Motion made, and Question proposed,
That a Supplementary sum, not exceeding £10,937, be granted to His Majesty, to defray the charge which will come in course of payment during the year ending on the 31st day of March, 1937, for certain Miscellaneous Expenses, including certain Grants in Aid and Supplement to certain Statutory Salaries.
§ 9.54 p.m.
§ The Financial Secretary to the Treasury (Lieut.-Colonel Colville)
I expect that in this Supplementary Estimate interest will attach to those items which relate to the grants for the Special Areas organisations and associations. This Vote is for £14,000, but the Committee no doubt will be gratified to know that that amount is offset to some extent by a saving owing to the transfer of certain funds to the Civil List and also to a gratifying increase in the number of people who visited the Jewel House in the Tower of London, from which we get a useful increased appropriation in aid of £1,500. The net total is £10,937. The object of this Supplementary Estimate is to provide the Exchequer contribution in respect of the administrative expenses of the Special Areas Reconstruction Association for the year ending 31st March, 1937. Provision could not be made in the original Estimates because the decision to set up the association and to provide Exchequer assistance had not been taken at the time when the original Estimates for 1937 were prepared. The Committee will recollect that the necessary statutory authority was obtained in the Special Areas Reconstruction (Agreement) Act, 1936. In accordance with the 157 provisions of that Act, an agreement between the Treasury and the association was signed on 22nd June, 1936, and presented to Parliament.
The Exchequer assistance to the association takes the following form (1) Certain preliminary expenses, such as the cost of setting up the Association, etc., are met by the Treasury, and the winding-up expenses also fall upon the Treasury. (2) The Treasury is to make, by Parliamentary Votes, an annual contribution not exceeding £20,000 towards the expenses of administration. The present Supplementary Estimate provides the amount required for the current year—£14,000. (3) The Treasury will be required to contribute £100,000 towards the Reserve Fund. The Treasury assistance in respect of administration expenses requires a Parliamentary Vote; hence this Supplementary Estimate. I do not think any particular comments are called for in regard to the estimate of £14,000 which is, of course, within the amount laid down. It covers administration expenses from the incorporation of the association on 19th June, 1936. About half is required for the expenses of salaries at the head office and for expenses of investigation, and the remainder for the Area Boards, and auxiliary costs of investigation and examination of proposals. I think the Committee would wish me to say a few words on the subject of the formation and working of the association, and I will try to give as much information as I can without taking up too much time.
§ Lieut.-Colonel Colville
I should be glad if the hon. Member would allow me to develop my argument, and I will answer any questions afterwards. The association was incorporated on 19th June, 1936. In the first place, there had to be set up the Central Board in London and three Area Boards£an Area Board with headquarters at Cardiff, for South Wales; one with headquarters at Newcastle, for Durham, Tyneside and West Cumberland; and one with headquarters at Glasgow, for Scotland. Some little time was necessarily occupied in the formation of these boards and getting members to serve on them. Hon Members will recognise that the task which those gentlemen were requested to undertake was a somewhat unusual one. Therefore, 158 it took a little time before the Association could get together the three Area Boards and the Central Board in London in order to carry on the necessary work. The boards did not get properly into their stride until about three months after the incorporation of the Association.
No sooner was an announcement of the formation of the Association published in the Press than a flood of applications, on which I will give the Committee some detailed information in a few moments, came in. They required careful investigation, and in many cases it was found that they were based upon a misconception of the scope and purposes of the Association. People had read in the Press of an Association formed for the purpose of lending money and a great many people, without going deeply into the matter, wrote saying, "Lend me some," and had very little conception of the idea that they should pay back the principal or interest, A great many of the inquiries were not serious, and were not followed up. When the spadework had been finished, say by the month of October, the Association began to get into its stride, and I will give the Committee some figures which will show how from the time the Association really began to get down to its work, the loans agreed to in principle mounted up. The figures which I am about to give are taken from answers given in Parliament. On 5th November, nine loans for a sum of £33,800 had been agreed to in principle. On 24th November, there were 14 loans for a sum of £52,300. [An HON. MEMBER: "Does that include the nine loans?"] Yes. On 2nd December, there were 20 loans for £103,300. On 1st February, there were 38 loans for £223,450, and on 5th February, the latest date which I have, there were 42 loans totalling £243,450.
§ Mr. Mabane
Will the right hon. and gallant Gentleman explain what he means by the words "in principle"? Have the loans been made or not?
§ Lieut.-Colonel Colville
The loans have been agreed to in principle. In some cases the firm does not require the money for the moment. In some cases the solicitors have the matter in hand in connection with legal proceedings. When it is a question of the formation of a new company—and many of these loans relate to the formation of new companies— 159 hon. Members will realise that a good deal of legal work has to be done before the loan is actually advanced. Speaking from my own business experience, I can say that I would not be so concerned as to whether I had the money, for the real point is whether one is going to have it, so that one can go ahead with the work of forming the company.
§ Lieut.-Colonel Colville
The firms in the hon. Member's constituency will know exactly the terms on which the loans can be obtained if they have been told that they can get them in principle. It is now a question between them and their legal agents to secure the money. I do not pretend that every application which has been put forward has been agreed to, but I do make the claim that when the lending of so much money has been approved in principle, it means that if the two parties can complete the transaction, serious business will result.
§ Lieut.-Colonel Colville
I have tried to make it plain that the real point is not how much money has been passed over, but how much it has been agreed to pass over.
