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The Treasury as a venture capitalist: DATAC industrial finance and the Macmillan gap, 1945–601

Published online by Cambridge University Press:  12 September 2008

Francesca Carnevali  and
Peter Scott
Francesca Carnevali
Affiliation:
University of Birmingham
Peter Scott
Affiliation:
University of Portsmouth
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Financial History Review , Volume 6 , Issue 1 , April 1999 , pp. 47 - 65
Copyright
Copyright © European Association for Banking and Financial History 1999

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References

2 The Macmillan Report noted that ‘It has been represented to us that great difficulty is experienced by the smaller and medium-sized businesses in raising … capital … even when the security offered is perfectly sound’ ([Macmillan] Committee on Finance and Industry, Report, Cmd. 3897 (1931), para. 404). Although ‘capital’ could be interpreted as not strictly encompassing loan finance, the reference to ‘security’ indicates that the committee was using the word in a broad context. As a Bank of England memorandum noted, ‘resources’, rather than capital, might have more adequately reflected their meaning (Bank of England Archive [hereafter BoE], SMT2/308, ‘Finance for small businesses’, 8 May 1944).

3 Carnevali, F. and Hannah, L., ‘The effects of banking cartels and credit rationing on UK industrial structure and economic performance since World War Two’, in Bordo, M. and Sylla, R. (eds), Anglo-American Financial Systems (Homewood, Ill., 1995).Google Scholar

4 BPP (1958–1959), XVIIGoogle Scholar; [Radcliffe, ] Committee on the Working of the Monetary System, Report, pp. 48–9.Google Scholar

5 ibid., p. 49.

6 Thompson, J., ‘Chairman's address’, Annual Statement to Barclays Bank Ltd Shareholders (London, 1963).Google Scholar

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9 The bias of the banks against small firms might be considered to have been rational. Their organisational structure made the assessment and monitoring of small loans expensive in relation to the returns. For an evaluation of management costs, see Carnevali, F., ‘Finance in the regions. The case of England after 1945’, in Cassis, Y., Feldman, G. D. and Olsson, U. (eds), The Evolution of Financial Institutions and Markets in 20th Century Europe (Aldershot, 1995).Google Scholar

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11 Ross, D. M., ‘The “Macmillan gap” and the British credit market in the 1930s’, in Cottrell, et al., Finance in the Age of the Corporate Economy, pp. 211–13Google Scholar; and Thomas, W. A., The Finance of British Industry 1918–1976 (London, 1978), p. 119.Google Scholar

12 ibid., pp. 119–21; and Grant, A. T. K., A Study in the Capital Market in Britain from 1919–1936 (London, 2nd ed. 1967), pp. 276–8.Google Scholar

13 For a more detailed discussion of the activities of these funds, see Heim, C. E., ‘Limits to intervention: the Bank of England and industrial diversification in the depressed areas’, Economic History Review, 2nd ser., 37 (1984).CrossRefGoogle Scholar

14 ibid., p. 539.

15 ibid., p. 547.

16 Public Record Office, Kew [hereafter PRO]: Treasury files [hereafter T] 233/1332, E. G. Compton to E. H. D. Skinner, 16 Jun. 1945.

17 PRO: T233/1333, memorandum by E. A. Shillito, 21 Jun 1948.

18 PRO: T233/1332, memorandum by E. G. Compton, 12 Jun. 1945.

19 ibid.

20 PRO: T233/1332, Memorandum of Guidance, 17 Oct. 1945.

21 PRO: T233/1332, E. G. Compton to E. H. D. Skinner, 16 Jun. 1945.

22 PRO: T233/1332, note on discussion of Memorandum of Guidance with Sir N. Campbell, 21 Sep. 1945.

23 PRO: T233/1332, Sir Campbell, N. to Sir Eady, W., 19 Oct. 1945.Google Scholar

24 PRO: T233/1332, note, 16 Oct. 1945.

25 PRO: T233/1332, note, 22 Oct. 1945.

26 PRO: T233/1332, letter from S. Cohen, 15 Oct. 1945.

27 PRO: T233/1332, note by J. Hyman, 22 Oct. 1945.

28 ibid.

29 ibid.

30 PRO: T233/1332, note by E. A. Shillito, 23 Oct. 1945.

31 ibid.

32 PRO: T233/1332, note by E. A. Shillito, 8 Nov. 1945.

33 PRO: T233/1333, Memorandum of Guidance, 30 Mar. 1947.

34 PRO: T233/1332, letter to Sir N. Campbell, signed ‘B.T.’, 25 Nov. 1946.

35 PRO, T233/1333, Points for discussion with the Chancellor on D.A.T.A.C. by E. A. Shillito, 13 Jan. 1947.

36 Scott, P., ‘British regional policy 1945–51: a lost opportunity?’, Twentieth Century British History, 8 (1997).CrossRefGoogle Scholar

37 Sources: 1946 – PRO: T233/1332, note by J. Hyman, 20 Dec. 1946; and 1947–51 – BPP (1955–56), VII; Second Report from the Select Committee on Estimates, 1955–56, Development Areas, p. 23.Google Scholar DATAC loans were generally granted for periods of 5–20 years. Interest rates were initially 4% p.a., an additional 0.25% being added in December 1948 to cover the cost of ‘after-care’ service. This compares with typical rates for bank advances during 1950 of 3% for large corporate borrowers and 5% for small businesses (see Carnevali and Hannah, ‘Effects of banking cartels’). During the 1950s, the rate of interest on new DATAC loans was progressively increased, largely in line with increases in market rates.

