HC Deb 02 March 1925 vol 181 cc41-108

Order for Second Reading read.

Motion made, and Question proposed, "That the Bill be now read a Second time."—[Mr. Guinness.]


During the earlier stages of this Bill certain points were raised by my right hon. Friend the Member for Central Edinburgh (Mr. W. Graham) and, no doubt, before this Debate closes, we shall have a reply to the questions which he then raised, and which I wish to emphasise. This Bill is a form of legislation which, like the unemployment which it is intended to relieve, is becoming chronic. It is intended to facilitate the supply of capital. The idea behind it is that the State can facilitate the supply of capital, hasten its use and direct its employment in certain directions, but I think that we are all agreed that it does not in the long run make more capital available for industry. We accumulate in this country annually a total sum available for investment purposes. The savings last year were alleged to have been £223,000,000, but indeed it is very difficult to say what the total savings are. When you make allowance for the amount that goes automatically into business in the way of improved machinery, I do not suppose there is much more than £200,000,000 available for investment. This Bill does not increase that sum. What it does is to direct the industry into which some of those savings shall be put, and you hasten the use of the national savings by stimulating an earlier investment in industry.

But the productive industry of this country does not depend upon capital alone. Capital has an important function in the productive industries of this country. But to any form of production three elements are essential—capital, which we would like to have increased in order that it might be cheaper in price; labour, of which the supply, unfortunately, is only too adequate; and land. You do nothing by this Bill to render available larger supplies of land and raw materials. The third element in production, therefore, is not touched. If right hon. Gentlemen opposite are seriously anxious to increase the productive work of this country they must take account, not merely of capital, but of every other essential to productive work, the supply of land and raw materials available for use. We are by this Bill directing the industries in which capital shall be employed. The right hon. Member for Norwich (Mr. Hilton Young) put the point perfectly accurate, or at least put one side of it, when he said that this legislation reduces the cost of capital to certain industries. All that I wish the House to observe, in connection with that, is that there is a corollary to that statement, namely, that this legislation increases the cost of capital in other industries. If there is a definite supply of capital available, you cannot increase it to certain industries without decreasing it for other industries. Yet, in spite of that, I think a case can be made out for this Bill. I think it can be justified in that it secures a more productive use for capital.

That is one of the points which ought certainly to be inquired into, if legislation of this character is to become a permanent feature in administration. For instance, if you want to get the State directing the use of capital in more productive directions, you must be quite certain what are more productive directions. It might be more advisable to have the limited capital at our disposal invested in such works as great centralised electric power systems throughout the country. in transport, roads, ships, and even brickfields. Those are all forms of investment which make it easier to produce hereafter. Therefore, they have an ultimate effect beneficial to the whole industry of the country. But it is not merely that you might direct the use of capital into more productive channels. There is also the argument., used very formidably, I think, in favour of this legislation, that it hastens the use of capital, that whereas if no such legislation were passed, deposits in the banks would pile up until the rate of interest fell to such a level that speculation became profitable when the boom followed the slump—that whereas that piling up of deposits might take years to develop before the boom came, it is possible by this legislation to make that capital fructify at an earlier date. It is a problem that we have to consider. I am not certain whether this legislation definitely has that effect or not, but that is an argument that I have heard used in favour of it very often, and I think it is certainly one of the questions into which inquiry ought to be made. At any rate, at the present time we must say that this possibility of the earlier fructifying of capital is an argument in favour of legislation of this kind, and is one of the strongest arguments.

Let us cue quite clear about this, how ever. All this new action of the State is no cure for unemployment. It does not definitely make more work in the country. All that it does, even if this earlier fructifying of capital is a sound argument, is lo hasten employment at the expense of a possible boom in employment hereafter. In fact over a period of years there is no more employment and no more production, but at the moment there may be more employment and more production at the expense of a slackening down hereafter. In other words, this legislation amounts to no more than directed temporary inflation, and in so far as your unemployment is exceptionable, directed temporary inflation of this character may be a desirable method of getting round our difficulties. Again, I come back to this—that labour, the wealth producer, is still far off from the raw materials and is artificially prevented by our legislation from producing the goods that we want, and from creating that capital, the larger supply of which is desirable for the trade of the country. If there is anyone here, either the right hon. Member for Norwich or any other, who believes that this legislation will reduce unemployment by making fresh work which otherwise would not be provided, let us make it quite clear that if that were true we ought to be providing, not £70,000,000 but £700,000,000, in order to carry through that good work. But I think that all people who have studied the finance of this question must realise that it is merely anticipating employment which would otherwise take place further on.

I want the House to look for one moment at this question from the Socialist point of view. It is to that point of view that we on this side of the House have to pay special attention. If we look at this new development from that point of view, the first thing that we want to make quite clear is that the security for the State must be assured in every one of these cases. The State is taking on banking and the work of the financier, as was mentioned the other day. The State is taking on, for the first- time, banking and the financing of industry. If that is so, we on these benches desire that the State shall make a success of it. We do not want to have bad Socialism; we want good, sound Socialism. We are not content to take on the financing of banks' cast-offs. Every loss incurred under this scheme will he used as an argument against collective control of industry. Over and over again schemes like this have been brought forward by hon. Members opposite for extending the powers of the State. They 4.0 P.M. are advocating these things, but every time one of these schemes goes wrong they always turn round and say, "Ah, see the result of your Socialism." There was a typical case in Glasgow the other day. The Glasgow Town Council bought a brickfield in order to meet the urgent. need for bricks in Glasgow. The Committee. which decided on the purchase, had on is my right hon. Friend the Member for Shettleston (Mr. Wheatley) and four other gentlemen who in opinion were opposed to him. After some time it was found that the brickfield did not pay, and the idea had to be given up and the property sold. Immediately, everybody turned round on that solitary member of the Committee and said, "You are responsible; this is an example of what you would lead us into." We do not want this sort of unfair charge brought against us for any failures which may take place under this scheme. Therefore, we say, if you are going in for Socialist financing, then let it be sound. I know that very few losses, if any, have taken place up to now. I think there was one solitary loss of £4,000. But you cannot judge whether a scheme is sound over a few years. Most of the risks will not be incurred for many years hence. It is a question really similar to the risks run by underwriters. The risks do not mature for many years after the actual underwriting has taken place, and we cannot be certain for years hence whether the return of the capital will, as we hope, be made.

You cannot judge from the working of the scheme up till now, and I do think that any inquiry ought to make quite certain, first and foremost, that this financing is on sound lines, that we arc not taking on unnecessary risks, that the State is not liable to be mulcted for heavy damages for what it has underwritten, and, above all, that this Socialist experiment shall not be damned by wild-cat finance. I do not think that there is much likelihood of wild-cat finance with the Treasury officials, but they would be in a better position to resist some of these claims made upon them if they had behind them the Report of a Committee of Inquiry directed towards ensuring that such finance as is undertaken shall be on thoroughly sound lines. But if this legislation has come to stay an inquiry on many other points has got to be undertaken. The right hon. Member for Norwich put what we all feel about it when he said that this is a very experimental region of legislation and administration. It is a new departure which may grow to enormous dimensions. This was what brought my right hon Friend the Member for Central Edinburgh to his feet the other day. My right hon. Friend, when he asks a question, does not ask it without sound knowledge of the problem concerned, and he does not speak from these benches without authority. He put these questions, and I was indeed very sorry, when the Financial Secretary to the Treasury came to reply later on, that he made no reference whatever to the very pertinent questions that had been put to him. Really, before this Debate closes, we must have a definite statement from him as to whether he is prepared to meet these very reasonable questions and this very reasonable request for an inquiry into the methods employed under this series of Bills.

The point put by my right hon. Friend was that we should have part of the assets which we helped to create: that is to say. that the public should have part. of the assets which the public helps to create. At the present moment you are conferring public benefits upon selected private persons. There is no getting away from it. They are enabled to get money at a lower rate of interest than they would otherwise be able to do. Beyond that, you are imposing upon the community as a whole a contingent liability for the benefit of some. This cannot go on indefinitely. We passed a lot of temporary, wild legislation during the years of the War and after, but, if we are going to make this part of our normal legislation and administration, we have got to stop that sort of thing. In the past, public control has always gone with grants of public money. Moreover, if only to avoid injustice, the State should secure the best terms possible in the case of each applicant. Otherwise, you will undoubtedly sooner or later get charges of favouritism. It may be that these charges will be absolutely unfounded, but in the interests of the Civil Service and of the Committee 1 ask that there shall be no possible ground for favouritism by putting the State into a position to make the best terms possible in each case. We have seen quite recently how, in Germany. finance has got mixed up with big business, and you have these terrible Barmat scandals going on. The inquiry we desire would be one that would prevent any such scandal going on by preventing the State from being able to put money into private pockets and by seeing that the State makes good business of all the financial transactions into which it goes.

