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Schedule—(Matters To Be Provided For In An Agreement Between The Treasury And The Special Areas Reconstruction Association Limited)

Volume 312: debated on Monday 11 May 1936

The text on this page has been created from Hansard archive content, it may contain typographical errors.

5.55 p.m.

I beg to move, in page 3, line 8, to leave out paragraph 2.

The paragraph reads:
"2. The payment by the Treasury to the company in respect of every year of the amount expended by the company in administration expenses in respect of that year, or of a contribution of twenty thousand pounds towards those expenses, whichever is the less."
I think there might be given an opportunity to the Government to indicate the nature and extent of the services which have to be rendered in return for this substantial sum of money, because the company which is to be incorporated is not a great operative company, but purely a lending concern, and I do not know to what extent its activities will be carried on. I have no idea what premises it is likely to require, what staff it will engage, or what general expenses one can reasonably expect to be incurred by the company. We are informed that the maximum unit of loans to be granted in each case will be £10,000, and if the whole amount were used up that would mean 100 clients. Is it reasonable to expect them, therefore, to go to an expenditure of £20,000 a year? It is true that the words "or … less" appear in this paragraph, but the very fact that the Treasury commits itself to providing £20,000 if necessary is a very large inducement for it to do so, and I think there ought to be proper safeguards laid down.

I should like to know what the Chancellor of the Exchequer has in mind. Unless there is a reasonable amount of services rendered to justify this expenditure, they are laying themselves open to a sum of public money being spent for which there will be no return. One has to realise that the nominal capital is £1,000,000. I have heard no one suggest that it will be turned over in one year or even in three, four, or five years, but the £20,000 may be expended each year in the circulation of this £1,000,000, and it will be an extraordinary situation if we set up a Corporation in the hope that it may circulate £1,000,000, and it fails to do so at least for five years, and we find that it is expending at the same time a sum of money greater than it has been able to lend.

5.58 p.m.

The hon. Member will appreciate that the £20,000 is a maximum limit and that the amount which the Treasury will contribute is the actual amount of the expenses, provided that that amount does not exceed £20,000. If you are to have a limit at all, you must obviously have a limit which will not hamper the operations of the company, and the limit, therefore, has to be put at that level which contemplates the maximum activity on the part of the company. The hon. Member is quite right in supposing that the company is not likely to begin with an administration bill of anything like £20,000, and as the Treasury is going to make this contribution, naturally the Treasury will have an opportunity of seeing, through its agents, how this money is being expended and of making sure that it is being expended properly.

The hon. Member must also bear in mind that although this company is not an operative company in the sense that it is carrying on the business of manufacture or distribution, the business of lending, in the peculiar circumstances which we are contemplating here, is not by any means a simple matter. We are contemplating, not the ordinary risk scheme of financial houses, but something going beyond that, something which requires, therefore, a particularly careful and detailed investigation of the circumstances in each case. If £10,000 is the limit, in the ordinary case, of the amount which may be advanced to any particular firm, the hon. Member may be sure that the average amount of loan will be considerably less than £10,000, and if, therefore, the operations of the company turn out to be successful, and their help is found to be in great demand, then they will be investigating possibly the affairs of a large number of concerns in a number of different areas. The hon. Member must remember that South Wales is not the only Special Area, and that we have to consider other Special Areas as well. When all these things are put together and it is considered that each area has to have a staff engaged in the work of investigation, it will be realised that this is a case where administration expenses may be expected to be higher than would be the case in an ordinary commercial venture. Seeing that the object of the company is not to make profits, but, rather to fulfill a matter of public interest, I think the hon. Member will agree that it is proper that the Treasury should be authorised to pay these expenses.

6.1 p.m.

I desire to suggest to the Chancellor that it will be necessary, if he is to apply this scheme to Scotland, to consider that companies may be floated in different directions from that in which they will be floated in England. There is a valuable belt of minerals—

Amendment, by leave, withdrawn.

The following Amendments stood upon the Order Paper: In page 3, line 17, at the end, insert:

"It shall be permissible for the company to invest all or any part of its reserves in further loans."—[Mr. Ede.]
"4. Loans by the company shall be made at a rate of interest not exceeding 3½ per cent. per annum."—[Mr. E. J. Williams.]
"4. If in the opinion of the company it is desirable for the purpose of attracting loans, a rebate in the rate of interest of 1 per cent. per annum on the amount of any loan or loans shall be made for a period not exceeding two years from the date of the granting of such loan or loans and such rebate shall be regarded as an expense of administration."—[Mr. Benson.]

The Amendment in the name of the hon. Member for South Shields (Mr. Ede) is out of order as it imposes a charge. With regard to the next two Amendments in the name of the hon. Member for Ogmore (Mr. E. J. Williams) and the hon. Member for Chesterfield (Mr. Benson), it will be rather difficult to disentangle them as they both raise in a different form what is substantially the same point. I, therefore, propose to call the Amendment in the name of the hon. Member for Ogmore, and to allow both Amendments to be argued upon it.

6.4 p.m.

I beg to move, in page 3, line 17, at the end, to insert:

"4. Loans by the company shall be made at a rate of interest not exceeding three and a half per cent. per annum."
There seems to be a flaw in the Bill which I am endeavouring to put right by this Amendment. When the company is being formed the £1,000,000 capital is to be made up of £900,000 cumulative shares and £100,000 ordinary shares bearing 3½ per cent. and 3 per cent. interest, respectively. Nothing is said in the Bill as to the rate of interest to be paid by the people who borrow from the company. After listening a few moments ago to the Parliamentary Secretary, it seemed to me that the Treasury had entirely forgotten the persons who are expected to borrow from the company. This is not an operating company. Its function is to lend money to people who desire to promote industries in the distressed areas. The purpose of my Amendment is to provide that when money is borrowed the maximum rate of interest charged is equivalent to that paid on the cumulative shares. The Government have been talking a great deal about cheap money, and if they really want to help the Special Areas, surely they ought to make provision to see that the persons who desire to set up industries should have money at the cheapest possible rate. Either they must have that or the Government will have to be prepared to subsidise them. I gather that the company will not desire to advance money as a subsidy.

6.7 p.m.

The object of my Amendment is merely an extension of the object of that in the name of the hon. Member for Ogmore (Mr. E. J. Williams). We on this side have more than once expressed our scepticism as to whether this Bill is likely to have any effect. Assuming that the money is raised—and I understand from the Chancellor that the Government have a definite promise that it will be—the next question is whether it will be used. The establishment of a business in a depressed area is not necessarily an easy matter. One might describe such an area, from the point of view of a business man, as a non-economic area. There is a tendency for new businesses to drift south, for the high incidence of rates in the Special Areas as compared with the incidence in the south of England or the more prosperous parts is a serious matter. Another point is that the distressed areas are separated from their markets. It is considered, therefore, that he would be a bold man who started a commercial venture in a depressed area. The object of these two Amendments is to offer some inducement, for the offer of cheap capital may make all the difference between a business being started and not being started, and between the Bill being somewhat of a success and being a failure.

With regard to the suggestion in my Amendment that a rebate of 1 per cent. shall be charged as an expense of administration, we realise that with the maximum rates of interest to be paid on the preference shares and the ordinary shares very little margin is left if the loan interest is limited to 3½ per cent., as is suggested by my hon. Friend's Amendment, and the company will probably find it very difficult, if not impossible, to earn an adequate interest on its loans to pay the rates of interest which are set forth in the latter part of the Schedule. It is for that reason that we wish this rebate to be charged as a cost of administration. Assuming that the expenses of administration are not too high, and having in mind all that the Chancellor said about the difficulties which this company is likely to experience in administration, I think it is possible that these limits in the interest charged can be accepted and the possibility of having a rebate can be accepted by the Treasury, and the company would still be able to remain solvent.

