HL Deb 28 February 1929 vol 72 cc1193-203

Order of the Day for the Second Reading read.

THE EARL OF AIRLIE

My Lords, I beg to move that this Bill be read a second time. It was introduced after very careful consideration by His Majesty's Government, who, as your Lordships are aware, are pledged to find credit facilities for agriculture. It has been fully debated in another place, and most of your Lordships will probably be familiar with the main provisions of the measure, but perhaps it may be convenient if I very briefly summarise the scheme. The Bill is divided into two Parts, Part I dealing with long-term credits, and Part II with short-term credits.

The object of Part I is to set up an agricultural security company, with capital, which can make advances to farmers. This Part of the Bill was primarily devised to assist tenant farmers who were in danger of losing their holdings through either the whole or part sale of the estate to which their holdings belong, and who could only safeguard themselves by becoming the purchasers. The proposed company would be in a position to make advances to the tenant repayable over a period not exceeding 60 years. Perhaps I should state here that the power to make advances would not be limited to the sitting tenant. An Amendment was proposed in another place, but was withdrawn by the proposer when he realised that it was not a sound business proposition, to ask the proposed company, who could only, after all, concern itself mainly with the security offered, to distinguish between one or two persons asking for a loan, merely because one was the sitting tenant, whose offer might be so inadequate as to be completely unacceptable.

The company would also be in a position to male advances to farmers who have already bought their farms, but who may have had to give a bond over the property which might be liable to be called up at any moment. The advantage of this arrangement will be quite obvious to your Lordships, because it will enable the farmer to determine his annual liabilities for a definite period of years, instead of leaving him liable to a sudden call upon his resources which he is entirely unable to meet. The company will also be empowered to make advances to any class of landowner to make permanent improvements under the Lands Improvement Acts. The need for an institution such as this has been felt for some time and has been increased by the fact that lately from one cause or another landed estates have been placed as a whole on the market, or have been split up and sold in small lots, so that tenants are faced with the alternatives of buying their holdings or getting out. Since the War the farmer's costs of production have risen so that he has a greater need of working capital which leaves him even less money by which he might possibly purchase his holding. By this measure, the Government feel that they are laying the foundation of a long-term credit schema in Scotland which will help to carry out the policy which has always been held by the Conservative Party to be a right and sound policy, that is, to increase as much as possible the number of landowners in this country. The principal agricultural societies in Soot-land have passed resolutions in favour of this scheme.

Turning to finance, the only expenditure in this Bill which will fall upon public funds comes in Part I, Clause 1. First, there is a guarantee fund which the Government are to give and which is not to exceed £125,000. This fund is to be free of interest for 60 years. Secondly, the Government are to give any sums that may be required for procuring the underwriting of the debentures up to £800,000 of debentures. Thirdly, they are to give an annual payment of £1,750 for ten years towards the administrative expenses of the company. The expenditure under the first two heads will fall upon the Consolidated Fund and the other will fall on the Vote for the Board of Agriculture. The Treasury may also subscribe sums not exceeding £200,000 in the aggregate towards taking up debentures. The share capital which is to be raised by the company and the guarantee fund which is advanced by the Government are to form the initial capital of the company. The guarantee fund is to be pound for pound—the share capital is to be not exceeding £125,000 as also is the guarantee fund. Under Clause 2 (3) (b) the dividend on share capital is restricted to 5 per cent, per annum. Later it is hoped that the debentures will form the main capital for financing operations. The rate of interest charged on the loans to farmers will greatly depend upon the rate at which the debentures can be issued. Under Clause 2 (3) (c) no loans on heritable security are in any case to exceed two-thirds of the estimated value. Bearing these facts in mind, it is hoped that the advantages of the scheme may induce investors to take up debentures at a rate of interest which will enable loans to be made to farmers on favourable terms.

I now come to Part II There is no difference in principle between Part I of this Bill and Part I of the English Bill, hut in Part II there is an essential difference. In each case the purpose is to enable an agricultural charge to be created in favour of a bank over floating assets, but the English Act provides for the creation of such a charge over the stock and crops, whereas in the Scottish Bill it is limited to the creation of a charge in favour of a bank over stocks of merchandise belonging to an agricultural society. The question of extending the provisions of the Scottish Bill so as to provide short-term credits to individual farmers has been carefully considered. The title of the Bill which was introduced last Session was altered in order to allow discussion on this Bill and amendment, if it should be thought desirable. Since the Bill has been in print this question has been a source of controversy. The Farmers' Union in Scotland has been in favour of short-term credits but the Chamber of Agriculture, a similar body consisting of tenant farmers and others interested in agricultural matters, are against it.

