Daunton M. The Cambridge Urban History of Britain, Volume 3: 1840-1950
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The political economy of urban utilities
(i) :
T
of the urban infrastructure was the most dynamic element
in the British economy from the s to the s. Even if one ignores
housing, the investment in public health, local transport, policing, water,
electricity and gas was accounting, by the early s, for one quarter of all
capital formation in Britain and the local government component of that was
nearly as large as the annual investment by the whole of manufacturing indus-
try. The mushrooming of electricity systems, waterworks, tramways, harbours
and gasworks was a key element, and the interplay between their economic
development and the interests of parliament and town councils is the subject of
this chapter. Superficially it appears to be about ideology, and municipal social-
ism in particular. In practice this had a limited role. Certainly there were fears
about the growth of government. In Lord Avebury listed his objections to
municipal trading as:
) The enormous increase in debt . . . ;
) The check to industrial progress;
) The demand on the time of municipal councillors . . . ;
) The undesirability of involving Governments and Municipalities . . . in
labour questions;
) The fact that the interference with natural laws . . . [defeats] . . . the very
object aimed at;
) The risk, not to say, certainty of loss.
1
American observers, afraid of the social consequences of the congestion and cor-
ruption in their immigrant-swollen cities, were fascinated by British municipal
1
See pp. – of Lord Avebury, ‘Municipal trading’, Contemporary Review, (), –.
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enterprises. The vaunted civic pride in Glasgow and Birmingham added another
ingredient to the debate.
2
Academics were drawn in such a way that we find the
British economic historian Percy Ashley writing about municipal trading in the
issue of the American Quarterly Journal of Economics and H. G. Gibbons
given room in the issue of the Chicago-based Journal of Political Economy to
describe ‘The opposition to municipal socialism in England’.
3
But municipal enterprise is only part of the story. There was a huge private
sector, including, in , joint stock companies supplying electricity or gas
or tramway services under private acts of parliament. It is also a story of great
differences. Not every town was like Birmingham in viewing water supply as a
health issue and gas a business venture. Scotland forbade any use of trading profits
for financing public health, roads or other urban improvement schemes. There
were many towns in England and Wales which ‘stayed private’. All of which is
relevant to the four issues covered in this chapter. The first is to locate the devel-
opment of utilities within the framework of the urban economic problems of
the period – problems of overcrowded living and working conditions yet
significant increases in real incomes for much of the population. The causes of
municipalisation is the second main theme. It has to deal with the penchant for
many of the burgeoning new industrial boroughs like Oldham and West
Bromwich to expropriate private companies or initiate new municipal enter-
prise; to explain the delay in the emergence of integrated systems in London, in
the form of London County Council Tramways and the Metropolitan Water
Board, until the turn of the century; to explain why Liverpool gas, Newcastle
electricity, Sunderland trams, to name but a few, stayed private. The third issue
is economic performance. Any attempt to evaluate the effect on performance of
the organisation and ownership of utilities requires something more than, for
example, simply examining the situation before and after the Glasgow Tramways
and Omnibus Company was taken over, if only because economic and techno-
logical conditions were changing rapidly at the time. Similarly, comparisons
between different institutional arrangements coexisting at the same time – the
Gas, Light and Coke Co. Ltd versus Leeds Corporation Gas – need to allow for
the differing economic circumstances in London and Leeds. Evaluating perfor-
mance requires also some estimate of how the urban infrastructure developed
over time and here electricity proves to be a useful case study. Finally, into the
s and s, we ask what were the forces on the ‘road to nationalisation’.
The term itself needs unpacking; many sectors – like manufacturing and water
supply – were not nationalised and, for those that were, a distinct organisational
form was taken – the public corporation.
Robert Millward
2
B. Aspinall, ‘Glasgow trams and American politics, –’, SHR, ().
3
P. C. Ashley, ‘Municipal trading in Great Britain’, Quarterly Journal of Economics, (), –;
H. J. Gibbons, ‘The opposition to municipal socialism in England’, Journal of Political Economy,
().