6.13 p.m.

I wonder whether the hon. Gentleman who moved the Amendment realised the effect of placing the interest at a maximum of 3½ per cent. Has he left out of calculation that if the company is to pay 3½ per cent. on the preference shares there will be nothing left for working expenses, which will then fall on the taxpayer, or for reserves? In other words, the hon. Gentleman wishes for a further subsidy in addition to the amount provided for working expenses in the Bill. If only 3½ per cent. or less is earned upon the loans, there will be nothing left as a margin for working expenses. I would like to analyse the principle which the two hon. Members have in mind. Do they really think that in the distressed areas it matters very much to a person who is seeking to open a business in a risky enterprise whether he pays 3½ per cent. or 5 per cent.? Do they not realise that the important question is whether he can get capital or credit with which he can deal? Suppose a man borrows the full £10,000, let us see where it is bringing us. Let us see the effect of limiting the annual rate of interest to 3½ per cent. Suppose he is able to borrow £10,000 for an undertaking which is not likely to be very prosperous; he would not have been able to get the money at all in the ordinary way from a bank, which has to lend depositors' money. In this case it is a national eleemosynary proposal to help distressed areas with the money required for industry, which otherwise could not be provided. In the ordinary way in trade the time that you need to turn the goods that your men have made into money is about 30 days or 60 days or 90 days. I do not believe giving credit for six months is a wholesome way of doing business. People in home markets who want six months credit are only carrying on their business on the capital of manufacturers. Ninety days is long enough.

Surely the object of this Bill is not to offer short term credits to traders, but for the establishment of businesses. May I ask the hon. Gentleman whether he suggests that the common assumption that cheap money is a stimulus to trade does not apply to the Special Areas.

There is a great deal of reservation to be made in statements about very cheap money. The cry for very cheap money on behalf of manufacturers is a spurious cry and the manufacturers are not behind it. It does not very much matter to a manufacturer who borrows £10,000 for financing a contract for goods to be made, or who wants to discount a bill for £10,000 at 90 days for goods he has just sold whether he pays 3½ or 5 per cent. per annum interest. The difference for 90 days amounts to no more than £37 10s. It sounds very impressive to talk about cheap money and to say that to increase the rate of interest from 3½ per cent. to 5 per cent. is a 40 per cent. rise, but there is really nothing in it. It is only an arithmetical calculation, a theoretical statement, smashed up by the working facts of the case. It is like talking about a principality reducing its army by 50 per cent., when its army originally numbered only two men has been reduced to one man.

Whether the manufacturer is asked to pay 3½ per cent. or 5 per cent. on £10,000 makes, as I have said, a difference of exactly £37 10s. for 90 days, and that is only a difference which would concern an accountant or a statistician. What really matters to the manufacturer is the possibility of getting an order worth £10,000, not the £37 10s. more or less interest. If he can turn over the £10,000 four times by getting orders for £40,000 in a year the only difference in the cost for interest would be £150. In a factory dealing with orders of that size probably 150 to 200 men would be engaged and the £150 would not amount to the wages of a doorkeeper. The 1½ per cent. difference in the annual interest is nothing to make any great fuss about. The point is that a man in the Special Areas who wants to set a factory going should have the money with which to do so. This Bill provides it. It is easy enough to make goods when he has got the money or credit. All that has been said about very cheap money really does not affect the case of manufacturing before us. It is based on theory. The practical need is to get the money and make the goods and not the difference of 1½ per cent. interest; but what is more important than all is to be able to sell the goods after they have been made. That is the problem.

6.18 p.m.

The hon. Member for Farnham (Sir A. M. Samuel) has been dealing with this problem entirely from the point of view of commercial credit, whereas the purpose of the Bill is the provision of capital credit. It is the capital with which to start industries that is needed, but he was talking about the commercial credit required when the factory is in existence and the machinery installed and the produce ready to go to market. He is starting at the wrong end.

If the hon. Member is talking about starting commercial enterprises much of the £1,000,000 would go in five minutes—if used for erecting buildings or machinery—and little would he left for financing production.

6.20 p.m.

I rise to a point of Order. I am sorry that I have been absent from the Committee for a few minutes, but I wish to suggest to you, Captain Bourne, that the two Amendments which we are now considering are both out of order, on the ground that both may have the effect of increasing the charge on public funds. I am particularly interested in the second of the two Amendments, which provides that a certain rebate in the rate of interest may be given, and that such rebate shall be regarded as an expense of administration. That might increase the amount which the Treasury have to pay, because in the second paragraph of the Schedule it is provided that:

"The payment by the Treasury to the company in respect of every year of the amount expended by the company in administration expenses in respect of that year, or of a contribution of twenty thousand pounds towards those expenses, whichever is the less."
With regard to the first Amendment, if the rate of interest is limited to 3½ per cent. per annum whereas the association might have been able to secure 7 per cent. per annum, the contingent loss incurred by the Treasury might thereby be increased. I urge that both Amendments may have the effect of increasing the charge.

6.21 p.m.

I submit that we have not yet reached paragraph 6 of the Schedule which refers to the rates of interest to be paid to the preference shareholders and to the ordinary shareholders and that therefore the hon. Member's objection cannot arise. When we come to paragraph 6 will be time enough to deal with it. Further, I submit that there is no reference either in the Bill or in the Schedule to the rates of interest to be paid on the loans to be furnished by the company and therefore it is not out of order to present an Amendment dealing with that precise point.

6.22 p.m.

Surely the hon. Member for Huddersfield (Mr. Mabane) is wrong about the first point, because even if the Amendment in the name of the hon. Member for Chesterfield (Mr. Benson) did increase the administration expenses beyond £20,000 it would not increase the charge to the State, as the company would have to bear the rest of the expenses. [HON. MEMBERS: "No!"] In paragraph 2 we fix the £20,000 as a maximum, and nothing that we do in. reckoning other charges as administrative expenses will make the slightest difference.

6.23 p.m.

I think the hon. Member for West Middlesbrough (Mr. K. Griffith) may be wrong. My right hon. Friend the Chancellor of the Exchequer said it was an amount up to £20,000. If, therefore, charging only 3½ per cent. does not pay for expenditure in respect of running the association, expenses would be rather larger than they would be otherwise, and, consequently, the amount to be paid in by the Treasury up to a total of £20,000 would be larger than otherwise. I thought at first that this Amendment was out of Order; if the 3½ per cent. is not sufficient to provide the expenses of running the association I submit that the point of Order made by the hon. Member for Huddersfield (Mr. Mabane) is sound.

With regard to the question of 3½ per cent., I would refer you, Captain Bourne, to paragraph 6 of the Schedule, in which it is shown that the repayment to the Treasury takes precedence over the payment of interest either to the preference or to the ordinary shareholders, so that any loss involved through inability to pay 3½ per cent. or 3 per cent. interest does not fall upon the Treasury.

6.25 p.m.