The following are the points which I think ought to be inquired into. First, of all, security. I have dealt with that, and 1 shall have a word or two further to say on it later on. Then, the direction in which capital should be deflected. It should be in the direction of works that will facilitate further production rather than in the direction of works which merely provide an article of general use. I think my hon. Friends behind me will be prepared to say that when you are directing the investment of capital it is desirable that that capital should be directed towards investment in those particular forms of production where at the present time you have rings and combines and monopolies existing. The investment of capital, indeed, might be directed towards breaking by competition those rings which are at present injurious. Take, for instance, the Light Castings ring. If we are going to get our houses built more cheaply. the Light Castings ring is one which we should be able to deal with by directing a fresh investment of money in that quarter. The same thing applies to brickfields. I see that there has been a certain amount of money invested in new brickfields, for the sound reason that by increasing competition you break the ring and the power of the existing monopoly. I am not at all certain that inquiry in that direction would not open up a very fruit. ful field of investment which would benefit, not only the workers in that trade, but the community as a, whole by bringing down the price of the monopolised article.

At the present time you have this money being invested, roughly speaking, in a few definite ways. In the first place, local authorities, which, if there be any cheap money going, ought to get the the first call, get very little. The reason for that is perfectly obvious. Of course, the local authorities are themselves able to borrow, through the local loans, at a very reasonable rate. Still, I ask the House to observe that when a local authority goes to the Local Loans Commissioners for money, they have to pay a higher rate of interest than they would have to pay if they were getting money under the Trade Facilities Act. A slightly higher rate of interest is required. Therefore, the question to which I am coming-later on of a consolidated loan for trade facilities bears upon that point. The bulk of the credits under this scheme go to what are called public utility companies. A public utility company in many ways is in direct competition with the municipality and local authority. A public utility company is putting up gasworks or an electricity power station, or works of that nature, which are sometimes undertaken by a local authority and sometimes by a private concern. I do not think it is right that a public utility company in competition with the public authority should get money at a lower rate of interest than the public authority can get it to-day. I quite agree that this is a productive form of enterprise which should be encouraged. But I think we ought to see that they do not get their money at a lower rate of interest than the public authority and are not able, therefore, to undercut them in their efforts to supply the public need.

Moreover, I think it is a subject for inquiry as to whether, when money is lent to a public utility society, we ought not to insist on having a clause in the charter of that public utility society enabling the public to acquire the business after a period of years on better terms than the public could otherwise obtain it. We all know how often a local authority has to take over some of these public utility societies, and very often has to pay a very excessive price for a very old concern. If these societies, which have these gas and electricity works, are going to get cheap money from the State, we have a right to demand that they should have a clause in their charter limiting the amount of compensation that has to be paid when they are acquired by the community. With public utility companies, I would also class co-operative societies. I notice that up to the present there have been no advances made either to the Wholesale Co-operative Society or to any co-operative society.


Have they applied?


They are at present borrowing at 5 or 5½ per cent. I hope, if any co-operative society, or the Wholesale Co-operative Society, desire any extension of factories or any extension involving capital expenditure, that they will be in at least as good a position as any private concern to get advances under this Trade Facilities Act. Seeing that they are of the nature of non-capitalist concerns and of anti-trust concerns, we want to see that they get at least as fair a deal and as good an opportunity as any other concern in the country. Then we come to the question of the small men. A number of hon. Members have got up and urged that facilities should he given to small men to acquire advances under this Act. I have gone carefully through the whole of the list, and I find only five credits under£10,000 each, and one of these, by the way, has gone bankrupt. But, although only five grants have been made, I should think that for every one of them there must have been at least 200 applicants from small men for credits. I am bound to say I do not think it practicable to apply this scheme to small men. The difficulty is that they cannot offer the same security as the established firms. Most of these, small firms are one-man concerns depending upon an individual. His life, his health form part of the security, which makes it much more difficult to be quite satisfied that the security is adequate. Not only so, but the costs of an inquiry into a loan of £100 or £200 are nearly as great as those of an inquiry into the grant of a credit of £100,000.

I would, assuredly, like to see some scheme which would provide credit for the village blacksmith to get an oxyacetylene welding plant fitted up or enable the village carpenter to get labour-saving appliances for his work, but I do not think you can do so under this machinery. That is one of the questions which should be gone into most carefully by this inquiry—to see whether it is practicable to help the small man on economical lines and, at the same time, ensure adequate security for the guarantee. There is one other difficulty in connection with the small man. When you are supporting the small man, the risks of favouritism are infinitely greater than they would be in the case of big concerns. You have more competitors and more people jealous of the one man who gets the credit. Further, if there is any risk of financial instability, and if a State credit is involved in a small firm, how easy would it be to secure the stability of that firm by placing a Government contract in its direction? A boot factory, a printing works, any small concern with £10,000 capital can be made or broken by the granting or withholding of Government contracts. All that is required is for the Treasury to ring up the Stationery Office and say, "If you are placing an order. remember we have a lot- of public money-in such and such a company." These are all difficulties which occur throughout the scheme, but occur more particularly in the case of the small concerns, and they all want watching.

Now I come to a direction which has recently been taken by the Committee and which does seem to offer fruitful possibilities. Recently £2,000,000 has gone to a company in Greece for the development of electric power and transport; another £2,000,000 has, if I remember aright, gone to Poland for a company there for the development of electric power and transport, and a sum of £1,500,000 has gone to Lithuania for the Government railways there. At first I said to myself, "Why on earth are we putting our credit and our cheap money at the use of these foreigners? The risks are greater and the people who benefit are not our people." I am bound to say on going into the matter more carefully, I am not quite certain that this is not rather a good line, pro vided you consider certain recommendations which I shall make hereafter. if we get British capital and machinery into a place like Athens for traction purposes. it means that all repairs, all developments hereafter, all power station extensions, all extra units, all the work in tic future, has also to come from England. You get your foot in. It is not only an advertisement, but a perpetual goodwill for that form of English manufacture. I am not at all certain that the establishment of the goodwill and the advertisement are not worth the contribution or some part of the contribution which we make. Once you get English capital developing any particular form of public utility in foreign lands, you have the possibilities of a big development for British manufactures in the future in that place. Therefore I have come round to the view that there is something to be said for this sum, amounting approximately to £6,000,000, which we have begun to guarantee for work in those countries.

I have dealt with security and with the direction of capital and I come to another point. I find that nearly half the credit given by this series of Acts has not gone in the form of loans to be floated to the public but has gone in the shape of guaranteeing bank overdrafts. That may be a cheaper way of raising money hut it has this enormous disadvantage, that the bank which secures the guarantee for its overdraft is in a particularly favoured position. This is banking on velvet. I understand they charge for the overdraft more than the guarantee given them by the State, so that they are making the difference a clear profit. There might be arguments in favour of that course, but I do not know what they are. I should certainly say the bank that is guaranteeing an overdraft of £1,500,000 or £2,000,000 for private firms on British Government credit is doing uncommonly good business. We might inquire into that matter and see whether we ought not to avoid any form of guarantee of bank overdrafts. That leads me to the next point. The third thing which should be inquired into by the Committee is whether we should not have a consolidated loan, a trade facilities loan, similar in character to the local loan, rather than have the series of expensive little flotations which we have recently. Only a week ago we had three—the Stanton Iron Works, North-British. Aluminum; and some other. Each one cost a good deal of money in advertising and underwriting, and these three flotations happened to come together at a bad time. They were floated without any consultation, without any co-ordination, and the result was that the bulk of the stuff was left on the hands of the underwriters. That is a very expensive way of raising money. Surely it would be much better if we raised, say, £10,000,000 a year at the best time for the money market. It would be a much more marketable security, and you would be able to float either at a higher price or a lower rate of interest, and the cost of the flotation would be less. If this kind of legislation has come to stay we shall be driven to do it in that way.

Even supposing we do it in that way, I wish to look a little further. Supposing we raise money at 4¼ per cent.—it might be done on those terms if the loan is placed at the right time—surely we ought then to establish a rate of interest to the various borrowers and the various people who obtain credit. We ought to obtain the best possible rate of interest, or, at any rate, we ought to make an insurance fund against bad debts—an extra half per cent. to cover the cost, to cover insurance, and possibly a higher charge for those foreign corporations which I mentioned just now. Take, for example, the £12,000,000 for the electrical power undertaking in Greece. If it had not been for this scheme, that electrical power undertaking in Athens could not have gone forward at all. They could not then have got the money at any price. They got it at 4½ per cent., and they would have been perfectly willing in my belief to pay 7 per cent., and would have gone on with the scheme just in the same way. The same applies to the Lithuanian Government railways. You cannot borrow money at 4½ per cent. if you are a Lithuanian, not even if you are the Lithuanian Government. Put the British Government in the position of getting the best terms or, at least, of being able to get sufficient to allow of an insurance fund being formed. In that way we should be getting a share in the assets we create, or else the best terms available in the way of interest.

If the House thinks it would not be practicable to charge a varying rate of interest according to the customer, say, a half per cent. to public utility societies, 2 per cent. to small men, and 3 per cent. extra to the foreign corporation, then surely there are other ways in which the State could participate in the assets created. It might have deferred shares, or ordinary shares. These foreign corporations would be only too glaze to let us have ordinary shares if they knew that otherwise they could not get the loan. We might have some system whereby the rate of interest would increase if the dividends on the ordinary shares exceeded a certain level, and the interest on our credit would go up as the company became more prosperous. All these things should have been thought out when the scheme was first brought into force-. Now that it has become an annual concern, it is certainly high time that such questions should be inquired into. We can either get a higher rate of interest or a participating interest or share or an option on shares. All these are possible methods to get back to the public some of the assets, which the public is creating by a Measure such as this.