The Government feel that in framing this measure on its present lines they have gone as far as it is wise to go at the moment in Scotland. The introduction of the "chattel mortgage" system in Scotland would be a very great innovation and a greater innovation than in England. "Chattel mortgages" have been a fact since October, 1928, in England but it is not an entirely new departure. In England there is something of the sort in the bill of sale. In Scotland there is nothing of the kind. The various legal bodies in Scotland are opposed to the "chattel mortgage" system and, with the diversity of opinion among the agricultural community, it is felt to be better to wait and see bow the Englishman fares before we go further. With these remarks I would ask the House to give a Second Reading to this Bill as the Government feel that this measure will be an obvious benefit to agriculture as a whole.

Moved, That the Bill be now read 2ª.—(The Earl of Airlie.)

VISCOUNT NOVAR

My Lords, I may perhaps be allowed to congratulate the noble Lord on the very lucid manner in which he has introduced the Bill. No doubt, as a great Scottish landowner, he appreciates the need of facilitating the inevitable transfer of land on a large scale which is going on at the present time from the owner to the occupier. There is indeed no other alternative in view of the unfair incidence of Income Tax, Super Tax, Death Duties and rates for the many social services. Before making one or two criticisms I would remind the House that that process of transfer is already facilitated in Scotland more especially through the cheap loans which are made available. I admit, of course, that that process should be still accelerated. Under their cash credit system the Scottish banks lend freely to farmers with and without securities pledged, and often against the guarantees of other farmers.

Apart from that, loans are made at commissioners' rates by lenders to farmers. That is a rate which is fixed by experts periodically as being a fair basis for transactions between borrowers and lenders on heritable property and that rate is very generally adopted. Landowners often borrowed at that rate, which stands to-day at 4¾ per cent., for agricultural improvements, and now also they lend at that rate to tenants and others to facilitate transfers—to promote the sale of their farms. Your Lordships can compare that rate with the rate under the Bill, which is higher. There are many cases of forced sales, where purchase money is left on bond at commissioners' rates, sometimes even the whole price of the farm has been left on bond over the farm at a rate which is now 4¾ per cent., and the repayment of that money, which is done by agreement, may extend over thirty or forty years; so that the system of long-term credit was not quite unknown even before this Bill was introduced. But because owners were forced to sell under pressure of the public burdens, and must have purchasers as the only way out of the impossible position in which Parliament places them, the owners are driven out of the land system which they did no much, from custom or sense of duty—certainly not for profit—to maintain, and thus we lose a system which was at once attractive to capital and flexible in its working to a greater degree than any other, and the country, too late, is beginning to find out.

Part I of the Bill, as regards long-term credit, would be valuable were the interest low enough, say, the 4¾ per cent, already obtainable. A low rate depends on the Government guarantee, and that guarantee has been refused. It might be a guarantee of capital, or it might be a guarantee of interest. Since coming into the House I have heard from the noble Marquess, Lord Linlithgow, who speaks with some authority on this subject from having been engaged in the investigation of this and other similar problems in India. He says:— After exhaustive inquiry the conclusion at which we arrived (and I know of no reason why this should not be strictly applicable to Scottish conditions) was that the most effective method by which Government can encourage investment by the public of long-term money in land mortgage banks is by the guarantees of interest, but not of the principal. I do not know whether this point of guaranteeing the interest has even been considered by the Government, but I would highly recommend Lord Linlithgow's opinion to their attention. The Government could then insist on measures calculated to protect it against loss.