38 Source: BPP (1955–56), VII; S. C. on Estimates, p. 23.Google Scholar

39 Coopey, R. and Clarke, D., 3i: Fifty Years Investing in Industry (Oxford, 1995), p. 63.CrossRefGoogle Scholar

40 PRO: Board of Trade files [hereafter BT] 187/1, DATAC minutes, 17 Jan. 1951; and BPP (1955–56), VII; S. C. on Estimates, p. 23.Google Scholar

41 Coopey, and Clarke, , 3i, p. 18.Google Scholar

42 ibid., p. 68; and PRO: BT177/1410 and -/1812.

43 PRO: T233/1335, Questions on D.A.T.A.C., J. Hyman, 31 Mar. 1958.

44 PRO: BT187/58, C. Douglas Campbell, Board of Trade, to J. Hyman, 29 Dec. 1951.

45 ibid.

46 PRO: BT187/1, DATAC minutes, 18 Jan. 1949.

47 Source – based on an analysis of loan applications in PRO: BT187/1, DATAC minutes, vol. 1.

48 Ross, D. M., The clearing banks and the finance of British industry, 1930–1959, unpublished. Ph.D. thesis (University of London, 1989), p. 240.Google Scholar

49 PRO: BT187/1, DATAC minutes, 25 Oct. 1946.

50 PRO: BT187/1, DATAC minutes, 16 Dec. 1946.

51 PRO: BT187/1, DATAC minutes, 31 Mar. 1947.

52 Coopey, and Clarke, , 3i, pp. 11–12, 56–7.Google Scholar

53 BoE: SMT2/7, note showing CFI loans to 30 Jun. 1935, n.d.

54 Coopey, and Clarke, , 3i, pp. 36, 56–7.Google Scholar

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56 Daly, M. E., Government policy and the depressed areas in the inter-war years, unpublished D. Phil, thesis (University of Oxford, 1978), pp. 249–51.Google Scholar

57 PRO: BT187/1, DATAC minutes, 27 Sep. 1949.

58 PRO: BT187/1, memorandum by Mr Roney, Dec. 1949.

59 ibid.

60 BPP (1955–56), VII; S. C. on Estimates, pp. 20, 182–3.Google Scholar

61 PRO: BT187/1, DATAC minutes, 17 Jan. 1951.

62 ibid.; and Coopey, and Clarke, , 3i, p. 39.Google Scholar

63 For an alternative approach to risk assessment, see Carnevali, F., ‘Between markets and networks: regional banks in Italy’, Business History Review, 38 (1996).Google Scholar

64 Grant, , Study of the Capital Market, p. 288.Google Scholar

65 PRO: BT187/1, DATAC minutes, 31 Jul. 1951.

66 BoE: Chief Cashier Private Files, C4O/687, meeting between Chief General Managers of the ‘Big Five’ and the Governors of the Bank of England, 19 Oct. 1951.

67 ibid., reports by Barclays and Midland.

68 BoE: C40/688, reports on Midland, 25 Feb. 1954Google Scholar; Westminster, , 26 Feb. 1954Google Scholar; National Provincial, 11 Mar. 1954Google Scholar; and Barclays, , 16 Mar. 1954.Google Scholar

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70 BoE: C40/689, minutes of meeting of CLCB, 26 Jul. 1955, and report on advances, 31 Oct. 1955.Google Scholar

71 BoE: C40/689, Governor's note on interviews with bankers, 3 Oct. 1955.Google Scholar

72 BoE: C40/689, memorandum on the credit restrictions, Thornton, 13 Dec. 1955.Google Scholar

73 BoE: C40/691, confidential reports from banks, 16 Mar. 1956.Google Scholar

74 BoE: C40/692, memoranda on number of bankruptcies, 12 Sep. 1956.Google Scholar

75 BoE; C40/692, report on monetary organisation, 3 Jul. 1956.Google Scholar

76 BoE: C40/692, notes for letter to Sir Edward Bridges, 2 Jul. 1956.Google Scholar

77 Carnevali, , ‘Finance in the regions’.Google Scholar

78 Scott, P., ‘The worst of both worlds: British regional policy 1951–64’, Business History, 38 (1996).CrossRefGoogle Scholar

79 Approvals do not correspond exactly to loans made as they required confirmation by the Treasury, though the degree of distortion is not likely to be significant.

80 PRO: T234/21, letter from Shillito, E. A., 18 Nov. 1955.Google Scholar

81 PRO: T234/21, note by Shillito, E. A., 18 Nov. 1955.Google Scholar

82 BPP (1955–1956), VIIGoogle Scholar; S. C. on Estimates, pp. 22.Google Scholar

83 PRO: BT187/3, DATAC minutes, 9 May 1956.Google Scholar

84 PRO: BT187/3, DATAC minutes, 12 Sep. 1956.Google Scholar

85 Coopey, and Clarke, , 3i, p. 63.Google Scholar

86 ibid.

87 The Local Employment Act (1960) transferred the provision of financial assistance to Development Area firms from the Treasury to the Board of Trade, DATAC being replaced by the Board of Trade Advisory Committee [BOTAC].

88 PRO: BT177/1812, Parliamentary Secretary's Committee on Local Unemployment, Applications for financial assistance under the Distribution of Industry (Industrial Finance) Act, 1958. Final Report by the Treasury, n.d., c. April 1960.

89 Lloyds Bank Archive: Winton File, Sir Oliver Franks, ‘Bank advances as an object of policy’, 1960, pp. 5–6.Google Scholar

90 Carnevali, , ‘Finance in the regions’.Google Scholar

91 Carnevali, F., British and Italian banks and small firms: a study of the Midlands and Piedmont 1945–1973, unpublished Ph.D. thesis (University of London, 1997).Google Scholar