I pass to the question of directorship. There the British Government have invested money in the past, they have insisted on having nominated directors to look after their interests as in British Dyestuffs,:1nglo-Persian Oil, and so forth. You have often directors with a controlling voice in the management on behalf of the British Government. I am not certain that we should not consider the advisability of having directors on the boards of companies, who are assisted in this way. There is Harland and Wolff, for instance, receiving a credit of £2,000,000 and no British Government representative on the directorate. There is the company in Athens, and the company in Poland, and the Sudan Plantation Company, with no Government representatives on the directorate. I do riot think it is a matter to be decided without very careful inquiry. There have been cases of credits given under this scheme where, directors have been appointed. I think it has generally been done in the case of the smaller schemes, but. before we con- sider whether it is advisable or not, we have to consider what the functions these directors should be. Are they to be on the Board merely for security, or to protect in some way the interests of the consumer and the wage-earner. Is it to be their function to keep down prices and to prevent rings and monopolies, or are they to act as ordinary directors? These points have to be considered before we make up our minds that we will not give British credit without putting somebody on the Board to look after the interests, not of the British investor, but of the British public as a whole. The difficulty in regard to directors is to know where to get them. At the present time we usually have ex-Treasury men who can be trusted to carry out the Treasury tradition, but the supply is not by any means inexhaustible, and I am not at all certain that the Committee ought to be able to nominate directors without guidance from the report of an inquiry. There again. favouritism comes in. There are few things one likes more than a directorship. A sum of £200 or £500 per year is not to be sneezed at if you arc an ex-civil servant or anything else. We want guidance in these matters, and we cannot get guidance without inquiry. Moreover it is not fair to leave questions of this importance to unguided officials, however excellent.

Let me sum up. We ask for an inquiry. first, into the sort of work that should be instigated by the guarantee of public credit and as to whether it is to be productive or not secondly, how best to secure security; thirdly, the question of insurance funds, whether we ought not to have an insurance fund built up as a reserve for eventualities and for reinvestment, as an ordinary bank does today; fourthly, the question of a unified loan as against these expensive small flotations; next, whether the rate of interest charged for the credit should be fixed or variable according to the customer; whether we should secure reversionary rights or shares; whether we should appoint directors, in every case or in certain cases; how we can get over the difficulty of giving credits to small men: whether we should go on with this prim ciple of guaranteeing the overdrafts of certain people with certain banks; and, above all, what we want all these inquiries to lead up to is how the State can reap the advantage of the credit it gives. We, on these benches, are not prepared to go on endowing private enterprise with public credit without securing the benefit to the public and the State.


I do not want to strike a discordant note in the general praise that has been given to this Measure, but the word "annual" fell from the last speaker, and when I hear that there is a possibility of this becoming an annual Bill, to be increased probably year by year, I venture to say a few words to the House. When this Bill was introduced, it was meant Primarily to be an attempt to decrease unemployment, and no one naturally can object to that. At the same time, it was intimated that after the War, when certain companies and firms might have had their resources depleted by the War, this also would directly help them. Now, after several years, this Measure has not sensibly decreased unemployment., and I believe it has had a tendency, and a growing tendency, not really to improve the resources of the big corporations and other companies and firms in the country which did maintain their resources by prudence. I think that in many ways this legislation is being used to encourage new people to compete with the older concerns, new people who have neither knowledge nor experience of these trades, and I think these new people, with very little to lose. will do a good deal of harm to the existing trade of the country.

I was much struck by several of the remarks made by the right hon. Gentleman for Newcastle-under-Lyme (Colonel Wedgwood), with which I was in complete agreement. I think it is possible that there might he some charge in the terms towards insurance, so that certain losses incurred on some of the loans might be covered. I think also he was justified in suggesting that, if many loans, each of a comparatively small amount, are to he made, they should be made under one heading. The expense of issuing would be less, and, at the same time, they would become a much more negotiable security, and they would be more acceptable to banks and to ordinary holders. Anyone knows that, if there is a small, gilt-edged loan of.£1,000,000 on the market, it is very unnegotiable, that you have to look for a buyer, and that the bigger the loan the easier it is to sell or to buy. Several remarks have fallen in this House in criticism of the banks and the bankers, by which I presume is meant the big banks of deposit, the banks receiving deposits and lending part of that money to other concerns. I think it is obvious that the men who have been in that business all their lives, or for generations, must know best what are the terms to help and what is the credit of each individual concerned. They can lend only a proportion of their deposits, and to that extent they are limited in the amount they can advance, but they are the best judges, certainly in small concerns, and when it is suggested that the present Committee, of three, I think, should adjudicate on small loans, I do not think those who make the suggestion are quite aware of the difficulties.

The big banks, and, in fact, the smaller joint stock banks, have probably 7,000 or 8,000 branches throughout the country, and the branch managers or the clerks know the credit of most of the small people in their districts. They know the credit, they advise the head office, and the head office then are able to make small loans. 1 t is inconceivable that three men, however good, three just men with great experience, or ten times three just men, could possibly adjudicate on the many loans that are presented, especially when small loans are to be made, and in addition to that I feel that immense pressure would be brought from all quarters on this Committee to make these loans. I can conceive of 600 Members of this House presenting some hundreds of representations to the Committee for small customers, and the Committee themselves being swamped with applications. I think the matter of small loans must be left where it is, in the hands of the banks, and not put in the hands of this Committee.

I notice one criticism that is frequently made in this House, and made as lately as last week by the hon. Member for East Newcastle-on-Tyne (Mr. Connolly), in which he said that this small Committee, the Treasury Committee, was composed, and had been composed, entirely of bankers. I think we should correct that, because, as far as I know, this small committee has no bankers on it, and has never had any bankers on it. Although we have heard that repeated often, I do not know what the general public understands by bankers, but there has never been a banker, or a director of a big deposit bank, on this Committee at all, and, therefore, this Committee has complete independence of the bankers. I should like to refer to a remark that was made by the right hon. Member for Norwich (Mr. Hilton Young). He himself knows probably more about the birth of this legislation than anyone, and he stated that there were two essentials in the Act when it was begun, and that those essentials stood to-day. He said: The first is not to bolster up with its assistance an industry which is unable, without assistance, to live against competition from other parts of the world because its costs of production are too high. It is no good doing that by State action. An industry which is in that unfortunate position has to find its own level."—(OFFICIAL REPORT. 24th February, 1925; 1798. Vol. 180.] I think we are all agreed on that, and on that point I would refer to the shipping industry, by which I mean the ship-owning industry to-day. The ship-owning industry is quite able to manage its own affairs if it is left to itself. The shipping industry is suffering from competition from foreigners, who are helped by their low rates and by the exchanges, and yet we are able to put up a fight against them. In addition, the ship owners are faced by competition from Government-owned fleets, and the first I might refer to is the American Government Mercantile Marine. All praise is due to the Americans for having started it, as they did it in the War in order to help the general cause. They built a great many ships, and it is a pity that they have not sunk many of them long ago. They also built other quite serviceable ships, but since the War I doubt if they have lost much less than 500,000,000 dollars, and I think the loss is much in excess of that figure. We pay all due credit to them, because they built their fleet to help themselves and their Allies, but I am sure that, if they would admit it, they must really regret the day when they decided to continue to operate and own those ships.

We have, again, the competition from Australia, and the Australian competition is largely a post-War competition.

The Commonwealth wrote off, in 1923, £8,000,000 for depreciation and loss, and in trading in 1921–22 the loss was £1,000,000, while in 1922–23, in trading, the lose was £1,500,000. That is the small total of about £11,000,000 loss. That is a serious competition which we have had to face, and five of their principal ships, costing £5,000,000, were built after the War. Now, I understand, they are tired of the business and are getting out of it. There is another Dominion that has been in the business, and that is the Canadian Government. Most of their ships were built after the War, and their own Prime Minister, whom, I presume, we may quote, said recently: The capital expenditure of over 70 million dollars on the construction of the 6-5 ships of the, Government Mercantile Marine, upon which the construction, except in two instances. was commenced after the war ended, was as wilful a waste of public money as any Government of this or any other country was ever guilty of. Those are in competition with the English shipowners, and it is worse than that, because the Dominions and the foreign Governments are entitled to do an they like. We find one of the gentlemen on the Trade Facilities list making a speech, on the 31st December last, in which he referred to the difficulties of carrying on shipping, and said to his shareholders and to the public: I am not in a position to disclose what the business is. except that it will materialise within the next few months, and I hope that. in the early Spring, we will he able to see our ships sailing under very much more prosperous conditions than at present prevail—conditions such as most shipping companies are subjected to, dependent. as they are, on the existing low freights. I think I may say that we may be in a much better position, and independent of the general freight market. I have gone so far that I am afraid I cannot go any further, except to say that that is not exactly a prophecy, but almost an accomplished fact. Almost on the same day, it was announced that, on account of the high freights, the Canadian Government was about to give a subsidy of £250,000 per annum, and it was further announced that this gentleman, Sir William Petersen, was to have 10 ships built for him, of which 50 per cent. of the cost would be borne by the Trade Facilities Act. This gentleman himself has said that the freights now existing arc very low, and that he hopes shortly to be in a position of being in- dependent of the general freight market. Now, I ask, is it fair to use the British Government guarantee to help a new, possibly a very good, company to arise in competition with the older concerns which have not sought help from the Trade Facilities Act, which have had a very difficult time, which are, as it is known, trading at a loss in many cases, and especially in this particular service? Is it in accord with what the right hon. Member for Norwich said,, that these guarantees fulfil the first essential of which he spoke? There is a second essential of which he also spoke: The second consideration in the mind of the Advisory Committee in order to carry out the bed-rock principles of the scheme, has always been regarded as this, that they should not waste the asset of public credit which it has to use by giving assistance to undertakings which are in good credit, and which ate perfectly well able to raise the money which they require without any State guarantee at all. That is the second essential."—[OFFICIAL REPORT, 24th February, 1925; cols. 1796–7. Vol. 180.] I would like to ask the Financial Secretary to the Treasury whether the right hon. Member for Norwich was correct in saying that that essential stood to-day. Does ho mean that any company which has carefully husbanded its resources, and which has good credit, must go out and borrow at 5½ or 6 per cent., while a. less known or a new or unknown company is to borrow at 4½ per cent. with the Government guarantee I If the answer is that the same support will be given to the established companies as to the new, weak companies, then I suggest we should make that known far and wide, because that is evidently not known to the right hon. Member for Norwich. I think that would be very useful towards clearing the mind of the public on this subject.

