Government contractors | RBS Remembers

RBS remembers 1914-1918


Government contractors

Workers in a shell filling factory © IWM

 

The war massively increased demand for many manufacturers’ products. Munitions were only one aspect. The nation also needed uniforms, boots, blankets, tents, food, medical equipment…the list seemed almost endless, and Britain’s allies needed all the same things too. Governments granted huge contracts to manufacturers, giving them the opportunity to expand their business at the same time as helping the war effort. There were, however, challenges. To meet them, business customers relied on their banks.

The government needed its supplies urgently; that was why it was prepared to pay a premium. For manufacturers, increasing production overnight was not straightforward. They needed new equipment, just when other manufacturers were competing to buy it too; or extra staff, when many workers were joining the army. Bigger premises had to be fitted out, and raw materials bought in greater quantities. To pay these expenses before the contract money came in, manufacturers turned to banks for loans or extended overdrafts.

 

England has become one great factory for the production of munitions of war

Northamptonshire Union Bank's chairman in a speech to shareholders, 1917

 

The banks did their best to accommodate their customers’ requests, granting loans, larger overdrafts, or extending repayment deadlines. By 1915, however, many were also counselling caution. Contracts could be lost to competitors, and government demand fluctuated when priorities changed. In Northamptonshire, the shoemaking industry produced as many as 66 million army boots in the course of the war, but weekly output ranged from 150,000 to 375,000 pairs. A company that was committed to maximum production would not break even at lower rates. 

There were other variables, too. It wasn’t easy for manufacturers to know who they were dealing with. One Manchester customer told his bank manager that he’d recently had approaches from over 40 different people, each claiming to be a cloth-buying agent of the French government. At least 35 of them had been completely fake. If a manufacturer trusted a false ‘agent’ and bought supplies to fulfil a bogus contract, he – and the bank that lent him money – could end up seriously out of pocket.

Many manufacturers had adapted their production to war work. One of our customers was a pram maker before the war, but altered the machinery for making the prams’ metal frames so it could be used for munitions work. These adaptations were often made in a hurry, and might not be reversible, so there was concern over the capacity of some factories to revert to normal work after the war.

Finally, there was excess profits duty. This tax was brought in as a way of securing extra tax revenue from those who could most afford it. All profits above a permitted level (based on pre-war business) were taxed at 50% (by 1918, 80%). Although levied from profits, so companies could afford to pay, delays in calculating the amount payable combined with the complexities of company balance sheets sometimes meant they needed their bank's help to ensure they had the cash ready at the right moment.

 


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