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Whether or not the services supplied were ‘useful’, from which the term util-
ities presumably originated, their development over the years from is,
railways aside, very much an urban story. The main reason for this is that the
early technologies of generating stations, water systems, tramways and gas works
were best suited to spatially limited groups of high density populations. In this
respect the new local governments, established in the fifty years or so after the
Municipal Corporations Act to cope with the rapidly burgeoning towns of
the Midlands and the North, were especially suited to develop urban utilities.
For much of the second half of the nineteenth century municipal boroughs like
Wolverhampton, Rochdale and Brighton could make provision for local under-
takings without worrying unduly about any unexploited benefits from links with
neighbouring towns. The political tensions associated with such links did not
emerge in urban areas until the early twentieth century when a more regional
focus for utilities became necessary – electricity grids and water basin develop-
ment being the classic examples. This shift to a regional focus was one of the
first steps in undermining the influence of local governments in the provision of
utilities. The difficulties of making the transition were indeed a key ingredient
in the push to nationalisation in the decades after . In the nineteenth
century, the problems were more in rural areas where gas, electricity and
tramway services were left largely to private companies sprawling over huge local
government areas.
4
There were two major surges of activity. The first was the rapid growth of
new water and gas systems from the s to the s. The annual investment
of some £ million looks fairly small in comparison to what came later, as Table
. shows, but it represented a very high growth rate of the capital stock. It was
closely associated with the growth of industrial towns and especially those
granted borough status. Over towns were incorporated as new municipal
boroughs in England and Wales between and the Local Government Act
of , with Davenport, Bolton, Manchester and Birmingham at the begin-
ning and the likes of Hyde, Okehampton and Llanfyllin in the last few years.
5
Then came ‘electrification’ at the very end of the century with annual invest-
ment of £ million in tramways, electric lighting and power undertakings alone.
By there were , separate statutory private and municipal undertakings
in electricity, tramways and gas and probably close to a further , in water
supply. Municipal debt in England and Wales was £ million in but had
reached £ million in , leaving Lord Avebury to palpitate on ‘how enor-
mous our local indebtedness will become if some check is not put to the present
The political economy of urban utilities
4
R. Millward and S. Sheard, ‘The urban fiscal problem, –: government expenditure and
finances in England and Wales’, Ec.HR, (), –.
5
Census Office, Censuses of the Population of England and Wales, Summary Tables: , , , ,
, , , PP – , , , , /, , ,
, ; Registrar General, Return of Towns and Boroughs, PP / and .
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tendency!’.
6
There was a further surge in the interwar period but this was not
an urban phenomenon but rather one associated with regional infrastructure
development in electricity and eventually with the establishment of the national
grid by the Central Electricity Board.
The first surge took place in the mid-nineteenth century in a regulatory
regime which parliament had established in the s, partly in response to the
fact that the typical provincial town by then was often served by only one utility
– the Chester Gaslight Co., the Hartlepool Water Co. – and when there was
more than one, as in London, the companies each kept, by agreement, to its own
district; the town was ‘districted’. However, the legislation was typical of the
mid-century in that the combination of a laissez-faire parliament and strong local
interests, in the form of Highway Surveyors, Sewage Boards, Poor Law
Commissioners and the like, were enough to ensure that the regulations were
permissive rather than mandatory. The weakness of the regulatory regime was
one of the factors behind the drive to municipalisation in the forty years up to
the First World War. After the war, growing tensions emerged between urban
and regional interests. The parliamentary scrutiny and regulation which followed
was itself a central ingredient in the push to nationalisation in the s. Overall,
the years from witnessed a remarkable transformation. In the mid-
nineteenth century ‘property’ was inviolate. Even in when municipal
enterprise was well established, it could be philosophically accommodated as
local self-help and the ‘changes occurred with very little conscious attempt to
expand or transform or exalt the functions of the state’.
7
But by the s the
die was cast; one half of all capital formation in Britain was undertaken by the
public sector and two-fifths of that was in the new nationalised industries.
(ii) :
-
A ‘very extraordinary interference with property’ was how Edward Baines,
member of parliament, characterised regulation of the railways and this was
typical of mid-century parliamentary attitudes to government involvement with
industry.