§ Lieut.-Colonel Colville
Yes, money has been passed over, but that is not the important point, as anybody with business experience will know. If the hon. Member persists in asking that question, he will only show that he has not had much experience from a business point of view.
I would like now to deal with some of the questions that arise. It has been suggested that the Association has been as conservative as the banks. [Horn. MEMBERS: "More so"] I think hon. Members opposite should recollect the original conception of the Association. The Government desired to meet the alleged need for financial assistance to small businesses in the Special Areas, which were 160 unable to obtain help from existing institutions. It was always intended that the Association should apply ordinary business standards when making loans and should not act from philanthropic motives. The Association is specifically limited in two directions by the terms of the Act. First, the business assisted must have reasonable expectations of ultimate success on an economic basis. Second, the applicants must not be in a position to obtain financial assistance from banks or other financial institutions. The second limitation means that the Association has to touch a class of business which the banks would not handle, whereas, on the other hand, the first limitation means that the Association must be satisfied as to the ultimate prospects of a business before granting a loan. Those two limitations are clearly laid down in the Act and have been observed by the Association in its work.
I now proceed to give the Committee some figures illustrating the work of the Association in sifting out communications which have been received. Up to 5th February the total number of applications, inquiries and communications of all kinds was 458. Of these 120 were general inquiries not in the class of applications, 47 applications were withdrawn, 77 applications were outside the scope of the Association, 121 applications were refused, 42 applications were approved and on 5th February there were 51 applications under examination. The Committee will, therefore, see that the Association has had to deal with a large flood of correspondence. It has been narrowing down this volume of communications and it is now, as is proved by the figures which I gave earlier as to the amount of loans approved, seriously getting to grips with those applications which it regards as fulfilling the terms of the Act, namely, that they are applications for assistance which could not be obtained from banks, and that they are applications on behalf of businesses in which there is the germ of success. It is no use lending money to start enterprises in the Special Areas if those enterprises are bound to fail. It would not help the areas themselves. Rather must the Association try£and it is not always easy£to give loans to those enterprises which have in them, as I say, the germ of success and the prospect of employment for people in the affected areas.
161 I have already given the amount of the loans to which the Association has agreed, and some indication of the number of inquiries with which it has dealt. It is now only some eight months since the Association was incorporated, and, as I have explained, it has only been about four months actively at work because of the time which was necessary to establish the machinery in the first instance. The life of the Association is, I think, a life of 10 years, and it would be unfair on the strength of a few months' experience to prejudge its work, but I am giving my opinion to the Committee when I say that I am not in any way disappointed with the result. In four months of actual work it has agreed to lend out as much as a quarter of the total capital of £1,000,000 which was placed at its disposal. I consider that the Association is now getting down to work and that taking all things into consideration, it has provided, and is likely to provide, useful assistance for small businesses in the Special Areas. There are other activities which in connection with the work of this Association may have interesting results. I refer to the trading estates and the co-operation existing between the association and the directors of the Nuffield Trust who administer the £2,000,000 given by Lord Nuffield.
§ The Deputy-Chairman
I am afraid I must remind the right hon. and gallant Gentleman that that is outside the scope of the Vote.
§ Lieut.-Colonel Colville
I apologise if I led the Committee astray. I was dealing with the work of the Association for which we are asking this grant of £14,000, and I merely wished to show the Committee that it is getting down to its work. Hon. Members may criticise the whole conception of the Act, although if they try to do so on this occasion they may find themselves, as I found my self just now, in conflict with the Chair, because the enlargement of that Act is not a subject for discussion to-night, but within the terms of that Act, and working on the instructions which it has received, I claim that the Association is dealing with its task in a businesslike way, and I therefore recommend this Supplementary Estimate to the Committee.
§ 10.13 p.m.
§ Mr. F. Anderson
I beg to move to reduce the Vote by £100.
162 I am glad to have this opportunity of saying something about the Special Areas Reconstruction Association. The Act provides that the association is to be satisfied that businesses receiving assistancewhilst having a reasonable expectation of ultimate success on an economic basis, are not, for the time being, in a position to obtain financial facilities from banks or financial institutions primarily engaged in providing financial assistance for long or medium term periods.The association in dealing with these applications puts forward a number of questions, and I take it that I am entitled to refer to these because a certain amount of praise has been given to the association, but from my personal experience its work has not been altogether satisfactory. I have here a number of questions which they submit to applicants, and one of them where a company is not involved is No. 7, as follows:In the event of the applicant being an individual, will he or she take out a life insurance policy with an approved company in the name of S.A.R.A., Limited, for at least the amount of the loan?I submit that that is a question outside what the Special Areas Reconstruction Association ought to put, having regard to the terms of the Act. Many men in two or three cases within my own knowledge, where individuals have put up their case and have been asked to answer this question, have asked how they could be expected to pay for an insurance policy and at the same time repay the money at interest upon the loan. In my view, that is going beyond the ordinary procedure of banks and finance houses, and that is the point of view of a number of people who have had to read through these forms in order to make applications. I submit that the idea behind the Act was that it was passed to encourage the small man to go into small industries, so that he should have a chance, but there is one paragraph alone which, from my own experience, has prevented at least three people from making applications. Then there is question 14:State the amount of capital to be provided (a) by the applicant, (b) from other sources, (c) from S.A.R.A. Limited.In putting those questions—and question 15 is on similar lines—I have come up against this difficulty, that in a number of applications S.A.R.A. has laid it down to the applicants that they cannot 163 be the predominant partners in any undertaking; in other words, the association cannot, for instance, loan more money than the applicant is prepared to put up in actual cash. I have here one instance that has been before S.A.R.A., and I will read out one or two of the conditions which they lay down. The first is:S.A.R.A. is prepared in principle to make a loan of £4,000 to the company named as above with limited liability to be formed by Messrson the following conditions (a) that the issued share capital of the company shall be not less than the £4,500 subscribed in cash.Let me say in passing that those people have no actual capital of their own to that extent, but still S.A.R.A. has laid it down as a condition that if it loans £4,000, the people concerned must be prepared to find £4,500. It goes on:(b) interest to be at the rate of 5 per cent. per cent, payable half-yearly.Is that a reasonable request to make for a small industry starting? Is it a fair request to make?
