured out like water, and the increase of traffic, which the new line brought, has been very far from sufficient to pay interest on all that capital. The line, however, being built in the light of modern experience, will be able to cope with the intense traffic, which it will one day be called upon to accommodate, without further costly improvements”. This reflects the popular view, which the GC board was happy to foster, for whilst it offered no jam today, it spoke of jam tomorrow.
For the more sensational writers it became a moral tale in which unchecked ambition gets its just desserts. Given such a splendid story, it is not surprising it has had a long run and it has been bolstered in many ways. Throughout history, there have been writers who have specialised in stirring tales of disaster. The Duke of Wellington’s carefully-managed tactical retreats to the lines of Torres Vedras, or prior to the battle of Waterloo, were written up as British disasters at the time and subsequently! [General C. Mercer, Journal of the Waterloo Campaign, pub. 1870]. Just as some writers see retreat as synonymous with disaster, others apply ‘ramshackle’ or ‘catastrophic’ to the GC. In exploding such myths, Messrs. Emblin & Co. have done us all a service, but moving from the sound grounds that the GCR was not financ:ially ramshackle and that the London Extension was not a disaster, they have been sucked into quicksands of their own making. The reality was in between.
First of all, what makes a good or a bad railway? It depends on one’s perspective. Railway enthusiasts tend to look through rose-tinted glasses at gleaming engines driven by dedicated enginemen, elegant coaching stock and the romance of railways: but the enthusiast has always been in a minority. To the traveller or merchant, the quality of service mattered. To the staff, it was wages and conditions, and to the investor, the stability of the company and its dividends. On the enthusiast rating, the GC scored high: it was stylish, romantic and its engines were mostly elegant and competent. Its services compared well with other railways, so it fared well there, and as an employer it was no better and no worse than other railways. So far, the GC has a high rating and this is not surprising, for contemporary opinion (and later writers) have consistently praised the GC management from the turn of the century through to the grouping.
Alexander Henderson, later Lord Faringdon, was a financier of genius, as George Dow rightly said. Unlike Sir Richard Moon of the LNWR, who erred too far towards parsimony at the expense of necessary improvement, Henderson balanced the needs of economy with the need to develop the line. It was said of Sam Fay that when he was with the impecunious Midland & South Western Junction Railway, he had made an empty sack stand upright. His career with the LSWR was further evidence of his abilities. In J. G. Robinson the GC possessed an outstanding locomotive engineer. Although not a part of the management team, no survey should overlook the employment of Dean & Dawson, perhaps the most innovative travel firm in the country. Taken overall it was one of the best (perhaps the finest) management teams on any railway of its day, yet there is one inescapable fact — the Great Central never paid an ordinary dividend upon its shares. Robert Emblin and his co-authors praise the GC in comparison with stagnation on other lines, yet between 1900 and 1914 when the Great Northern, Great Eastern or Great Western were paying 3 to 4% dividends, and the LNWR, Midland or North Eastern 6% or above, the GC was paying nothing. What had gone wrong?
To many writers, the “London Extension” was to blame. Lord Monkswell speaks of money poured out like water and an inability to service all this capital, though linking it with the jam tomorrow’ concept. Was he correct?
Messrs. Emblin, Longbone and Jackson rightly say “no”. Sadly, in their attempt to redress the balance they overlook the real problems the MS&L and GC faced and, having ignored the question, are not in a position to answer it. The GC carried in its very genes a near fatal illness, inherited from its parent the MS&L, yet the malaise did not even stem from the MS&L but from its parent, the Sheffield, Ashton-under Lyne & Manchester Railway.
The company was incorporated in May 1837, but the line did not open throughout until 1844-45. As Christopher Awdry remarks in his Encyclopedia of British Railway Companies, “Money was short and it was a difficult line to build”. George Dow says the same thing in much greater detail in his three-volume history of the GCR. These are modern writers, so perhaps fall foul of the criticisms launched by Messrs. Emblin and Co. Let us open The Railway Times of 10th September 1842. The SA&M had just held its half-yearly general meeting in Sheffield, at which Michael Ellison presided. It was not a happy meeting, with criticism of the board over an officer who had embezzled £3,000, criticism of lax supervision by the directors and allegations that some of the shares forfeited for non-payment of calls were held by directors who no longer wished to pay the instalments due, as the value of the shares had fallen drastically.
The claims were rejected, but one director, John Turner, angered at these sweeping claims, retorted that he had not sold any shares, and the shares he had, he had taken at par. He made a contract with the company to take shares for his land; but between that time and the time when his land was required, the shares fell to 50% discount, yet he still took them at par.
