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MIONTUAIRISC NA FINNEACHTA(Minutes of Evidence)Déardaoin, 26ú Aibreán, 1945.Thursday, 26th April, 1945.The Committee sat at 11 a.m.
DEPUTY DILLON in the chair. Mr. J. Maher (An t-Ard-Reachtaire Cuntas agus Ciste), and Mr. O. J. Redmond (Roinn Airgeadais), called and examined.VOTE 68—AGRICULTURAL PRODUCE SUBSIDIES.Mr. D. Twomey further examined.1127. Chairman.—When we adjourned on the last occasion, Mr. Twomey, I had just read out the paragraph in which the Comptroller and Auditor General stated that he was in communication with the Accounting Officer regarding the allowances paid to creameries and merchants for the cold storage of creamery butter. You replied that this was a somewhat complex matter on which you would be glad to speak later in some detail. Perhaps you would recall Mr. Maher’s observations on that occasion, or shall I ask him to repeat his observations?—I do not think it is necessary. I should like to explain to the Committee that, under normal conditions, the storing of butter for winter use is done by the manufacturers and distributors, and the only function of the Department of Agriculture in the matter is to provide the cost of the cold storage, as well as to regulate the quantity that is to be stored and the dates at which it is to be put in and taken out of cold storage. As regards the actual allowance itself, it is based on the average of the fluctuating quantities that are necessarily in cold store during the winter period, that is, from the beginning to the end of the storage period. In the season 1942-43, that was fixed at 11/3. That, of course, provided that the butter would be put into cold store gradually and removed gradually, and it is an average figure. In the autumn of 1942, however, there was a crisis in the butter supply position in this country, caused partly by reduced production owing to adverse weather conditions, and partly by the greatly increased consumption which arose in the absence of other fats such as margarine, and also because there was a good deal more spending capacity, and consequently a far greater consumption of butter. At all events, between the reduced production and the increased consumption, there was a distinct crisis in the butter supply position, and in September, 1942, the Minister for Supplies decided that a system of rationing would have to be introduced. The Government sanctioned that, and put on us the responsibility of ensuring that the trade generally, both the wholesale and retail trade, would have available week by week sufficient quantities to meet the rationed allowance. We operated through the Butter Marketing Committee, and if the Butter Marketing Committee were to be successful in ensuring that butter was always available in every city, town and village in the country to meet the rationed allowance, they had to have butter easily at their disposal. Not alone should they have a certain quantity at their disposal, but at that particular period it was essential that they should have it at the points where it was most needed. I think you will remember that during that particular autumn, transport became disorganised and railway services were very bad. One could not at all be sure that butter despatched would arrive in the normal time, so it was very important that the Butter Marketing Committee would have butter freely at its disposal at different points in the country, in order to ensure a fair and even distribution, and that no place would be left without butter. We felt the best way to secure that was to relieve persons who had butter in cold store of their obligation to keep butter for the full period laid down in the conditions, so that they might either sell butter earlier to their customers than was intended or hand it over in store to the Butter Marketing Committee. In fact, they did both. In some cases the storer sold it to his own customers, and in other cases they handed it over to the Butter Marketing Committee, in which case it still remained in store, but at the disposal of the Butter Marketing Committee. Now, if we had not done that at the time, if we did not let the stores know that they would get the full allowance, whether they placed it at the disposal of the Butter Marketing Committee or whether they held it for the full period—some of it up to the following April—a great number of stores would have opted to have kept their butter in store, because, as a matter of fact, it was a considerable inconvenience to a number of these merchants or manufacturers who had stored butter to hand it over at the time to the Butter Marketing Committee or to sell it earlier than was intended. They had put certain quantities of butter in store with a view to supplying their own regular customers evenly throughout the winter period, and it upset all their trade arrangements to have to hand it over earlier or to sell it earlier. If we had not informed them that the production allowance, as we had arranged in the month of June, 1942, would be payable to them, a great number of them would have held that butter, and it would have been quite impossible for the Butter Marketing Committee to have arranged for a free and easy distribution. As a matter of fact, a number of stores did hold on to their butter, and qualified for the allowance without any question whatever. They still had the correct proportion of their butter in store at the end of March, 1943. Others were more obliging, and opted to give the Butter