I move: "That the Bill be now read a Second Time." The Bill is entitled an Act to amend and extend the Trade Loans (Guarantee) Acts, 1924 to 1932. In the year 1924 the original Trade Loans (Guarantee) Act was introduced. It authorised and empowered the Minister for Industry and Commerce to guarantee on behalf of the State any loan raised for a purpose approved of by him, subject to certain conditions, viz., that the raising of the loan would lead to an increase of employment in Saorstát Eireann and that the loan would be devoted entirely to the acquisition or construction of fixed assets, plant or land or buildings or the like. The Act had certain other provisions, as, for example, that which enabled the State to make a loan where the effect of the making of the loan was likely to be a reduction in the cost of living in Saorstát Eireann. These provisions were almost entirely inoperative. The Act as originally introduced operated for one year only, but on each year since an Act continuing it for another period of 12 months was introduced and passed, and it is now in operation and would remain in operation, but for the introduction of this Bill, until the end of June in this year. It would then automatically expire.
During the course of the past year I have kept under examination the operation of the Act and have been endeavouring to satisfy myself whether or not the Act in its original form was worth while preserving or whether it can be amended so as to achieve purposes not possible under the original form. It is as a result of that examination that this Bill now appears before the Dáil. This Bill proposes not merely to continue the Trade Loans Acts for another period of five years, but to amend them in certain definite particulars. The examination given to the operation of the Trade Loans Acts for the past year was part of a wider examination of the general problem of the financing of industrial development here. The nature of the accommodation afforded to industrialists under the Trade Loans Acts is of a very definite kind and certainly does not cover, or purport to cover, the various kinds of accommodation which are required by industrial concerns. There is, on the one hand, the ordinary day-to-day accommodation or credit facilities necessary to carry the process of production and distribution from the purchase of the raw material to the sale of the commodity to the ultimate consumer. That accommodation is ordinarily provided by joint stock banks and I do not propose to express any opinion as to whether the banks are fulfilling that particular function in a satisfactory manner or not. On the other hand, there is the accommodation required in the form of invested capital, that is money placed in a business, not subject to withdrawal and remunerated only in proportion to the profits earned.
Both these kinds of accommodation are required, in addition to the type of accommodation which is afforded under the Trade Loans Act. I have had the whole problem under examination and, assuming that the ordinary day-to-day short-term accommodation is being satisfactorily provided by existing financial institutions, I had to consider whether or not further legislative provision was required in order to make certain that industrial development here would not be held up or prevented by the absence of financial facilities. The provision of invested capital is, of course, a matter for private individuals in the ordinary way, but in this country we suffer from a difficulty occasioned by the fact that most of our industrial concerns are small scale concerns and such concerns as a rule do not find it easy, if at all possible, to secure capital by public subscription. It might be said that our financial equipment, speaking in general terms, is deficient in so far as that particular difficulty has not been overcome. The means of overcoming that difficulty might, of course, be provided without the aid of any State action or without the necessity for bringing before the Dáil proposals for legislation—and such would be by far the more preferable, although improbable, development. That particular part of our problem is still under examination and may result in legislative proposals, additional to this Bill, being brought before the Dáil.
The accommodation provided under this Bill is neither the short-term accommodation to which I have referred nor accommodation by way of investment, but the provision of facilities by which industrial concerns can secure loans necessary for their development and which would be repayable in fixed sums over a fixed period of years. In certain countries, and occasionally in this country, these loans are provided by banking institutions, but the attitude of the banks here is that the provision of capital in that form is not ordinarily the function of the banks, although at the present time they are financing, and no doubt will continue to finance, the loans which are guaranted by the State under the Trade Loans Act.
I do not think it is necessary that I should give a review of the operation of the Acts. I think I am correct in saying that they were not availed of to anything like the extent which was anticipated when the first Act was introduced in 1924. The reason for that failure to avail of the facilities afforded by the Act to the extent anticipated is one not very easy to determine. At first sight it might indicate that industrial possibilities here were so limited that the number of applications for facilities would be exceedingly small in any case. I think there are very few people who have that view nowadays. Certainly my experience has been that the limitation in the number of applications, the much greater limitation in the number of successful applications does not arise out of any lack of industrial possibilities, but out of other causes.
A number of loans were guaranteed. In some cases these loans achieved the purpose intended. They enabled industrial concerns to increase their production and their employment and the results have been wholly beneficial, although the industrialists concerned sometimes have complained that the burden of the loan was much heavier than they originally anticipated. In other cases, however, the loans guaranteed did not achieve the purpose intended and, as Deputies are aware, in some half-a-dozen cases the State had to make good its guarantee, thereby involving a charge on the taxpayers of, roughly, a quarter of a million pounds.