I think the hon. Member for Huddersfield (Mr. Mabane) has slightly misapprehended the effect of the Financial Resolution on which the Bill is founded. The question whether a particular Amendment would or would not increase the charge upon the Treasury is immaterial at this stage, so long as it comes within the scope of the Financial Resolution. With regard to the point he raised on the Amendment which is being discussed along with the Amendment now before the Committee, it is true that if that Amendment were accepted it might make the annual contribution of the Treasury an amount up to £20,000 in respect of the administrative expenses, but a sum up to that figure has already been authorised by the Financial Resolution, and therefore an Amendment which would bring the amount up to that amount is in order. As to the Amendment now under discussion, under paragraph (d) of Section 1 of the Financial Resolution various provisions are made for the payment of losses, and there is no limit placed by that Resolution on the amount which may fall on the Treasury, except that it is not to exceed more than 25 per cent. of the losses incurred either in respect of the original or of additional loans. Therefore, if the effect of the Amendment of the hon. Member for Ogmore (Mr. E. Williams) were somewhat to limit the profit, or even to convert into a loss the operations of the company, the liability of the Treasury up to one-fourth of that is covered by the Financial Resolution, and the Amendment is in order.

6.27 p.m.

To continue the reasons for supporting the Amendment of my hon. Friend the Member for Ogmore (Mr. E. J. Williams), we have to bear in mind that we are endeavouring to deal with the situation as it exists in depressed areas. So badly depressed are they that the House has come to the conclusion that only the most unorthodox finance will succeed in lifting these areas out of their depression. The Bill is unorthodox finance, and, had orthodox finance been capable of meeting the situation, would never have been introduced. It is an amazing thing that the hon. Gentleman opposite should suggest that it will be possible for this association to get a return of 7 per cent. upon its capital.

Then it was the hon. Member for Huddersfield (Mr. Mabane). Everybody knows that it has been utterly impossible to induce business men to go to the depressed areas and venture their money. That is the reason why Parliament is now considering ways and means of inducing them to go there. My complaint is that the inducement is being offered to the wrong parties, is being offered to those who will form this association.

This is not the occasion to discuss the merits or the demerits of the Bill, but only whether the operations of the association should be limited in the way proposed.

I must beg pardon for referring to that. My intention was to point out the necessity of an inducement being given to the operating companies which will be formed, to the people who will be the clients of the association, those whom we expect not merely to risk the £10,000 which they will have obtained on loan from the association but a good deal of their own money as well. If they secure a loan of £10,000 they may also risk £10,000 of their own and are expected to fructify the £1,000,000 of this association. I confess to being a most profound sceptic with regard to this association, but at the same time no one can be more desirous of making it a success, because I realise the necessity of encouraging people who will come forward with their own capital to get additional capital. I see the force of giving them the least possible in the way of interest charges upon the capital that they borrow. It will be very difficult for the Financial Secretary to justify anything of this kind. If we are serious in our intention to bring light into the darkness of the depressed and Special Areas, we cannot leave the company to charge any rate of interest that it chooses, and this is, therefore, a most reasonable Amendment to limit the rate of interest.

6.31 p.m.

To put such a provision in the Bill would be to destroy its whole object. The corporation would not get any capital. I ask hon. Members who are supporting the Amendment to think for a moment what they are asking of the people who, because they hope to assist the depressed areas, are to be persuaded to enter into this company. Hon. Members propose to begin by saying to the prospective shareholders: "You are not to charge sufficient interest to pay more than what the shareholders get." It follows from that, that it will be impossible to build up any reserve. You are saying to every prospective shareholder in the company: "It is absolutely certain that one day you will have to meet 75 per cent. of the losses of this company." In those circumstances who will put his foot into the concern?

6.33 p.m.

The hon. Member for Farnham (Sir A. M. Samuel) professes to be interested in the Special Areas problem. If he is, he must be prepared to accord special treatment to those areas, and that is all that we are asking for in the Amendment. I understood his argument to be that there is hardly any difference worth considering between 3½ per cent. and 5 per cent. I wonder if he would use that argument in relation to financial transactions throughout the country?

That is quite a different matter. A difference of one-half of one per cent., in dealing with financial transactions, the buying and selling-of raw materials, or speculating in stocks and shares, is of immense importance, but when you deal with manufacturing operations and the buying and selling of goods, it does not matter very much upon a £40,000 order, or rather upon £40,000 as the turnover of a year, using £10,000 four times turned over, whether the rate of interest is one-half of one per cent. more or less. Even if you get your money for nothing it will make very little difference whether you pay any interest at all. It is not a matter of interest, but of getting money at all to make the goods and then being able to sell them.

The hon. Member has repeated what he said, and has not strengthened his case. What we are asked to believe is that this slight difference in the rate of interest in a commercial undertaking is of very little consequence.

That is what the hon. Member believes. I ask him whether he would apply that reasoning to financial transactions throughout the country as a whole.

His answer is that he seeks to apply it to this particular case, and not to every commercial transaction.

Our submission is that the peculiarity of the undertakings about to be established demands, in the special circumstances, special treatment, and that is a, case for the limitation of the rate of interest and the provision of cheap money. The hon. Member for Farnham seems to think that in small business undertakings, such as we are specially concerned with in this Measure, where the total volume of trade amounts to, say, £40,000 a year, and the rate of interest varies between 3½ per cent. and 5 per cent., that variation may mean no more than a difference of about £150. He forgets that we are not dealing here with one commercial undertaking involving a capital outlay of £40,000, or with transactions of that amount covering a period. of 12 months, but with a great number of undertakings and, as we have heard this afternoon, an amount of capital which may reach many millions of pounds. Therefore, a variation from 3½ per cent. to 5 per cent. in the rate of interest may considerably influence the decisions and the general operations of those who wish to come into the Special Areas. I would beg the hon. Member not to regard this question of the variation of the rate of interest as a trifling matter. It is one of very great substance, and, in my submission, is the point of real substance in the Bill.

The hon. Member for Ecclesall (Sir G. Ellis), who usually speaks with great knowledge upon industrial and financial matters, was, I fear, a little out of his depth when he ventured to address his argument to my hon. Friend the Member for East Rhondda (Mr. Mainwaring). He seems to think that the profit to be returned to the cumulative preference shareholders and the ordinary shareholders varies between 3 per cent. and 3½ per cent. and that it is essential to provide a high rate of interest on the lines of the contemplated business undertaking.

I did not say so and I do not think so. What I said was that when you have to gay out as much as you are getting in there is no margin, and that when there is no margin there can be no reserve. If you wish people to lend you money when they know there is a certain loss, you destroy the very object you have in view.

I am much obliged to the hon. Member. What I said about his argument was on all fours with what he has just said. His argument amounts to this: If the profits to be paid out to the preference shareholders are no higher than the rate of interest, and vice versa, obviously those shareholders will not come in with their money. The hon. Member followed that with the contention and, as he thought, a reminder to us, that there would be no reserve. He is quite mistaken. I put it to the Financial Secretary, and I hope he will be good enough to furnish a reply, whether it is not the fact that the Measure includes a reserve fund to be provided by the Treasury.

Up to £100,000 per annum. It is true that the reserves are to be returned to the Treasury if there are no losses during the period in which the operations are carried on, but the reserves are provided for, and from those reserves it is within the power of the company to meet such variations in the rate of interest as would make all the difference between running a commercial transaction in a depressed area on financially sound lines with cheap money, and running it in an almost impossible way.

Let me try to put my point again. When you are running an undertaking in such a way that losses are certain, if you have no provision for reserves the shareholders will be bound to meet their proportion of losses, just as a trader is bound to do so. All I say again is that you are asking the prospective shareholders to provide money in the knowledge of certain loss in the future.

