I move that the Bill be now read a Second Time. I think that the House is aware that the Trade Loans (Guarantee) Acts have been in operation here for a very long time. The first Trade Loans (Guarantee) Actwas passed in 1924 and was to operate for a year. A limit was placed to the aggregate amount of guarantees to be given under the Act. It was, however, renewed in the following year for a five-year period until 1932. In 1933, it was amended to some extent and continued for another five years, and so on. As each five-year period passed, the Act was continued.
Committee on Finance. - Trade Loans (Guarantee) (Amendment) Bill, 1952—Second Stage.
This is the Trade Loans (Guarantee) (Amendment) Bill?
Yes. Although the present Act, which was extended in 1949 by the previous Government, is not due to expire until 1954, we are now getting to the point where the limit on the amount that may be guaranteed is being reached. The position is that the total amount of guarantees outstanding, or where intimation of a willingness to give a guarantee has been conveyed, is £809,000. As there are some applications for substantial amounts under consideration, it is desired to lift the limit. I do not want to be taken as saying that all these applications are going to be successful, but I do not want the position to be that I will be debarred from considering them by reason of the limit in the Act.
I think that, while it is desirable to maintain a limit on the total amount that may be guaranteed in the aggregate and that the Dáil should require to be consulted if ever that limit looked like being exceeded, it is not necessary to enact this measure every five-year period. The first Act was passed by the Dáil 30 years ago. It has been kept going ever since, and so must be assumed to have become part of the permanent legislation of the State. Therefore, I am proposing that we raise the limit from £1,000,000 to £1,500,000, and that we drop this five-year period altogether. I think it is desirable that we should do that. I am sure all Parties in the House will agree that we should have some machinery for the purpose of promoting employment, assisting any industrial development or helping a local authority to undertake particular projects by affording them financial assistance.
Mr. O'Higgins
How do local authorities come under this Bill?
Harbour authorities have been guaranteed loans under this Act for the execution of harbour works.
Mr. O'Higgins
We had the Local Loans Bill before us yesterday. It was passed by the House and I understood that it was to help harbour authorities.
I do not know what the procedure under that Bill is, but I know that a number of harbour authorities have come under this Act, such as the Dundalk Harbour Authority, the Foynes Harbour Trustees, the Galway Harbour Commissioners, and others.
Under the Trade Loans (Guarantee) (Amendment) Bill?
Yes. They got, of course, a lower rate of interest on the amounts they borrowed by reason of the guarantee.
That would be some time ago, I take it?
Yes. As a matter of fact, I think all the loans I have mentioned are still outstanding, and the instalments are being paid as they become due. The House is aware that every application has first to be considered by an advisory committee. That advisory committee at present consist of the members of the Industrial Development Authority, of which Dr. Beddy is chairman. The recommendation of the advisory committee goes to the Minister for Industry and Commerce, who must accept the recommendation. It then goes to the Minister for Finance, who may or may not accept it.
I have warned people seeking assistance under the Trade Loans (Guarantee) Act of all these hurdles which they must get over before reaching their goal. I do not think there was ever a case where the Minister gave a guarantee against the recommendation of the committee. There were cases where I refused to give a guarantee, even though the committee recommendedit, mainly in circumstances where I thought it was unfair that State help should be given to a firm going into business in which other people were long established, and even though the committee thought that the risk of loss was nil. There may have been cases—I am sure there were although at the moment I cannot recollect them—where, having approved myself, I found that the Minister for Finance was not prepared to agree.
As an indication of the extent to which the Act has been used since it was first passed in 1924, I might mention that guarantees were actually given in the case of 109 undertakings, amounting in the aggregate, to £1,875,671. In the case of 70 of the 109 undertakings, loans totalling £736,671 were fully repaid by the borrowers. There are 12 undertakings, three of them public authorities, which are actively operating at present with the assistance of guarantees totalling £536,000. In the case of 27 undertakings, with guarantees totalling £602,000, it was necessary to appoint receivers. Some of the concerns ceased to operate and there was recovered by the receivers for the Exchequer in these cases £157,500.
The total losses under this Act to date, that is over the whole period since 1924, amount to £445,240. Deputies, I think, are aware that some heavy losses occurred in the very early stages after the passing of this Act. The fact, however, that there are these 70 cases of undertakings launched by the aid of this Act not merely in existence but able to repay the full amounts of their loans, and that there are 12 undertakings actively carrying on at the moment with the assistance they received, is an indication of the value of the Act.
