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PUBLIC RECORD OFFICE

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PELUC.O. 882

8 PUBLIC RECORD OFFICE, LONDON

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APPENDIX A.

EASTERN MAIL SERVICE.

DIVISION of Cost.

THE CASE OF THE IMPERIAL POST OFFICE TO BE SUBMITTED TO THE RIGHT HONOURABLE THE EARL OF MORLEY.

1. Under a contract for the Eastern Mail Service, working to and from Brindisi,. which came into operation on the 1st February, 1888, the Peninsular and Oriental Steam Navigation Company received an annual subsidy of £265,000.

2. And in accordance with the desire of the Australian Colonies for a weekly Mail Service, contracts, to run from 1st February, 1888, were concluded by the Imperial Government with the Peninsular and Oriental Steam Navigation Company for a fortnightly Hervice from London via Brindisi, and with the Orient Steam Navigation Company for a almilar service vid Naples, the two companies together thus providing a regular weekly service by direct steamers. For these services each company received a subsidy of £85,000 per annum.

3. All three contracts expired on 31st January, 1898.

4. In response to the invitation of tenders for the respective services from 1st February, 1898, the Orient Company offered to continue their portion of the Australian Service at a higher speed for the same subsidy of £85,000.

5. The Peninsular and Oriental Company, who declined to tender for one service- without the other, offered to continue the Eastern Mail Service and their portion of the Australian Service at higher rates of speed for each service for a total subsidy of £330,000, as against £350,000, the total under their two expiring contracts.

6. The acceptance of these tenders was recommended by a committee, of which the Right Honourable W. L. Jackson was chairman, and on which India was represented.

7. The total subsidy of £330,000 asked by the Peninsular and Oriental Company was taken by Mr. Jackson's Committee as representing £85,000 for the Australian Service and £245,000 for the Eastern Service, an apportionment based on the fact that the Orient Company offered a corresponding Australian Service for £85,000, and that the expiring contract of the Peninsular and Oriental Company for the separate Australian Service was also for that amount. The Indian Post Office, however, was disposed to think that a larger sum should be assigned to the Australian Service; and, at its request, the Peninsular and Oriental Company were asked to say what part of the subsidy of £330,000 was assigned to the Australian Service and how the balance was subdivided among the sections of the Eastern Service. In reply the Directors stated that it would be impossible to separate the sections as desired, but that they had always had in view that they should obtain the sum of £85,000 for the Australian portion of the work, and that out of the total subsidy the sum of £245,000 was for the Eastern Mail Service.

8. The Australian Post Offices, on the other hand, argued that the Australian Service provided by the Peninsular and Oriental Company should be credited with some portion of the reduction of £20,000 effected in the combined cost of that Company's services. But this argument was met by the Imperial Post Office with the considerations already referred to, and the point was not pressed.

9. The cost of the Eastern Mail Service has accordingly been taken at £245,000, and the benefit of the whole reduction of £20,000 effected under the new contract for both Eastern and Australian Services is thus secured to the Eastern Mail Service. A further advantage to it is secured by the fact that the subsidy under the new contract covers the conveyance of parcels-a service which formerly gave rise to additional expense to India, &c.

10. As to the method of division of cost, the principle upon which the cost of the Eastern Mail Service has been divided rests upon the fact that the Service is organised for commercial and political reasons, as well as for postal reasons, and that the intercourse promoted by it is a matter of equal interest to the Mother Country and to the Dependencies with which communication is maintained. It has accordingly been held that the revenues of the United Kingdom and of the several British Possessions benefited by the Service should contribute in equal proportions to any expenditure in the common interest which has the encouragement of intercourse for its object.

11. Up to the year 1866 the Service was regarded as one for the mutual benefit of the United Kingdom and India only, the extension to China, &c. being looked upon as conferring equal advantages upon British and upon Indian trade. While this view prevailed the net cost of the whole Service was divided equally between the United Kingdom and India.

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12. In 1866 a Select Committee of the House of Commons was appointed to consider the subject of mail communications with India and the East, and the outcome of the Committee's inquiry (so far as division of cost was concerned) was a recognition of the fact that circumstances had modified the relative value to the United Kingdom and India of the Mail Service with the farther East, and a recommendation that India should no longer be considered as interested to the extent of one half of the cost of the China, &c., sections of the Service.