It seems to me that that is the essence of the scheme. That was provided for from the beginning of these discussions. Upon the Financial Resolution, in the Second Reading Debate and to-day, in the discussion of various Amendments, we have heard of nothing but the possibility of losses being sustained.

The hon. Member for Huddersfield (Mr. Mabane) faced the possibility of sustaining a loss not of £1,000,000 but of 100,000,000, when his Amendment sought to restrict appeals to the Treasury in that regard. That loss will be sustained is the essence of the scheme. Why should not losses be sustained? Hon. Members talk about protecting the interest of the people who have to provide money, and at the same time talk about the active, public-spirited persons who are to venture their capital. I would remind the hon. Member for Farnham (Sir A. M. Samuel) that the Government have provided subsidies without any question of limitation of rates of interest. Now we are being told of the dreadful possibility of public-spirited individuals, to whom the Chancellor referred, not being attracted because the rates of interest are too low.

We have been very moderate with regard to the Amendment. It is time that hon. Members on this side of the Com- mittee expressed themselves without the restraint that has characterised their discussions so far. It is about time that hon. Members understood that this is, as we said at the outset, a miserable Measure, yet they are trying to make it very much worse while wrapping it all up with talk about public-spirited individuals who are simply dying to do something for the people in the depressed areas, straining at the leash, and who yet need to be very careful not to put down their capital because they are going to have, not a mere 3½ per cent. return, not a Consols return, but a gilt-edged return. They are to see to it that they get the highest rate of interest that they can secure for the investment of their capital. We hear about the losses to be sustained, but let it not be forgotten that there is a Treasury guarantee of 25 per cent.

Too little has been said about one point, to which I invite the attention of hon. Members. When applicants come to the company, as they are expected to do, and ask for loans, they will be asked, presumably, for security; or are we to understand that those who apply for loans for the purpose of setting up business undertakings in the special areas will not be called upon to provide security? That would be an unheard of thing in this country. If they are called upon to provide security, and if that security is combined with a 25 per cent. guarantee, it seems to me that we ought not to bear so much as we have heard this afternoon about gestures to public-spirited individuals. If this scheme fails to achieve its intended purpose, namely, to establish small and profitable undertakings, providing employment for people who cannot be absorbed in their old occupations, it will be largely because the rates of interest are too high. Cheap money is the essence of the case, and cheap money ought to be provided for. I would remind the Committee that we have not yet come to paragraph 6 of the Schedule, which provides for the dividends to be paid to the shareholders. When we come to that paragraph, we may have something to say, and, therefore, our submission with regard to; limitation of the rate of interest holds good at this stage.

6.47 p.m.

The hon. Member for Seaham (Mr. Shinwell), who has discussed this matter so reasonably so far, has rather misunderstood the Bill as it stands at this point. He has spoken with scorn of the public-spirited individuals who want more than 3½ per cent. I hope they do not want more than 3½ per cent., because they cannot get it under the Bill as it is drafted. I agree that we have not come to paragraph 6 of the Schedule, but for the present we are bound to imagine that it will be passed in the form in which it stands, and it is really there that the security against profiteering is provided. The hon. Member may think that even 3½ per cent. is profiteering; I do not know what he thinks about that figure, but at any rate it is the limit of what they can get, and any suggestion that people are not going to be satisfied with that figure, but are going to demand more, is departing altogether from the text of the Bill. It is the company that will be able to get more on its loans, apart from the Amendments that we are now discussing, and I suggest that, since profiteering is guarded against, as I suggest it is, it would not be reasonable to make the return less than 3½ per cent., in view of the limited security in what is admittedly a hazardous series of operations in different parts of the country. I think that the company must be left to make reasonable commercial arrangements having regard to what they consider to be the prudent amount that they must get in order to cover the risks that they are undertaking. I think the hon. Member for Ecclesall (Sir G. Ellis) was quite right in suggesting that to insist on these Amendments would not really advance the cause that we have at heart. Hon. Members above the Gangway are pessimistic about this scheme. I am fairly pessimistic, but I must deplore the turn that the Debate is now taking. A few more speeches such as those we have heard on these Amendments would make prospective investors certain that it would be a suicidal policy for them to invest a single penny.

6.50 p.m.

The hon. Member for Seaham (Mr. Shinwell), in his lyrical outburst, departed entirely from the text of the Schedule. With a view to getting people to lend the capital at 3½ per cent., paragraph 3 of the Schedule provides for:

"The setting aside by the company of reserves against losses."
To charge borrowers no more than 3½ per cent. would be to depart immediately from one of the fundamental reasons why the company should be set up, and why people should lend their money at 3½ per cent. As my hon. Friend the Member for Ecclesall (Sir G. Ellis) has said, if you do not get from borrowers at least 3½ per cent. there is not the slightest hope that the company will be able to set up the reserves which are required not only to cover the business risks of an undertaking which is highly speculative, but to ensure the healthy life of every good business scheme in commerce. It is laid down in the Schedule that reserves shall be provided, and for that reason I feel sure that the hon. Gentleman must have overlooked paragraph 3.

6.51 p.m.

In spite of what has been said by the hon. Member for West Middlesbrough (Mr. K. Griffith) and others, I still think it would be an excellent thing to have a definite restriction on the amount of interest to be charged to borrowers. The primary object of the Bill is, not to provide a satisfactory financial proposition for the company, but to make money available on such terms as will enable new industries to be commenced in the Special Areas, and, if that is not possible, when the rate of interest is higher than 3½ per cent., we must make that the limit, and make any consequential alteration in the Treasury guarantee and so on. I was astonished to hear the hon. Member for Farnham (Sir A. M. Samuel) making his speeches about the small consequence of the difference between interest rates of 3½ and 5 per cent. on borrowed money. That is the sentiment of a banker, not of a manufacturer. To-day the manufacturer, more particularly in a depressed area, has to watch every penny of every charge that goes through his books. On a turnover of £40,000 a year, the difference between 3 per cent. and 5 per cent. amounts to £800, or more than the manufacturer pays for his rent or his power. It may make all the difference between a profit and a loss, and therefore I regard the difference between interest at 3½ and interest at 5 per cent. as a vital point in the Bill.

On a 90 days' credit of £10,000, which is turned over four times in the year, making a total turnover of £40,000, the difference between 3½ and 5 per cent. represents £150.

The hon. Baronet is making the facts fit his argument. I stated that the difference between 3 per cent. and 5 per cent. per annum represents £800. I was not speaking about 90-day bills. These people are not going to borrow this money for 90 days. That is another of the hon. Gentleman's misconceptions. He believes that this is a Bill to provide short-term credit, but it is nothing of the kind. Moreover, the suspicions of the Financial Secretary also must be aroused, because Members have said that these are not loans which are going to be granted in ordinary commercial circumstances. They are going to be granted in districts where trade is bad, where rates are high, where money cannot be borrowed in the ordinary money market or from the banks. What guarantee have we that the directors of this company are not going to cite all these facts to prospective borrowers, and say to them, "We cannot lend you money at the same rate that the Midland or some other bank will charge; you will have to pay us 1½ or 2 per cent, extra, to meet the greater risk we are running?" What chance will the poor borrower have to cite the Treasury guarantee and all the other safeguards for the people who are going to put up the money for this lending company?

After what we have heard, it is all the more vital that there should be some restriction of the rate of interest. I believe that 3½ per cent. is the rate that these industries could properly stand. If it is thought to be too low, let it be 4 per cent., or, at the very most, 4½ per cent., so that we may be certain that these borrowers will not be exploited. I hope the Financial Secretary will indicate that he does not approve of some of the sentiments put forward by some of his supporters, and will agree to some limit being placed on the rate that may be charged.