§ Mr. Anderson
My submission is that this Special Areas Bank was set up to do something that the bankers would not touch. I think we need only to refer to the speech of the Chancellor of the Exchequer at the time when the bank was set up, when he said that it was being set up to do something that the bankers were not prepared to do. In addition to that, he said that the bank would have to take risks that were not ordinarily taken, and I think I shall he able to show that this bank is not taking any undue risks at the present time, so far as my experience is concerned. It continues:(c) the loan to be repaid within five years from the date of the loan by equal half-yearly instalments, the first payment to be made two years from the date that the loan is made.They say, in the first place, that the loan is only for five years, but you have to start paying the interest on the loan half-yearly and then start, after two years, to pay off the capital sum. Men of business experience who have seen these proposals have really been astounded at the proposition. The whole thing is put in a nutshell in (d): 164The loan to be secured by a first debenture giving a special charge on the fixed assets and a floating charge on the other assets of the company.That means that if I as an individual put up £4,000, the whole of that amount must be covered, as well as any other floating charges that come along. Business men who desire to see something done in the Special Areas and are anxious to give their help wherever they can, but have not the necessary capital and make these applications to S.A.R.A., are really astounded at some of the proposals that are being put forward by the association. They go on to say:No loans of any description to be made by the company during the currency of the loan without the consent of S.A.R.A., Limited, in writing.There are other conditions attached in a letter that has been sent to the people who desire to start business in a Special Area. The letter said:You will remember our last meeting the question of the amount of new money to be brought into the business was discussed. It is hoped that you will be able to raise not less than £4,500.If it is not possible to get that money from the ordinary bank and financial houses, from where is it to be got? If I am going to put money into a new concern, is it likely that I shall submit to S.A.R.A. making a debenture on the whole of my assets? Is it common sense? How can these people who desire to start new industries in these circumstances supply that additional sum of money? I submit that the policy of the association needs careful reconsideration. They say, "We cannot be the predominant partner."
The Financial Secretary knows that I have already had some negotiations with him respecting the many conditions that have been made. If the association is to be a success in helping new industries in the Special Areas, there will have to be an alteration in the spirit and the ideals behind it in the face of claims that are submitted for its consideration. If one goes to an ordinary finance house of decent standing, my experience has been that they are prepared to put up ordinary shares and preference shares. In some circumstances they are prepared to put up debentures. Why is this association to-day seeking to lay down these conditions when it was set up for the purpose of helping new industries in the Special 165 Areas? I ask the Financial Secretary to tell us how he expects people who want to start these new industries to find the extra money. As a matter of fact, a number of these people have new patents and new ideas, and if they have passed through the sieve of S.A.R.A. there is a possibility of economic success. In many cases those people have spent several thousand pounds in bringing out their patents, have spent the whole of their spare cash in trying to get them going, but when they go to S.A.R.A. they are told, "You must still find a bigger sum of money than we are prepared to find. Under no circumstances must we be the predominant partners. "I submit that there is a case there for some reconsideration on the part of the bank. It may be submitted that each case is dealt with upon its merits.
I will take another case, one in which the interests of nearly 1,000 workpeople are involved. An application was submitted to the bank as far back as November last, and the applicants are still awaiting a final reply from the bank, although I consider that an exceptionally good case was made out by a man who has had a very good business experience. In that case the responsible parties at the bank said, "Although you are prepared to put up the sum of 2,500 each for two separate proposals, that is not sufficient. "Once again an applicant is told that the bank cannot be the predominant partners, and that more money will have to be forthcoming, although work would have been found of a particular character, and a good character, and the applicants were prepared to pay the proper standard rates of wages. The applicants are still awaiting a definite reply. Indeed, one of the applications has now been withdrawn as a result of the delay, and the work has been taken elsewhere; somebody else has been happy to take the job. I have a letter here from one of the persons concerned.I must say that I was very surprised on meeting—yesterday"—the person named is a member of the bank—to find that, in the first place, he obviously did not know of the existence of my applications; secondly, he (lid not take the trouble to read them through; and thirdly, he dealt with the whole question just as a banker or city financier would deal with it, and in no way did he consider it in the spirit expressed in the pamphlet issued"—166 That is the pamphlet explaining the Special Areas Act—which shows the conditions on which loans are granted by the Association. I have no hesitation in saying that if all cases are dealt with in the same manner as mine were the Association will fail to achieve the objects for which I understand it was formed, viz., to provide employment for the unemployed in distressed areas.That letter was written by a man who has had a very big business experience, and has been very successful from a capitalist point of view in other walks of life. I submit that people who are seeking to get money from S.A.R.A., Limited, should not be met in that spirit. As a matter of fact even that application would have been withdrawn if I had not used my influence in a certain direction. I feel that these two cases alone show the trend of the bank as a whole, and that we need to sift into the methods of dealing with these cases.
