HC Deb 02 December 1936 vol 318 cc1389-400

Motion made, and Question proposed, "That this House do now adjourn." —[Sir G. Penny.]

10.48 p. m.

Mr. DAVID ADAMS

In accordance with notice given a week ago, I desire to raise, for the consideration of the House and of the Government, certain grievances with respect to the advances of money in the Special Areas for the purpose of assisting or establishing light industries. I raised the matter in the Debate on the Address, but, as the President of the Board of Education was in charge of the House at the time, I got no reply. In a recent Debate the hon. Member for Carmarthen (Mr. Hopkin) raised the same subject, but again we bad no reply. There is, in my judgment, a growing amount of evidence that this very admirable Act, which, if properly administered, will go a long way towards assisting these areas, is not being utilised as it ought to be. I received a cutting from a prominent Newcastle business man this morning. It is from the "Newcastle Evening Chronicle," which is a strong supporter of the Government and a very reputable newspaper. The leading article is entitled, "What is wrong with Sara?" That, of course, refers to the Special Areas Reconstruction Association, Limited, which handles the finance for these areas. I would like to read, shortly, what this paper states, which is as follows: What is wrong with Sara? This organisation was set up owing to the difficulty of obtaining capital for the establishment of new, or the expansion of existing, industries in the Special Areas. But has it provided easier facilities than those already existing? The answer is No. Those who have made application—people in some cases owning sound established businesses—declare that Sara requires greater security for loans than the local banks. It seems a fair criticism, and demands a fair answer. It added: At a time when we"— that is the North of England— are encouraging new inventions in the north, Sara has turned down an application from an established firm on Tyneside, which requires capital to develop a simple, new and revolutionary invention. No reason is given to the applicant, but since the application was turned down great firms in various parts of the country have begun to use the product, and inquiries and orders have come from abroad. That is evidence that cannot be brushed aside. It has come from a reputable newspaper, which is speaking for the time being the voice of the North of England. The question which I addressed to the Chancellor last week confirms the view that the Act has not been administered as it should have been. I inquired the total number of applications received by the Association to date, and the numbers of loans which had been granted. The total number was 3458, of which there were "out of order" 65, and "indeterminate" —whatever that may mean—104, leaving 189 genuine and admittedly good applications for loans. In spite of that large number, six months after the opportunity had been available to these firms, only 14 loans, for a total of £52,000, had been granted. It is clear, therefore, that something is seriously wrong with the administration of the Act. I asked a second question to the Chancellor: Whether he is aware that reputable companies situated in Special Areas and re- quiring loans for the expansion of their businesses, but which cannot raise sufficient guarantees in the usual way, are refused these facilities by the Special Areas Reconstruction Association unless they find substantial guarantees such as would be asked for by any ordinary finance house; and will he endeavour to remove this refusal to advance capital to such industries as being contrary to the spirit of the Special Areas (Reconstruction Agreement) Act, 1936? The Chancellor replied: I am informed that such guarantees are not required as a general rule, but that when circumstances make it necessary they may he asked for to ensure that the applicant has sufficient faith in the business proposed by him." —[OFFICIAL REPORT, 24th November, 1936; col. 223, Vol. 318.] Additional cover equal to that which the normal finance houses would expect is contrary to the Act. The Chancellor's statement that this Association is entitled to do this is the cause for the overwhelming number of refusals for the loans required. I must quote a little what the Chancellor's view on the situation has been, as expressed in this House. Speaking on the Special Areas in the Debate in Committee of Ways and Means on the Budget Statement, the Chancellor, referring to this scheme, stated that suggestions had been made by the Commissioner for the Special Areas in his various Reports, to the effect that the establishment of small businesses there was being hampered by the lack of necessary finance, and that special remedies or devices were required. Then he added: The purpose of this company will be to finance businesses where the risk is such as would not be undertaken at this stage by ordinary financial concerns." —[OFFICIAL. REPORT, 21st April, 1936; col. 52, Vol. 311.] When the Chancellor reached the position of dealing with the Money Bill for the establishment of this company under the Act, he made this important statement: The whole object of the special treatment that we have been endeavouring to apply to the Special Areas is that we should not rely upon certainties…The only hope for these areas is that we should not be afraid to try anything which, on the face of it, appears to have even a small chance of turning out successful, because, if we fail in these experiments, no great harm is done…The purpose of this proposed company is not to do the same business as is now being done by ordinary financial institutions but it is to go beyond that. It is to take risks which the ordinary financial institution would not care to take in the course of ordinary business… It is possible—I think it is very likely—that we shall lose a certain amount of money…We are guaranteeing losses…in order to see whether, despite these losses, the company can be made a success." —[OFFICIAL REPORT, 28th April, 1936; cols. 871–4, Vol. 311.] The result of that was the passing by the House unanimously of the Special Areas Reconstruction (Agreement) Act of this year. The Act translates into law the pledges which the Chancellor gave to the House on the lines I have indicated: Whereas it is intended that a company shall be incorporated under the Companies Act, 1929, by the name of the Special Areas Reconstruction Association Limited (hereinafter referred to as 'the company') with the object (among other objects) of providing as a temporary and special expedient means of affording financial facilities to persons setting up or carrying on business in the areas specified in the First Schedule to the Special Areas (Development and Improvement) Act, 1934, who satisfy the company that, whilst having reasonable expectation of ultimate success on an economic basis, they are not for the time being in a position to obtain financial facilities from banks or financial institutions primarily engaged in providing financial facilities for long or medium periods. It is clear from that Preamble that, contrary to the Act and the will of Parliament, the company is demanding cover and guarantees which are usually demanded from banking houses. I want to give a typical example which has come to my notice, and I am advised that it is one of many. I have been informed that it is so by hon. Members from the Special Areas. This was a new light industry, a small manufacturing business, established in. January of last year on the North-east coast. An application was made on the 7th July for a loan of £3,000 for the period under the Act, namely, five years, for the purpose of extending production and financing the business offered to them. The business had steadily improved, and most of the prominent stores in this country were stocked with the goods which it was producing. It had a rising and rapidly developing export business, not only in Europe, but in Africa, India and Australia. The business was upon a sound footing It had also, I might mention—