6.57 p.m.

It seems to me that the error into which the hon. Member for Farnham (Sir A. M. Samuel) has twice fallen is due to the fact that he has not read the Preamble, which state: that the Bill is a Bill for dealing with long or medium-term periods. Surely the hon. Member does not call 90 days either a long or a medium term—

It is true that the financial transactions which I have to conduct are not in a depressed area, but in the Surrey County Council and the London and Home Counties Joint Electricity Authority, of both of which I am chairman, we call six months a short term. Certainly the instance, which the hon. Member has twice quoted, of the man who wants £10,000 to finance his transactions while he is realising on his manufacturing operations, and does that four times a year, does not represent the kind of credit that is primarily contemplated by the Bill; and from my knowledge of my constituency, which is in a distressed area, I do not consider that that is the kind of assistance which people there contemplate receiving, at any rate at this stage. What they desire is a long-term credit that will enable them to establish factories in these areas.

The special areas are not like the Great West Road, the Kingston By-pass, and other places where modern factories have been erected. The primary difficulty in the distressed areas is to get factories in which industries can be carried on under modern conditions, and, when a man is embarking on an enterprise of that nature, he needs something more than the credit that will be necessary to tide him over 90 days, even if he can get it renewed at the end of that period. I hope the Minister will agree to some limitation of the rate of interest. If 3½ per cent. is too low, will he suggest some figure, so that, before the House parts with the Measure, we may be assured that the company really is going to lend money to the kind of people who will be concerned in these areas?

6.59 p.m.

The hon. Member for Ogmore (Mr. E. J. Williams) and the hon. Member for Chesterfield (Mr. Benson) have made perfectly clear their points on these Amendments. They desire to see incorporated in the Measure some limit to the rate of interest that may be charged by the company to its borrowers. There has been obvious, throughout some of the discussions that we have had, a tendency to confuse two things, namely, the interest which the shareholder can receive from the company—which is fixed at a maximum of 3½ per cent.—and the interest which the company can receive from its borrowers, which is not fixed. The hon. Member for Chesterfield said with some truth that he would be a bold man who would contemplate setting up a new industry in a Special Area, and he detailed with great force the factors which might be likely to deter a man from starting an industry in such an area.

I would ask him, however, to apply his own argument to the proposal which is now before the Committee. Equally he would be a bold man who would proceed to lend money for the commencement of an industry in a Special Area, particularly when the industry to which his attention is directed is one which cannot otherwise obtain financial facilities. If the hon. Member bears in mind that the company which we are contemplating is bold enough to undertake that enterprise, with a limit to its share-holders' profits of 3½ per cent., he can dismiss from his mind all elements of undue profit-making by this company in the transactions it is undertaking.

I did not suggest there was any danger of profiteering by the shareholders. Their interest is limited. What we had in mind in putting down these Amendments was to try to fix some limit to the timidity of the Treasury and the desire of the Treasury to build up a reserve which would limit the Treasury losses.

I am glad we have reached the essential point that we can eliminate from our minds all suggestion that there is a motive of undue profit in the Bill. The hon. Gentleman need not be afraid of the timidity of the Treasury. This company will be able to grant what terms it pleases without the Treasury having anything to do with it. If the company is prosperous, its profits to its shareholders will always be limited, and it will be in a position to make more and more generous terms to those with whom it deals. I regret that I must counsel the Committee to reject the Amendment, for the reasons put forward by my hon. Friend the Member for Ecclesall (Sir G. Ellis) and the hon. Member for West Middlesbrough (Mr. Griffith). Both hon. Members advanced against this Amendment reasons of the utmost cogency, and I do not think I can say anything that would add to the force of their observations. Supposing we were to accept this Amendment we should be in this peculiar position: This Bill is to deal with a particular type of borrower for whom we have found that ordinary financial provision is not obtainable. He is in the eyes of the normal and orthodox organisation not creditworthy, and we are proposing to erect this organisation to deal with him. If you put this Amendment in the Bill you would be conferring a lower rate of interest on the non-credit-worthy than the credit-worthy can obtain, and that is surely a thing which we do not desire to do.

I would ask the Committee to look at the Preamble. The whole idea is to try to assist certain industries which are not, for the time being, in a position to obtain financial facilities from banks or other institutions. With regard to the Amendment moved by the hon. Member for Chesterfield (Mr. Benson) the suggestion he makes is that you should charge a 1 per cent. rebate to administrative expenses. Unless the administrative expenses were well below £20,000 a year that would be of little or no value to the borrowers. It is only when those expenses fall below £20,000 that the amount payable by the Treasury varies, and this 1 per cent. would be paid by the Treasury. The real effect of what hon. Members are doing is to reduce the possibility of any reserve. The hon. Member for Ecclesall said it would destroy the possibility of there ever being any return. In so far as by any of these devices you limit the power of the company to lend you hamper the purpose for which the Bill is before the Committee. There is every intention that the interest charged to these borrowers will be the lowest that is possible to enable the company to function, and the Committee would be making a mistake if they were to seek rigidly to fetter the discretion of the company in this matter. It is a question which must depend on the circumstances of each borrower.

Amendment negatived.

7.9 p.m.

I beg to move, in page 4, line 42, at the end, to add:

"10. The appointment by the Treasury of one or more directors to the board of the company."
I gather from a reply the Chancellor made to a question I put to him that the Treasury were not averse to doing this, or something like this. I was a little disturbed by one sentence used by the Financial Secretary a moment ago, when he said that the company will be able to lend on whatever terms it likes without the Treasury having anything to do with it. If that is so, there is a very good reason for the acceptance of my Amendment. I do not think the Committee would like to see the company engaging in lending on such terms as it pleased without the Treasury having anything to do with it. It has been the practice in the past to appoint one or more directors by the Treasury when it has been engaged in lending money. The Chancellor said in the Second Reading Debate that the appointment of directors would be done in consultation with the Treasury, but that is not the same as having a director there to follow the day-to-day policy of the company. It may be objected that this will create another form of Government patronage, but there can be no substance in such an argument. I have every reason to hope that the Treasury will accept this Amendment.

7.10 p.m.

I am glad to be able to support the hon. Member. This is the most substantial Amendment that he has put before us. It recognises the importance of Government intervention in a matter of this sort. It is a moderate and limited intervention, but it is the thin end of the wedge and to that extent it is acceptable to hon. Members on these benches. We have a precedent in the Anglo-Iranian Oil Company, where the Government appointed two of the directors, and therefore we can with all the more confidence accept this proposal. The importance of having a Treasury-appointed director lies in the supervision that he can exercise over the operations of the company on behalf of the Treasury. There has been something said about the negative attitude of the Treasury when demands are made on them for finance. I am conscious of that, and I had experience of it in the last Labour Government. Nevertheless the advantages of a Government director on this board of management far outweigh the disadvantages, and I hope that the Financial Secretary, who has given us nothing this afternoon, will now at the last stage grant this very moderate concession.

I should like to join in the request. This is obviously a Bill in the operations of which there might be involved a loss of public money. Many hon. Members seem to think that it will involve such a loss. In any event it will be desirable to have a Government representative there, I hope to prevent such loss, but at any rate to see that it is as small as possible and that the company is conducted on the lines of public service.

7.13 p.m.