It is true that the number of applications under this Act tended to diminish after the Industrial Credit Company was set up. Most people seeking finance for industry would prefer to get it in the form of risk capital than by way of a guaranteed loan which has to be repaid in fixed instalments, whether the concern is making a profit or not. There are other cases where personsdesire to get help in the form of loans in this way where they are obliged to pay a fixed annual instalment. The reason for that is that they know what their liabilities are, but, wherever it is possible to get capital in other forms, it is rare to find an application under this Act, excepting in the case of a public authority or some other concern of a special kind where it was regarded as reasonably practicable to contract to make these fixed annual instalments in repayment.
I am sure the House will agree generally with the provisions of the Bill. There are one or two points that I would like to raise, however. It seems to me that the total ceiling provided is not, possibly, adequate. If the original ceiling was £1,000,000 some 20 years ago, it seems to me that a ceiling of £1,500,000 now is not commensurate with the original intention of the Bill. In the course of questions to-day, we were told that £1,000,000 in terms of import prices was worth £300,000, comparing the 1939 values with present-day values. The figure, therefore, does not seem to me to bear a proportion to the original intention of the legislation.
The Deputy appreciates that it is £1,000,000 outstanding at any time. In fact, as I mentioned, the total amount guaranteed was £1,875,000.
I am sure the Minister will agree that if he could find solid investments for £5,000,000 on the basis of the trade loans it should be made available. Is the Minister satisfied that £1,500,000 is adequate, having regard to the fall in the purchasing power of money?
I would not mind if we got applications up to that limit or beyond it, but I think, if we get to that stage, I should come back to the House.
I do not know whether the Minister could simplify the procedure in some way. It seems that a number of complaints have been made from time to time about the difficulty in getting trade loans. The ordinary person who is thinking ofstarting an industry is rather frightened off by the complicated procedures that have existed. I know that it has been simplified in recent times by the Industrial Development Authority, who have been trying to streamline the procedure, but it is a rather difficult ordeal to have to go through, first of all, to the advisory committee, then to the Minister for Industry and Commerce—he usually does not represent very much of a difficulty—and ultimately to the Department of Finance.
It is only then the difficulty starts.
Yes.
That part of the procedure is now streamlined enough, but then the borrower has to go out and negotiate his loan. That is the part now where the difficuty arises. Then, of course, there is the mortgage bond.
What is the difficulty in negotiating a loan if you have a Government guarantee?
It has arisen.
I agree with the passage of this Bill. We may as well face facts. The man that has to have recourse to the trade loans procedure in commerce is not ordinarily a very good risk. If he were a good risk, he would not be looking for a trade loan guarantee.
It would depend.
There would be exceptions to that.
I suppose there are. I suppose the Dundalk Corporation is an exception. I never knew this Act was designed to accommodate local authorities at all. I am not at all saying that people who are not first-class commercial risks are not people who ought to get assistance, and it is to meet these exceptional kinds of cases that this procedure is devised. The longer I live in this world—I hope this heresy will not shock some orthodox persons, such as the Minister for Industry and Commerce—the more it is borne in on me that the greatest curse that afflicts mankind in our time is the lending of money at interest.
At interest?
At interest?
Yes.
I believe that a very great number of admirable enterprises are stillborn by the burden of interest.
I am quite certain that in this case the difficulty is not interest; it is the repayment.
The Minister challenges it. Persons getting the benefit of this Bill go to a lending agent with a Government guarantee behind them and they get their loan. Is it at 5 per cent.?
Whatever they can get it at.
They get the loan wherever they can get it. The Government guarantee is only for a limited amount. We only guarantee 2½ per cent. of the interest payable.
Interest?
Yes. He can negotiate the loan wherever he can but the lender is only guaranteed as to 2½ per cent.
And as to the whole principal?
Yes.