8
How then did government, central or local, ever get involved with
utilities? The standard response is that laissez-faire and competition existed uneas-
ily in the provision of services like electricity, gas, trams and water, let alone rail-
ways. That is, over certain defined areas – routes or districts – natural monopoly
conditions existed. Because of the indivisibilities of the investment, it was
cheaper for one undertaking to supply services than two or more since the latter
Robert Millward
6
Avebury, ‘Municipal trading’, ; Ashley, ‘Municipal trading’, .
7
J. Harris, Private Lives and Public Spirit: Britain – (London, ), p. .
8
J. Clapham, The Economic History of Britain, vol. (Cambridge, ), p. .
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Table . Investment in the UK: selected sectors – (annual average gross fixed capital formation in £ million at prices)
Water Gas Elect. Road pass. trans.
a
Docks
b
Total Share UK inv.
– . . — — . . .%
– . . — — . . .%
– . . — . . . .%
– . . . . . . .%
– . . . . .. .%
– . . . . ...%
– . . . . .. .%
–
c
..
d
. ...%
–
c
..
d
. ...%
–
c
..
d
. ...%
–
c
..
d
. ...%
a
Before this covers trams only. Thereafter it includes buses, cars and other road passenger transport.
b
Before this covers docks, piers and quays, etc. From it includes canals and from air transport.
c
All the data from onwards exclude S. Ireland and are calculated by applying the price indexes for (a) fuel and light, (b) transport and
communication, (c) capital goods, in table of Feinstein, National Income (see Sources, below), to his figures in table on capital formation at
current prices in respectively (a) gas, water and electricity, (b) road passenger transport and docks, (c) the UK.
d
After electricity includes investment in regional grids and, from , the Central Electricity Board.
Sources: C. H. Feinstein and S. Pollard, Studies in Capital Formation in the U.K. – (Oxford, ), tables ., ., ., ., .; C. H.
Feinstein, National Income, Expenditure and Output of the United Kingdom – (Cambridge, ), tables and .
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would involve duplication of mains, track and related networks, quite apart from
any savings that arose from concentrating production itself in large electricity
generating plants or gas works. Since there were few substitutes for these services
(‘necessities’) the potential for monopoly profits was large. Other basic economic
problems were present – spillover effects in health from poor water supplies or
leaky gas mains or unsafe trams. But the natural monopoly argument threads
through all narratives of the development of utilities in the nineteenth century
and is usually accompanied by the prediction that competition either leads to
duplicate facilities, high costs, low profits and poor service or it leads to monop-
oly. ‘In the s and s it was common for the mains of three or four . . .
[gas] . . . companies to run down the same street in the West End.’
9
David
Chatterton, Malcolm Falkus and William Robson argued that, when this led
eventually to the elimination of competition, a change in public opinion
occurred and promoted the growth of parliamentary involvement in these
sectors.
10
Derek Matthews demurred, suggesting that parliament always had the
power to regulate and became more active from the middle of the century
because by then gas prices had fallen sufficiently to allow gas lighting in middle-
class homes – as well as in the houses and factories of the highest income
groups.
11
This new vociferous middle-class customer clamoured for control of
prices especially when their decline slowed from mid-century. If true, that
incentive always probably existed for water customers from the beginning of the
century. The evidence is patchy but it appears that the average costs and prices
of, for example the London water companies, rose by about per cent in the
period to when most other prices in Britain were falling.
12
In fact there are good reasons for thinking that whilst the underlying eco-
nomics of utilities are such that laissez-faire is often not consistent with the public
interest, this still left a wide range of possible reactions and collective interven-
tions. Whereas in France, Prussia and Belgium network systems like the railways
were planned, in Britain the outcome was more the result of a battle of prop-
erty interests.
13
The manufacturers of gas and the waterworks entrepreneurs
wanted no truck with government. Nor was the weight of opinion in parlia-
Robert Millward
19
See p. of D. Matthews, ‘Rogues, speculators and competing monopolies: the early London gas
companies, –’, London Journal, (), –.
10
D. A. Chatterton, ‘State control of public utilities in the nineteenth century: the London gas
industry’, Business History, (), –; M. Falkus, ‘The development of municipal trading
in the nineteenth century’, Business History, (), –; W. A. Robson, ‘The public utility
services’, in H. J. Laski, W. I. Jennings and W. A. Robson, eds., A Century of Municipal Progress:
The Last One Hundred Years (London, ), pp. –.