I heard of one case being turned down after several inquiries and interviews had taken place and in the letter turning the application down there was not a word of explanation. People who have gone to a great deal of trouble in making these applications and supplying the information asked for by the bank are entitled to some explanation in such cases. Their disappointment is very great, and they come to me and say: "What is the use of this bank? What earthly good is it, when we cannot get even the ordinary courtesy which we could get from any other bank or financial house? "I suggest that, even though many applications have to be dealt with, there needs to be a speeding up in dealing with them so that the people concerned are not kept in the air and made to say: "I will have nothing further to do with these applications." The Ministry of Labour ought to be concerned in this matter, especially when employment for 1000 men is involved in a matter which has been going on for three or four months without any satisfaction being obtained. What can one hope for in the long run? It passes my understanding that there is not closer co-operation and co-ordination between the respective Government Departments and the banks concerned. My experience has not been a very happy one in this matter, although I have endeavoured to do all that I could to get the best out of the scheme.
167 Some explanation should be forthcoming as to how the bank is functioning. Has it to go to the ordinary financial house or bank to secure the money necessary to meet the applications? If it has to take that course, why does it seek to impose upon applicants conditions which they know from the beginning the applicants can hardly carry out? Having regard to the facts which I have put forward, an explanation is due from the Treasury. There is a need for reconsideration of the terms of advancing loans and of the conditions outlining those loans, as well as for the speeding up of the applications when they are dealt with by the banks.
§ 10.34 p.m.
§ Mr. Mabane
When the Act was before the House, some of us expressed apprehension as to its effect. The speech of the hon. Member is some justification for the fears we then expressed. We thought that the Act would be misunderstood; the speech of the hon. Member indicates how exactly the Labour party are inclined to misinterpret any financial proposal. The short reply to the hon. Member is that, notwithstanding those strictures, in about 3½ months no less a sum than £250,000, that is to say a quarter of the total capital, has been agreed to be lent in principle. But I feel that the hon. Member was justified to this extent, that the House is entitled to ask the Financial Secretary for rather more information about the operations of this association than he has given.
Some time ago, in a supplementary question, I asked him what precisely he meant by a loan in principle. He kindly said that he intended to speak in the Debate later, and, therefore, I refrained from pursuing the question at the time, but I should like to ask him to tell the House a little more clearly what a loan in principle really means. Does it mean that the conditions on which the loan is to be made are such as the hon. Member for Whitehaven (Mr. F. Anderson) has just suggested—that in certain instances the borrower is required to provide a debenture on all the assets of the business? Would the Financial Secretary intend the House to understand that a loan has been made in principle if an intending borrower has been told that the money would be lent if he were 168 prepared to give a debenture? Would a sum be included within his figure of £243,000 if there were any other conditions of a similar character outstanding? I think the House ought to know that, because, while the figure of £240,000 for the total sum lent during 3½ months is encouraging, it is not so encouraging unless the House can believe that virtually the whole of the £243,000 would eventually be lent.
There are one or two more questions which I should like to ask, and on which I think the House is entitled to be informed. First of all, the House is entitled to know how the capital of this association was subscribed and how it is held. The Committee will remember that the condition of the subscription of the capital were somewhat different from those of the subscription of ordinary capital, and certain rumours were floating about the House and the City as to how it was being provided. I think the House might know precisely how it was provided and how it is held. Another matter to which the Financial Secretary did not refer in his speech, but to which considerable reference was made when the Bill was passing through the House, was the matter of the conditions on which the loans themselves were to be made. During the discussion on the Bill, questions were asked about the rates at which the loans should be made, and we were told we should have to wait until we saw how the association got to work. I think the House ought to be told at what rates the loans are being made, and what conditions are being attached to the loans when made.
Certain of the statements made by the hon. Member for Whitehaven were in some respects disquieting. At the time of the Bill the House was, I think, under the impression that the loans were to be made at rates substantially lower than is common with bank loans. The common rate for bank loans is, shall we say, 5 per cent., and the hon. Member for White-haven says the loans are being made at 5 per cent. Some of us did not exactly approve of the proposal to make loans at rates lower than bank rates, but that was the assurance given to the House, and I think we ought to know something about it, and also whether other conditions such as those which the hon. Member detailed are commonly attached to these loans.
169 I, personally, think that the hon. Member was rather misunderstanding the nature of the association's work when he complained that certain assurances were required to be given by the intending borrower. Surely, the distinction between an ordinary bank loan and a loan such as would be made by this corporation is that the bank loan is commonly a loan made for trading, whereas loans made by this corporation, as I understand them, are loans made for capital equipment—the kind of loans that a bank normally would not make. I was somewhat disturbed by the hon. Member's suggestion that, when people came along asking for loans, they were required themselves to put up an amount which in most businesses would be sufficient to enable them to get loans from a bank in the ordinary way.
I should like the Financial Secretary to give us another piece of information that he did not give us in his first speech, namely, what classes of business are comprised within these 42 successful applications? Are they similar or are they of a totally different character from those that are to be found within the Special Areas at the moment and, if they are different, what steps is the Special Areas Reconstruction Association taking to secure that unfair competition will not thereby be created for similar businesses in other parts of the country? Could the Financial Secretary give any details as to the amount of this sum of £243,000 which has actually been lent—passed over to the borrower? Will he also tell us to what extent that money has already been applied in the development of industry, and how much employment has been provided by the operations of this association? The questions that I have asked are in general the questions that some of us asked when the Bill was passing through the House. We were told then that they would be answered when the corporation had got on to its feet, and therefore I feel that the Committee is entitled to receive a reply in some detail to these points, which are of considerable importance and general interest.