I should like to make a few remarks on what the late Financial Secretary said the other day. I believe I have the honour to agree with him in most things, but in one or two things he said that day I am not in entire agreement. He referred to the fact that it might be advisable to have deferred shares in a company, or to appoint directors. I hope that no Government will ever have deferred shares or direct interest in these companies. If the public knows there are Government directors on the board, that the Government have deferred shares or other interest in a company, the credit of that company will, probably, at first be increased, especially in the minds of the unknowing public. Personally, if I thought the Government were appointing directors who had interest in the shares, I should be much more inclined to sell any interest I had in that company. It is quite true that in the few companies in which past Governments have been interested, such as the Suez Canal, we have nominated a certain number of directors. I am not sure even in that connection it has been of much use to the British Government, because I fancy the French Government have been very careful to keep control, and, in some cases, to speak in French, which is not always understood, even by Government directors.

At the same time, if you are going to appoint directors to these numerous companies, to which we have guaranteed loans, it will be extremely difficult to find suitable men. You will find any number of guinea pigs, any number of people who will want salaries, and who, will go about very proud of themselves as Government directors, but I think you will also find that these positions will be looked upon as fine plums to get from the Government. There will be all sorts of inducements to jobbery in the appointments, and when the Government have appointed men, as I know in the past, it has been considered almost' an outrage, a robbery, if the Government get rid of a man because he is not suitable, or because they have some other men they want to put in. I think you will raise endless difficulties. You will not get the best men, and you will find them put in the corner and left there by the directors who understand the business. They will be passengers on the coach, and will not be of the slightest use, while, at the same time, the Government will be, in a certain degree, morally responsible for overlooking that concern.

On that basis, I venture to disagree with the previous Financial Secretary. I quite understand that a part of the Opposition are anxious that trade, industry and banking business should be in Government hands. I believe the majority of this House, as it is constituted to-day, are not in favour of such a method. I see a great deal of danger in the process of the Government dry-nursing weak companies. I would leave the Government to do the Government business. I would not distract their attention by having to think whom they may appoint as suitable directors in these various companies. I would ask them, so far as possible, to leave the trade, industry and banking of the country to the people who are brought up in it. I see no reason to foster the weaker brethren at the expense of their more prudent brothers, though I would wish to strain every nerve-to decrease unemployment. I will, in reference to this Canadian question, give one instance which came to my knowledge only a fortnight ago. The moment it was proposed in the Canadian Parliament to give a subsidy of £250,000 a year, and our Gov-eminent was to give £600,001 advance to the gentlemen who were to build these ships for the Canadian Government, one company with which I am intimately acquainted at once cancelled an order for £1,250,000, which was going straight into a shipping yard. Although I shall not vote against the Second Reading of this Bill, I hope that one year, or two years, hence we shall not hear its extension asked for again.


The speech to which we have just listened does credit, if I may say so, to the City, which sends the hon. Member here, and to the prudence which has established him in the reputation of his fellow financiers of the City. He has dealt with this subject from a business point of view, and with a great knowledge of the difficulties which must arise whenever the State undertakes what is, in effect, a banking business. The right hon. Gentleman the Financial Secretary to the Treasury and his predecessor, when we discussed the Resolution in Committee, agreed with each other that no better means had been found for dealing with the present needs of the unemployed than the machinery of this Act, which we are now asked to extend, and the author of the Act, the right hon. Gentleman the Member for Norwich (Mr. Hilton Young), was also loud in his praise of the method in which temporary alleviation has been given to the unemployed in many quarters. But the difficulties which were at once created by these temporary alleviations have been brought out by the hon. Gentleman who has just sat down, and are well within the knowledge of a large number of us who spend our time in commercial and industrial undertakings. The position of the Government. is a very difficult one. It is almost impossible for them to deal with advances running up to these gigantic sums through their own officials or without exterior advice. The Committee, which now advises the Government, consists of three men of undoubted probity and good sense. Their characters are beyond reproach, and their judgment in their own business is unrivalled. But they are asked to undertake work which could not be done by any other three men in the country, and cannot be done efficiently by them themselves. The task is far too great.

The case of the small men was urged on the Committee by the right hon. Member for Norwich, and he pressed for a reply from the Financial Secretary to the Treasury as to the facilities which could be extended to the smaller concerns, but I am quite sure that the Financial Secretary had in mind the difficulties which immediately arise, and did not wish to describe them to the House. As he was rather slow in doing so, perhaps he will allow me to add to some of the information given by the last speaker, and to point out to the House how difficult would be the position of the Treasury if it had to deal, not with the scores of cases which come before it now, but with the thousands which would come before it. Undoubtedly, the. small men all over the country who require a little capital for the extension of their business, if they knew that money was to be provided by the Treasury, would be sending in their applications. No questionnaires would be too forbidding to keep them out. Their friends in the House of Commons would find it necessary, in the interests of their political position, to ask for due consideration, and no more, to be given to their small concerns, and that due consideration—and no more—would absorb the time, not of three, or 30, but of 300 gentlemen, all of them highly skilled in banking business, if it was to be done without supporting doubtful concerns, and jeopardising the national credit.

At one time there were some of us who regretted the disappearance of the old private banks, and their absorption by the large joint stock concerns. There is no doubt that the tendency of our time to conduct commercial and industrial concerns on a very large scale, has rendered it necessary for the reserves of the small banks to be drawn together, but the dying out, or absorption, of the small private bank has had its effect in regard to customers, who were just starting in business, and often had little or nothing to bring to the bank for advances to be made, except their character and known skill. The partners of the bank had grown up in the business, and everyone could keep an eye, not only on the industrial skill of the persons who wished to have advances, but knew something of the way in which they spent their leisure time. All these were matters of the greatest moment, and where a man of good character, who used his time to the best advantage, went to the private banker in old times, and asked for an advance, obviously the banker at first wanted to know what security could be brought. Often the reply was, "I have nothing to bring except my character and knowledge of the trade," and that was often taken as a good reason for a man being given assistance from the old private bank. Many a great concern to-day began in that way.

There was a danger, at one time, of the big joint stock banks being devoid of the local knowledge necessary to make advances on that basis. The big joint stock banks are doing their best to compromise in that matter, and have their managers planted all over the country, keeping them there as long as they can, and trying to accumulate the same private knowledge of the individual customer which used to be possessed by the old private partner. But how can a Government Department do that? If it is difficult for the joint stock hank, it is ten times more difficult for the Treasury. The Department of Overseas Trade cannot do it with regard to export credits, and lands the State in difficulties and losses from time to time. This scheme would also run the Government into interminable loss if it were to embark on the assistance of small and unknown men, who often require the most assistance, without all the knowledge which can be provided only through the elaborate organisation of the joint stock banks. The claim of my right hon. Friend and others to see the small men and small concerns included in this scheme. I believe to be impracticable. I agree with my right hon. Friend on the Front Opposition Bench that it cannot be done, as we are now told this scheme is devised to provide security with regard to larger concerns. That security varies from time to time in individual trades and in the case of the respective companies. I have looked through this long list of 5.0 P.M. advances and occasional advances have been made to a company to be formed. State assistance to a company being formed smacks of the phraseology of the South Sea bubble. A company "to be formed" appears in nearly every one of these periodic lists. It may be that they are thoroughly sound concerns, with big contracts behind them, but we had an instance given to us by a previous speaker this afternoon of a company which is to formed, with a contract not yet signed, with conditions which are not yet settled by the Government Department which has not yet got authority. Yet, £600,000 of our credit is to be put in the hands of a single gentleman under conditions such as these! There is not a single banker in the City of London worth his salt who would dare to invest his depositors' money under conditions such as this. I do not think it is possible for any one individual to know about the various companies which appear in the list. I have no doubt it is true that these companies which have received assistance under the Trade Facilities Act were not strong enough to obtain the necessary assistance from their own bankers, or not yet sufficiently strongly recommended to induce the public to embark upon the risk involved in the case of such an industrial concern.