11
D. Matthews, ‘Laissez-faire and the London gas industry in the nineteenth century: another look’,
Ec.HR, nd series, (), –.
12
See later discussion of water and also J. Cavalcanti, ‘Economic aspects of the provision and devel-
opment of water supply in nineteenth century Britain’ (PhDThesis, Manchester University,
).
13
F. Dobbin, Forging Industrial Policy (Cambridge, ).
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ment in favour of intervention. Deputations to protect the interests of property
argued successfully ‘that nothing which British governments had ever done or
left undone made it likely they would prove good managers; that centralisation
was un-English’, a sentiment echoed one year later in by the Economist.
14
Why then did government get involved? Fundamentally, there were two
reasons. The first was that the huge capital requirements of these enterprises
meant that local sources of finance would not be enough. ‘Blind capital’ would
be attracted only if there were limited liability and, since that was regarded as a
great privilege, there would have to be a parliamentary act with appropriate
scrutiny of the financial soundness of the company. The investment expansion
recorded in Table . was therefore largely financed by borrowing approved
under the relevant parliamentary act. Both private and municipal undertakings
came to issue their own stock quoted on the London and provincial stock
exchanges. There is no doubt that the whole process favoured the large com-
panies and municipalities – only they could deal with the administrative costs of
securing stock issues and parliamentary bills. Indeed, over the whole range of
urban developments, including investment in the sanitary infrastructure, it was
the large local authorities like Leeds and Glasgow which flourished since the
finance available from other sources, such as the Public Works Loan Board,
involved high interest charges and short repayment periods.
15
The second reason
why governments were drawn into the operations of utilities relates to the ques-
tion of rights of way. Land had to be dug up for mains and leased or purchased
for tramways and railway track. Local authorities sometimes had sufficient
powers of approval but in the early years of the century this was less likely and
the central government was drawn in. By an act of parliament, an undertaking
was permitted to lay mains and supply gas and water. Exclusive franchises were
never awarded but whoever was first in the field clearly had some advantages.
In recognition of this parliament imposed ceilings on tariffs, in line with previ-
ous practice for canals.
That was the limit of government involvement in the early days of the nine-
teenth century. The consumer interest was to be protected by the encourage-
ment of competition. For example, in the first decade of the century in London,
there were three water companies but, as the Select Committee on the
Supply of Water to the Metropolis reported, subsequently the ‘East London,
West Middlesex and Grand Junction Company were formed under . . . several
Acts of Parliament . . . The principle of the Acts under which these companies
were instituted was to encourage competition.’
16
By the middle of the century,
however, London was fairly well ‘districted’ by the water and gas companies,
The political economy of urban utilities
14
As quoted in Clapham, Economic History, pp. , .
15
J. F. Wilson, S. Sheard and R. Millward, ‘Trends in local authority loan expenditure in England
and Wales, –’, University of Manchester Working Papers in Economic and Social History,
().
16
Select Committee on the Supply of Water to the Metropolis, Report, May ().
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whilst in the provinces it was unusual for there to be more than one company
serving a town.
Thus the mid-century stance of government was broadly determined by its
interest in ‘property’. It was this rather than planning which determined the
route system for railways and the form of the controls on gas and water. The
latter took basically two forms. First was the control on prices and dividends. It
seems doubtful, despite the claims of Chatterton and Matthews, that there was
any significant shift in parliament’s attitude in the middle of the century.
17
There
were certainly lots of complaints about services and many were authoritative.
The Chadwick Report, the two reports of the Commissioners on the State
of Large Towns in and and the report in of the Surveying
Officers, Arthur Johnes and Samuel Clegg, contained blistering critiques of the
market structure of these industries.
18
Moreover the Gasworks and
Waterworks Clauses Act spelled out maximum prices and a per cent limit on
dividends. However, this was very much a tidying up operation setting out what
should appear in the acts for individual towns and undertakings. The sheer
numbers of applications coming forward during the mid-century Victorian eco-
nomic boom are sufficient explanation. Again, the data are patchy for the early
years of the century but it seems that whilst there were only ten municipal cor-
porations in England and Wales operating their own water system in , there
were already sixty-seven joint stock companies.