It being Eleven of the Clock, the Motion for the Adjournment of the House lapsed, without Question put.

Question proposed, That this House do now adjourn." —[Sir G. Penny.]

Mr. ADAMS

As I was saying, they have a growing export business and, as would be expected of a sound firm in the North of England, they had taken a stand at the British Industries Fair to display their goods. They state that, if this finance is made available, in the course of a year or two they will be able to employ some hundreds of additional workers. In order to satisfy the loaning company a careful examination was made by the officials of the Tyneside Industrial Development Board, the chairman of which is Lord Ridley. The examination was apparently successful, because the area committee transmitted the report that this was a company to which a loan might legitimately be granted or at any rate one whose application ought to receive the necessary consideration. The area committee is presided over by a man of very considerable local and financial standing, Sir Arthur Lambert, who is the chairman of the Finance Committee of the Newcastle Corporation and an ex-Lord Mayor of the city. Everything that the financing company desired in the way of the conversion into shares of certain loan capital which had been advanced by the directors was assented to, everything was arranged except the loan. The directors, in harmony with the Act of Parliament, offered to the loaning company what is customary, and what ought to be customary, any security based upon the business itself, but this was refused, and a demand was made that the directors should guarantee the loan or, failing that, should obtain outside persons of substance to give joint and several guarantees, which, of course, is quite impossible.

If they had been able to find such guarantees obviously they would not have troubled to wait from July till November, but would have gone in July to their own bankers and obtained this loan. It was an ordinary banker's demand, and was one of the very reasons why this firm, with so many other firms, have been unable to raise the necessary capital. Many directors are prevented by their partnership agreements from entering into any such guarantee, their financial standing in some cases prevents them—there is a diversity of reasons. Anyhow, they were entitled, in my judgment, to rely upon the Act of Parliament. If the business was a sound one, was profitable and expanding, then, in my judgment, with all respect to the Treasury, the firm were entitled to the loan requested.

I would like briefly to quote from a letter on the subject which appeared in the "Times" last week, from a business man of Merthyr Tydvil who has made similar applications, and who emphasised his grievances. The House may agree with him that they ought to be remedied. He said: It would seem to me, as one who has been interested in seeking financial assistance for a company with excellent prospects, but so far without success, that had the Government expended the £20,000 annually in payment of salaries and expenses to Government officials more might have been achieved in helping industries in these Special Areas. Had it been decided that the Government itself should make all inquiries and afterwards lend money directly to such companies, without the intervention of any third party, more benefit would have ensued. Moreover the Government in this event would have received from the borrowers the interest payable on the various advances, whereas under the present agreement no interest is payable by the finance company to the Government, and yet that company will receive the benefit of any interest which may be earned. I am not interested in the comments which are made by this gentleman regarding the financial arrangements which the Government have made. I am anxious not to lodge a complaint against the Treasury but to have the grievances remedied which I have indicated to the House.

I would summarise my desires in the matter. I ask the Treasury to make inquiry into these grievances and to give rejected applicants an opportunity of re-submitting their schemes. If the various firms who have been rejected are entitled to an advance which the Government and Parliament have unanimously stated should be made to them, they should have an opportunity of obtaining such advance, and I ask the Government to insist upon the proper administration of the Act by this lending company. I am satisfied that scores, if not hundreds, of new industries can be started in the Special Areas. I can speak for a number upon the north-east coast, which would employ large numbers of our unemployed people.

