RATE OF INTEREST CHARGED BY BANKS ON CAPITAL ADVANCED TO MILLERS.
Committee of Public Accounts.
Vote for Industry and Commerce.
At the proceedings of the Committee on the 15th July, 1953, I undertook to furnish further particulars on the following matter:—
J.1.—Food Subsidies—Cost of Providing Additional Capital.
1. There are considerable seasonal variations in the volume of capital needed in the flour-milling industry and it is the normal practice in the industry to resort to temporary borrowing as may be required to finance operations.
2. In 1941/42 arrangements were made for controlling the profits of the industry on a global basis. These arrangements provided for remuneration at the rate of 6 per cent. per annum on a figure of £3,600,000; this figure was taken to represent the basic or fixed capital employed in the industry as a whole.
3. In the following year these arrangements were amended in two respects, viz.:—
(a) the figure in respect of which remnueration at the rate of 6 per cent. would be allowed was increased from £3,600,000 to £4,000,000; and
(b) it was agreed that the milling industry would also be allowed the net interest paid by them in respect of capital actually employed in excess of the latter figure.
4. The question of the rates of interest charged to millers seeking this temporary financial accommodation was not discussed with the Banks by any of the Government Departments concerned. These loans were not guaranteed by the State as it was considered that it was a matter for the individual millers to arrange temporary borrowings as and when required. The terms offered by the Banks would depend on the security offered by the borrowers and intervention by a Government Department with a view to securing lower rates of interest could have been effective only if the State was prepared to guarantee each loan.
5. The rates of interest paid, while mainly at the rate of 5 per cent., have varied considerably from mill to mill, and, in some cases, rates as low as 2¼ per cent., 3 per cent. and 3½ per cent. have been paid. During 1941/42, when the interest charges had to be borne by the millers themselves, the average rate was 4.77 per cent. For the years from 1942/43 to 1949/50, during which interest incurred by the millers was recouped, the average rate for each year was:—
6. In the last two years for which final figures are available the amounts allowed in respect of the cost of providing additional capital were £131,700 in 1948/49 and £126,090 in 1949/50.
(Signed) JOHN LEYDON,
Department of Industry and Commerce.
30 July, 1953.