I do not wish to initiate any discussion concerning these cases. In relation to some of them it might be said that the failure arose out of causes which could not have been foreseen when the decision to give the guarantee was arrived at. In other cases the giving of the guarantee was a matter of debate and criticism in the House at the time. It is possible that a difference of opinion might exist as to whether the Act was wisely administered in giving a guarantee in these cases at all. All these cases, however, are well known to Deputies. Some two years ago a return was published giving particulars in relation to them— that is, the amount of the loan outstanding at the time that the recipient of the loan failed in his obligations, the amount of interest outstanding and, in a more recent return also published, the amount secured by the State on the realisation of the assets concerned. There have been no further failures of concerns assisted under these Acts since and I have no reason to anticipate that any failures are likely to occur in the near future.
In considering the problems associated with this Act, I came early to the conclusion that the limitations imposed originally in respect of the loans were unwise and unnecessary. I refer particularly to two limitations. Firstly, the Minister for Industry and Commerce was debarred from guaranteeing a loan to an individual; he could guarantee a loan only to a corporate body. Secondly, he could guarantee a loan that was intended to be expended only upon the acquisition or erection of fixed assets. He could not guarantee a loan, any part of which was likely to be used for working capital. At first sight these two limitations appear to be necessary safeguards; but, having regard to the numerous other safeguards that can be imposed in the administration of the Act and that are necessarily imposed by the Department of Finance for the protection of public revenue, I do not think that the maintenance of the two safeguards provided in the Act is at all essential.
Quite a large number of applications which appeared attractive and which, if successful, would have resulted in increased production, and increased employment here, had to be turned down because they did not comply with one or other of these conditions. I decided then that it was desirable to amend the Act by the deletion of these conditions. I also decided that other changes were necessary if the Acts were to be made effective use of. These other changes are largely changes in administration and do not require any legislative provisions. I think it is desirable, however, that I should explain them to the Dáil. Firstly, we propose to change the form of the Advisory Committee. At present there is an Advisory Committee which consists of three businessmen who give their services voluntarily, and which examines all applications received.
The members of that Committee told me that recently the amount of business that has come before them exceeded anything they anticipated when they consented to accept membership and that they are now required to give a much larger part of their time than they could reasonably spare. The fact that all applications must be considered by this Committee of three businessmen meant at times certain delays. It is proposed in future to have as permanent chairman a member of the Civil Service, to associate with him a panel of businessmen, and to select from that panel, in relation to every application, a separate committee of three. Each committee will consist of the permanent chairman, a member of the Civil Service and, in addition, two members of this panel. The permanent chairman will be able to do an amount of preparatory work which will make the business of these committees easier. He will assist in other ways in securing speedy decisions on the applications and speedy action following the decisions.
By the institution of the panel system we will be able to bring to the service of the Acts a wider variety of knowledge and experience and also we will lessen the burden of responsibility and loss of time in respect of each member. It is intended of course that the members of the panel will act voluntarily as in the past. At this stage I think I should pay a tribute to the services rendered by the members of the existing Committee, who despite the fact that they are men with considerable business interests have never hesitated to give either their time or attention to any application which came before them. In the majority of the cases, we were able to act upon the information supplied by them in the light of the representations and without further inquiry.
It is proposed also to change the method of administration in another particular. At the present time, the State's security behind these guarantees consists as a rule of a first charge upon the assets of the undertaking. That is secured by a trust deed. The preparation of the trust deed is a difficult and lengthy business. It is also somewhat costly. There is no reason why the trust deed should not be substituted by an ordinary debenture mortgage, which would be cheaper, speedier and simpler to bring into operation.
The changes which are actually proposed in the Bill have already been indicated by me. First of all, we propose to enable the Minister for Industry and Commerce to guarantee a loan to be raised by an individual. I have never been quite clear why the original Act provided only that loans could be guaranteed when arranged by a corporate body. I take it that the idea was that the corporate body has a more continuous existence than an individual who might die, and where difficulties might arise following his death. It is also possible in the case of a corporate body for the State to put a director on the board if such action is necessary to protect its interests. Ordinarily, I think it is undesirable that the State should put a director upon the board of any company for which loans are guaranteed under the Act unless the circumstances made it desirable for the purpose of protecting the interests of the State and to ensure that action would not be taken which might necessitate the making good by the State of its guarantee.
A number of applications have come to us from individuals, and although in the majority of cases these individuals have formed companies in order to comply with the Act, I do not see any reason why it should be done. It involves a certain amount of expense and it involves a certain amount of trouble. In other cases—these were not general—there was a natural reluctance on the part of individuals operating industrial concerns here to change the nature of the control of their enterprise. I decided, and I found that I was supported by those who have had long experience in the operation of the Act, that we should delete that provision, and take power in future to give loans to individuals. The same examination would arise and the same inquiries would be made to ensure that the loan was likely to result in increased employment. We have also decided to delete the provision in respect of working capital. These are probably the greatest of the changes which it is proposed to effect.