The task of the Treasury has been rendered more difficult by the pressure of our time. Let me take a single instance. When hon. Members and Government officials—there were some of us with our individual knowledge—visited the great shipping centres, the Clyde, the Tyne, the Tees, and the Wear, the one thing that was most striking about these great centres was the silence of many of the shipyards. The task before the Government is a big one. How are they to provide work for these ship builders and engineers who are now without it? It is a great temptation to say: "Let us give more and more of the Government credit for the building of ships in advance of the requirements of the shipping trade." I think the phrase which must necessarily appear in any request made to the Treasury Committee is that "the money is to be used for the construction of vessels in advance of the company's programme." We have been doing that for some time. Vessels have been built in advance of the company's programme for some, years, and these vessels which have been built in advance are, in some instances, tied up to buoys, idle; and they cannot be traded.

One hon. Member above the Gangway the other day suggested that we would be doing a good thing if we destroyed some of the older vessels and replaced them with newer craft. I am afraid that that is not a practicable proposition. Vessels which sail under the British merchant flag are seaworthy vessels. Almost every one of them has been passed either by Lloyd's Register of Shipping, the British Corporation, or the Bureau Veritas. There are scarcely any vessels that are not passed by these three bodies. They are nearly all of the highest class. Every one of these vessels is not only seaworthy, but carries out its trading efficiently. Many go on trading long after they are 25 years of age. I myself sail nearly every year in a vessel which is 50 years old, and I feel perfectly safe. My hon. Friend above the Gangway need not be at all anxious about vessels which are 25 years or over if they are classed at Lloyd's. To destroy these older vessels in order to make way for the newer building is to give an artificial stimulus that will not increase the general volume, but will diminish the volume of national wealth.

It seems that the money we are taking under this Vote—it may not be this year, hut it has certainly been so in the last two or three years—is money which has been taken away from the great fund of national credit, without which British industry and commerce cannot be carried on and extended, and has been spent in the building of vessels which, in many instances, have been quite unnecessary. I would like to point out that the case may be criticised not only on these general grounds but on more particular grounds of considerable importance. In the new questionnaire, which has just been provided, I see the condition is laid down: "That none of this money is to be used for the completion of work already undertaken." When I run through the list on which grants have been made, I find many cases where hundreds of thousands of pounds have been given out of this fund for the completion of vessels which were lying un- completed; not only so, but some of them have been vessels building for the foreign mercantile marine. Take one very startling case, that of two vessels built by the Lloyd Sabaudo Company, of Italy, which runs on routes from which our own vessels are strictly excluded under Italian law. These vessels are financed under the Trade Facilities Act. The first vessel was half-completed when the first request was made through the Treasury for £600,000 for the completion of this vessel half-completed, quite neglecting the rule which appears in the questionnaire.

The second vessel was not laid down. She was a new contract, also for a foreign company, for the Lloyd Sabaudo Company, to be run in the trade across the Adriatic between Italy and North and South America. in this case these vessels were actually to be used to the exclusion of the Cunard and White Star lines, who run a regular service from Genoa and Naples up to the date of the recent decree. If this is to be the way in which our national ' credit is to be used we shall he giving employment for the completion of these vessels to a point, and we shall exactly at the same time be withdrawing employment from the seafaring classes who run our merchant fleet, and who are being cut out of the service in which they have long served. You will he withdrawing on the one hand what you have granted on the other.

It is a very obvious matter, which must be apparent to the Financial Secretary to the Treasury—he mast have often thought of it—that whether good or bad the security offered, that once the money is expended the service which it renders to the cause of unemployed by employment has conic to an end. Nay, it is even worse than that. I can speak on the authority of the most representative shipping authority in the country, the authority of the Chamber of Shipping—for they have looked into this matter from every point of view and they authorise me to say it on their behalf—they are opposed to the extension of the Trade Facilities Acts in any form to shipbuilding at the present time. They consider it will have no other influence upon British shipping than to decrease the employment of the men who are engaged in vessels already afloat by prolonging the present depression due to the surplusage of mercantile tonnage.

A list has been prepared by the Financial Secretary to the Treasury of the number of vessels which are laid up. I have taken the trouble to find out exactly how many British vessels are unemployed and generally the difficulties under which they labour. The figure is 781,000 tons. But that is not all. There is in the world laid up just now about 6,000,000 tons of shipping. Of that probably one-half, as the hon. Member for the City (Mr. E. C. Grenfell) pointed out. is under the American flag, built under war conditions. It is not fit for future use, and the sooner it is broken up the better. Outside of that there is something like 3,000,000 tons. That leaves sufficient shipping in the world still laid up. To add to the sum total of that laid-up shipping is, I think, to delay the recovery of the shipbuilding trade, for it must be apparent to anybody that the only permanent cure for unemployment in the shipping industry is to be found in the resumption of merchant shipping activity the wide world over. If the activity of shipping is restored, the wisdom and prudence of shipowners will soon be seen in the number of vessels they will order from British yards.

There is only one further point I should like to make before I leave this subject and it is this: As the. scheme works out at present it really floes from time to time seem to favour those who have no previous experience of the trades in which they wish to embark it does now very frequently give assistance to those who show no prudence at all. The only way trade depression can be met is by provision for it in times of prosperity. and those who have made no such provision in times of prosperity are those who are now applying to the Treasury for assistance. Indeed we penalise those who have shown the desire to make provision for some reserve in times of prosperity to meet times of depression. The newcomers have given no sign of an ability which they may or may not possess; but we certainly should not give to these concerns because they are now making application, for in times of prosperity they made no provision for the evil day.

The best way that we can devote the money, the capital expenditure to aid the unemployed—the best way I can suggest—is not under these facilities schemes, not by increasing, without due consideration, facilities which are already available in the general competitive trade: not by spending money on capital work and then receiving no further benefit for the unemployed, but by means of work of a more permanent character, as, for instance, in the increased facilities of our great ports and harbours. I commend, very strongly, to the Financial Secretary and to the attention, not only of his Department, but also to the Committee (:). Three, the improvement of the facilities in our ports. There is no way in which we can add more rapidly and more develop cheap carriage and freedom of import and export into this country than through the inducement given to large craft to use our ports in competition with those of other countries. We can do this by deepening our waterways, widening the quays, extending the warehouses, and giving greater railway facilities into these great centres of distribution. Money spent in these ways will be of permanent value to the country. I trust that the Treasury, after the discussion to-day, and the speeches of great importance which have been made on this matter by the right hon. Gentleman on the Front Bench, and the hon. Member the Member for the City, will give more careful consideration to the safeguards necessary where our national credit is concerned.


I do not want to trouble the House with another speech on this well-worn topic. After the criticisms which have been made, I think that the time has now arrived when we can get to the point. The right hon. Gentleman the Member for West Swansea (Mr. Runciman) has answered part of the case put by the right hon. Gentleman the Member for Newcastle-under-Lyme (Colonel Wedgwood) as to the difficulty under the scheme in dealing with small applications. As the right hon. Gentleman has said, the machinery is not well designed for that particular class of cases. We are not against them; but, as a matter of fact the machinery set up was set up as an emergency measure for unemployment. I am sure it will be impossible within the scope of the Trade Facilities machinery to deal on a large scale with this particular and difficult class of applications. We all recognise with pleasure the sympathy which a distinguished director of one of the- great banks has expressed for the small man, and the disadvantage under which he now suffers owing to the disappearance of so many of the small credit under-takings which existed in the past. The right hon. Gentleman criticised instances, which he finds in the record of guarantees offered, where it was stated that the companies were yet to be formed. I do not know how many cases there are, but certainly not more than two or three.


Two, I think.


They are very exceptional cases, and where facilities have been provided it has always been subject to the most stringent- safeguards and the must careful examination of the prospectus and the conditions of issue which may subsequently be put forward to the Committee by the company concerned. The right hon. Gentleman complained of a guarantee which had been given to an Italian firm, the Lloyd Sabaudo Company. He said this was a breach of the general' limitation under which no trade facilities guarantees are- given for work which has already been begun. But this is hardly a case which fell under that limitation, because the ships were abandoned, not a rivet had been driven for 18 months, and the Committee were satisfied that there was no prospect of that work being restarted without a guarantee. The right hon. Gentleman complained that this guarantee was given for the purpose of Italian emigrant traffic, and mentioned that that traffic was kept as a close preserve for Italian shipping. I suggest that is a very good reason for the decision of the Committee to recommend a guarantee, because that limitation ensured that there was not competition with any other British interest, and no other shipping company in this country could in any ways be damaged. The hon. Member for the City of London (Mr. E. C. Grenfell) mentioned another of these shipping cases, the guarantee which had been promised, under certain conditions, to a company to be floated by Sir William Petersen. That conditional undertaking has now been entirely withdrawn, and the Trade Facilities Committee wrote on the 16th February that they had learned that the Canadian Government, subject to the approval of the Dominion Parliament, had expressed their willingness to give an annual subsidy of approximately £250,000 to a British company to be formed under your auspices to run ships in competition with existing British lines in. the North Atlantic trade. This fact was not within the knowledge of the Committee when the application for a guarantee of £600,000 was made in January, 1924, and in the circumstances it must regard the new development as if it, were a fresh application to be considered on its merits. I am to add that if the effect of the subsidy being given would prove to be unfair and unreasonable to existing British interests, the Committee would not he likely to recommend the guarantee. The right hon. Gentleman who opened the' Debate this afternoon made some very interesting suggestions as to changes which ought to be made in the present system, but they were all based on the assumption that we were prepared to make the system permanent. He argued as if this was to be a method of socialising capital. He left entirely out of account that, in the view of the present Government at least, trade facilities were instituted, and are only now justified, to deal with unemployment., and that is why we, as did our predecessors, come to Parliament with proposals for only a temporary Measure.