When asked about raising fresh capital needed to meet the seemingly inexhaustible demands of the Woodhead route, one director explained that under the standing orders of Parliament, they could not increase their borrowing without a further share issue, but shares could only be issued at their market value at the time. Ellison agreed, adding “The mode of raising the money has not yet been determined upon by∎ the Directors. If the shares rise in value, the money will easily be raised. If not, it will be difficult to raise it.” We are not listening to ‘modem authors’, but to the men at the helm in the 1840s.
This is the genesis of the problem — a costly route, shares falling in value due to doubts about the prospects of the SA&M in particular and troubled industrial and financial conditions generally in the 1840s (including the Chartist labour troubles). A long lead time between raising of capital and full opening, because of the magnitude of the task, weakened confidence, meant that fresh funds were hard to come by. After abortive attempts to lease the line to the Midland Railway or the Manchester & Birmingham (later to become part of the LNWR), the SA&M board decided that expansion through amalgamation was the answer. The Manchester, Sheffield & Lincolnshire Railway came into being in 1846. upon the fusion of the SA&M with the Great Grimsby & Sheffield, the Sheffield & Lincolnshire, the Sheffield & Lincolnshire Extension and the Great Gritnsby Dock companies. Once again, Dow charts the course of events, but avoiding modern authors lest we be misled, let us refer to Tuck’s Railway Shareholders’ Manual of 1847. The SA&M share capital is revealing. It comprised 7,000 shares of £100 with £100 paid, 18,000 shares of £25 with £8 paid, 10,640 shares of £25 fully paid and 41,200 shares of £12.50 of which £5 was paid. A term of the agreement provided for 5% interest on ordinary shares until various parts of the consolidated system opened and then participation in the general income. Provisions for paying interest on capital during construction were not uncommon on projects which would involve expenditure for some years prior to any income, but the interest necessarily came from capital (as the business had little or to earning capacity) it inflated the eventual capital to be serviced.
How did the infant MSLMSL f? For the second half of 1846, it paid 2.5% and in the first full year, 1847, the stipulated 5% . For 1848, it was only able to pay 2.5%, and from then until December 1854 no dividends were paid on the ordinary stock. On the LNWR, the ordinary dividend varied between 5 and 10% during that period. Depressing though that comparison is, the true picture was worse. Again we can discover this from Dow, but let us stick to contemporary. sources. Bradshaw’s Railway Shareholders’ Manual for 1856 explains that £105,807 was available for dividend for the half year to 30th June 1855. Debenture interest and canal annuities (ie payments made to canal proprietors for way leaves or to buy off opposition) took £70,521, the dividend on the £6 preference stock took £23,697. This left £11,589 for remaining preference stocks and ordinary shareholders. Holders of the 10% preference stock were entitled to 6%. They recelved a fifth of their preference dividend. It was cumulative stock, so that arrears in one year had to he made up in future years before any ordinary dividend could he paid. Within less than ten years, the MS&L could not even pay all its preference dividends, let alone an ordinary dividend.
The conclusion, from contemporary records, is inescapable. The MS&L, was in serious difficulty by 1855. A Capital Re-arrangement Act was passed on 16th July 1855. The preamble to the Act is complex, but one section is revealing: “And whereas the Company have for some time been, and still are, in a state of pecuniary embarrassment, and they have not the means for paying off those arrears of dividends, and the arrears of dividends on the £10 Preference Shares have been and are increasing, and in their present state they are unable to pay any dividend on the Sheffield and Manchester Preference Shares, otherwise No. 1 quarters, and the consolidated stock, whereby their credit is damaged, and they are unable to borrow money at the ordinary rate of interest . . .”
The ‘solution’ was to issue a new pre-preference stock, deemed to be fully paid up, and ranking ahead of most other stocks. It would meet the arrears of dividends on the cumtilative preference stocks. In simple terms, arrears of dividends over several years were converted into shares which in turn would earn a dividend. Rights of various existing shares were adjusted. Whilst no money was raised, nor was the earning capacity of the line enhanced, the revised capital structure gave some relief. Between December 1854 – when a dividend of 0.125% was actually declared on the ordinary stock for legal reasons – and 1862, the MS&L was able to pay spasmodic ordinary dividends of up to 1.25%. The LNWR was paying a steady 4 or 5% and even the much-criticised Eastern Counties Railway generally paid between 2 and 3%.