The noble Marquess further says:— A moderate rate of interest on loans to farmers is an essential part of any such scheme, and, with amortisation to be provided for, it is very necessary that funds should be borrowed from the public as cheaply as possible. It is not enough to label a security a Trust investment, in order to attract investors, and without a Government guarantee it seems very questionable whether the debentures will be readily taken up by the public. As a director of a Scottish bank I am very strongly of that opinion myself. Lord Linlithgow also says that if the Government will guarantee the interest on the debentures, the provisions for the guaranteed fund of £125,000, for the procuring at a cost to the Treasury of £10,000 of the underwriting of the debenture issue of £800,000, and for the taking up by the Treasury of the debentures to the amount of £200,000 become redundant, and should be scrapped, and with the scheme so simplified there would appear to be no reason why the company should not rest on the resources of the Board of Agriculture for the necessary administrative services, thus effecting a material reduction in administrative expenditure.

Lord Linlithgow makes another excellent suggestion which is one that had already occurred to me, namely, that— applications for loans might well be examined by a small advisory board of non-official persons, skilled in agricultural and business matters. The banks would, no doubt, be found willing to receive and transmit applications from prospective borrowers, and at the same time to place at the disposal of the advisory board their knowledge of the suitability of applicants, of which full and accurate information is most necessary for the successful working of the scheme. On the Second Heading in another place, the Lord Advocate made it plain that the Government was not concerned to find loans at any specially cheap rate, and it is this which takes any real value out of the Bill.

The history of this legislation is illuminating. The Government, pledged to help farmers, negotiated with the English banks for a year or two. Under the lead of the Bank of England, which subscribed to the Mortgage Corporation capital, they reluctantly agreed to participate, though with one marked ex- ception—the Midland Bank, presided over by an ex-Chancellor of the Exchequer, who may be expected to know something of the business. The English Bill passed last July. The Scottish banks were never consulted till the end of June, a few days earlier, to be then confronted with this fait accompli. From the first the Scottish banks objected to the idea that they should provide the capital of the proposed Mortgage Corporation and manage that concern. They objected, not because of the amount of money involved as individual sharers of the capital but on a really important principle. It is no part of a banker's business under Government pressure to put capital into and undertake the management of a corporation formed to finance a particular industry. In the event of pressure having to be put on defaulting farmers to enforce, payment of principal and interest it puts the banks in an invidious and very objectionable position. The banks are saddled with the Government's scheme for an indefinite period and will be blamed if it is a failure.

As regards the issue of debentures to the public they would prefer not to be associated with these. Although they will be named "trustee investments" they scarcely come in that category. The banks were further aware that in Scotland, at any rate, under the system of cash credits which has done so much in the last 150 years to develop agriculture in that country, liberal advances are made to the farming community. The official mind seems to be under the extraordinary illusion that every farmer who buys his farm must of necessity borrow heavily in order to buy. Also they seem unable to realise that the seller may leave money on bond in the way that I have already described. The one real argument used in the conferences with the Scottish banks was that, most of the English banks having fallen in with the scheme, the Scottish banks had only to follow. Now there are few of us to-day who believe in Home Rule for Scotland but this sort of thing might help to revive it, because there are wide divergences between the two countries that have to be recognised, and this is one.

The Government undertook to consider amendments and then refused to do so at the conferences. The result is that four more or less reluctant institutions have agreed to put up their share and four banks have declined to take part in it at all. The Committee in another place was left in the dark as to how the other part of the capital was to be replaced, while the Lord Advocate, in Standing Committee debates on February 12 and 14, spoke of the four banks who had come in as "public-spirited." That was unfair to the banks who had offered to render every assistance by supplying information and so forth as is also the inference to be drawn from his reply, that only those banks coerced into support are sufficiently interested in the farmers to operate their credits. Again, to judge from the Committee Report, and the short period of the operation of the English Act in England, it seems that this Act may be abused by banks holding shares in the Mortgage Corporation in order to take business from those institutions who have the courage of their convictions. The Government, in my opinion, should have accepted the second part of Sir Robert Hamilton's Amendment on February 12— In subsection (3) (c) 'Provided that no applicant for a loan shall be debarred merely by reason of the fact that he is not a customer of one of the shareholding banks.' If any farmer in Scotland has not got the right to go to his own bank and put in an application through that bank to the agricultural corporation if his bank does not happen to be a shareholding bank, it is really an act of restraint of trade and an abuse of public money.