The whole principal and interest rate of 2½ per cent. It is commonly, as the Minister told us, the experience of the borrower that, in addition to the 2½ per cent. guaranteed by the Government, he has perhaps to pay 2½ per cent. more and, on top of that, he has to pay the regular instalments. I am the most conservative creature, probably, in this House but I do seriously raise this question: If a person has a good proposition, good by this criterion, that he says, "In my community there are 20 men available for work for whom I can provide work. There is an abundance of unused raw materials available. There is a want which a marriage between these unemployed men and these unused raw materials would supply. The only thing I lack is money, credit, to bring them together, to employ the men, use the materials andsupply the want." And suppose the advisory committee examine it and come to the conclusion that this is a sound proposition, that this fellow has every prospect of succeeding—and they will not give a trade guarantee unless there is a reasonably good prospect of its succeeding—will anyone explain to me why, because he does that invaluable service, not only to himself and his family, but to the community to which he belongs, in bringing the materials and the men together and supplying the want, he has to begin by paying the credit agency 5 per cent. on the capital required to produce that most desirable end?
Deputy Hickey and I will agree.
Let us not run away with it. I recognise that 1¼ per cent. or something of that kind may be required to defray the book-keeping charges, of preserving records, and I regard that as a management charge on the enterprise but would anyone explain to me—and I am prepared to listen to reason and to be educated if needs be—what is the justification for levying on that enterprise an annual charge which very often means the difference between failure and success?
You are going to start Deputy Hickey off and then we will never get the Bill.
If the Minister knows the answer to this dilemma he will do a public service by giving it to us so that we would be all fortified in defending what is commonly recognised as orthodoxy in the Oireachtas. As far as I know, taking one borrowing with another, the difference between the actual book-keeping charge of 1¼ per cent, or whatever it might be and the charge actually paid amounts probably to 5 per cent. We will take the 5 per cent. as a round figure so that the picture may be complete. If this charge were not levied, at the end of 20 years the borrower would be free from debt. Under the existing arrangement, at the end of 20 years he is just as bad as he was in the beginning.
The Deputy is getting a bit away from the Bill.
I feel the Deputy is discussing the whole question of interest payments on this Bill.
Let me submit at once that that is precisely what we are doing.
So far as we are concerned, if anyone can get a loan without paying interest, he is quite welcome to do it.
I am going to help the Minister to go a little further since I brought him this far. I am, Sir, dealing with the whole question of interest, as to whether it is right that the Minister for Industry and Commerce and the Minister for Finance should have to step into the breach and undertake to pay a charge, the necessity for which I beg leave to doubt.
The Deputy is travelling too wide.
I submit that a question that mankind has been discussing for 1,000 years cannot be decided on this Bill.
Will the Minister agree that, even though mankind has been discussing the matter for 1,000 years, it would be relevant to the present instrument before the House? This is to enable him to take one side in the argument and I want to take another.
I am not taking any side in that argument on this Bill.
I have brought the Minister half-way already.
Most of these loans are now negotiated through an insurance company.
I do not think the Minister for Industry and Commerce is so old a man that he has reached a stage that he wants to brush a thing aside and say, "I am too old to start campaigns on that field." I think thereis time in our time to face this problem.
Not on this Bill.
Why?
Because it is irrelevant.
I do not think it is. Your purpose here is to guarantee the payment of interest on loans. Do you not think that it is legitimate to make a case that, if our Government deems it proper to put behind a particular enterprise the whole credit of the State, there is neither rhyme nor reason in the lender of the money, who does no service whatever except to keep the books of the drawings and lodgments of the party guaranteed, levying on the enterprise 4 or 5 per cent. for that and no other purpose.
He does not have to pay interest.
Oh, yes, he does. The guarantee under this is that the Minister will give an unconditional guarantee that that borrower will pay 2½ per cent. interest.
We guarantee the repayment of interest up to 2½ per cent. if he contracts to pay it.
If he does not?
Then he does not.
The Minister agrees under his guarantee to guarantee the payment of interest at 2½ per cent. I think the Minister would agree with me that the probable maximum book-keeping charge that could be justified would be in the order of 1¼ per cent. There is at least 1¼ per cent. of the guarantee simply a pure interest charge. I wonder why. I would draw the attention of the Minister to the fact that this system of interest was universally accepted in Great Britain until Hitler invaded Poland. On the morrow it was agreed that the whole interest system would be suspended during the operation of the war, and the war was fought on the basis of a book-keeping charge.
Not on this Bill.
I want to know——
I have already pointed out that this is a Trade Loans (Guarantee) (Amendment) Bill and that the question of the payment or non-payment of interest cannot be discussed on this Bill.
What is the Bill about? Is not the Bill about guaranteeing rates of interest? The whole purpose of the Bill is to authorise the Minister for Industry and Commerce and the Minister for Finance to guarantee the payment of interest on loans. That is the purpose of the Bill and it has no other purpose. Of course the Minister knows well what I am talking about.