§ 10.42 p.m.
Mr. David Adams
I hope the Treasury will see that the Act is carried out in its entirety and not partially, as is being done at present. There was the liveliest anticipation and hope on the North-East Coast when the Act was passed, but its 170 administration has caused very bitter disappointment, and the fact that only a little more than £250,000 has so far been advanced is in itself an illustration of the disappointment that is generally felt at the administration of the Act by this private company. The people there are looking, as a method of removing unemployment, to light industries, and the Chancellor certainly made it clear that those demands would be met, but that has not ensued. I remember at a meeting of the Tyneside Industrial Devolopment Board, a concern that is maintained by the riparian authorities on Tyneside by a voluntary charge of ⅛d. in the pound, the question of light industries came under review and it was agreed that £1,000,000 could then, eight years ago, be successfully expended in the extension of existing light industries and the creation of additional industries, so that the idea that this trivial sum, distributed over the whole of the distressed areas of the Kingdom, is in any sense meeting the obligations of the case is, of course, an absurdity. When the Financial Secretary states that they have expended a quarter of the total sum available, surely that is not the position. The Chancellor said that this £1,000,000 which was first to be advanced would be re-expended again and again. First, we are to be limited to £1,000,000, and then we have to agitate, as we are doing at present, to obtain more reasonable terms.
The pace of the investigation is altogether too slow. We were told that it would be only about four months. Applications were sent in as far back as July, and they should have been settled. I know of the case of a large concern which made an application for the maximum sum obtainable—£10,000. It was six months from the time they made their application to the receipt of the reply, which was in the negative, plus an explanatory statement that there would be a report at the end of six months. We are suffering from the disability of the Government placing this business into private hands for profit making, instead of the Treasury handling it themselves. I have had numerous cases brought to my notice which, in my judgment, and in the judgment of business people on Tyneside, should have passed all the tests set under the Act, but they have been refused. I can give one typical case of a new business. The 171 sum asked for was £3,000, and the sum offered by the Association was £1,000. In this concern there was a sum of £450 which had been loaned by one who was a partner at that time, but who withdrew from the business.
The terms which the Association lay down are that the loan shall be converted into share capital whether the person who loans the money wishes it or not. Then the managing director has to give a personal guarantee for the amount of the loan. Secondly, there is to be a first debenture as we have heard in other cases, upon the fixed and liquid assets of the company. Should it be prosperous over the period of the loan—five years—no dividends can be paid in excess of 71 per cent. The repayment begins at the end of 23; years, at the rate of £100 per annum, and in the last year the total is a sum of £500, liquidating the total amount of the indebtedness. I contend that, under the Act, the Company are not entitled to read into it that there should be a charge upon the assets of the individual management, in addition to the charge upon the business itself. They are not entitled to say to those concerned, "Any loans that you possess must be converted into share capital for our business and for our advantage. "It immediately is a loan upon the £1,000 advance, plus £450 of capital of a person who does not want to convert his capital into shares or give any additional lean upon it, such as is demanded. It is most unjust to ask for personal guarantees in addition to the borrowing capacity of a manager or of a shareholder or whoever is attempting to handle the concern. Such claims should not be insisted on.
Whether it is right that dividends should be restricted to 7½ per cent. should also be examined. Suppose it is a prosperous concern, as I am certain some of the new light industries on Tyneside will be. I know a firm who put their position before a strong financial company and were assured that dividends of 100 per cent. could be earned. Why should they be restricted to 7½ per cent. for five years? I could understand a provision that in the event of dividends being earned certain amounts should be set aside to ensure repayment. There is one thing I am glad to note—that the Government are granting sums of money in excess of the £1,000 which was to be granted under 172 a particular head, and that they are prepared to give in certain circumstances up to £20,000. In fairness to the Treasury, and with a deep sense of gratitude, I want to say that—although the terms are extremely onerous which are granted by the association—there is to be established a new industry in which there will be a total expenditure of £2.50.000. The advances of the association are covered many times over, or they would not have advanced the £20,000, but the North-East Coast will undoubtedly benefit by the operation, although not to the extent that the House was led to believe.
The Chancellor of the Exchequer stated definitely that the association was to go to the aid of sound concerns which could not obtain normal banking loans, but the stringent conditions adopted by the association make it more harsh than an ordinary banking transaction. It is said that two of my constituents were discussing the War and their former enemies, and one of them said, "Yes, and they described themselves as Christians," and the other replied, "They were worse than Christians." Persons I have met have similarly said, "And they call themselves bankers, demanding those terms," and another has said, "They are worse than bankers." We are anxious that the Act should be worked on more generous lines. I know several cases which have been examined by sound business men on Tyneside, and in which this money cannot be used because of the terms insisted on. If the Treasury were to operate this Act not in the interests of a banking corporation but in the interests of the Special Areas and of the unemployed in those areas, I am certain we would solve to an unexpectedly substantial degree much of the unemployment on the North-East Coast.
§ 10.55 p.m.
§ Mr. Harold Mitchell
I intervene for only a few minutes because I happen to have had some contact with the Special Areas Reconstruction Association. I have listened with a great deal of interest to the points of view put forward, and there are certainly one or two directions where the Government might consider modifying the attitude of the association. A good deal has been said about the rates of interest. I think that the rate which, 173 I understand, the Special Areas Reconstruction Association asks, namely, 5 per cent. or 5½ per cent., might be modified.