In the 1860s and 1870s. under Edward Watkin, the MS&L made stupendous efforts, to restructure its finances and raise capital for further extensions. Whilst a few public-spirited individuals invested in railways the public good, such as the Duke of Sutherland and the Highland ‘Further North’ line, the majority of investors in the Railway Mania, and after, invested for the same reasons as we do today – dividends and capital growth. A company such as the LNWR, with a sound dividend record, had no difficulty in raising fresh capital. A company with a poor record faced problems. The market value of a share depends on perceptions of capital growth and on its earning capacity. As a crude model, the bank interest rate set the ‘norm’ for what £100 could earn. An £100 share which earned more than £100 invested at the bank would be worth more than £100 and could be issued at a premium. In other words a successful compsny could issue an £100 share above par, say at £110, if the stock exchange value of its £100 shares was about £110. On the other hand, who would put £100 into a company whose existing £100 shares could be bought for £50 because they paid a 2% dividend cwhen the bank rate was 4%? (From 1847 to 1900, bank rate was between 3 and 5% withnperiods of as little as 2% and occasional and usually short-lived fluctuations to as high as 9 or 10%).
Watkin’s approach was upbeat, concentrating upon the improvements from when he became manager in 1854 and chairman ten years later. They are characterised by his comments at the half-yearly shareholders’ meeting, at Manchester in July 1880. “I will take the case of the man, who when I joined the undertaking 26 years ago, bought £10,000 ordinary stock at £20 for the £100, or in total laid out £2,000 … he has had upon that £2,000 annual return of £8 5s 10d for the whole of those years taking the average. He has had his allotments of preference stock, which of course he could sell at a large premium; . . and if he chooses to realise today, he could get all his money back and make a profit of £12,080”. At first sight, it is impressive and no doubt there were stockholders who had bought shares in 1854 when they stood at one fifth of their issue price, but to those who had paid full price it was not so promising and the 8% average return fell to just over 1.5% on the issued face value, or about a quarter of what the LNWR was paying.
Watkin’s most remarkable achievement was in pushing up ‘ordinary’ stock to above par for a time, but this was only accomplished by splitting ordinary stocks into preferred and deferred ordinaty, as well as undivided ordinary. The offer of further quantities of preference stock to existing holders of ordinary stock was another part of a process made even more complicated by the issue of ordinary stock at a discount. These techniques carried the MS&L through the 1870s and 1880s, but the MS&L financial structure was now a labyrinth. The half-yearly accounts for 30th June 1889 list seventeen different types of shares, three being the undivided ordinary, preferred ordinary and deferred ordinary stock. Out of an issued ordinary capital of £5.5m, £346,700 had been issued at a discount of £105,246, which was bad enough, but a further £1.1 m had been issued at a discount of £550,000 or fifty per cent.
Despite Watkin’s comments about restoring share prices to persuade the investor to put £100 into ordinary stock, the MS&L had on occasion been forced to issue £200 in nominal capital and so pay a dividend upon twice the money received. Whilst some investors were attracted to offers which savoured of something for nothing, others were not, and ordinary stock at a massive discount was not sufficient. More preference stock had to he issued and between 1872 and 1881 five issues of 5% preference stock. which totalled more than the whole of the ordinary share capital, reduced the prospects for dividends on ordinary stock still further. By 1889 the MS&L had raised £26.8m in debentures, preference shares and ordinary stock.
We should perhaps explain what these terms mean. Debentures are loans to a company amd can be permanent or redeemable. A debenture holder is not ‘a member’ of the company as a shareholder is. Instead he has loaned money to the company and interest is due upon his loan, whether the company makes at profit or not. It is akin to borrowing money from the bank. You must pay the interest, whether or not your business prospers. lf it does not, the bank will foreclose and seize your assets to repay itself. Debenture holders, whilst their interest is paid, have few rights, but if their interest is in arrears, they can appoint receivers, have the company sold off and recoup themselves out of the proceeds. After they and other secured creditors have been paid out, what is left goes to unsecured creditors and then to the shareholders. A company with substantial debenture stock is vulnerable in the event of a serious fall in profitability.
A preference shareholder only receives his specified dividend if the company makes a profit, and cannot foreclose. Preference dividends on the MS&L varied from the 3.25% of the 1850s stock issued to meet arrears of dividends to 5 or 6% on normal preference stock. Ordinary shareholders only received a dividend when all preference dividends were paid. One might ask why would anyone be an ordinary stock holder? Preference stocks in the more successful companies earned 3-4%, whereas ordinary dividends could be 5, 6 or 7%.
From 1864 to 1892, the LNWR ordinary dividend never dropped below 6%. The ordinary stock offered higher risks but greater income and growth.
By 1889, prior to the London Extension, the MS&L Annual Accounts revealed the fol-lowing capital:
Debentures £ 7.6m 28%
Preference shares £13.7m 51%
Ordinary shares £ 5.5m 21%
An annual report upon railway finances was prepared for the Board of Trade. The 1894 issue shows how railway capital was divided up throughout the British Isles. It stood at £985.4m and was divided thus:
Debentures £272.5m 27.65%
Preference shares £352.8m 35.80%
Ordinary shares £360.1m 36.54%
On average, debentures accounted for 27.65% of capital invested in railways and the MS&L was in line here. Where the MS&L differed markedly was that ordinary capital stood at 21% as against 36.54% nationally. These figures are bad enough, but the 1889 accounts reveal that out of the £5.5m ordinary capital, over £650,000 was at a discount, so that less than £5m had come into the company’s coffers. As some of the preference stock was equally notional, there is little point in recalculating the sums, but the moral is obvious.