I am sorry to have to resist this Amendment. I would gladly have accepted it if I thought there was anything to be gained to the public by it. Hon. Gentlemen have supported it imagining that it would improve the company from the point of view of Government control. The appointment by the Government of directors is limited to two eases. One is when the company is engaged in carrying on some enterprise which is of profound importance to the problems of national defence, such as the Suez Canal or the oil company to which the hon. Member referred. The other case is that of companies under the Trade Facilities Acts, where the company requires assistance to strengthen it. Neither of these two considerations is relevant here. The hon. Member wishes to be assured that full information of the transactions of the company will be before the Treasury. That, I think, was also the object for which the hon. Member for Middlesbrough, West (Mr. Griffith) supported him. The hon. Member for Seaham (Mr. Shinwell) gave more dubious reasons in talking about the thin end of the wedge. I can assure the Committee that the Treasury will be consulted. I would like to make it clear to the Committee what these directors are to be. They are not to be directors in the ordinary sense of gentlemen who give their services for specified remuneration.

When will the hon. and learned Gentleman be in a. position to state who the directors are?

When will you form the company? I understand that a company consists of a directorate, or can you divorce a company from the persons who comprise its membership?

Certainly, a company can consist of shareholders, but the company is not yet in being, and I cannot be expected to say who the directors are. I can, however, tell the Committee that the ordinary directors are to receive no remuneration at all. The chairman and the managing director may get some remuneration, but the ordinary directors are to have none. They will give their time from a sense of public spirit.

We shall get gentlemen who will agree to it. That being so, and there being ample arrangements made between the Treasury and the proposed company to ensure that the most accurate information is given, I put it to the Committee that there is no necessity to have on the board of directors an actual representative of the Treasury in a case like this. I think the hon. Member who moved the Amendment was mostly concerned with the provision of information. That is there already. We shall get all the information we want. If he carries his apprehension a stage further and suggests that the directors might do something unorthodox, or something that goes beyond the provisions of the Bill, Article 8 of the Schedule specifically provides against it. If there is

"any alteration in the memorandum and articles of association of the company which, in the opinion of the Treasury, affects the matters specified in the foregoing provisions of this Schedule,"
the liability of the Treasury to make further payment ceases. That is a very strong check which the Treasury has against the entirely improbable contingency of any attempt by the directorate to exceed its powers.

Is that quite the same thing? That does not cover the possibility of the company taking some action which is inconsistent with the memorandum and articles of association.

If the company were to take any action which affected what is set out in the Schedule, it would be a matter which would relieve the Treasury of liability. To take a case which is not likely to arise, if the company were of its own volition to increase its capital without the written consent of the Treasury, that is a matter that would affect the whole of the financial arrangements in the preceding paragraphs of the Schedule.

That is not the kind of point that I had in mind. The company might decide to close down in one area, or to lend more freely than the Treasury wanted. What manner of consultation between the Treasury and the company, would take place?

The hon. and learned Gentleman has not really met my point. He is still confusing alteration of the memorandum and articles of association with infringement of them. What if they broke through the arrangement in the Schedule and paid 4 per cent.?

The powers and duties of the company are stated in the memorandum and articles of association and they cannot be altered without the consent of the Treasury. I cannot give the hon. Member for Huddersfield information as to the precise form which the communication of information will take, because the company is not yet formed. This Bill is the preliminary to its formation. But those who are engaged in the matter and are willing to co-operate in it are quite willing to give full information.

7.22 p.m.

I hope the Committee will, for once, assert itself on this Amendment. We are all in sympathy with the hon. and learned Gentleman. The outlines of this agreement have, no doubt, been discussed with the financiers who are the promoters of the company. They have probably said to him, "We do not want a Government director on the board at any price. Leave it to us and we will carry out the arrangements satisfactorily and give you all the reports you want." But a Government director on the board will not only give supervision as against any alteration of the memorandum and articles of association. There are certain other vital points about which the Government ought to be informed. The first is the payment by the Treasury of the preliminary expenses of the company and the expenses incidental to its winding-up. I know the directors need not be appointed until after the company is formed, but in practice they give a considerable amount of supervision to the actual formation of the company. The preliminary expenses are an amount which can be varied enormously, even in the formation of a company of this kind, and the very first act of a Government director might be to save the Treasury about £20,000.

The second point is in connection with the administration of the company's expenses. Those, too, might vary tremendously, and a Government director might be able to save an enormous amount of money. But there is a reason far more important than these savings why we should have a Government director on the board. It is of vital importance to the Government to know to what extent this experiment is being successful. The Chancellor of the Exchequer has told us time and again that the Government are going to watch this experiment with interest and, if it should prove

Division No. 174.]

AYES.

[7.29 p.m.

Acland, Rt. Hon. Sir F. DykeFrankel, D.Leonard, W.
Adams, D. M. (Poplar, S.)Gardner, B. W.Leslie, J. R.
Adamson, W. M.Garro-Jones, G. M.Logan, D. G.
Alexander, Rt. Hon. A. V. (H'lsbr.)George, Major G. Lloyd (Pembroke)Lunn, w.
Attlee, Rt. Hon. C. R.George, Megan Lloyd (Anglesey)Macdonald, G. (Ince)
Banfield, J. W.Green, W. H. (Deptford)McGhee, H. G.
Barnes, A. J.Greenwood, Rt. Hon. A.MacLaren, A.
Burr, J.Griffith, K. Kingsley (M'ddl'sbro, W.)Maclean, N.
Bellenger, F.Griffiths, G. A. (Hemsworth)Mainwaring, W. H.
Benson, G.Groves, T. E.Mander, G. le M.
Broad, F. A.Hall, G. H. (Aberdare)Marklew, E.
Brooke, W.Hall, J. H. (Whitechapel)Marshall, F.
Brown, Rt. Hon. J. (S. Ayrshire)Hardie, G. D.Morrison, Rt. Hon. H. (Ha'kn'y, S.)
Burke, W. A.Karris, Sir p. A.Muff, G.
Charteton, H. C.Henderson, A. (Kingswinford)Oliver, G. H.
Chater, D.Henderson, J. (Ardwick)Owen, Major G.
Cluse, W. S.Henderson, T. (Tradeston)Paling, W.
Clynes, Rt. Hon. J. R.Holland, A.Parker, H. J. H.
Cocks, F. S.Hopkin, D.Pethick-Lawrence, F. W.
Compton, J.Jagger, J.Potts, J.
Cove, W. G.Jenkins, A. (Pontypool)Pritt, D. N.
Dagger, G.Jenkins, Sir W. (Neath)Ritson, J.
Dalton, H.John, W.Roberts, W. (Cumberland, N.)
Davies, S. O. (Merthyr)Johnston, Rt. Hon. T.Rowson, G.
Day, H.Jones, A. C. (Shipley)Seely, Sir H. M.
Dunn, E. (Rother Valley)Jones, Morgan (Caerphilly)Shinwell, E.
Ede, J. C.Kelly, W. T.Short, A.
Edwards, Sir C. (Bedwellty)Kennedy, Rt. Hon. T.Silkin, L.
Evans, D. O. (Cardigan)Lathan, G.Sliverman, S. S.
Fletcher, Lt.-Comdr. R. T. H.Leach, W.Simpson, F. B.
Foot, D. M.Lee, F.Sinclair, Rt. Hon. Sir A. (C'thn's)

successful, they will take measures to expand it in other directions. I am not prepared entirely to trust the directors to give full information. Is there any objection in principle to a Government director being on the board? If that is so, let the Financial Secretary be frank about it and say, "In principle the City dislikes Government directors on a board and, therefore, I am not in a position to accede to your request." If that is not the position, there is no reason in logic or common sense why you should not have a Government director on the board. I am not at all impressed by the statement that the directors are to have no remuneration. I could find a hundred gentlemen in this House or elsewhere who would be delighted to have the standing and prestige of being put on a board of this kind. Having secretarial and office facilities, it would not take more than two hours a month to carry out their duties and the position is one of considerable prestige, influence and importance. The Financial Secretary is generally extremely frank, but in this case I think he is concealing a prejudice on the part of the City to having Government directors. I hope the Committee will not accept his refusal.