§ Lieut.-Colonel Colville
It might be advisable at this point to make clear the position with regard to the rate of interest, to which various references have been made. My information is that no rate higher than five per cent. has at any time been quoted by the association. In a number of cases the rate has been lower. I am further informed that the association quite recently have agreed in cases where 5 per cent. has been quoted to reduce the rate of interest to 4½ per cent., and those concerned have been notified. Therefore, I understand that at the present time no rate higher than 4½ per cent. is being quoted.
§ Mr. Mitchell
I am glad to hear that statement. I saw a filled up form recently, and my recollection is that the figure was 5½ per cent. Therefore, I am delighted to hear that there is a probability of 4½ per cent. being charged. There is a good reason for charging not too high a rate of interest, because I understand, subject to correction, that the money subscribed by various bodies, such as investment trust companies, has been subscribed at a very low rate of interest. I have heard some of these people complain of the low rate of interest at which they were expected to subscribe the capital required.
A further complaint seems to be that the association have not been sufficiently quick in responding to applications. That, obviously, is a very vital consideration, because unless you can get a reply to an application quickly, the thing is not worth bothering about. On the other hand, I do not think that we can at this early stage condemn the association. It is performing a useful function which cannot be carried out by ordinary banking. No bank wants to put capital into a new industry and particularly a small one and that is what you are asking the association to do. The hon. Member for Whitehaven (Mr. F. Anderson) complained that the association would not put up more capital than the people who promoted the company. I do not think it is unreasonable to ask the people promoting the company to put up as much capital as you are asking someone else to lend.
§ Mr. Anderson
That is not the spirit of the Act. Was riot the Act set up to deal with cases that cannot ordinarily be dealt with through the banks? If that be the case, how can the individuals who are in a small way find the capital?
§ Mr. Mitchell
Capital is very cheap nowadays, and if a proposition is sound it is not so difficult as the hon. Member thinks to get money advanced. I do not think that it is unreasonable to expect those concerned in the promotion of the company to provide an equal amount of capital required for the project, nor do I think it unreasonable in the case of the association, which is lending other people money, to be given a bond or debenture over the assets of the company or undertaking to which they are lending money. It is no use looking at S.A.R.A. as a sort of fairy godmother who is going to get us out of our difficulties in the Special Areas. In a small sphere it can do great good, and there is no reason why with more experience it should not perform a most useful function. One reason why we are getting complaints, which are no doubt perfectly reasonable, arises from this fact. In each local area S.A.R.A. is composed of very capable gentlemen.
§ Mr. Mitchell
Everyone connected with the organisation calls it S.A.R.A. The members running the organisation are capable business men, and it seems to me a waste of time that after they have approved a project it should have to come to London for confirmation. That is the real reason for the complaints, and if that could be expedited much good work could be done by this useful body. It is far too soon to condemn this organisation. Hon. Members must not imagine that it can get us out of our difficulties in the Special Areas; it cannot do that, but it might do something to start new industries which otherwise might not start there. For that reason I think we should pass the Vote and ask the Government to do what they can to encourage the organisation to speed up its work, and, if possible, extend its activities.
§ 11.3 p.m.
§ Mr. Assheton
It is refreshing to capitalist ears to hear that capital is so 175 valuable and popular, and it is unavoidable that in a new experiment like this there should be a certain amount of criticism. I listened with interest to the criticisms of the hon. Member for White-haven (Mr. F. Anderson). He said that many of those whose applications were refused were not given reasons. Anyone who has had to do with lending money or finding capital for business has often found that it is difficult on occasions to give the reasons why it should be refused. It does not mean that there are not good reasons; it means that it is in the best interests of the borrower and lender that the matter should not be further discussed. The hon. Member complained about an insurance policy being asked. I do not think it is un-reasonable for a lender to make such a suggestion. It is a piece of normal business which must vary in accordance with the case in point, and in certain circumstances it may form valuable collateral security.
The rates of interest were also challenged. Anybody who gets money at 4½ per cent. to-day is doing very well. If hon. Members will take the trouble to study the prospectuses which are issued in the newspapers and see the rates of interest which people have to pay for much larger sums of money, in concerns which carried no greater risk, they will realise that a rate of 4½ per cent. is exceptionally favourable to the borrower. The hon. Member criticised, rather severely I thought, the fact that a larger amount of capital was required to be put up by the borrower than S.A.R.A. was prepared to put up. I do not think that is a fair criticism, because I do not imagine that when those who are responsible for S.A.R.A. are making their calculations, they insist on the borrower putting up as much cash as they are prepared to advance. All they say is that the assets already in the business in the form of fixed capital, buildings, and so on, should exceed the amount which it is hoped to borrow.
§ Mr. F. Anderson
May I be allowed to say that in the cases that I quoted, they insisted that there should be more in actual cash?
§ Mr. Assheton
That may well have been so in those particular cases, but I do not think that is a rule on which they insist. 176 The hon. Member also said that ordinary financial houses were quite ready to put up ordinary and preference shares for such projects as these. Surely that cannot be so, because this association is able to undertake business only when ordinary financial houses will not put up money. Therefore, that criticism is not very important. It has been said that S.A.R.A. is slow. I think it is inevitable that an institution such as this should be rather slow. In the first place, it is to some extent under the auspices of a Government Department. Hon. Members opposite have had experience of Government Departments arid they know that Government Departments cannot be expected to work as quickly as business men do. That is one of the inherent objections to Socialism. If S.A.R.A. is slow, I think we can only put it down to the fact that she is connected with a Government Department.