The Sheffield, Ashton-under-Lyne & Manchester faced serious financial problems in the 1840s. The creation of the MS&L did not remedy them and by 1855 an MS&L Act spoke of pecuniary embarrassment. The 1855 Act helpedhelped, but did not remove the underlying malaise that too much fixed interest stock had been created to allow reasonable dividends on ordinary shares. Once that had happened, it was difficult to issue additional ordinary stock other than at a discount. This watered the ordinary stock and made its earning capacity even worse. Despite splitting ordinary shares, the only other avenue was more preference stock, which in turn made the ordinary stock still less attractive. It was a vicious circle.
We have taken data from contemporary sources from the 1840s to the 1890s, as Messrs. Emblin & Co. are distrustful of modern authorities. We could adduce details from other years, but it would become tedious. Edward Watkin is sometimes portrayed as the villain of the piece. By 1854, the damage had been done and if blame is to he apportioned to Watkin. it must be that he did not undo that damage. How practicable this was is open to doubt and what Watkin actually did was to create a financial maze which solved current problems, but created long-term difficulties.
Watkin came to power in an era of aggressive railway politics, with new lines being pro-posed to poach traffic. If the MS&L had adopted a negative approach, rejecting exten-sions and eschewing capital expenditure, it would have faced ever-greater competition throughout its territory, so Watkin’s choice was retrenchment and stagnation, or attempting to build his way out of trouble. Temperamentally, Watkin was an aggressive and thrusting executive and, unlike Richard Moon on the LNWR who kept capital projects to a minimum, he went for growth, his final move being the authorisation of the London Extension. With this accomplished, and in his 79th year with his health undermined, he retired as chairman in 1894 although remaining a director.
There is evidence that the operational performance of the MS&L under Watkin was comparable to other companies of a similar size between 1854 and 1894. This has been examined in a paper by T. R. Gourvish The performance of British Railway Management after 1860 — the Railways of Watkin and Forbes” (Journal of Business History 1978 p 186-200) and in research by Dr. Gourvish for the Social Science Research Council (1979), now the Economic & Social Research Council.
Despite the long-term implications, which would become serious with even a modest drop in profitability, Watkin’s policy worked up to 1889-90 and as late as July 1890, a stock exchange list shows the three classes at 126, 83 and 41.25. By September 1895 they had slumped by 40%. What happened?
One major factor was two further issues of 4% preference stock in 1889 and 1891, coming to over £3.7m. They absorbed almost £150,000 in dividends each year and ordinary dividends fell from 3.125% in 1889 to nothing by 1893 and around 1% from 1894 to 1897. The fall could not have come at a worse moment, for the MS&L was now committed to the London Extension. With this background, it was not a good moment to offer more stock on the market. The 19th century railway investor was not the ignoramus some writers would have us believe, for apart from the ordinary daily papers, there was even a specialist investors’ weekly paper, The Railway Times. The editorial for 28th September 1895 is uncompromising: “Almost the only Home Railway stocks which have not improved in value of late are those of the Manchester, Sheffield and Lincolnshire Company. These stocks have, on the contrary fallen considerably”. Preferred ordinaries had fallen from 90 to 75. deferred ordinary from 30 to 28.5 and undivided ordinary from 60.5 to 50.
The editorial spoke of the risks of the London Extension, saying that all was well then, with interest on the extension capital being paid out of capital, “But what will the ordinary dividend look like a few years hence. when net revenue has to be drawn upon to provide the charges on that additional capital? If it takes a microscope to see the ordinary dividends at the present time, we fancy it will require a telescope to find them then”. MS&L Extension ordinaries, £50 paid, stood at £30. Once again it posed a serious problem for the MS&L, with the markets not taking too optimistic a view. The Railway Times revealed a further problem, “The bulk of the capital is assured by the enterprise of the Underwriters, who came to the company’s assistance last July. They hold the new London Extension stocks, for which there is practically no market, and are. we suspect, looking forward with fear and trembling, to the time when interest can no longer be charged to capital account. Even if these bold syndicators got quit of their securities at the present prices there would he a loss on the transaction, but to do so would be no easy matter”. When the line cost double its estimate, recourse had to be made to debentures and preference stock.
It is only if we understand the problems bequeathed to the GC by the MS&L and its predecessors that we can understand the troubles of the GC.