The case for restricting the powers of the Minister to guarantee loans for the purchase of fixed assets is fairly obvious. The assets constitute the security against the loan. Certain cases, however, came to our attention from time to time where it was quite clear that the Act could only be availed of by making arrangements which were tantamount to attempts to get round the Act and the barriers in the Act. I can instance the case of persons who had brought machinery, had installed it in building and had come to the point of starting production. They then found that their original estimates of construction costs were incorrect. By the time the building of the factory had been completed and they were ready to start production, their capital resources had been depleted to such a point as made it unwise to start. In such cases, we could not give a guarantee for a loan.
It might be said that such persons would have no difficulty in getting a loan from a bank, but we did not find that to be the case. In any event, circumstances can easily be imagined in which an industrialist might require to have a loan given to him at known terms, that is a loan repayable over a fixed period and bearing a fixed interest rate rather than that he should get accommodation on overdraft. These overdrafts might be recalled on short notice. If such a person had come to the Department with his application before purchasing machinery, he could have got a guarantee and the same security against the loan would exist. From the point of view of the State, the same case for guaranteeing the loan would exist in so far as production would be made possible and employment increased.
We have decided to take whatever risks are involved in leaving ourselves open to receive applications for working capital, but I think it should be made clear that the operation of that part of the Act will be confined to cases of the kind I have mentioned. It is not intended to enable firms that have got themselves into financial difficulties to get out of these difficulties. It should be clear that the effect of the loan will be to increase employment in Saorstát Eireann. Certain decisions have been given from time to time and have been acted upon, which meant, in effect, that the Acts are being applied if the loan operates to preserve employment or even if the only employment that is likely to be created is the actual employment of men in the construction of the factory or the installation of machinery. But, where applications for working capital are concerned, it is my opinion that no guarantee should be given unless it is clear that the giving of the guarantee is going to increase employment in the increased production of goods here. That alteration in the terms of the Act has also been recommended to me by those who for a number of years have had very intimate experience of the operation of the Act.
We provide that the Act will continue for five years. I see no sense in this procedure by which a continuing Act is introduced year after year. If these Acts are worth preserving at all, we should make up our minds that they are going to exist for at least a five-year period and that they should become part of the permanent machinery of the State so long as existing conditions continue. By "existing conditions," I mean the period of industrial development. We provide also that no loan of less than £500 may be given. That is really inserted to save the time of the Department, because a very large number of applications for trifling amounts are made from time to time. While it has always been the practice not to give loans of less than that amount, it is not easy sometimes to explain why. At the present time, there is one obvious reason, in that the cost of actually giving the guarantee associated with the preparation of a trust deed makes, in effect, the rate of interest on the loan prohibitive. Nevertheless, people are prepared to push these applications and it is much better to be able to say to them that we have not got the power to give them than to try to explain all the considerations of policy which make it inadvisable to operate the Act in any other manner.
We propose that there should be a fixed figure of one million pounds as the total of all the loans to be granted in the five-year period. Judging by our experience of the operation of the Trade Loans Act up to date, I do not think it can be said that that figure is likely to be exceeded. If it is exceeded at any time, it will be possible to introduce an amending Act but, personally, I think it will be found that for accommodation of this kind one million pounds in five years is likely to be ample, particularly if the other deficiencies in our financial organisation are made good during that period.
The other provisions of this Act are of no particular importance. Section 5 gives to the Minister for Finance himself power to make an advance on foot of a guarantee. It is thought that it is wise to have that power, although I do not contemplate that it will have to be exercised. In theory, a person could get a State guarantee and be unable to negotiate the loan. The banks have indicated their willingness to take up any of the loans guaranteed by the State. Everything in that connection is working quite smoothly and I do not anticipate any change, so that Section 5 is likely to be inoperative to a great extent, except under very special circumstances or in the event of changes taking place which might produce the position I have indicated. For the greater part of the period during which the principal Acts were in operation loans were negotiated by the Industrial Trust Company. When that organisation ceased to take up these loans, there was for a period certain difficulties experienced by people who got guarantees. They had to approach finance houses of one kind or another for the purpose of getting the best terms they could. Sometimes, they did not get as good terms as we thought they should have got having regard to the State guarantee. The present arrangement with the banks is, however, considered to be quite satisfactory. Section 6 merely provides that the same information which heretofore had to be given to the Dáil in relation to the guarantees given under the principal Acts will have to be given in respect to guarantees given under this Act.
That is the main purport of the Bill, and I recommend it to the Dáil not only on my own behalf but on behalf of those who have had experience— administrative and advisory—of the working of the previous Acts and of those who secured loans under these Acts. I am satisfied that no additional liability is likely to fall upon the State if the same administrative safeguards are imposed in the future as were imposed in the past, while, at the same time, we will be empowered to give assistance in cases where it is not possible to give it now, but where the giving of such assistance is likely to promote the development of industry here and increase employment. That was the main intention behind the original Act and the changes made here keep the intention unaltered. The various provisions of the Bill can, if necessary, be discussed in detail in Committee, but I think that anybody who gives deep consideration to this matter will be unable to find any objection in principle to the changes now proposed.