Marketing Committee the butter. Now, we are quite certain, as I say, that if we told them that we were going to reduce the storage allowance already announced, by reason of the fact that they gave up their butter earlier, I am quite satisfied that they would not have done so, and there would have been a very serious crisis in the distribution of butter. The only alternative to the arrangement we made would have been to requisition the butter, but we had no powers of requisition. There was no statute governing the matter. If we had requisitioned the butter by Order at the time, then legislation would have to be introduced to cover that and to provide for the compensation which would be payable by reason of requisitioning having taken place. We felt that the sensible course and the easier course was to continue to pay the full production allowance to these people, so that they would make their butter freely available for the Butter Marketing Committee. It is very doubtful, too, whether, having regard to the circulars we issued in the month of June, 1942. undertaking to pay these production allowances, we could legally, without the consent of the storers, have reduced the allowance. I think it would have been quite within the province of the storers at the time to have claimed that legally they were entitled to the full allowance, even though the period had been somewhat shortened, in some cases only, by the action taken by my Department, and which was quite essential to ensure uninterrupted butter supplies. In these circumstances, we felt that we were quite justified in making the arrangement we did, and, in fact, we had no alternative except the requisitioning which I mentioned. That is broadly the position. Perhaps I should mention that the cold storage allowance of 11/3 is made up of 5/- in respect of the rent of the cold store. That is payable whether the butter is in for two months or nine months. It is an average figure. Once the butter is put into the cold store at all for any period, it is payable. There is sixpence for the extra cost of special preparation, such as special paraffin waxing on the inside of the box, double parchment, and so on. There is 4/6 to cover interest on the capital tied up in the butter during the period, and 1/3 in respect of insurance against total loss of the butter whilst in cold store, the risk of deterioration, and so on. There could be no question, in our opinion, in any event, of making any reduction in respect to the cold storage rent or in respect to the insurance. There might have been something proposed in respect of the rate of interest when their money was not tied up quite as long as had been expected, but, even though the bulk of this butter was taken over by the Butter Marketing Committee, it was taken over at different periods, and sometimes the Butter Marketing Committee, for one reason or another, might not have been in a position to make prompt payment to the storers. There might be some little delay. In many ways it would have been very difficult to go back and make estimates as to what reduction, if any, would have been permissible in respect of the interest payable. That, broadly, is the position, and I feel that my Department were justified in doing what they did; that, in fact, they had no option in the matter. 1128. Chairman.—Has the Department of Finance any view to express on this matter? Mr. Redmond.—This transaction came under unfavourable notice first for the reason that the Department of Finance felt that it should have been consulted in the altered circumstances that manifested themselves towards the end of 1942 before it was decided to pay the allowance in full. Secondly, it was not clear to the Department why the allowance had been paid in full to cover expenses which it seemed to us had not in fact been incurred. We always understood that the allowance was fixed on a purely cost basis, that is, that it did not include any element of profit. It seemed to us then that an appropriate reduction was justified when storage did not last for the full six months contemplated, on which basis the allowance had been fixed. We got support for that view from the fact that in the case of butter taken into store late in the 1942-43 season, the Department of Agriculture imposed a cut in the allowance. The question of legality is a matter for the law officers, and we are not aware that the Department of Agriculture did, in fact, take legal opinion as to whether they could properly reduce the allowance in the circumstances. 1129. Did the Department of Finance consider in that connection the propriety of leaving the element of interest stationary when in fact the capital outstanding was outstanding for a very much shorter period than was anticipated?— That was one of the items constituting the allowance that we had in mind— that the people would be out of their money for a shorter period, and that, therefore, the interest element should be less. The same comment would apply to inspection and insurance. 1130. It would appear from what Mr. Twomey has told us that the storage charge fell to be paid the moment the butter was put in, whether it was there for a short or a long time?—So we understood, but still the storage charge was fixed on the basis of 26 weeks on average. 1131. So far as the special preparation element is concerned, that certainly would be the same whether the period of storage was short or long?—That is so. 1132. The insurance inspection delivery risk item of 1/3 was not susceptible, I suppose, to very much change one way or the other?