What happened after 1900? From the prelude, we ought to be able to guess. The GCR annual accounts for 1913 tell the story. “The net earnings of the past year … after providing for debenture interest, Rentals and other fixed charges. will admit of the payment in full of the interest upon all preferences down to and including the 4 per cent Preference Stock 1891, and 2 per cent on the 5 per cent Preference stock 1894”. The 1894 preference stock was the most junior preference stock (ie it ranked last for payment amongst the preference stocks), but at £3.1m constituted almost one fifth of the GC contingent preference stocks. By 1913, GC capital had reached £53.7m. The UK average percentages are given for comparison (from the BoT returns.
GCR GCR UK Average
Debentures £22.9m 42.6% 27%
Preference shares £20.1m 37.4% 36%
Ordinary shares £10.7m 19.9% 37%
The structure was far worse than in 1889 and to that extent Watkin bears some blame. By 1913, the GC was unable to pay any dividend upon a fifth of its capital, the £10.7m ordinary stock, and could only pay 2% on the most junior £3m preference stock. In 1914 even that ceased and the 1894 preference stock holders received no dividend.
Messrs. Emblin Co. have advanced two facts to show how well the GCR was thought of and how stable it was. They point out that expensive junketings were held at Marylebone to celebrate the opening of the line, which were attended by the Great and the Good. They also refer to a poll carried out by Household Words which voted it “the most forward looking . . . of the country’s rail-ways”. Neither argument is convincing.
The GC needed all the publicity it could get to mark the opening of the London Extension and a lavish opening ceremony was a good way to get plenty of free advertisements; set against the overall cost of the line, it was petty cash. It also introduced the Great and the Good to the GC and hopefully would boost traffic later. The Great and the Good have always attended important events, not least because their presence there shows that they are recognised as being Great and Good; they also got a gargantuan repast of typical Victorian proportions. It is doubtful if many dignitaries sat down and carried out a financial analysis of the prospects of the venture before accepting the invitation. Even the really ramshackle Bishop’s Castle Railway had a gala opening in 1865. [E. Griffiths: The Bishop’s Castle Railway – 1969, p9- 10].
There are two pointers to the difficulties the MS&L/GC was encountering in raising capital in the late 1890s. The passenger and freight stock necessary for the London Extension was actually provided by a separate rolling stock trust, a move which facilitated raising funds as the stock was a security upon which the funds were advanced. It was a device to which only the most impecunious lines resorted. The 1897 Act, which authorised the Banbury to Culworth Junction connection between the London Extension and the GWR, constituted it as a separate undertaking, to be built by the GWR and financed by the GCR. [Bradshaw’s Railway Manual 1902, Annual Report & Accounts, GWR 1913 and GCR 1913]. The construction of the Banbury branch by the GWR, and the development of the GW&GC Joint further south, even led to questions at the Great Western shareholders’ meeting of 1902 as to whether the GWR was planning to take over the GCR [J. N. Morris et al. Edwardian Enterprise – GWR 1987, p38].
Household Words was a general interest magazine and asked which line was thought to be progressive. The GC was undoubtedly progressive, with one of the finest management teams in the country and, in Fay’s publicity office, some brilliant PR men. With imaginative management and superb PR. the GC projected an excellent image, but public opinion has often been moulded by PR. Everyone knows “Guinness is Good for You”, but the merit of product is not determined by PR. Public perceptionperception and reality can differ markedly. If this were not so, and if a good PR team could not build up confidence, however short-lived, it is doubtful if any politicians would ever be elected to Parliament!
How did the ‘professionals’ review the GC or the MS&L? An amusing but cruel story’ was recorded in the Jubilee Issue of the Railway News in 1914. A member of the Stock Exchange (sadly anonymous due to rules on publicity) wrote of some 40 years’ experience of the ‘Home Rails’ market and recalled that when George Findlay’s book The Working & Management of an English Railway was published in 1891, some wag had posted up a notice “Companion Volume to Findlay’s book to appear shortly – ‘The Mismanagement of an English Railway’ by Sir Edward Watkin, Baronet”. The comment, though brutal, is indicative of Stock Exchange opinion. They were the professionals who handled railway shares. Public opinion also tended to reflect this, as Gourvish shows [op cit]. Although we are quoting from a modern author, one comment by George Dow is compelling. Col. Robert Williams, a director of the LSWR, on hearing of Fay’s impending appointment as general manager of the GCR in 1902, cautioned against such a move, commenting “The GC will be in tweivership before the year is out. I am their banker”. [Dow Vol 3, p26-27]. Did this quotation come direet from Sam Fay to George Dow, when he was researching his monumental history of the GC? We think it likely, for in Dow’s introduction to Vol. 1 he says “I was able to glean some first-hand knowledge front Sir Sam Fay”. Fay and Dow got on well together, for Fay had promised to write the Foreword to the series, but died in 1953, aged 96.
