5. Guarantee of Loans—The Trade Facilities Act, 1921—Policy of Advisory Committee—Difficulties of the Committee—Guarantees already Given.
6. The Export Credits Scheme—Specific Guarantees or Credits—General Guarantees or Credits.
7. Other Miscellaneous Schemes—Summary of National Expenditure.
5. GUARANTEE OF LOANS
The Trade Facilities Act, 1921, represents the most important of the constructive proposals which resulted from the conferences held by the Prime Minister at Gairloch in the autumn of 1921. The general opinion of the experts summoned to those conferences was that a large amount of new constructional work (extension and electrification of railways, construction of docks, extension of manufacturing works, etc.), which would normally have taken place during the war, still required to be carried out, but that such work was being held up by the high costs of manufacture and the high rates which had to be paid for money. It was felt that although much of this work was urgently needed for the proper service of the public handling of trade, the placing of orders might be deferred indefinitely in the hope of a fall in prices, and meanwhile the Government would be compelled to go on paying unemployment doles. If, however, cheap money could be provided, one at least of the main obstacles would be overcome, and this might in many cases afford sufficient inducement to commence the works immediately.
The Trade Facilities Act, 1921
Under the Trade Facilities Act, the Treasury is empowered to give a guarantee of principal and/or interest on a loan to be raised “by any government, any public authority, or any corporation or other body of persons,” the proceeds of which loan are “applied towards or in connection with the carrying out of any capital undertaking or in, or in connection with, the purchase of articles, other than munitions of war, manufactured or produced in the United Kingdom required for the purposes of any such undertaking, provided that the aggregate capital amount of the loans, the principal or interest of which is guaranteed under this section, shall not exceed the sum of twenty-five million pounds.” An Advisory Committee—Sir Robert Kindersley, G.B.E., Sir William Plender, G.B.E., and Colonel Schuster, M.C.—was appointed to recommend to the Treasury, the cases in which, in its opinion, a guarantee should be given.
The Committee’s power is limited in two ways. In the first place it can only recommend a guarantee on a loan (i.e. it cannot guarantee an issue of shares). In the second place, the Committee has no power to recommend a guarantee “except for the purpose of a capital undertaking”(i.e. it cannot guarantee “working capital”). Many manufacturers in the country have orders on hand from foreign purchasers which they are unable to execute because they cannot finance themselves for the period between the date on which the orders are put in hand and the date on which payment is received from the foreign purchaser. Cases of this sort come under the Export Credits Scheme, and not under this scheme. The Act empowers the Committee to recommend a guarantee of a loan by a foreign Government, municipality or company, even though the articles (e.g. steel rails) manufactured with the proceeds of the guaranteed Joan were to be erected or used outside this country, provided always that the proceeds of the guaranteed loan itself were spent on goods manufactured in the United Kingdom.
The Trade Facilities Act thus enables new works to be undertaken which would otherwise have been postponed indefinitely. This on the one hand provides work directly and indirectly, and so avoids the demoralizing influence of the dole. On the other hand, if the scheme is wisely administered, no liability should fall on the Government, that is to say on the individual taxpayers. An assurance as to the wisdom of its administration was afforded by the composition of the Committee itself, combined with the pledge given by the Chancellor in the House of Commons that the Government would not interfere with the Committee’s discretion. It was thereby made certain that sound business considerations rather than political expediency would be the guide to the Committee’s activities.