Question put, "That those words be there added."

The Committee divided: Ayes, 109; Noes, 221.

Smith, Ben (Rotherhithe)Thurtle, E.Williams, D. (Swansea, E.)
Smith, E. (Stoke)Tinker, J. J.Williams, E. J. (Ogmore)
Sorensen, R. W.Viant, S. P.Wilson, C. H. (Attercliffe)
Strauss, G. R. (Lambeth, N.)Watkins, F. C.Woods, G. S. (Finsbury)
Taylor, R. J. (Morpeth)Watson, W. McL.
Thorne, W.Wilkinson, EllenTELLERS FOR THE AYES.—
Mr. Whiteley and Mr. Mathers.

NOES.

Acland-Troyte, Lt.-Col. G. J.Ellis, Sir G.Munro, P.
Adams, S. V. T. (Leeds, W.)Emmott, C. E. G. C.Neven-Spence, Maj. B. H. H.
Agnew, Lieut.-Comdr. P. G.Emrys-Evans, P. V.Nicolson, Hon. H. G.
Albery, I. J.Entwistle, C. F.O'Connor, Sir Terence J.
Allen, Lt.-Col. J. Sandeman (B'kn'hd)Erskine Hill, A. G.O'Neill, Major Rt. Hon. Sir Hugh
Amery, Rt. Hon. L. C. M. S.Evans, Capt. A. (Cardiff, S.)Ormsby-Gore, Rt. Hon. W. G.
Anderson, Sir A. Garrett (C. of Ldn.)Everard, W. L.Orr-Ewing, I. L.
Anstruther-Gray, W. J.Fremantle, Sir f E.Palmer, G. E. H.
Aske, Sir R. W.Furness, S. N.Penny, Sir G.
Atholl, Duchess ofFyfe, D. P. M.Perkins, W. R. D.
Baldwin, Rt. Hon. StanleyGanzoni, Sir J.Pickthorn, K. W. M.
Balfour, Capt. H. H.(Isle of Thanet)Gluckstein, L. H.Pilkington, R.
Balniel, LordGoodman, Col. A. W.Ponsonby, Col. C. E.
Baxter, A. BeverleyGower, Sir R. V.Pownall, Sir Assheton
Beaumont, Hon. R. E. B. (Portsm'h)Graham Captain A. C. (Wirral)Raikes, H. V. A. M.
Bernays, R. H.Grattan-Doyle, Sir N.Ramsay, Captain A. H. M.
Birchall, Sir J. D.Gretton, Col. Rt. Hon. J.Rathbone, J. R. (Bodmin)
Blair, Sir R.Gridley, Sir A. B.Rayner, Major R. H.
Blindell, Sir J.Grigg, Sir E. W. M.Reed, A. C. (Exeter)
Bossom, A. C.Grimston, R. V.Reid, W. Allen (Derby)
Boulton, W. W.Guinness, T. L. E. B.Remer, J. R.
Bowyer, Capt. Sir G. E. W.Gunston, Capt. D. W.Rickards, G. W. (Skipton)
Brass, Sir W.Guy, J. C. M.Ropner, Colonel L.
Briscoe, Capt. R. G.Hannah, I. C.Ross Taylor, W. (Woodbridge)
Brocklebank, C. E. R.Hannon, Sir P. J. H.Rowlands, G.
Brown, Rt. Hon. E. (Leith)Haslam, Sir J. (Bolton)Ruggles-Brise, Colonel Sir E. A.
Brown, Brig.-Gen. H. C. (Newbury)Hellgers, Captain F. F. A.Russell, A. West (Tynemouth)
Bull, B. B.Heneage, Lieut.-Colonel A. P.Russell, R. J. (Eddisbury)
Burghley, LordHepburn, P. G. T. Buchan-Russell, S. H. M. (Darwen)
Burgin, Dr. E. L.Holmes, J. S.Salmon, Sir I.
Butler, R. A.Hope, Captain Hon. A. O. J.Salt, E. W.
Campbell, Sir E. T.Hudson, Capt. A. U. M. (Hack., N.)Samuel, Sir A. M. (Farnham)
Cartland, J. R. H.Hudson, R. S. (Southport)Samuel, M. R A. (Putney)
Carver, Major W. H.Hume, Sir G. H.Sanderson, Sir F. B.
Gary, R. A.James, Wing-Commander A. W.Sandys, E. D.
Cayzer, Sir C. W. (City of Chester)Joel, D. J. B.Scott, Lord William
Cayzer, Sir H. R. (Portsmouth, S.)Jones, Sir G. W. H. (S'k N'w'gt'n)Selley, H. R.
Cazalet, Thelma (Islington, E.)Keeling, E. H.Shepperson, Sir E. W.
Cazalet, Capt. V. A. (Chippenham)Kerr, J. Graham (Scottish Univs.)Smiles, Lieut.-Colonel Sir W. D.
Chamberlain, Rt. Hn. Sir A. (Br.W.)Kimball, L.Smith, Sir R. W. (Aberdeen)
Chamberlain, Rt. Hn. N. (Edgb't'n)Kirkpatrick, W. M.Smithers, Sir W.
Channon, H.Lamb, Sir J. Q.Somervell, Sir D. B. (Crewe)
Chapman, A. (Rutherglen)Leech, Dr. J. W.Somerville, A. A. (Windsor)
Chorlton, A. E. L.Lees-Jones, J.Somerville, D. G. (Willesden, E.)
Churchill, Rt. Hon. Winston S.Leighton, Major B. E. P.Southby, Comdr. A. R. J.
Clarry, Sir ReginaldLevy, T.Stanley, Rt. Hon. Oliver (W'm'l'd)
Cobb, Sir C. S.Lewis, O.Stourton, Hon. J. J.
Colville, Lt.-Col. D. J.Liddall, W. S.Strauss, E. A. (Southwark, N.)
Cook, T. R. A. M. (Norfolk, N.)Lindsay, K. M.Strauss, H. G. (Norwich)
Cooke, J. D. (Hammersmith, S.)Lloyd, G. W.Strickland, Captain W. F.
Cooper, Rt. Hn. T. M. (E'nburgh,W.)Locker-Lampson, Comdr. O. S.Stuart, Hon. J. (Moray and Nairn)
Crookshank, Capt. H. F. C.Loftus, P. C.Sueter, Rear-Admiral Sir M. F.
Croom-Johnson, R. P.Lovat-Fraser, J. A.Tasker, Sir R. I.
Cross, R. H.Lyons, A. M.Tate, Mavis C.
Crossley, A. C.MacAndrew, Colonel Sir C. G.Thomas, J. P. L. (Hereford)
Crowder, J. F. E.McCorquodale, M. S.Titchfield, Marquess of
Culverwell, C. T.MacDonald, Rt. Hn. J. R. (Scot. U.)Train, Sir J.
Davidson, Rt. Hon. Sir J. C. C.MacDonald, Rt. Hon. M. (Ross)Tree, A. R. L. F.
Davies, C. (Montgomery)Macdonald, Capt. P. (Isle of Wight)Tryon, Major Rt. Hon. G. C.
Davies, Major G. F. (Yeovil)McEwen, Capt. J. H. F.Turned, Lieut.-Com. R. L.
Dawson, Sir P.McKie, J. H.Turton, R. H.
Denman, Hon. R. D.Macmillan, H. (Stockton-on-Tees)Wakefield, W. W.
Donner, P. W.Manningham-Buller, Sir M.Ward, Lieut.-Col. Sir A. L. (Hull)
Dorman-Smith, Major R. H.Margesson, Capt. Rt. Hon. H. D. R.Ward, Irene (Wadsend)
Dower, Capt. A. V. G.Mayhew, Lt.-Col. J.Warrender, Sir V.
Drewe, C.Meller, Sir R. J. (Mitcham)Waterhouse, Captain C.
Dugdale, Major T. L.Mellor, Sir J. S. P. (Tamworth)Wedderburn, H. J. S.
Duggan, H. J.Mitchell, H. (Brentford and Chiswick)Wells, S. R.
Duncan, J. A. L.Mitcheson, Sir G. G.Wickham, Lt.-Col. E. T. R.
Dunglass, LordMoore, Lieut.-Col. T. C. R.Windsor-Clive, Lieut.-Colonel G.
Eales, J. F.Moreing, A. C.Withers, Sir J. J.
Eastwood, J. F.Morgan, R. H.Womersley, Sir W. J.
Eckersley, P. T.Morrison, G. A. (Scottish Univ's.)
Edmondson, Major Sir J.Morrison, W. S. (Cirencester)TELLERS FOR THE NOES.—
Elliot, Rt. Hon. W. E.Muirhead, Lt.-Col. A. J.Dr. Morris Jones and Lieut.
Colonel Llewellin.