How did investors value the GC? The shares were quoted on the stock exchange and their value was based upon dividends and potential earnings or growth. The quotations for November 1913 were as follows:
Rhymney Consolidated ordinary 165
LNWR Consolidated ordinary 126.5
North Eastern Consolidated ordinary 117
South Eastern ordinary 81
Great Eastern ordinary 43.25
Stratford-upon-Avon & Midland Junction 34
Great Central Preferred ordinary 27.5
Great Central Deferred ordinary 12.5
Cambrian ordinary (two types) both 1.5
The ‘home rails’ table listed over 100 different companies and it would be tedious to list them all, but the inference is clear. We can find companies which were less well thought of. such as the Cambrian, but amongst the major railway companies. the GC came at the bottom of the table.
The period up to 1913 is seen as the ‘Golden Age’ of railways. but in reality operational costs were rising due to various factors, not least the increase in union bargaining powers, whilst revenue could not be increased because of competition and the surfeit of legislation on railway rates. Many of the major railways contemplated working unions or amalgamations to reduce unnecessary. competition. [G. Alderman The Railway Interest 1973 p192-221]. P. J. Cain has examined rates and amalgamations in “The British Railway Rates Problem 1894-1913- [Journal of Business History 1978 pp87-99). Lest we err through citing modern authors, let us go back to 1908 and see what Sam Day said. “When we approach amalgamation we do so not with a desire to eliminate competition where such is desirable, or proper, but solely with a view to the economical development of our railways upon natural lines, and to so strengthen them financially that they may render the fullest possible benefit &c . . . &c”. [Report of 1908 BoT Conference between railway companies, traders and others, pub. July 1909].
By Edwardian days, the pressure upon all railway shares had become a middle class pre-occupation, as there were some 800,000 stock holdings in the railways of Britain, and perhaps 20 million people were interested in life assur-ance or the mutual funds of friendly societies all influenced by the performance of ‘home rails’. This was even reflected in contemporary literature, such as Howard’s End by E. M. Forster published in 1910, with the delightful comment that shares had “declined with the steady dignity of which only Home Rails are capable”. Emblin, Longbone and Jackson suggest that the GC out-performed other companies, but the reality is that all companies faced growing problems by 1913 and, even without the disruptions of World War I, would have continued their dignified decline, as Forster put it. With a worse financial structure than most large companies, the GC was especially vulner-able. By 1913 it could not pay full dividends on all its preference stock and the problem, far from ameliorating, would have worsened. As it happened, World War 1, Government control and the Grouping intervened.
Contrary to the opinions in the article, the GC shareholders did not fare well at the grouping. In broad terms, the principle adopted by the ‘Big Four’ was that debenture and preference stock holders received an equivalent holding in the new company, based on the earnings of their holdings. For £100 of LNWR 4% debentures, the LMS of offered £100 in LMS 4% debentures, For the Harborne Railway, £100 of 5% debentures received £125 in LMS 4% stock, and £100 of the Highland Railway Dunkeld Lien 6% preference stock received £150 in LMS 4% preference stock. In theory, if you had received £4 before the grouping, you would receive £4 after the grouping. With ordinary stocks, where dividends could fluctuate, it was more complicated. £100 of GC deferred ordinary stock was worth £30 deferred ordinary LNER stock. Of the major constituents of the LNER, the only shares to receive a lower valuation were the Deferred ordinary No.2 shares of the Great North of Scotland Railway. We have already encountered the 1894 GC preference shares, with their patchy dividend record. £100 of 1894 preference stock was worth £100 in LNER preferred ordinary stock. ‘Preferred ordinary’ was the highest ranking ordinary stock, but ranked after all preference stocks. In no other instance did the LNER downgrade a pre-I923 preference stock to ordinary status.
How valuable was LNER deferred ordinary stock? In 1923 and 1924, it received 24%. In 1925 the dividend fell to 1%. There was no deferred ordinary dividend from 1926 and after 1930 preferred ordinary dividends ceased. In 1948, British Railways offered £3 12s 6d in cash for every £100 of LNER deferred ordinary stock. At the Grouping, the LNER had written off many millions of pounds of nominal capital yet even with that benefit, by 1941 the LNER could not pay its 4% second preference dividends in full.
Unlike chronically-ill companies, such as the Garstang & Knott End or East & West Junction Railways which could not pay their debenture interest let alone preference dividends and endured periods of closure, the MS&L/GC was never in that truly ramshackle state, but it was financially weaker than any other major English railway and on a par or worse than the weakest of the major Scottish or Irish lines. It could have survived, given operating conditions in 1913, but as wages rose, motor competition developed and recession bit into trade in the 1920s and 1930s, a line such as the GC – had it remained independent – would have been far weaker than other concerns such as the LNWR or Great Northern. Despite writing off a great deal of capital, the LNER was scarcely in a thriving state by the late 1939s and it was far stronger than the GC could have hoped for.