The hon. Member for Whitehaven (Mr. Anderson) also said that a debenture was asked for. I cannot see anything unreasonable in that. The people who are lending this money have to do their best to see that it is securely lent, and the best way of securing it is by having a debenture over the assets of the business. On the whole, I think a good start has been made. Nobody expects this Act to do a very great deal towards solving the problem of the Special Areas, but it is one attempt to do something for those areas. I hope hon. Members opposite will not think small things are necessarily bad things, because a little here and a little there mounts up to a good deal, and will help one day to solve this great problem.
§ 11.8 p.m.
§ Mr. Magnay
I would like, in the first place, to congratulate the Financial Secretary upon the amazing statement which he made in the short time at his disposal. I agree with him that the important thing is to get an assurance that money will be forthcoming. I know that if I can get a letter from a reputable firm showing that I am to get a certain sum of money, I can take that letter to the bank and get an overdraft upon it. I would urge upon the Financial Secretary that the Treasury should take a keener interest in this association and speed up its working. Several cases in the north which have been put before the Area 177 Board on the Tyneside have been brought to my notice. With regard to the Area Board on the Tyneside, let me say that if we could have deliberately chosen the members of that board, I do not think we could have got better men for the job. They are knowledgeable and competent business men, and one of them was well-known in the House as chairman for many years of the Legislation Committee. When applications have been passed by them and sent to the Central Board, they have been arbitrarily—it could not have been done in commonsense—sent back to the Area Board on the Tyneside.
In one case of which I know a sum of £1,000 was asked and £500 was allowed; in another £500 was asked and £250 was allowed. It seemed almost that in order to get any sum which was required, it was necessary to ask for twice as much. I think that is not business at all. These people were not in my constieuency but they came to me as a man who was competent to look after their interests. People from all over Tyneside put their cases to me. I cannot give the names of the businesses, but in one case I sent the parties to a solicitor friend of mine and to a wholesaler in the business and they got better terms than the association was able to offer, with the result that a private company is now being formed and is likely to succeed. In another case the application was before the district board and the London board for nearly six months. It was a radio company and as a result it lost the Christmas trade and everyone knows that Christmas is the time when those businesses make hay while the sun shines. [Laughter.] Yes, at Christmas the sun shines better in many businesses than at any other time of the year. In other cases arbitrary decisions were made that only half the amounts applied for should be granted. While congratulating the Treasury on the amazing progress made in four months of active work, I submit that they ought to take a closer interest in the matter.
§ 11.13 p.m.
§ Mr. Mainwaring
This Debate seems to turn upon the point of whether or not the Government can prove that this old maid is likely to prove fruitful. Abraham, speaking through the Government, has endeavoured to convince Sara that in principle, she has already had many Isaacs, but unfortunately the cradle is still 178 empty, and this distinction between principle and fact, does not satisfy anyone from the Special Areas. It is surprising that the Government should labour so much this endeavour to prove that something has accrued from the proposals which were first mentioned in the Budget speech of last year. We are entitled to relate the achievements of this association to the declaration of aims with which the Chancellor of the Exchequer brought forward the proposal. He emphasised particularly the difficulties which must inevitably be experienced in these troubled parts of the country, pointing out how the situation there was dark and dismal, and so unpromising from every business point of view, that it had become necessary to provide some extraordinary inducements before any owners of capital or those who are likely to venture other people's capital as well as their own would be prepared to invade these areas. I think we can justly claim that the association was brought into being specifically in order to provide that extraordinary inducement to meet extraordinary risks. If there were no extraordinary risks to be faced, it would be fair to assume that every would-be capitalist would get his loans from the ordinary banking and financial institutions. The Chancellor of the Exchequer said that the Government were convinced that they were not likely to obtain this money, the loan capital that they require, from any existing financial institution, and therefore, by the provisions of the Act, the Government provide a source from which an individual would get money where otherwise it would be unobtainable. If that is the case, surely one is entitled to assume that the Government were not only going to provide money that other people would not, but likewise that they were going to fulfil the second consideration, that they would also provide the inducement to come to them.
It was very interesting this evening to hear the Financial Secretary say that the rate of interest has suddenly been reduced. How suddenly has this decision been arrived at? The "why" is easily explained. It is that the Government are on their test to-night. They have' to justify the repetition of this futile piece of machinery, but when was this decision made to reduce the rate of interest from 5 to 4½ or even to 4 per cent. in some cases? There are not sufficient schemes which have been granted money in South 179 Wales to have even one each of those three rates of interest. I should like to ask how many schemes in South Wales, not in principle, but in fact, have received money from this association, and it is the question of fact that is of interest to the Special Areas. We want to know how many little Isaacs we are going to have in South Wales. Up to now, I know of one, and up to this morning the information that I have got from South Wales was that the rate of interest was 5 per cent. Indeed, I might develop a point that has already been mentioned, that the people who administer the provisions of this Act, the South Wales Committee—if it is not known in this House, it is notoriously a fact in South Wales—that the South Wales Board are prepared to resign now and finish with it because of the utter futility of it. Of that there is no question at all. The board in South Wales revolt against the terms of this association and their own lack of powers much more vehemently than anyone can speak in this Committee, and that if there need be any further condemnation, there it is in those words. I do not want to say that the fault is upon those in charge of the association itself in London. The fault lies at a very obvious point. It is in the terms of the association itself. The Chancellor proudly came forward and the Government decided to raise £1,000,000 of capital for the association. They hemmed it in, however, with such retrictions that all the members of the board of the association will have qualified for a pension at 100 years of age before they have spent the £1,000,000. The restrictions make it impossible for them to go on. The very idea the Government had in mind condemned the whole thing. The aim is to revive industry in areas which are derelict. The difficulty, they said, is that no man will under normal conditions venture his capital in such areas; and that they must provide assistance for anybody to go into those areas. Then the Government said: "We ourselves must make a profit out of whoever goes there." This association, also, must have its profit and interest on its capital; it must make sufficient to have a reserve and make enough money to meet any losses. It is only in certain contingencies and up to a certain limit that the Government are 180 prepared to meet any losses. The Government admit that it is unlikely that anybody will go to the Special Areas and that people must be induced to go there. They they calmly turn round and say that they will make a profit out of whoever does go there. The decision is so utterly unreal that it is difficult to understand how even this Government of all the mistaken talents could possibly ask the House to agree to it. If this is all they have to say to-night what are we to expect from them when they promise to bring in another effort to deal with the Special Areas?
