While the greater part of the guarantees are given to companies and undertakings operating in Great Britain, the Committee considers that (subject, of course, to the material being bought in this country) it would help to advance general economic restoration if part of the fund were allotted to enterprises abroad, e.g. in the extension and improvement of foreign railways. By that means the foreign country’s productive and purchasing power would be increased and she would resume her place as a supplier of the world’s necessities and as a purchaser of the world’s—and Great Britain’s—manufactured goods. The difficulty, however, of dealing with foreign loans is that the countries which chiefly require assistance are those suffering from a heavily depreciated currency, and accordingly the service of a sterling loan would place so onerous a burden on them that it would be more than doubtful whether they could bear it and meet their obligations. To find adequate security in such cases is, therefore, a great difficulty, to which there is added the unwillingness of such countries to pledge even the inadequate security which it is within their power to give, and the record of many of these countries as regards their past obligations has not been such as to inspire confidence. The Committee keeps always before it the fact that it is a custodian of the Public Purse, and that much more harm than good would be done by recommending guarantees in cases in which the risks are greater than the principles of sound commercial prudence would accept.
The principles on which the Committee acts are these:
First, that its principal duty is to assist in the extension of sound undertakings with proved good management which are deferring well-thought-out plans of extensions or new works owing to the difficulty of raising money on reasonable terms under present abnormal conditions. It does not feel that it is called upon to recommend a guarantee in cases of a speculative nature for which, even in normal times, the promoters would have found difficulty in raising money. Nor does it think that it ought to recommend guarantees to relieve undertakings from financial embarrassments incurred through lack of ordinary commercial foresight on the part of those responsible for their management. A guiding rule is that the Government’s liability should be as small as possible, and that a good commercial Security should be obtained in every case. In the second place, the Committee, realizing the gravity of the unemployment problem and the demoralizing effect of the continued receipt of doles, prefers those schemes which can be put in operation immediately rather than schemes which would take some considerable time to mature. In the third place, the Committee favours schemes of public utility. These fall into two classes. In the first place, there is a public utility undertaking as ordinarily understood, i.e. a corporation working under statutory powers and not trading for profit. In the second place are the companies, such as railway companies, which carry out an indispensable national service, and which in actual practice cannot earn excessive dividends for their shareholders. The reason for this preference has been partly the direct benefit to the general community from the improved facilities for the public thereby rendered possible, and partly the feeling that the guarantee could more properly be given to undertakings in respect of which it was unlikely that Government assistance would result in the earning of a large profit for private promoters and shareholders. In the fourth place, the Committee insists that all contracts must be on the basis of competitive prices. It feels that it would be wrong for the Government guarantee to be given in any case in which an unreasonably high price was going to be paid for the materials. Not only would such a course be unjust to the taxpayer by making the Government responsible for money going, not into wages and materials, but in paying high profits to manufacturers; it would be against the best interests of the country as a whole, since it would be impeding the return to a level of prices on which this country could meet foreign competition.
Difficulties of the Committee
The Committee has encountered many difficulties. The most important of these has been the lengthy negotiations necessary in every case. Frequently, the application when submitted is not on lines which the Committee feels justified in approving, and protracted discussions are required to reduce it to a business-like and acceptable form. The Committee in fact has been in the position practically of an issuing house which had to issue £25,000,000 worth of securities of every possible kind and variety in a very short time. Every one with experience of this class of business will realize what that means. As the Committee’s power is limited to recommending the guarantee of loans, it has found a difficulty in the fact that many companies, at the time of making their application, have not possessed the necessary borrowing powers. Meetings of shareholders and debenture holders have frequently been necessary in order that these powers might be sanctioned. In other cases, the companies have required Parliamentary approval for an increase in their loan capital. All of these difficulties have taken time to surmount, but the Committee has always instructed applicants to start the preliminary work of obtaining their tenders, etc., as soon as it has decided the broad lines on which a guarantee could be given, so that real work can be commenced and men employed from the very moment that the necessary formalities are completed.
Guarantees already Given
Guarantees have been given in numerous cases. Work which otherwise would not have been done has been provided in the shipbuilding and repairing business, in the construction and improvement of docks and canals, in the extension of railways, in the electrification of railways, and in the extension of a number of electrical undertakings. This has facilitated the employment of direct labour in a number of places, and in addition, orders for the manufactured goods, principally cement and iron, have been placed in the manufacturing towns of the North and Midlands. To take a concrete instance, a guarantee has been given to the London Underground Railways for extensions. This means an immense amount of direct employment; it entails the placing of large orders for new locomotives and rolling stock. The men for whom employment has been found would otherwise have been living on the dole. Not only is their moral improved, but their purchasing power is increased, and the prosperity of industries as a whole has been fostered. Further, new tracts of country will be opened up for the Londoner and an impetus given to the construction of houses in suburban areas. This example, which is chosen at random from a number of others, shows the beneficial effect for the community as a whole, of the guarantees which have been given under the Trade Facilities Act.
Two White Papers (1922)—62 and 121—state that up to June 29, 1922, the Treasury has stated its willingness to guarantee principal and interest on loans of an amount of £17,042,143 for periods of years varying from four to twenty-five in respect of a number of enterprises of which the following are typical: Harland & Wolff (£1,493,345), ship repairing works on Thames and dock and wharf on Clyde; South Eastern & Chatham Railway Company’s Managing Committee (£6,500,000), electrification of suburban lines; London Electric Railways Company (£6,000,000), enlargement of tunnel of City and South London Railway, and extension of London Electric Railway from Golders Green to Edgware; Calcutta Electric Supply Corporation (£500,000), purchase of generating and transforming plant and cables; Rhymney Valley Sewerage Board (£250,000), sewage disposal and sewerage scheme for urban districts in Rhymney Valley.