The financial structure of the MS&L/GCR relied too heavily on debentures or preference shares with fixed dividends and, once this millstone of fixed interest securities existed, the earning capacity was insufficient to pay ordinary dividends. If the GC had possessed a normal capital structure, with a higher proportion of ordinary shares, the 4-5% fixed interest burden would not have been so onerous and a lower proportion of debentures and preference stock would have permitted modest dividends on the ordinary stock. The permutations are immense and the computations too involved for this article, but the authors feel that with a sound capital structure, the GC could have paid ordinary dividends of I to 2% in Edwardian days. This was not comparable with the LNWR, Midland, NER or other highly-successful companies, but was not markedly different to the Great Eastern, the Caledonian, North British or Highland. The problem was not traffic or earning capacity per mile, which was not markedly different from most other companies, but a capital structure which drained all available profits into debenture and preference stocks, leaving nothing for ordinary stockholders.
Messrs Emblin, Longbone and Jackson are right when they criticise the sensationalists, but they have overstated their case. Even if Alexander Henderson could have waved a magic wand and created the capital structure we have outlined. the GC would not have been a good investment and, with the disruptions of World War 1, it would have faced serious problems. Henderson could not wave that wand, as the preference holders were never going to surrender their benefits for the general good. The GC and Henderson were in the position of the man who asked the apocryphal Irishman how to get somewhere and was told “If I were you, I wouldn’t have started from here”. The GC should never have been where it was to begin with, but once the SA&M and the other con-stituents started down the wrong road, the way back was blocked. Watkin did not solve the problem, but it is doubtful if anyone could have done so. Henderson inherited it and, rather than put forward a spurious gloss of financial stability and progress, we should pay tribute to how he, Fay, and the GC team faced circumstances which must have been almost heart-breaking. One wonders how many man-agers past or present would have done as well. Our view is that it would be very few indeed.
Both authors of this article are admirers of the GCR but, in seeking to be realistic, we would prefer the term “Great Commitment to Recovery” to the “Glorious Catalogue of Renaissance” suggested by Robert Emblin, Bryan Longbone and David Jackson.
Appendix 2 – BackTrack Magazine Vol. 9 No. 3, p129-136 – Notes from the Steam Index website. 
Money sunk and lost – The great central myth of the Great Central Railway. Robert Emblin, Bryan Longbone and David Jackson.
The extension of the MSLR from Annesley to London created what the authors describe as a myth, namely that the Great Central Railway was financially crippled by the cost of building it. Many authors have subscribed to that myth: Langley Aldrich’s “The late GCR never paid any dividend on its Ordinary shares”; Hamilton Ellis’s ‘The London Extension was viewed with pessimism at the time of its inception; if MS&L stood for Money Sunk and Lost, GC clearly meant Gone Completely”. Jack Simmons “Great Central never paid an ordinary dividend” and “was financially ramshackle”. Harold Pollins “There were clearly some absurd schemes [including] the building of the last main line, the Great Central, in the 1890s” Michael Bonavia, referring to the grouping criteria used in defining the proto-LNER, adumbrated a poverty-stricken Great Central being carried financially on the back of the prosperous North Eastern.
The perception of GCR penury is a component in another received wisdom; that the LNER’s largest constituent, the NER, had been intended as the financial dynamo for the entire network but that because of the financial weaknesses of the other constituents the LNER finances sank when the virtual collapse of the north-east regional economy in the depressions of the 1920s and 1930s prevented the NER from bankrolling its poverty-stricken fellow constituents. These two orthodoxies provide neat and simple mutually-supporting explanations that agree with what we all know; but “what everyone knows” may not necessarily be true, or it may not be the whole story and half-truths are most effective as mis-information.