19
In the next ten years the
number of municipal systems quadrupled and increased by a further per cent
in the subsequent ten years reaching sixty-one in by which time there were
joint stock water companies.
20
In any case the legislation, as is well docu-
mented, had no teeth. It only applied to new undertakings, there was no inspec-
torate, complaints had to be taken up at the Quarter Sessions and the gas
companies in particular were adept at ‘watering’ the capital base in various ways
to produce nominally lower rates of profit.
21
Meanwhile, the whole of the unfet-
tered gas sector was expanding at an astonishing rate. There were already
undertakings in Britain in and this figure rose to by . Some of the
increase represented an absorption of the small non-statutory companies but
Robert Millward
17
Chatterton, ‘State control of public utilities’; Matthews, ‘Laissez-faire’.
18
E. Chadwick, Report on the Sanitary Conditions of the Labouring Population of Great Britain: , ed.
M. W. Flinn (Edinburgh, ); Commissioners on the State of Large Towns and Populous
Districts, First Report , Second Report ; Johnes and Clegg, Observations or General Report on
the Existing System of Lighting Towns with Gas, by Messrs. Johnes and Clegg, Surveying Officers, PP
.
19
Falkus, ‘Development of municipal trading’; A. L. Dakyns, ‘The water supply of English towns
in ’, Manchester School, (), –.
20
H. Finer, Municipal Trading (London, ), p. .
21
See pp. – of R. Millward, ‘The emergence of gas and water monopolies in nineteenth-
century Britain: contested markets and public control’, in J. Foreman-Peck, ed., New Perspectives
on the Late Victorian Economy (Cambridge, ), pp. –.
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even their numbers have been estimated to have risen from in to
in .
22
The second arm of government control related to what we might call supply
conditions, which for water supply was probably even more important than the
structure of the market. Many of these matters are covered in a separate chapter
of this volume (see Chapter ) but for our purposes it is important to note that
the mid-century legislation was as fatally flawed as that related to tariffs. Whilst
there were safety and health issues associated with leaky gas mains, the main envi-
ronmental issue surrounded the cleanliness of the water supply and it was this
which was at the heart of the s health reports mentioned above. The
Public Health Act gave local authorities powers to facilitate an improvement in
the quality of supply but they were not mandatory. It was compulsory to estab-
lish a Local Board of Health only when mortality exceeded per ,; oth-
erwise it depended on whether at least per cent of ratepayers petitioned for
one. The Local Boards had enabling powers to secure adequate water supplies,
to erect free public cisterns and pumps and to establish their own waterworks
but none of this was mandatory and in the case of waterworks required the
agreement of the local water company. Progress towards clean water supplies at
constant high pressure was slow. Even the laws which specified that the compa-
nies should supply fire plugs were weak because they failed to specify the
minimum distance between the plugs. In the Royal Sanitary Commission
noted in its report that promoters of water bills were still being allowed to escape
the obligation to provide a constant high pressure supply.
23
As a result when local authorities and parliament were faced, from the late
s onwards, with the prospect of new utilities in tramways and then electric-
ity supply, the tide had swung towards including public interest clauses in the
legislation. Of course ‘property’ was still a strong vested interest and the secre-
tary of the Board of Trade felt that whilst local authorities were the best bodies
to construct and develop the tramlines, given their disruptive nature in Britain’s
winding narrow streets, the lines should be leased out to company operators.
The Tramways Act did limit local authorities in this way and the private
companies were actually allowed to build track as well as operate services and
without any ceiling on dividends. But the legislation did very clearly recognise
a public interest. Frontagers, the local road authority and the local council all
had rights to be consulted and their interests recognised in the process of parlia-
mentary approval. Maximum fares and workmen’s concessions were introduced
and local authorities could pass by-laws on speed and frequency. The revolution-
ary change was to grant powers to local authorities under the act to purchase the
The political economy of urban utilities
22
Table of R. Millward and R. Ward, ‘From private to public ownership of gas undertakings in
England and Wales, –: chronology, incidence and causes’, Business History, (),
–.
23
Royal Sanitary Commission, Report (London, ), p. .
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