This, I would point out, may happen to about 50 per cent, of the Scottish farmers, as only half the banks are within the scheme. I cannot help thinking that had the Committee in another place been aware of that fact, they would have insisted on Sir Robert Hamilton's Amendment, which was only defeated by 20 votes to 15. It should not be in the power of a company using public money to abuse the position as indicated. The Secretary for Scotland indeed suggested that this would be a lever to force the other banks into the scheme. Sir Archibald Sinclair quite rightly pointed out that it was not the business of Parliament to do that. Upon this point the Lord Advocate did not fairly represent the position. When negotiations were going on it was never suggested that any bank standing out would have its customers debarred from facilities. Therefore his argument about altered arrangements does not hold good. He was also wrong about the value of "vetting" by constituent banks, as was the Secretary for Scotland. In what respect will the Corporation be better advised by a constituent bank pushing its own client on them as compared with one of the other banks? Are we to infer that only those who see eye to eye with the Government are "honourable men," under severe pressure? The Department for Overseas Trade, to give an example, depends partly on the recommendations of various banks. Why should banks be honest with one body and dishonest with another? I venture to urge the Government to show more respect to individual opinion and to adopt the Hamilton Amendment or, better still, to recast the Bill. There is not the slightest reason why the banks should have been asked to own and rim this Corporation.

As regards Part II, with which I will deal very briefly, the banks indicated that although "chattel mortgage" would benefit banks it would spoil the farmer's credit and, therefore, they would not support the change. The effect of that is to make a fundamental change in the law of Scotland by a side issue. In England you get a floating charge over assets. In Scotland, to make sure of your assets you must by the law have actual possession. Therefore, "chattel mortgage" is to be limited to somewhat mythical agricultural cooperative societies and thus coercion is applied to the reluctant farmer to become a cooperator under Act of Parliament. The Lord Advocate, it is true, did not seem to like the innovation. He might have applied his argument against forcing a measure against the wishes of the people to forcing a measure on banks, who have no votes, against their wishes. But I will not take up your Lordships' time by quoting those observations.

In conclusion, I have only to say that what the Government should have done was to operate through some existing mortgage corporation with a strong advisory committee of experienced, public-spirited men, which could very easily have been constituted. The banks would have been delighted to assist a corporation of that nature in every possible way. It seems really inexcusable that the banks were not consulted more than two years ago, for the most serious problem of further assisting land transfer remains unsolved by the present Bill.

LORD BLEDISLOE

My Lords, I do not know whether it will be regarded as temerity for one who is a mere Englishman to express an opinion upon a Scottish Bill, but I should like not only to express my entire concurrence with the general objects of this Bill, but to congratulate Scotland on the relatively prosperous condition of what is here the most depressed industry. I should have thought that, bearing in mind not only the shrewdness and skill of the Scottish farmer but the relative financial soundness of his industrial condition, the Government might see their way in Scotland to guarantee at least the interest on these mortgage bonds or debentures or whatever the nature of the security may be, seeing that the loans are not to exceed 66 per cent, or 2/3rds of the present value of the land upon which there long-term loans will be obtained. I imagine that in Scotland, as in England, capital values have been considerably depressed during the last three or four years compared with what they were immediately after the War and that, presumably, capital values are something near to rock bottom and are not likely to afford a less adequate security for advances of money in the future than they have in the past.

I can only imagine, especially judging from the illuminating forecast of the fate, or potential fate, of all capitalists, including land capitalists, in this country, recently uttered by the Chancellor of the Exchequer, that it is possibly the fear of what may happen under a Socialist Administration which makes the Government reluctant to provide a guarantee in this connection, but I should like to mention, with some experience of what is happening in Continental countries competing with ourselves in agricultural enterprise, that there is no country with which I am acquainted where the Government, would be reluctant to give the guarantee that the noble Viscount asks for, or indeed there is no country in which the Government would not be prepared to extend help to the agricultural industry which they would be reluctant to extend to any other industry in the country, bearing in mind its exceptional importance from the point of view of national stability. There is another thing I think worth saying and it is this. In every other European country, at any rate Western European country, agriculture is conducted far more on a credit basis than it is in this country, and agriculture in this country is carried on to a less extent on a credit basis than any other of the great industries of the country. I cannot help thinking that the Government might feel more confident in providing attractive terms to farmers in view of the large amount of capital which, relatively, they invest in the business that they carry on at the present time under none too cheerful conditions.

On Question, Bill read 2ª, and committed to a Committee of the Whole House.