The construction costs of the London Extension had certainly been high £11.5 million, almost twice the original estimate and after it opened the GCR did not pay any dividends on its Ordinary shares nor, until 1915, on some of its Preference shares. But not only were these non-paying shares a minority of the total, the opening of the London Extension was followed by thirteen years of considerable expansion. A leading article in the Financial Times of 20th September 1913, analysing the ‘Great Central Position’ and the performance of its shares, referred to the GCR as one of the leading UK railway companies, stating that “the position of the company . . . promises well in the near future . . . traffic returns have shown continued healthy expansion” and praised ‘the exceptional prospects of this undertaking”. There is a wide discrepancy between the modern view and contemporaneous informed assessment. The £10 million for the GCR’s post-1900 expansion programmes (more than was being invested by most of its contemporaries) had to come from somewhere and the debt serviced somehow. Further, the price paid for the GCR at Grouping was marginally greater than that paid for any of the other LNER constituent companies except the NER; there is also the small and hitherto overlooked matter of the evidence on the London Extension profitability that was given by Sir Ralph Lewis Wedgwood, the LNER Chief General Manager, to the Railway Rates Tribunal in 1924/5 when he stated that it was expected that a nominal fifteen years was required for new works to fructify (that is produce a 5% return on investment and when questioned that “that new trunk lines [are] exceptionally slow to mature”. The authors forcefully state that Henderson/Faringdon had been regared as one of the leading railway finaciers
After the London Extension opened, the GCR started a programme of widespread expansion taking over the LDECR and several small railways in North Wales and Lancashire, building a joint line with the GWR to provide a second route to Marylebone.By providing rail access into the Chilterns, the GW/GC and Met /GC joint lines opened the area for property development and generated much commuter traffic. The Wath concentration (or marshalling) yard was built to increase the handling efficiency of the South Yorkshire coal traffic, a new deep-water port was developed on a green-field site at Immingham to compete with the NER’s facilities at Hull and to complement the GCR installations at Grimsby, main line capacities were doubled in some places and new signalling systems were installed. Powerful engines of all types were designed and built to meet the ever-increasing demand for heavier and faster trains.
Most of the capital to pay for those investments was obtained by debenture issues. These are fixed interest loans with guaranteed dividends but without any voting rights. As a method of funding expansion, such issues have the advantage of raising new capital without affecting boardroom control but they incur the cost of mortgaging future earnings. Such a predominant reliance on debenture issues is nowadays considered to be a source of financial weakness, not only because it worsens the asset/debt ratio but also because the mortgage effect increases the need to maintain growth merely to service the increasing debt, thereby reducing the ability to make provision for debt repayment and/or increase dividends. There is some evidence in the share offer details that most of the contingent shares were held by non- contingent shareholders, so it may be that from 1899 on they were taking the long view, cushioned by their non-contingent dividends, in the expectation that the capital investments which the GCR was making would eventually be reflected in higher dividends. Those were the days when investors were accustomed to financing long term projects that were not likely to return a dividend in the short term. Sir Ralph Wedgwood was quite sanguine about a 20 or 30 year period before a major new work would be expected to have ‘fructified’.
In summary, the GCR’s reputation as poverty-stricken and financially ramshackle is a modern fiction, started in error by popular writers who apparently ignored the public record and compounded by academics who discounted the distorting effect of anachronism’s parallax. The facts are that in tranforming itself from a mediocre provincial cross-country goods line into a strategically – important mixed traffic main line, the GCR’s effectiveness in seeking and developing new business was such that by 1913 its revenue and profitability was comparable with that of its proto-LNER peers; the profitability of the London Extension was increasing in line with the expectations of the period; the money market was investing large sums in the GCR; its passenger trains were fast, prompt, clean and reliable; and withal industry and the general public received and positively enjoyed a comprehensive rail transport service that had dash, imagination and style. All this was constructed by Sir Alexander Henderson, Sir Sam Fay, John George Robinson and the rest of the workforce on the foundations of Sir Edward Watkin’s vision. Instead of its post- World War II reputation of Money Sunk and Lost, in the annals of British railway development and financial management the twenty-five year history of the GCR was a Glorious Catalogue of Renaissance!
Appendix 3 – BackTrack Magazine Vol. 10 No. 5, p266-271 – Notes from the Steam Index website. 
Great Central – the real problem. Martin Bloxsom and Robert Hendry.
Between 1900 and 1914 the GNR, GER and GWR were paying 3 to 4% dividends. The LNWR, MR and NER were paying 6% or above. The GCR was paying 0%. The costly original route and the long time to opening were deep-seated problems. In 1846 the fusion of SA&MR with three Lincolnshire companies attempted to remedy this problem, but there were very poor returns between 1848 and 1851, and it could not even pay any dividend on its Preference Shares. The Company was in serious financial difficulty by 1855. See also correspondence by Steve Banksand Keith Horne. (page 387); and on page 634 which mis-spells both of original authors, which re-questions the probable actions to have been taken by Henderson if Grouping had not taken place. KPJ: is it not possible to equate the particular dire financial state with the “misfortune” of it incorporating the GCR?. Emblin & Longbone response on page 698. Martin Bloxsom returns to this theme in a summarizing letter in Volume 16 page 174, which contrasts this approach (the harsh financial realities) with what might be termed a more optimistic line of thought espoused by Emblin (Volume 9 page 129). Emblin returned to the theme of the financial status of the Great Central in Volume 22 page 654 etseq.