We want capital to flow to these Special Areas and our unemployed to be employed once again. We have faith that, just as the great Armstrong firm began in a blacksmith's shop as a small light industry and, in a lifetime, became one of the greatest arsenals and armament firms of the globe, so, from the opportunity which might be afforded by the advance of this small capital, limited as it is to £10,000 under any head, might be the beginning of great industries for the Special Areas.

11.4 p.m.

Mr. F. ANDERSON

I, like my hon. Friend, have experience of what we call S.A.R.A. I will try to relate my experience as shortly as I can. I have had the pleasure of introducing three or four people to S.A.R.A. with the object of their starting new industries. I would put it to the Treasury that we must bear in mind that the Chancellor of the Exchequer has said that this Act was being brought into being for the purpose of helping industries that could not get assistance through the ordinary channels. My experience so far has been that on each occasion, on each of the applications, the statement has been made: "We cannot be the predominating partner under any arrangement." If that is to be the case all the way through it is going to defeat the very objects of the Act from the beginning. That is not hearsay. I heard it said. Consequently, I ask, how far has the Special Areas Reconstruction Association freedom of action, apart from other financial houses. If it has not freedom of action, the position is going to be that people who have good sound propositions will be turned down.

In regard to one proposition it would involve from 600 to 800 men inside two years. Therefore, I would point out to the Ministry of Labour that this is a very serious matter from the standpoint of employment. As far as I can see, the Special Areas Reconstruction Association has not, as yet, got the atmosphere of the Special Areas, namely, a desire that men should be put into employment. That atmosphere should permeate the association to a greater extent, because if the commodity which the association has to sell is capital, they should sell it in the way that was meant when the Act was passed.

There should be a different type of examination. I have a list of 21 questions that have to be answered by applicants who desire to set up new industries. When those questions are answered, so far as my own area is concerned, they have to go through the district board at Newcastle, and from the district board at Newcastle to London. I understand that if London does not like the proposals contained in the forms, they come back again to Newcastle. The whole of the time these people are waiting and wanting to know what is occurring as far as their applications are concerned. There must be a speeding up of these applications. They cannot go on taking weeks and weeks before an actual response is made, and the people know whether they are turned down or not. That is not fair to the applicants. At least something of a special character should be done to see that any applications that are made shall, say, in a month's time—I think that should be sufficient—be decided. It should be possible to say to these people: "You can expect a reply of some character inside a month's time." But in some cases, 8, 9, 10, 11 and 12 weeks have elapsed and there has been no satisfaction as yet. If that is going to be the case, while we have hundreds of men walking the streets, what encouragement is there for some of us who have done our best and have used every ounce of energy we possess to get new industries into our areas, and to use the Act for all it is worth? When we find that these delays are taking place in this manner, it calls for inquiry, first, as to the delay, and second, as to the general principles that are being laid down in regard to the supply of finance, especially for new industries. If the Financial Secretary to the Treasury would be good enough, I should like him to say what can be done to speed up the proposals now in hand, and what can be done to try and lay some foundation line as to how the capital can be found for firms applying in respect of new industries.

11.15 p.m.

The FINANCIAL SECRETARY to the TREASURY (Lieut.-Colonel Colville)

The hon. Members who have raised this question to-night have not criticised the Act which gave birth to the Special Areas Reconstruction Association, but they have directed their criticism to the administration under that Act. In considering the question I feel that we should have regard to the purposes for which the Association was created. The Chancellor of the Exchequer made it quite clear that this was not expected to be a remedy for all the ills of the Special Areas, but was a response to a particular request made by the Commissioner in relation to the financing of smaller industries. I should like to say a word or two about what has been happening since the Act was passed.

The period of formation of the company has been gone through. The company was incorporated in the middle of June, and a central board and three area boards were chosen; and I should like to pay a tribute to the public-spirited services which the gentlemen who have joined these boards are giving. I do not know if the House realises that, with the exception of the managing director and a few salaried officials, all members of these boards are giving their services voluntarily for this object. I am sure it will be the desire in all quarters of the House that a tribute should be paid to those who have agreed to serve on these boards in a voluntary capacity. The boards had to be formed, and offices had to be established. A central office has been established in London, and branch offices in Glasgow, Cardiff, and Newcastle-on-Tyne. At each of these places there is a paid secretary.

