Trade Loans (Guarantee) (Amendment) Bill, 1934—Second Stage.

This is really a very minor Bill. It is introduced to remove certain doubts which have arisen as to the correct interpretation of other Acts. I think I can best convey the nature of this Bill to the Seanad by giving the history of the case which has resulted in the introduction of this Bill. Early in the year 1932, or the close of 1931, an application under the Trade Loans Act, 1924, was made for the guarantee of a loan proposed to be raised for the purpose of financing a large-scale housing scheme. At the time that application was made the Minister for Industry and Commerce was advised that the power to guarantee a loan for that purpose was conferred by the Act of 1924 and that so far as legal matters were concerned there was no difficulty. I considered the proposal from the point of view of policy, and I consulted the Executive Council. Finally, it was decided that the provisions of the Trade Loan Guarantees Act should be utilised only for the purpose of putting a guarantee behind a loan raised for housing purposes where large scale development was contemplated and only large scale development. In practice that decision meant that only schemes involving not less than 200 houses would be considered. The application on which these questions were raised was not proceeded with. Some time after, another application of the same kind was made by a company called Irish Homes, Ltd. They applied for a guarantee for a loan to be raised for a certain large-scale housing scheme upon which they proposed to embark. The application was referred to the Advisory Committee and it was favourably recommended by the Advisory Committee. It was approved by myself and, also, by the Minister for Finance, and, according to the ordinary procedure, a letter was issued to the applicants informing them that the Government were prepared to give a guarantee and they were advised to proceed forthwith with the negotiation of the loan. The applicants proceeded to carry out various works and to make various contracts, to take options upon property and so forth. The final step was the preparation of the debenture deed, and for this purpose certain lawyers outside were brought into consultation. Between them a difference of opinion arose as to whether there was, in fact, power to guarantee a loan for a housing scheme. The particular point referred to was the sub-section of Section 1 of the 1924 Act, which deals with working capital. Some of the lawyers consulted advised that there was full power under the 1924 Act to guarantee a loan for this purpose and some advised that there was not. Under these circumstances, I consulted the Attorney-General who recommended that the safest course was to remove all doubts by the introduction of the Bill. Although the application was under the Act of 1924 it was felt that the safest way was to amend the definition of "manufacturing undertaking" and extend the term manufacturing undertaking in the Act of 1933 so as to make sure that it included the matter of the erection of houses. This Bill is made retrospective. That is necessary because it would cause particular complication if the Bill did not have retrospective effect. I mentioned that the people concerned had made various contracts and engagements and would have been involved in serious loss if the difficulty could not be solved. Eventually, temporary arrangements were made to tide over the period that this Bill was passing through the Oireachtas. It is clear, therefore, it is desirable to find the simplest way out of the difficulty. If the Bill were not retrospective a new application would have to be formulated and follow the usual procedure. The Bill is, therefore, to remove doubts which were raised and which will be removed by the enactment of this measure.

The Minister is working the administration of this Bill by advisory committees who consider the applications. If he chooses he can override and upset these recommendations. Is it too much to invite the Minister to give us some indication of his policy in that direction and to tell us to what extent he has felt obliged to override his Advisory Committees? I am not speaking with any knowledge, but I think the Minister should not, in what I might call overwhelming instances, override the committee which has direct responsibility in the matter.

I would like if the Minister could see his way to amplify his statement somewhat. From the terms of the Bill many people will undoubtedly be led to believe that it is possible now to raise loans with a Government guarantee for the ordinary purpose of building houses even in a small way. So far as the law would go there would be nothing to limit the number of houses to 200. With reference to the term "manufacturing undertaking," is it going to apply in all respects to every industry other than house building on a large scale? The question would undoubtedly arise as to why the rate of interest charged in small manufacturing undertakings, not house building, but in regard to other commodities, would be lower than the rate at which they could be raised under the Local Loans Bill. It would save a great deal of misconception and perhaps controversy and communications that lead to no results if the Minister would make clear at this stage what would be the position. I am thinking now of avoiding newspaper controversy and controversy of another kind which might be anticipated if the matter could be clarified at this stage.

To the question asked by Senator Sir John Keane I might say that the usual practice is to agree with the Committee when their recommendation is the rejection of an application, and to examine their recommendation carefully when it is favourable. They can take three courses. They can recommend against; they can recommend for, and they can make no recommendation at all. The procedure up to quite recently was that where they positively recommended against an application this recommendation was accepted and the applicants were advised accordingly, although, occasionally, we got them into the office and gave them advice how they might promote a new application. If the Committee recommends in favour the Department may decide against the applicants, having regard to considerations that may nut concern the advisory committee at all.

For example, an application might be made to me for a loan to be raised for an industry already fully catered for in the Free State. Although a particular application might be made and there might be every prospect of success, and so on, and the Committee might be of opinion that there was no reason why this guarantee should not be given, since it was fully secured and the applicant knew his business and was likely to make a success of it, we would have to see whether it was advisable that a State guarantee should be given to a person entering into a business that was already overcrowded. In such a case, although the Committee might recommend it, we might not accept their recommendation. As I have already said, we have appointed new Committees recently and they are particularly cautious Committees. In the case of these Committees the procedure may be reversed. The number of cases they will recommend will be so few that we might be inclined to pass them automatically, and those they would reject will be so multitudinous probably, that we would be inclined to send some of them back for reconsideration.

Senator Johnson asked questions concerning this Bill, and I should like to say that if the Bill is passed it is, of course, quite clear that a State guarantee may be given for a loan raised for the purpose of financing a building scheme of any kind or size. That is quite true. I merely stated that Government policy under present circumstances would be not to utilise that power except for schemes of a particular type. The reason for that is that adequate facilities for other housing schemes are being provided by other measures, and through a number of schemes already in operation to encourage the speculative builder to get into building activity. The proposal would be only to use these powers where very special circumstances existed to justify their being used. I do not think that every scheme would get a trade loan. In fact, I think it is unlikely. There is, however, no reason why the power to do so should not exist. We have power to give industrial loans at the moment, but the power is not always used, because circumstances in particular cases would not justify its use. It is advisable, however, to have the power there in case a change in circumstances would justify a change in policy.

Under present circumstances the rate of interest guaranteed is 2½ per cent. Of course, every Senator, when he hears that, may think of raising a loan at once, but in fact he would have to pay more than that; if arrears of interest accumulate and a guarantee is called upon, payment on foot of the guarantee is only made at the rate of 2½ per cent. That is due to an arrangement, but there is power in the Bill to guarantee any rate of interest. In fact, the rate of interest the borrower pays is the rate of interest at which he can raise a loan, having regard to the fact that he has the State behind him. Ordinarily, that varies with the bank rate. The position under the Local Loans Fund is, of course, different. I do not think the rate of interest, having regard to all the circumstances, is appreciably higher, but of course the loan is for a much longer period than that for which trade loans are usually got. In any event, having regard to facilities available through the Local Loans Fund, we would not be in favour of it.

I was thinking of public utility societies and such bodies. May it be understood that the State guarantee for this kind of loan will not be by any means for as long as 35 years?

Since I have become Minister I do not think any loan has been guaranteed for a longer period than 12 or 14 years.

Question—"That the Bill be now read a Second Time"—put and agreed to.
Committee Stage ordered for Wednesday, 28th February.