—Well, there might be less expense in the matter of inspection, for instance. 1133. Well, it could not be very much? —Probably not. 1134. What is your view, Mr. Twomey, on leaving the interest item at 5 per cent., always assuming that it would not have been illegal to alter the gross figure at all? Mr. Twomey.—I did not quite catch the question. 1135. If you are correct in your view that no alteration was possible owing to your circular letter of 3rd June, 1942, then, of course, no more remains to be said. But, suppose it had been legal to adjust this figure of 11/3, your circular of 3rd June notwithstanding, would you have thought it equitable to leave the interest figure of 4/6 the same although it now became apparent that the capital outstanding was not going to stand out for six months but might stand out only for an average period of three months?— I think that, if the butter were being removed from cold store at the free will and option of the storer, it would have been equitable to make an adjustment in the rate of interest, which would have made an adjustment in the gross amount, but, in the circumstances in which the storers withdrew their butter or handed it over to the Butter Marketing Committee, I do not think it would have been equitable to have made that adjustment. Whatever small amount we might have saved by doing anything of that kind would have been infinitesimal compared with the cost in time involved in the introduction of legislation, the provision of compensation, and the settlement of claims that could be made by the traders for having their whole business relations with their regular customers upset. 1136. You are aware no doubt that, by Emergency Powers Order, the Minister for Supplies directed tea merchants, for instance, who had very large stocks of tea on which substantial sums of capital had been sunk, to hold that tea at his disposal. In fact, there are tea merchants at present with tea far in excess of their ordinary requirements because they have been constrained to hold it, and would not be allowed to sell it because the Minister wished them to sell it only in accordance with his rationing instructions. If it were equitable to do that with some classes of mercants, such as tea merchants, what inequity would you have seen in requiring butter merchants to do it for one short period?— Well, the only observation I should like to make on that is that in matters connected with the butter trade, as in connection with a whole lot of other business relations which we have with the outside public, we have always endeavoured to maintain the goodwill and co-operation of the people with whom we have to deal. I think my Department has been particularly successful in that. We never take up the attitude that, for the sake of making a little saving, we should alienate the goodwill and co-operation of the butter merchants, because there have been from time to time situations not covered by regulations or Orders or anything else where those merchants have met us, and we have got over a rather awkward situation simply by asking them to do so. We feel that that is worth a great deal to the Department and to the country, rather than always to be regimenting them and doing everything precisely in accordance with regulations. 1137. The Department of Finance seem to feel that before this arrangement was made they might well have been consulted, in view of the fact that payments fell to be made. Did it occur to you that it would have been advisable to discuss it with the Department of Finance before concluding this matter?—At the time that the crisis arose, and that the Minister for Supplies decided to introduce rationing, we got a definite direction from the Government that we were to provide for a fair and equitable distribution of butter supplies in accordance with the rationing scheme. On examining the matter, we saw that we really had no option but to do it in this way. At the time, we felt that we were quite justified in proceeding without approaching the Department of Finance. 1138. Would the Department of Finance adhere to its view, bearing in mind the emergency with which the Department of Agriculture had to deal, that they should have been consulted before this arrangement was made? Mr. Redmond.—I think the Department would still adhere to the view that, in November, 1942, before the people concerned were led to believe that the full allowance would be paid, there should have been prior consultation with the Department of Finance. 1139. Chairman.—Have you any comment to make about that, Mr. Maher? Mr. Maher.—Yes, Mr. Chairman. The paragraph is based upon a letter sent by the Department of Agriculture to the Department of Finance in July, 1942. That letter states that the allowance of 10/6 per cwt. for the previous year was being increased for the year 1942/3 to 11/3, and the addition is justified on the grounds that “the allowance for storage has been increased this year as owing to greater consumption April is no longer self-supporting. Provision has, therefore, to be made to prolong the storage season by two weeks to cater for that month”. Again: “the interest is advanced to 4/6 in consequence of higher capital outlay for a longer period”. The sanction of the Department of Finance was based on the statements in that letter. When those were departed from and a shorter period prevailed, it was naturally felt that, as the Department had sanctioned 