As the hon. Member for Consett (Mr. David Adams) said, there was a considerable number of applications; the exact figure to date is 371. A number of these were outside the scope of the company, and some of them were really letters written under a misunderstanding as to what the company was able to do. These, therefore, had to be laid aside, but serious consideration has been given and is being given to the applications which remain. The hon. Member asked a question only recently as to the number of applications which had been approved in principle and the advances which had been approved in principle. Since he asked that question, there have been further developments, and I find that to-day the figures show that 20 loans have been approved in principle, for a sum of £103,300. The hon. Member will see, therefore, that things are moving on even now. I am not quite sure when he asked the question, but it is only a matter of days, and even in that time things have been moving on; and the management of the association have been proceeding with their work and examining the applications which are before them. The Act lays it down, and I should like to reiterate this, that the facilities are to be accorded to those who satisfy the company that, while having reasonable expectations of ultimate success on an economic basis, they are not for the time being in a position to obtain financial facilities from banks or financial institutions.

It is the first part of that provision on which I should like to lay stress—"having reasonable expectations of ultimate success on an economic basis." It would be no use for the association to finance enterprises which were likely to result in failure and at the end of a year or two years add to the depression. We are all agreed on that point. It is important that the association, in considering applications laid before it, should have regard to this proviso that there should be good prospects of ultimate economic success. The other proviso, which also is of importance, is that they are not for the time being in a position to obtain facilities from banks or financial institutions. The association is dealing, not with Government money, but with privately subscribed money, and although established under Government auspices and receiving Government assistance, it has also certain responsibilities to its shareholders.

The hon. Member for Consett raised a point as regards endeavours on the part of the association to secure personal guarantees in certain cases. As the Chancellor informed him, guarantees of the kind that he has in mind are not required as a general rule but in certain cases the association may feel that it has no option but to ask for the personal guarantee of the applicants in order that they may indicate that they have sufficient faith in the business and its chances of success. But it is not the general rule to ask for such a personal guarantee. Even when a personal guarantee is asked for, in order that the applicant should come within the scope of the association, the business must be such that the giving of the personal guarantee would not enable the applicant to obtain financial assistance elsewhere. The provision that the applicant was unable to get financial assistance elsewhere would still hold good.

The Government cannot undertake to interfere in the day-to-day administration of the association as regards the handling of individual cases, but if the hon. Member has certain particular cases in mind and cares to submit them privately to me, I shall have inquiries made from the association in order to ascertain in what circumstances the association has found it necessary to ask for a personal guarantee. At the same time, having entrusted the work to the association, it would not be possible for the Government to take up each individual case.

The hon. Member for Whitehaven (Mr. F. Anderson) speaks of delay. The company has not, in fact, been going for very long. Incorporation took place in June, but office accommodation had to be taken and applications sifted out.

Mr. ANDERSON

It is after they have gone through the reports that the delay arises between Newcastle and London.

Lieut.-Colonel COLVI LLE

I was speaking of the general work of the company. Having regard to the period in which it has been in operation I feel that they cannot be unduly criticised for slowness in operation. It is too early yet to pass judgment on the activities of the company. It is quite proper that we should discuss it in the House to-night and everyone should know that the House is interested in seeing that the intentions that were expressed at the time the Act was passed should be carried out. It is rather early yet to attempt to pass judgment on the activities of the association. They are proceeding with their work on the lines laid down in the Act, and, as I have indicated already, loans to the extent of £103,000 have been approved in principle.

As the House is aware, there is a provision for making a contribution from Government funds to the administrative expenses of the association. I find that it will probably be necessary to make such a contribution to expenses in the current Financial Year. This will involve bringing a Supplementary Estimate to the House in February, which must be taken before the end of March. That will give us an opportunity in the House of Commons of discussing the administration of the association and its activities, and I suggest that after the short discussion we have had and after the undertaking I have given to look into the particular point made by the hon. Member we should now leave the subject. When the opportunity for a fuller discussion arises on the Vote for administrative purposes we can again consider the activities of the association.

Mr. ANDERSON

In the meantime will the Financial Secretary look into the cases which take eight and ten weeks upon which to get a decision? These men are standing idle waiting to get on with the job.

Lieut.-Colonel COLVILLE

I cannot admit that there has been laxity. The number of applications before the committee are considerable and they are examining them now. I am quite willing to take an interest in the work of the association, but I reiterate that the Government cannot interfere in individual cases.

Mr. D. ADAMS

Does not the Financial Secretary agree that the particular case I have raised, a sound business and the financing company demanding substantial guarantees, is ordinary banking practice?

Lieut.-Colonel COLVILLE

I think that the soundness of the business is a matter which will have to be looked into much more closely.

Question, "That this House do now adjourn," put, and agreed to.

Adjourned accordingly at Twenty-eight Minutes after Eleven o'Clock.