Is the right. hon. Gentleman aware. that every Government has said exactly the same thing for four years, and done exactly the same? The right hon. Gentleman himself said that if this increase from £65,000,000 to £70,000,000 is not enough, the demand exceeded£70,000,000, they would be delighted to come before Parliament and ask for more.


I said, "If unemployment continued." That is what divides us.


Does the right hon. Gentleman hope it will continue?


The right hon. Gentleman can say that other Governments have said the same thing—the Government of which he was a Member said the same thing—and the only difference is that we mean it. We feel that, assuming the trade cycle recurs, it will be most mischievous to make this a permanent feature of our financial system. As the right hon. Gentleman suggested in his speech, there is no fresh industry being created. All you do is to hasten work which otherwise would not be clone until some years hence. If by having a permanent system we were to continue this anticipation, which we justify because we want to start employment in this time of urgency—if we continued that anticipation in times of booming trade, inevitably it would make unemployment much worse when the trade cycle had run full circle and another period of depression supervened. We want to keep this as a temporary Measure, because we believe we should only aggravate the difficulty of unemployment in the future if we allowed this system to go on.


Even a temporary Measure can be a sound one.


Exactly. We believe that within its limits this Measure is sound. The right hon. Gentleman wants to widen its scope enormously, and to use it as a means of setting up a great system of State banking on a permanent basis, to provide credit for certain selected industries and for certain fortunate applicants. That is a very different proposal from anything which is in the mind of the present Government. We feel that the scheme, within its limits, is doing useful work, but we do not want to extend it in the very wide, I may say the revolutionary, way which the right hon. Gentleman has suggested. He has criticised the scheme on the ground that certain selected interests are getting an advantage from the State at the expense of their neighbours. Of course, if that were so, it would certainly be true that the Committee were not doing their work efficiently. The State obviously must get a full return and adequate consideration for the advantage which it gives, but I suggest that it is getting that return and consideration by ensuring that work urgently needed now to employ workless men is done before its economic time, as a result of the slight advantage of the State guarantees which are given. That is the return, that is the consideration which we get; and if in addition to that we are to say that the State is to make a profit out of it, is to charge an extra l per cent., necessarily we are decreasing the amount of consideration which we can act in return for our facilities from those firms which otherwise would have been unable to find employment at this time.

The right hon. Gentleman suggested that dividends should be limited. There 1 agree with him. It is done already. It is a very usual feature of these guarantees to provide that when the standard dividend is reached any surplus shall be divided between the shareholders and the redemption of the guaranteed loan, and the only general exceptions to that system are the cases of public utility societies, and certain shipbuilding companies which, I am sorry to say, are now going through such difficult times that there is net a great likelihood of their reaching the state of paying the high dividends in which such conditions would operate. The right hon. Gentleman has asked us to set up an inquiry to cover a very wide field, a field which would involve the acceptance. of a policy which is far outside the scope of what this Bill was ever intended to tiring about.

The right hon. Gentleman seems to complain that this Bill does not provide credit facilities for local authorities. That. was not its function. Local authorities, if they want credit, go to the Public Works Loans Board, which offers credit at a, lower rate than the trade facilities guarantees would give. The Public Works Loans Board, I believe, at the present time allows borrowing at 4¾ per cent.; and for public utility cases, there is the alternative method offered by the Unemployment Grants Scheme, which works upon a rather different system and guarantees half the loan charges for certain terms of years. The right hon. Gentleman wanted the Government to widen this scheme by-bringing to an end the system of going to the public for separate loans, and, instead, issuing a unified stock. Already I am afraid the credit. demands on industry under this scheme will to some extent affect the terms of Government securities. I do not want. to pursue that metaphysical point any further, because we discussed it fully on a former occasion. We believe that unified stock would cut into the existing Government loans far more than the present issues made in driblets in a variety of forms to suit different tastes. In view of the fact that we have vast conversion operations to face in the near future, we certainly do not wish to give investors in Government securities a new Government loan which in its security and attraction would be indistinguishable from those existing forms of Government securities which they already possess. It is just for these reasons that not only this Government but also the Government of which the right hon. Gentleman opposite (Colonel Wedgwood) was a member opposed fresh borrowings, and called upon the community to make heavy sacrifices to bring about the reduction of our State liability.


This money has to be. raised somehow, and why not raise it in the most economical way?


The right hon. Gentleman wants to increase the scope of this Measure.?


Not a bit.


We believe that the existing machinery is less objectionable in its competition with Government loans than unified stock, and that is why we do not feel that there is a- case for a wide inquiry as has been suggested by the right hon. Gentleman or for the increase of the scope of this Measure so as to make it provide credit to a larger area of industry than is at present covered by this Measure. The right hon. Gentleman wants us to socialise our resources and let the State direct the flow of credit and of capital. I do not see under those conditions of the terms of reference how we could possibly satisfy both this side of the House and the right hon. Gentleman. We believe as far as possible it is undesirable to go on increasing guaranteed loans in competition with existing forms of State securities and to those who urge otherwise I am compelled to oppose the view that in trade facilities we possess no philosopher's stone which is capable of commuting their dreams without any further burden on our limited resources into gold. With their due limits, I believe the provision of trade facilities has proved a valuable agent in the alleviation of unemployment. The Committee estimate that no less than 100,000 men arc doing work in this country which would not. have been done here if it had not been for these trade facilities guarantees. I think that. is a very great achievement which justifies us in asking Parliament to renew this Bill framed on its present limited but well-tried machinery. I hope that we may this afternoon without any further delay give this Bill a Second Reading.


May I ask the right hon. Gentleman one question. The Lithuanian Government have been granted. a loan for 20 years: Poland Electric a loan for 20 years; and Greece Electric a loan for 20 years. Are these loans guaranteed as to Exchange?


Those are sterling loans.


I will undertake not to detain the House more than a minute or two, and many of us on this side would not have said more but for the fact that the Financial Secretary has not been able to hold out any promise at all of the kind of inquiry we have requested. I think it is due to the House, and certainly to those sitting on this side who have been critical of this scheme, that. such a request should be made. It is true that my right hon. Friend the Member for Newcastle-under-Lyme (Colonel Wedgwood) indicated a very much wider field of inquiry, all of which is quite appropriate, but I do not think the Financial Secretary has advanced any case for refusing an inquiry into the exact meaning of this scheme as it now stands. We drew attention to the fact that. under this extended Bill there would be a contingent liability for the people of this country of £70,000,000 under the head of trade facilities. Our suggestion was that the time had now arrived when, in view of the practical subsidies we were giving to important departments of private enterprise in this country, we should ask whether we were to have any right in the direction of the scheme or any part in the capital asset created. That was the request which we made.

What is the first ground put forward by the Financial Secretary for refusing that request? He says that this all along has been regarded as a temporary scheme. It. is true that, if we go back to the early discussions on this subject, we find that it was a temporary proposal to use our credit in order to encourage works of capital expenditure and so provide employment. We. agree that that was the general foundation of the scheme. That, however. does not appear to be a practical reply to this question at. all, because the real test lies in the length of time for which in fact we are giving this credit or guarantee. Many of these schemes were guaranteed for 5, 10, 15 or 20 years, and 1 believe there are schemes in which the period guaranteed goes as far as 50 years. So that, while originally this was a temporary proposal within rather narrow limits in order to help to provide employment, the fact is that for a very long time ahead in this country we have placed a contingent burden upon the masses of our people. No doubt that may be considered a very practical gain to important departments of State.

The Financial Secretary goes on to say that. the return which we shall get in anticipated work for that practical concession is a very valuable one. I am perfectly sure my right hon. Friend will agree on analysis that in regard to a very large number of the schemes embodied in this return many of them cannot be regarded as works of anticipation at all. Many of them were urgently required and overdue, and came forward to get the advantage of Trade Facilities in securing, easier terms in the open market. That is perfectly true of certain large guarantees given in the railway world. After all, there is no particular reason why the railway companies or the railway amalgamations should have deferred the carrying out of these works at all, because they got £51,000,000 under the Act of 1021 for the carrying out 'of all kinds of works, many of them in connection with capital expenditure. In the case of the tube extensions, from Trade Facilities they got guarantees and were able to raise a large sum of money upon comparatively easy terms. On this point I fail to see that what the right hon. Gentleman has stated is an adequate reply to our point. The only other question I am going to put is this. Is it not fair as a business proposition that we should have something to shown regard to these transactions over and above what I have just described, in the light of the very large financial concessions we are giving? We are all aware of the fact. that these guarantees do not involve the payment of any money. I rather regret the loose way in which terms are used when talking of grants from public funds. There are no grants from public funds, but there is a guarantee, and it is that with which we are concerned this afternoon.