13. An equal division of the whole cost being no longer equitable, it became necessary to divide the cost of the Service into sections, and to find a basis for determining the new apportionment.

14. Of the three considerations-commercial, political, postal-for which expenditure was incurred, only the postal element could be conveniently expressed in figures. And among the classes of matter making up the mails, it was held that the Letter, which differs from other classes of postal matter in that it represents a presumably equal interest whether It be sent or received, was the best practical index of the general value of the Service to a community, so far as that value could be gauged by a purely postal test. Experience has proved the soundness of this view, as opposed to an apportionment based on the gross weight of mails, or on the "value" of the maile-whether determined by the standard of postage collections or by that of the recognised rates of payment made by one country to another for ses transit. As regards gross weight carried, it is noticeable that the volume of mails has no influence on the cost of the service, for subsidies have diminished while mails have increased; and as regards postage collections and rates of payment for transit successive reductions have continually disturbed the ratio between the different classes of

mail matter.

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15. Starting with the principle that the interest of the Mother Country is equal to the sum of all the other interests in a Service maintained for mutual benefit, one half of the cost of each section was assigned to the United Kingdom. The other half was assessed proportionately according to the number of letters sent and received by India and other places for the benefit of which the Service was maintained, India being charged only with the percentage represented by the proportion which her letters bore to the total numbers of letters proper to the section.

16. The principles of apportionment laid down after the Parliamentary inquiry of 1866 were reconsidered ten years later by Lord Halifax, in connection with his arbitration upon certain points of difference which had arisen between the Indian and Imperial Post Offices, and these principles were confirmed by his award, Lord Halifax considered that the Eastern Service should continue to be treated as a whole on account of the numerous advantages gained thereby. Apart from the general advantages of the single contract system in giving a cheaper service and a better fleet of ships than separate contracts for each section, India has derived considerable benefit from her correspondence being associated with other correspondence for instance, it is owing to the aggregate bulk of mail matter carried by the special trains across the Continent of Europe that France and Italy have been induced by the Imperial Post Office to reduce the rates for this transit. The rate per kilogramme of letters thus carried has been reduced from 25 francs 52 centimes to 4 france.

17. Until the 1874-80 contract the respective shares of cost were ascertained by means of a voluminous account prepared annually by the Imperial Post Office and audited by the India Office. The preparation and audit of this account entailed considerable labour and expense, and Lord Halifax considered that the decisions which he had given would enable the Imperial Post Office to make out an account for 1874-75, and that then it would be a simple calculation to ascertain what percentage of the whole cost of the mail service for that year was chargeable to India. That percentage of the coat, in every subsequent year to the end of the contract, he decided should be paid by India. When this contract terminated, it was proposed that India should make a contribution of a fixed annual sum for the term of the next contract. To this India agreed, and the arrangement came into operation with the contract of 1880-88.

18. A copy of the account prepared by the Imperial Post Office and audited by the India Office after the Award is annexed, marked "A."

19. From the 1st February, 1888, the subsidy for the Eastern Mail Service was reduced from £360,000 to £265,000, although a marked increase of speed was, at the instance of India, secured for the Indian maila.

20. There was some discussion as to whether the proportion of subsidy assignable to the increase of speed should not be taken into account in apportioning the cost of the service, because the Colonies of Ceylon, Straits Settlements, and Hong Kong, which had become contributors during the previous contracts, were not benefited in the same degree as India by the increased speed. The Indian Government arged, however, that to "graft the element of speed" upon an apportionment hitherto based on a calculation of simple mileage would constitute a departure from the system approved by the award of Lord Halifax. The matter was fully discussed by representatives of the Treasury, the India Office, and the Post Office, with the result that Mr. Goschen (then Chancellor of the Exchequer) agreed to a compromise under which the Indian share of the subsidy was fixed at £10,000 a year for the whole term of the contract, without prejudice to the claims of either party; but at that time a certain portion of the postage collected in India was also paid over towards the cost of the service.

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