The payment to shareholders was not just for the assets taken over at Nationalisation, but included an element to compensate for wartime use. The nationalised railway had to pay interest on this total sum which was a charge on profits. The problem being that the interest charge was way above what the railway could generate from the clapped out assets. It would have been fairer if the Government had made a separate compensation payment to the shareholders for the wartime use and paid for this directly. The new nationalised railway should have had an opening balance sheet with the taken over assets shown at a realistic value and the equity shown as public dividend capital, not as fixed interest bearing. I seem to recall that the likes of BOAC and BEA were structured this way.O
The railway's profitability had been sliding since the early 1950s. This was worrying for the Government as the dividend (of 3%) on the Government stock which had been issued to the shareholders of the Big 4 on their nationalisation was intended to be paid by the profits made by the British Transport Commission. By 1953 these profits had ceased to exist and the burden of these payments then fell on the taxpayer.
Had the modernisation plan spent the money sensibly, Beeching would be (un)remembered as a former senior manager in ICI.
Edit: added last clause to the final sentence of para. 4 for clarity.
It seems to be a common opinion that the modernisation plan didn't spend the money wisely as the losses went up. I don't really agree with this and would argue that the losses would have been even bigger had not the returns from the investment offset the effects of changes in society. Thus of the total investment how much was really wasted? Yes people can quote the Metrovicks and class 14's etc having short lives but these were a small proportion of the total fleet, with the main classes having long lives. Similarly of the large sums spent on resignalling, electrification, CWR etc what proportion was wasted?
I would suggest that BR's deteriorating finances in the 50's and 60's were as a result of changes in society such as television reducing leisure journeys, rapid increase in motor car ownership, the jet aeroplane, road freight deregulation etc. Full employment meant that BR's labour costs rose significantly-I believe pay rises averaged 3.5% above inflation per annum.