11/3 on the basis of the longer period, when that period was reduced the sanction of the Department of Finance for the altered conditions should have been obtained. That is a basic principle with the Audit Office. If the Department of Finance sanctions expenditure on any particular basis or principle, and that is departed from, we always ask the Accounting Officer to get the covering sanction of the Department of Finance, or prior sanction as the case may be, for such departure. When, in November, 1943, this matter was brought to notice, we suggested to the Accounting Officer that the sanction of the Department of Finance should have been obtained for the payment of 11/3 under the altered conditions. That is the whole basis of the paragraph. It has nothing at all to do with the merits of the case, as outlined by Mr. Twomey, as to whether the additional sum was justifiably payable or not. We are not questioning that. We are concerned only with seeing that, where the Department of Finance gives sanction on a particular basis and that is departed from, the Department must be again consulted. 1140. Chairman.—I take it, Mr. Twomey, your view is that, in the emergency circumstances in which you found yourself, to have sought that prior sanction would have unduly delayed the arrangements you were charged to make? Mr. Twomey.—And we were acting under direct Government direction. 1141. That, I take it, would not in your judgment alter the fact that, where you had applied for Department of Finance sanction for a certain payment on certain conditions, ordinarily you would look for the prior or subsequent sanction of the Department of Finance for the payment of that sum after the conditions had materially altered?—That is so, Mr. Chairman, but in this particular instance we felt that there really was no option; that what we did we had to do; that what the merchants did at the time in regard to releasing their butter supplies earlier they were in fact required by us to do, and required by the whole situation to do, and that it would have been unfair in those circumstances to have cut their allowance. In fact, it would have made the whole scheme impossible if we had cut the allowance. 1142. Did the course of applying for covering sanction occur to you?—We applied for that when the Comptroller and Auditor General drew our attention to the matter. When he informed us that he was not satisfied, we then applied for covering sanction. 1143. What rejoinder did the Department of Finance make to that application?—That they would defer a decision until the matter had been explained to the Public Accounts Committee. Mr. Redmond.—Perhaps, Sir, I might be permitted to quote from a Minute we sent to the Department of Agriculture on the 27th March, 1944. In that Minute we said the Minister. “is not convinced by the explanation furnished by your Department for not having reduced the cold storage allowance applicable to butter stored for an average of 26 weeks where the butter was in fact in cold storage for a shorter period. While some of the storers, but for your Department’s directions, might have preferred to keep their supplies in store for the full period, it appears from your minute of the 1st ultimo that others had necessarily to be allowed to draw prematurely upon their stores to meet the acute current demand for butter by consumers. In no case does it appear that the storers could have been at a financial disadvantage had the allowance been adjusted to take account of their reduced expenses; whereas the absence of such an adjustment gave a clear financial advantage in respect of the element of interest (4/6) and possible advantages in respect of insurance and inspection. Further, as the flat rate of 5/- a cwt. payable to the cold store proprietors related to an estimated average storage period of 26 weeks, whereas the average period actually proved to be shorter, it is possible that the proprietors derived an undue advantage from payment on the original basis…” That represents the view taken by the Department of Finance when it received the application from the Department of Agriculture for covering sanction. 1144. Chairman.—I take it that it is clear that the Department of Finance view is that the Department had demurred to the arrangement proposed by Mr. Twomey before that had been put into operation. Inasmuch as Mr. Twomey could not brook delay, he would have been left with no alternative but to requisition the butter and leave the whole question of compensation outstanding. He simply had not got time to conduct a full actuarial investigation into the appropriate reduction in the figure of 11/3 that would have been justified by the shorter period of storage. Mr. Redmond.—The Department of Finance view was that, in the circumstances, a reduction in the allowance would have been equitable. So far as we were aware it had not been represented to any of the storers that the Department might have to reconsider reducing the allowance. 1145. Chairman.—No such representations were made? Mr. Twomey.—No. Mr. Redmond.—Of course, every 6d. and 1/- included in the 11/3 was important in view of the huge quantity of butter stored. While the saving element in interest and insurance might not be much in itself, the aggregate would have been considerable. Mr. Twomey.