Many schemes have been able to raise money in the open market on easier terms than they could have obtained in their business without guarantees of this kind, therefore it is our duty, as people burdened with a debt of £8,000,000,000, carefully to examine what we are doing. We are extending Trade Facilities and a contingent liability to the extent of £70,000,000. We have a contingent liability of £26,000,000 on the Exports Credits, and we have given a variety of direct subsidies. The actual amount is £5,000,000 for certain schemes of Colonial development. And so I might continue off-hand at this box to give figures which would possibly add up to more than £100,000,000 which either in contingent liability or actual liability we have placed at the disposal of the private enterprise of the time. This raises perhaps the question of public ownership and Socialism, and on that we know that this House is against us by a large majority. Supposing we exclude that controversy altogether and simply view this as a business proposition. Surely no hon. Member, whatever his politics, will argue that he should give his guarantee or subsidy without. some share in the management or the ownership of the concern created. I have not met anybody, least of all anyone from north of the Tweed, who is inclined to conduct business on such lines. I suggest that this is not sound business when we remember the great liability with which we are now struggling.

The Member for the City of London (Mr. E. C. Grenfell)—I want to thank him for many generous references he has made to me in regard to these matters—thought it would be very difficult to get the requisite directors, and that it would lead to a certain amount of nomination and other undesirable business influence. There is no doubt that if you have a mixture of State activity and private enterprise of this kind it will be difficult to get rid of the kind of criticism which the hon. Gentleman opposite has advanced. There is a great deal of ground for that contention and I do not in the least dispute it. Nomination is always difficult, and there are suggestions of favouritism and of the limitations under which nomination works. Still, my right hon. Friend and predecessor, the Member for Norwich (Mr. Hilton Young), did emphasise the argument that, when we are giving these guarantees, we must be sure that the concern is an efficient one, and it is going to be very difficult to satisfy ourselves that it is an efficient concern unless we have some means of getting inside. It was mainly on that account that I suggested that we should have some place in the management. I do not press that unduly, because it would only be a limited place, since we are giving merely a guarantee, but I do not think we should ignore the possibility altogether, and, accordingly, I retain that part of my case this afternoon.

The case, however, is very much stronger as regards sonic right in the capital assets, because We are to the extent of ½ per cent. or 1 per cent., or whatever it may be—it may be more—making it easier for these private companies to get the accommodation they require. Measured up, that is a direct gift at the expense of the credit of the people of this country, and, while it is true that £70,000,000 is not in the aggregate a very considerable sum, in the light of our total national finance, it is an element, and it is an element for which we have to pay. It is a burden to some extent upon the masses of the people, and, therefore, a concession to this private enterprise. We do not get the full return, I think, in the way the Financial Secretary has suggested. We are' entitled to rather more than that. There are many precedents for having taken either some form of share or some other right in the asset created, and I suggest that, as this is bound for all practical purposes to be permanent, at all events for many years ahead, we should meet a good deal of the criticism that is advanced against Trade Facilities if by some device we made provision for a, State or a public right in this connection.

I do not want to press the argument beyond that this afternoon, because I think, in the light of the Financial Secretary's reply, it will be our duty to put some Amendment on the Paper in order to test this principle in the House. I do, however, urge hon. Members, whatever may be their political or economic faith, to believe this, that the time has come in this House, and especially in post-War conditions, when we can no longer refuse to find a solution for this controversy, because undoubtedly we have placed very substantial sums of our credit at the disposal of quite powerful interests, some of whom, unquestionably, could have raised the money without that help, and we have got this form of bonus or subsidy in being. Having given notice of that intention, I think we must test it on the Committee stage of this Bill, because, in our view on this side of the House, a very important principle in our public finance is undoubtedly involved.

Lieut.-Commander WILLIAMS

It is with very considerable reluctance that I rise to say a few words on this Measure. but I am not exactly certain that, as taxpayers. we are getting the best value out f this scheme. I believe we all agree at the present. time that if, by using our Trade Facilities scheme better, and by encouragement of individual industry, we can help employment, we are all ready and willing to take the risk, but I should like to urge on the present Government that there are many industries in our own country. and particularly small industries, which might be receiving rather more encouragement than they are at the present time. The right hon. Gentleman the Member for West. Swansea (Mr. Runciman) referred just now to the fact that, as far as many of our harbours are concerned, it is quite possible that the Government might use this gift, or. rather, help, which their guarantee gives, in order to help our trade a great deal more by securing these harbours, and particularly, in many cases, the very small ones, than by, say, developing at some future time waterworks or other undertakings which, while very useful in bringing us work at the present time, might at some time or other be entirely lost to us.

The right hon. Gentleman the Member for Newcastle-under-Lyme (Colonel Wedgwood), who opened the Debate, referred to co-operative societies, and he went on to suggest that we might give help to the village blacksmith, the village carpenter, and people of that sort. I do not think the party to which he belongs is going to do very much to help the small individualist, but I say quite clearly that 1 think the small individualist, in some industries, is coming to a, time when he wishes to continue his individualist system, and to combine so that he may continue to use it in competition with some of our big existing industries. To take the case of the fishing industry, there is in some parts of the country a distinct movement in that industry to try to combine so that the small people in the industry can obtain enough capital, not only to run their own boats and their own fishing industry, but actually themselves to place their fish on the market. I think that if the Government, by means of this or some other Measure, could help those people to advance in that way by guaranteeing loans for them, it would do a great deal, first of all, in helping to encourage this industry, and, secondly, in helping the general employment of the country. These smaller industries are endeavouring to advance and meet the competition of the time.

Would it not be possible, also, for the present Government to help the agricultural industry by giving increased facilities where groups or districts might wish to develop on co-operative lines, for the purpose, say, of establishing bacon factories, or of selling their produce by means of creameries and so on? I raise these points 'because I feel certain that in this matter it would be far better if the Government would encourage purely local industries, and encourage the local people engaged in them to develop their industries, possibly on somewhat more modern lines, rather than helping the big shipping firms or the big industrial companies, who at the present time are generally fairly well able to look after themselves.

Lieut.-Commander KENWORTHY

I should like to support what the hon. and gallant Gentleman who has just sat clown has said about the fishing industry. That industry has certainly been much in need of credits in the past, and I believe that, if what the hon. and gallant Gentleman has been suggesting had been done after the War, when a great many fishermen were encouraged to take up the ownership of trawlers, and if they had been helped with some form of credit in running them, that scheme might have been more successful than it was. It is mainly in the Western parts of the country that the fishing industry is in need of credits. In the North, at Hull, Grimsby, and so on, the great companies have plenty of capital, and their trouble is largely with the railway companies and the high price of coal.

The right hon. Gentleman told us that in the opinion of the Committee itself—and presumably they take the rosiest view of the matter—this Act, since its inception, has given work to 100,000 men who otherwise would have been idle. That works out, on the basis of £65,000,000 worth of credit, or guarantee, or liability, at £650 per man, and, as I believe the loss has so far only been a very small percentage, I think that that is a very good use for Government credit. It is, however, somewhat expensive. These men would be getting about £50 a year on the average in cash from the unemployment fund, which was partly provided by themselves, if they had not got employment under this Act. Therefore, it works out, roughly speaking, that the nation's assets are mortgaged to the extent of £650 per workman employed, and that is taking the optimistic view of the Committee itself. I do not think that that is a very remarkable performance at all. Work has been provided for 100,000 men at a rather expensive rate, although 1 am careful not to make the mistake, which is so often made outside, of mixing up cash with credit and guarantees.

Is there any reason, however, why the scheme should not be very largely extended The resources of the State are very great indeed. They are not unlimited, of course, but during the late War we could see how enormous the resources of the whole country were. Why should we stop short of £70,000,000 of credit? After all, in spite of the fact that. 100,000 men have been provided with work at one time or another, I suppose that some of them are now out of work again, as the Act has been in operation since 1921. We have still about 1,100,000 men unemployed; why do we stop short, therefore, at £70,000,000 I should like to ask the right hon. Gentleman if he will explain why the limit is fixed at that figure? Why are we only asking for £5,000,000 of additional credit now, when we have this vast volume of unemployment in the country?

The right hon. Gentleman the Member for Newcastle-under-Lyme (Colonel Wedgwood) made some extremely interesting suggestions, and I am wondering why some of them have not been carried out before, particularly the suggestion as to the way in which Government credit is being used for building up certain businesses. Again and again we see the statement, "Company to be formed." At Question Time the other day, the case was referred to of a cement company that was not in existence at all until it got from the Government the promise of a guarantee. They then went to the public. There was a public issue, with the prospectus advertised in all the Press, and, the Sunday papers in particular, in which it was set out in large type that a Government guarantee of so many thousand pounds had been given: and undoubtedly a great many people would subscribe to the, company on the very fact that the Government had given that guarantee. I f the Treasury gives credit to a company, that is a thing which by itself would induce people to subscribe who might not know anything about the directors, or the assets of the company, or anything else. In, this particular case—I refer to the Dunstable Cement Company, which has been referred to in this House at Question Time, and which I believe is going to be referred to later—there were, apparently, one or two rather curious features as to the assets that the company were able to show to the Government, and I believe some curious facts will come out. I am told now that, in spite of the Government's guarantee, a good deal of the stock was not taken up by the public, but was left on the hands of the underwriters. It seems to me that, as was said by my right hon. Friend the Member for West Swansea (Mr. Runciman), the very fact that we encourage people to come out with a public issue, in which they are able to state on the prospectus that they have received a guarantee from the Treasury, is in itself objectionable, arid is, in any case, a matter that should be looked upon with very great care and jealousy by the Treasury.