Motion made, and Question proposed, "That this Schedule be the Schedule to the Bill."

7.36 p.m.

There are one or two questions on the Schedule which I should like answered as to the reasons for the very extraordinary financial arrangements. On reading the Bill one realises it must have been drafted by a mathematician, and, moreover, by a mathematician who envied Lewis Carroll his authorship of "Through a Looking Glass," for everything seems to run contrary to all the normal practices. May I know whether the repayment of the £100,000, which is advanced by the Treasury to reserve, takes preference on winding up before arrears of interest on preference or ordinary shares I should also like to know why the interest on the preference shares is to be 3½ per cent., whereas the interest on the ordinary shares, which rank with them for repayment, is only to be 3 per cent.? I find in paragraph 6 (d) that the interest on the ordinary shares is to be equal to simple interest at 3 per cent., whereas there is no reference to simple interest with respect of the 3½ per cent. preference shares. Is there any reason why these words should appear in subparagraph (d) and not in sub-paragraph (c)? Assuming that the company is prosperous, that all our pessimistic expectations as to losses are not realised, and that the company builds up substantial reserves, what is to happen to those reserves if and when the company is wound up? Do the reserves go to the shareholders who have found the capital or do they go to the Treasury? I can find no reference whatever to any allocation of reserves.

I am glad that the Chancellor of the Exchequer is here, because I want to refer once again to the form of the guarantee given by the Treasury. If I understood the Chancellor of the Exchequer aright, on the first £1,000,000 the guarantee is 25 per cent. On the lending of the £1,000,000, assuming that it has all been repaid the second time, the guarantee again is 25 per cent., but thereafter every time the money is repaid and lent out again the guarantee aggregates until, having been lent out five times—the first time, and four times re-lent—the guarantee becomes 100 per cent. What is the reason for increasing the guarantee? One would asume that, in view of the fact that this increasing guarantee cannot become operative for many years to attract capital and to obtain the necessary money—not the first money but possibly a considerable increase in capital—one would have required a larger guarantee at first rather than later on. Here again we find everything topsy-turvy. The greater guarantee comes later on when we see how the company is working, just as the lower rate of interest is on the ordinary shares and not the preference share. The whole thing is upside down and directly contrary to what on the Second Reading Debate the Financial Secretary called "good commercial practice." I should be glad of some explanation of why these extraordinary anomalies are to be found in the Bill.

7.41 p.m.

I am sorry I had to be absent for about an hour during the course of these Debates, but on the Schedule I must again make a protest in regard to the Bill, which I do not like either from the point of view of its principle or from the point of view of the way it is drafted. What we appear to be doing in the Schedule is to think of a number, multiply it by a sum unknown, divide it by four, take away the excess over 1,000,000, and the result is what the taxpayer loses. We might well pause before we pass this Schedule.

7.42 p.m.

The questions which have been addressed to me by the hon. Member are numerous, and I will answer them as far as I can, but if my memory fails me no doubt he will come to my assistance. The first question he asked was what was the priority upon the winding-up of the company, and whether it was actually the case that the Treasury would be repaid the £100,000 before arrears of dividend were made up to the share-holders. The answer to that is, "Yes." I do not know whether the hon. Member objects to that.

It is very good of the right hon. Gentleman to give way, but it is not for me to object. The Chancellor of the Exchequer says that he has promised the money, and the only point that strike's me is that there is not much use in the Treasury paying the £100,000 into reserve if there is not considerable priority in winding-up.

That is on the assumption that there is going to be something left on the winding-up over arid above the losses, and there may be nothing of the kind. There may be nothing left at all, and therefore, in that case the Treasury contribution is very material. The hon. Member wanted to know why we paid only 3 per cent. for ordinary shares and 3½ per cent. for preference shares. My hon. Friend has already explained that we can get the money on those terms, and that really is a sufficient answer to the hon. Member, who cannot understand how he can get money on such favourable terms for an ordinary commercial concern or commercial venture. As I have tried to explain on several occasions, it is not an ordinary commercial concern, but we have found that there are people willing to accept the terms offered and find the money on those terms. That being so, I do not think that we should look that gift horse in the mouth.

The hon. Member also asked me a question about the difference of the position of the ordinary shareholders and the preference shareholders in regard to the winding up of the company. In the case of the preference shareholders their dividend is a fixed and cumulative dividend—3½ per cent. There can be no question of the preference shareholders getting any more than the 3½ per cent. In the case of the ordinary shareholders, the dividend is not fixed, but there is a provision to say that if there is money over sufficient to pay up arrears of dividend to the ordinary shareholders, they are not to be able to claim more than 3 per cent. in respect of each year. If they had compound interest they would be getting 3 per cent. in the first year, plus compound interest for any subsequent period. Under this provision they will be limited to 3 per cent. for each year in respect of any arrears they may hope to get when the company is wound up.

Finally, the hon. Member wanted to know to whom the surplus was to go, assuming there was a surplus sufficient after the various priorities had been met, namely, (1) the debt on the share capital of £1,000,000, (2) the £100,000 to the Treasury, (3) the arrears of preference dividends, (4) the arrears of ordinary dividend and (5) the repayments to the Treasury of any sum claimed in respect of preliminary and winding-up expenses. If there is anything left after that, it will, of course, go to the shareholders. I think I have answered all the questions put to me by the hon. Member. I do not think that things are so topsy-turvy as he suggests. They are complicated and need a certain amount of explanation.

Question, "That this Schedule be the Schedule to the Bill," put, and agreed to.

Preamble agreed to.

Bill reported, without Amendment; to be read the Third time To-morrow.