I know you are not talking on the Bill.
I suspect the Minister largely agrees with the difficulty which I find myself in, and which I think most rational men find themselves in, but I think he has made up his mind to say: "It is not my business to reform the world. I have to work in the world where I find myself." That is where I think he is wrong. I think it is practicable in our country to examine this question cautiously and tentatively and perhaps to start on the road to its reform. I suggest to the Minister that he ought to be prepared to deal with this aspect of the question. I agree with him, of course, that if you are to have legislation of this kind he is quite justified in putting an end to the quinquennial period, and that any extension of the Minister's power to guarantee should be subject to further amending legislation. There is no objection to this Bill in itself except in so far as the high matter of principle which I have ventured to present is no more than a dilemma. I suggest to the Minister that in this case, paradoxical as it may seem, the matter of principle I am concerned with is the matter of interest.
The matter of interest is the matter of principle.
I should like to supportthe view-point put forward by Deputy Dillon.
The Chair pointed out to Deputy Dillon that that view-point cannot be raised on this Bill—the view-point of payment or non-payment of interest.
If the State is to guarantee £1,500,000 to a group of individuals, are we not entitled to discuss why interest on that money should be paid? If a group of individuals in this State were going to electrify the country and wanted £1,500,000 from the State, I should like to hear from the Minister why we should pay interest on that £1,500,000 which the Minister would be responsible for seeing it would be applied to giving our people a supply of electricity.
I refuse to do it to-night.
It is just as pertinent to-night as it was 20 years ago. Deputy Dillon referred to Hitler. I suggest to this House and to the Minister that if there was ever a real demonstration of the futility of the power of money it was demonstrated by Hitler. For six years he ruled a country that was bankrupt and had 5,000,000 people unemployed.
Deputy Hickey is travelling very far from the Bill.
I am discussing the futility of having to pay interest on a guarantee of £1,500,000 which we are giving to some group of individuals to develop industry in this country.
We do not have to do it.
I understand that we have given a guarantee for £1,500,000 over a period of 28 years. It would be interesting to know what interest was paid on that. That is continuing to tax our people unjustly and giving a tribute to people who never gave an ounce of energy to produce anything in the country. I want to stress this point to the Minister. In six years Hitler brought his country out of bankruptcy because he took control ofmoney and credit and for six years he challenged the world at war. He did not complain that he was short of money. Was it want of money that caused his defeat? Not at all. We were told when Japan came into the war that she would not last for 12 months because she had no money.
The Deputy must not continue travelling away from the Bill.
I am in agreement with the suggestion that the limit provided in this Bill is too low.
The Minister has pointed out that the Bill relates to the maximum for which he will be liable according to the provisions of the Bill. I think that when this question of interest is settled we can consider the possibility of raising the limit of that liability. That may have the effect of encouraging enterprise amongst those who wish to avail of the advantages conferred by the Bill. The Bill, as it stands, guarantees the payment of interest up to 2½ per cent., but there are no precautions taken in the Bill to ensure that those who make the money available will not be played upon by persons desirous of taking advantage of the provisions of the Bill. The Bill gives certain guarantees. I think it should at the same time impose certain limitations and restrictions in relation to the interest in respect of money made available by way of trade loan. At some stage it will be necessary, in the interests of our national development, to ensure that enterprising individuals or groups will not be exploited merely because this advantage is contained in this measure from which, in fact, they do not get any benefit of the higher rate of interest.
Sooner or later the Minister will have to take an attitude on that. Would he not take it now? He has on occasions indicated that the whole banking system would have to be reviewed.
I am not sure that that is what is wrong.
Would the Minister not take an attitude now?
I do not think there is anything to say to Deputy Rooney beyond that the borrower has to protect his own interest. I have never known a case where there was any difficulty in doing that. The practice nowadays is to seek these loans from insurance companies. I think the companies are very glad to get the business because the security of the State guarantee makes it attractive to them.
It should come direct from the Minister as representing the people of this country.
This Government has never succeeded in borrowing money free of interest.
It is time the Government started to deal realistically with the whole situation.
Will the Minister not agree that in fact this guarantee up to 2½ per cent. is a guarantee to the lenders of money rather than to the borrowers?
Of course it is. That is what it is intended to be.
Question put and agreed to.
Agreed to take the remaining stages to-day.