The right hon. Gentleman the Member for Newcastle-under-Lyme (Colonel Wedgwood) suggested that the State should benefit where these 6.0 P.M. companies have become prosperous, very often as the result of the initial start given them by Government credit, and that is a view I should like to endorse; but why was not that done when the right hon. Gentleman was in office? He was a member of the Cabinet, and I should like to know if he urged that view. I believe he was speaking with the authority of his party, and I think he might have taken the opportunity while in office of putting that matter right. If the right hon. Gentleman the Member for Aberavon (Mr. Ramsay MacDonald) takes part in the Debate, perhaps he will explain what were the difficulties at that time. Certainly, if by the use of Government credit we help people to build up great and prosperous businesses, the Treasury ought to benefit in the years to come, and that can best be done by some special class of shares being created which the Treasury might hold. I cannot understand why this limit of £70,000,000 has been put, and I should like an explanation. I note, however, that the right hon. Gentleman looks upon the whole Act as economically mischievous and only to be supported in these abnormal times. The times are abnormal. We are just working through our fourth or fifth winter of acute unemployment and I invite him to explain why he thinks £5,000,000 additional will be sufficient. Of course I understand that credits which have been liquidated and come back may be used again, but most of the accommodations are for very long periods, running up to 50 years in the case of the City and South London Railway Company, for example, and there are not many short ones. There are a few of five years but they are mostly seven, nine, 10 and 12 years. The figures show that we have used up the original £60,000,000. The total amount on the White Paper is very substantial. Is the Government coming to the House again for a further extension, or what is the intention? At any rate, why do they think an additional £5,000,000 is sufficient in view of the slackness of trade which continues and the tremendous number of men without work?

The Government will presently have to tackle the very awkward question of Russia. We can all laugh about this, but they will find it a very difficult matter and one they cannot ignore. They will not be able to turn their back on this poor man by the wayside, like the unjust man in the Parable—[interruption].


I fail to appreciate the connection—though doubtless the hon. and gallant Gentleman can do so—between the Russians and the Pharisees.

Lieut.-Commander KENWORTHY

I will not pursue the Biblical reference further than to remind my hon. Friend that eventually someone came along who acted the part of the good Samaritan. Previous Governments have been un willing or unable to help the man who has fallen among thieves up to now, but one day, I prophesy, someone on the Treasury Bench will have to act the part of the good Samaritan and come to the help of this unfortunate country, because it is a necessity for the world that its productive capacity should be brought into the general pool and that it should be opened up again as a market. Sooner or later some Government, and I believe this Government, during their present term of office, whether they like it or not, will have to tackle this Russian question, and they will find it necessary, if we are to get back our money, in our turn to give them some form of help. They have refused the method suggested by the late Government and will have to find some other, and they will probably return to the method proposed by the present President of the Board of Trade at the Conference at The Hague to settle the matter with Litvinoff, following on the Genoa Conference, and that was some extension of the Trade Facilities Act. This aspect of the question should be carefully examined, and it is obvious that, in order to pay for the Trade Facilities Act as a means of assisting trade between this country and Russia, you will have to set up another Committee to operate a Bill drawn up in a different way and, obviously, with more elastic provisions. You will have to be prepared to take greater risks with your money—that goes without saying—and I hope the Government are examining into this question now and in good time, because sooner or later they will have to use some such scheme as this. We are granting £2,000,000 for the electrification of railways and we are supplying the tramways in Greece. That is, of course, a very good way of giving work in this country to the men who make the electrical equipment for tramways and so on, but the very same principle might be applied to the men who are making engineering products for Russia, and I should think the security of Russia and the security of Greece perhaps in a few years to come will not be so very different. I beg of the Government not to lose sight of this aspect of the matter. The right hon. Gentleman made it quite clear that he was against the principle of the Act and that it is only to be excused because of the abnormal times we are in. Of course economically this is neither State Socialism nor is it the free play of the money market—the bankers, the manufacturers, and the ordinary merchant adventurers who bring finance to the country in the ordinary course of things. It is a mixture of the two, with many disadvantages and disabilities. We, however, have to do something of this sort. I think we ought to use the Act to the fullest extent until we get through these bad times, and in the meantime it behoves the Treasury to exercise the greatest care and discrimination in seeing that only perfectly reputable firms are given these facilities and that Treasury credits are not used for public issues and the possible inducement of money from the investing public when otherwise the public would not look at the scheme at all.


The speech to which we have just listened, it seems to me, illustrates the very grave danger which is inherent in legislation of this character. The first part of the speech was devoted to a very luminous exposition of the extravagance of this scheme from the point of view of unemployment. The hon. and gallant Gentleman gave the House an elaborate calculation, which I have no doubt, coming from him, was arithmetically correct, as to the cost per man of this scheme from the point of view of setting up work for the ployed. I entirely agree with him on this point. From that point of view the scheme is wildly extravagant, and has by no means fulfilled the expectations which were originally formed of it. The hon. and gallant Gentleman says "the Act was inherently bad and grossly extravagant. Why do you not extend its provisions? Why do you only ask for £70,000,000?" Does he really seriously suggest that a scheme which is wildly and perniciously extravagant is to be indefinitely extended? I am sure his good logic and his good sense will help him to avoid that conclusion. We have listened to an exceedingly interesting speech from the Front Bench opposite, but I found it difficult to reconcile its component parts with each other. The first half of the speech of the right hon. Gentleman the Member for Newcastle-under-Lyme (Colonel Wedgwood) was one of the very best expositions of individualistic doctrine. I have ever listened to in the House, but the conclusion to which he attempted to lead the House in the latter part of his speech was in a directly opposite direction. I listened, therefore, with relief and satisfaction to the speech of the Secretary to the Treasury. It was couched in a tone of apology and caution. My right hon. Friend made it clear that he dislikes prof undly the principles embodied in this Bill. I entirely share his aversion, and if he had not couched it in that apologetic and cautious tone, I and others might have found it necessary to divide against the Second Reading of the Bill. As it is, accepting from him the assurance that this is a Bill, the principle of which be and the Government dislike, and the operation of which they intend to limit, I shall not oppose it at. this stage.


The House will doubtless be consoled to hear that' the hon. Gentleman is not going to oppose the Bill at this stage. I derive a considerable amount of encouragement from that. I should very much like to oppose it at any stage, because the scheme which it embodies causes grave anxiety to my constituency. The shipbuilding industry, which is so well represented in this House, has denounced the Measure as being entirely unnecessary in its own interest. As one looks down the list of guarantees one finds that by far the greater portion of the money which is being guaranteed is going to private shipbuilding firms for the building of ships, which can only aggravate the present position of surplus tonnage which is now so disconcerting a feature of the shipbuilding trade. If the shipbuilding interest in this House finds it necessary to oppose the Measure what is to be said for those who are interested,,. not in private, but in public shipbuilding My constituents find that they are made contingently liable for sums of money which are going to firms acting in direct competition with the national interests in this matter, and I therefore feel it to be my duty, as it is certainly my right, to put their point of view. This Trade Facilities Bill, and the trade facilities scheme generally, do not only offer a subsidy by way of guarantee to private firms. That does not exhaust the encouragement which the Government give to private shipbuilding firms. They give direct work in the shape of battleships and cruisers, and the "Nelson" and the "Rodney" are being built at the national expense in private shipbuilding yards, precisely because there are no slips large enough to build those battleships in the Government yards, and cruisers are being built in private yards as well, and yards which are deriving the additional encouragement of a guarantee under this Act.

It seems a little paradoxical that the Government should go out of their way to facilitate a scheme which is designed to encourage private shipbuilding while they allow unemployment to exist in their own yards and while they allow national ships to he built in private yards. There is absolutely no alternative employment in the constituency represent to that of shipbuilding, and if my constituents are not provided with work by the Government they have absolutely no work at all. Yet, although unemployment has been grave and serious for years in the Government shipbuilding yards, the Government persist in this policy of subsidising and encouraging private firms. Mention was made by the hon. Member for Swansea (Mr. Runciman) of the necessity for giving benefits to harbours and docks under this scheme. If that policy were pursued it would be of very great advantage to the type of constituency I represent. Plymouth might be the principal port of the South of England—Plymouth, which neighbours upon my constituency—were it not that the Government is holding up all the facilities by exercising a monopoly of the only available water there, and so, from whichever angle this scheme is surveyed, whether from the point of view of building ships or of providing additional dock and harbour accommodation, my constituency is bound to suffer, and I deem it my duty to represent its point of view in this House. There is not a single dock in any national yard which is capable of building a battleship, and yet the Government thinks it right to subsidies private firms who have docks capable of building battleships and in addition to give them money to compete with private firms.

Question, "That the Bill be now read a Second time," put, and agreed to.

Bill read a Second time.

Bill committed to a Committee of the Whole House for To-morrow.— [Mr. Guinness.]