§ Mr. Mainwaring
I do not know whether S.A.R.A.'s sister will be as barren as S.A.R.A. She had a younger sister who died 12 months before she was born, because S.A.R.A. is the second attempt of the Chancellor. We have an old saying in Wales, "A Welshman has three tries." I think we are justified in saying that this proposal gives us some inkling of the manner in which the Government view this problem. Is this an indication of the scale on which they are going to deal with the Special Areas. Lord Nuffield has insulted the Government—
§ Mr. Mainwaring
I am saying how utterly inadequate this proposal is, and when one individual in the country has a larger estimate of this problem than the whole of the Government put together, it is surely a condemnation. The Government suggest £1,000,000 paid out in 100 years, because that is the rate at which it is being spent. They feel that in 100 years time they will somehow come to grips with one small factory established somewhere in one of the Special Areas. It is an insult not only to this House but to the millions of people who are waiting for something to come of all this talk. A number of us here have been hoping, despite our pessimism about this Act. I expressed my pessimism when it was produced, and said that the present year's Budget speech would be delivered before anything came of this proposal. Nothing has come of it yet in South Wales, and I do not know how many more Budget speeches we shall have to listen to from the present Chancellor, repeating these 181 vain promises of help for the Special Areas. I was glad to hear the hon. Member for Huddersfield (Mr. Mabane) so critical this evening. He would have been more useful to the people whom he represents and whom I represent had he had a little more forethought, had he seen these loopholes when the Measure was under discussion.
§ Mr. Mabane
I think it has been ruled that on this Estimate we cannot survey the whole merits of this plan and I suggest that the hon. Member is doing so.
§ The Chairman
Unfortunately, I was not present when the previous Ruling was given, but I was on the point of rising to interrupt the hon. Member, because he has certainly gone beyond the discussion of what is in this Estimate.
§ Mr. Mainwaring
But the matter under discussion is that the Government are asking us to renew this Act.
§ Mr. Lawson
This Supplementary Estimate deals with the only really effective part of the Government's policy in the Special Areas, and is the hon. Member to be limited to a mere reference to it, and make no extended reference to the Special Areas policy?
§ Mr. Mainwaring
The Government are asking for this special Vote for this purpose, and if the Vote fails this thing falls to the ground. In so far as they are asking us for a vote of money they are asking us to renew the terms of the Act.
§ The Chairman
I think I had better put to the hon. Member what it is that in my opinion can be properly discussed on this Vote, and that is the administration of the Act for the expenses of which this money is asked.
§ Mr. Mainwaring
I think it is clear from what we have heard that the administration of the Act has failed to justify the hopes of the Chancellor of the Exchequer. On all hands we have had Members giving examples of what happens when applications for loans are made. The 182 applications are sent in, weeks and months pass while they are under investigation, and then, eventually, the grants may be approved "in principle," as we have been told by the Financial Secretary. Thereafter there are weeks and months of negotiations with the hopeful recipient to determine on what terms he is to receive the capital which in principle has been allotted to him. "Can we give it at 6 per cent., or 5 per cent.?" To-night it has come down to 4½ per cent.
§ Lieut.-Colonel Colville
Let me correct the hon. Member; at no time has the association gone beyond 5 per cent.
§ Mr. Mainwaring
At any rate, they discussed it before they came down to 5 per cent., and it was only because they could not very well ask for more that they stopped at 5 per cent.
§ Lieut.-Colonel Colville
The hon. Member is wrong about that. The decision was made a short time ago, in the light of the experience of the working of the association.
§ 11.35 p.m.
§ Mr. Mainwaring
I suggested a week; the Financial Secretary says "a short time ago." How much difference is there? In any case, the decision has been made recently, and arrived at because of the difficulties of the administration itself. They failed to find satisfactory proposals coming to them from the association. Efforts to obtain capital failed. The administration is never going to fulfil the expectations aroused by the Act. You cannot expect a revival of industry in North Wales or in any of the Special Areas. Time and again it has been stated that some inducement must be given, but the administration fails utterly to provide any inducement to people who are prepared to adventure their capital into our Special Areas.
Motion made, and Question,
That the Chairman do report Progress, and ask leave to sit again."—[Captain Margesson.]
§ put, and agreed to.
§ Resolutions to be reported To-morrow.
§ Committee report Progress; to sit again To-morrow.