—My reply to that is that we felt we were not legally entitled, having regard to the commitments that we had entered into with merchants and manufacturers in June, 1942, to revise the conditions of storage and the rate of allowance. If we had done so, and if merchants had refused to render freely the butter that was at their disposal, then the compensation for requisitioning would have arisen. I am satisfied that that would have cost the country, and cost the Exchequer, far more than taking the course of agreeing to pay the full allowance and getting the merchants to offer their butter freely. 1146. Chairman.—I know, Mr. Twomey, that you will acquit me of any attempt to give you a short answer, but do you not think those representations, cogent as they are, might have been properly addressed to the Department of Finance with a request for their sanction, pointing out that any effort to reduce this 11/3 by a few pence might involve protracted negotiations, possibly, legal proceedings, a certain protracted delay and abundant ill-will which might be very costly in the future, and that, in view of all these circumstances, the Department of Finance should forthwith sanction the arrangement that you had in mind. The snag, as it appears to me,—I do not know how it would strike other members of the Committee—is, that your Department seems to have taken unto itself the function of determining this question without reference to the Department of Finance, thus, as it were, setting the judgment of the Department of Finance to one side, whereas, as I understand, Finance practice it is that we should consult the Department of Finance and let them be the final body to determine whether the financial interests of the country are best served by one course or another. Mr. Twomey.—At that time we took a course that we felt was fully justified, and that would not be questioned. It would have been as easy for us to approach the Department of Finance, in the first instance, as to have done so afterwards at the direction of the Comptroller and Auditor General. I would like to point out that when we did write for covering sanction, and placed the whole explanation that we had to make before the Department of Finance, they refused their covering sanction. I have no reason to believe that the Department of Finance would have been willing to give sanction in the first instance. 1147. Chairman.—Fiat justitia ruat coelum. I do not think that the Department of Finance did refuse their sanction. They deferred it until such time as an opportunity had been afforded for a discussion of this whole problem. Perhaps at this eleventh hour Mr. Redmond’s heart may soften. I think that the real issue before the Committee is whether the Department of Agriculture should have gone to the Department of Finance before they concluded this arrangement inasmuch as the payment of public moneys was involved. Mr. Twomey.—I see the point, Mr. Chairman. Do not take me as holding that we should set up our Department in opposition to the Department of Finance in any way. We always defer to the Department of Finance in matters of that kind, but in this case we felt that we were taking a reasonable course that would not have been questioned. This was not a deliberate setting aside of the authority of the Department of Finance. There was nothing of that kind in our minds. The position was that we simply felt that we were taking a course that was fully justified, and that no one would raise any question about it. 1148. Chairman.—Is there anything, Mr. Redmond, that you would care to add? Mr. Redmond.—No, except, perhaps, to say that the matter will be reviewed by the Department of Finance in the light of the explanation given by the Accounting Officer and whatever comments the Committee may see fit to make. 1149. Chairman.—Is there any member of the Committee who would care to ask Mr. Redmond a question on the matter? Deputy Lydon.—I would like to say that I think the Department of Agriculture is to be congratulated on the way they handled a very difficult situation. Chairman.—This is a time for questions, Deputy. We are going into private session in a moment when we can discuss the whole matter. Deputy Lydon.—I will put a question to Mr. Twomey. Had you any alternative in 1942-43, in view of the instructions given, other than to co-operate with the butter merchants? Mr. Twomey.—Or to requisition. 1150. Deputy M. E. Dockrell.—Would I be in order, Mr. Chairman, in putting this question to Mr. Redmond. In view of the explanation which Mr. Redmond has now received from Mr. Twomey would he, in 1942, have granted the sanction which is now being sought? Mr. Redmond.—As I have already indicated the Department of Finance will consider the explanation given by Mr. Twomey in the light of any comments the Committee see fit to make. That is a matter for the future. 1151. Deputy M. E. Dockrell.—Can you give the Committee any idea as to whether the Department of Finance would have taken a different view if they had the full explanation that we have had to-day? Chairman.—May I interrupt the Deputy to say that the Department of Finance is a mysterious body, various members of which appear here, but that it never speaks with a corporate voice in this room. It is like the delphic oracle. It speaks from Upper Merrion Street, and from nowhere else. I do not think it would be fair to ask Mr. Redmond that. Deputy M. E. Dockrell.—I do not wish to ask him any unfair or hypothetical question. Chairman.—If there is no other question, that concludes Mr. Twomey’s examination, and we are all very thankful to him. The Committee went into private session. |
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