HC Deb 24 April 1950 vol 474 cc740-8

Motion made, and Question proposed, "That this House do now adjourn."—[Mr. Popplewell.]

10.54 p.m.

Mr. H. Hynd (Accrington)

I wish to call attention to the question of increased dividends and bonus shares from the point of view of the well-known White Paper on Personal Incomes, Costs, and Prices, which has been before the House since February, 1948. Too often, when we have been discussing that White Paper, we have overlooked the fact that it includes personal incomes of all kinds, including incomes from dividends. The emphasis has always seemed to me to be far too much on wages and salaries and not on personal incomes in the form of dividends. That White Paper made it quite clear that our costs of production are of vital importance and depend to a considerable extent on the amount which industry has to pay in profits, salaries and wages. It said: If personal incomes are allowed to rise continuously none of these measures against inflation can be effective. Later on it said: There is no justification at the present time for any rise in incomes from profits, rent, or other like sources. This was repeated as recently as the Budget speech. The Chancellor said: It is vital to the continued success of our efforts that the policy of restraint should not be broken down either in the matter of wages, salaries or profits, until a better policy has been worked out. Later on, he said: If the voluntary limitation of dividend distribution continues, and it is of the first importance to the country that it should, we ought to see some further growth of company savings through profits put to reserve."—[OFFICIAL REPORT, 18th April, 1950; Vol. 474, c. 66-67.] But what exactly is taking place? I think it will be generally agreed that the Trades Union Congress has pursued a very responsible policy in this matter, but in my opinion its efforts have been largely frustrated by some companies. I am not lumping all companies together in this, because the Federation of British Industries also has been trying to persuade its companies to restrain their dividends. But there are black sheep and the question arises: what would be a reasonable return in dividend for money invested? Would it be 5 per cent., 10 per cent., 20 per cent., or what would it be?

Mr. Arthur Colegate (Burton)

It depends on the risk.

Mr. Hynd

I have a newspaper of 30th March which mentions a firm called J. H. Buckingham & Co., manufacturers of shirts, pyjamas, and so on. It says that this company, formed in January, 1948, has already paid back its nominal ordinary capital twice over in the form of dividends of 110 per cent. this year and of 110 per cent. last time. It is true there is no increase in this case, but I think that a reasonable person would say that the return was certainly excessive and not in accordance with the Chancellor's desire that as much as possible should be placed to reserve.

Mr. Colegate

What is the use of the hon. Member giving dividend figures unless he tells us what is the capital employed in the business? Nominal capital today, owing to the change in the monetary values, has very little relation to the assets owned or the shareholding on which the bonus is paid.

Mr. Hynd

I am quite well aware that, although most of the capital has not changed in that period, dividends have. I have a list of 275 companies which increased their dividends on the same capital in the last 12 months. Of the 275, only 29 paid a dividend below 5 per cent.; 176 paid 10 per cent. or more; 87 paid 20 per cent. or more; and 30 paid 40 per cent. or more. Of those that paid 80 per cent. or over, three paid 80 per cent.; two paid 100 per cent.; and one paid 140 per cent. These figures, I insist, are beyond all reasonable limits and are certainly not in accordance with the policy that the great majority of reasonable opinion regards as necessary in the interests of the country at the present time.

These are the amounts of. dividend paid, but let us look at the increases embodied in those lists, only taking dividends of 20 per cent. or over and cases where the increases are 5 per cent. and over. Excluding all others, there are 70 such cases—and 43 of them gave increases in the last year of 10 per cent. or more; 22 of them, 20 per cent. or more; and even higher increases in three cases in which there were new companies the previous earnings of which were difficult to ascertain because of capital reconstruction.

What is the effect of this sort of thing on trade unions which are trying to persuade members to maintain the policy of wage restraint? I want to make it clear that what I am saying is intended to support the policy of restraint of all personal income. I am not attacking that policy. What is the effect on inflation?—because these increased dividends do increase personal incomes and thereby help to cause inflation. What is the effect on reserves? We have heard a lot about the bleeding of industry by taking out reserves which should be put to building up capital, providing new equipment and so on. On 19th April, at the annual meeting of the Federation of British Industries, the President said: The incidence of taxation on industrial companies has had the result not only of forcing them to live on capital, but also of preventing the adequate provision for future needs on which our future performance must depend. What is the good of talking like that when these large amounts have been paid out in increased dividends? It it quite contrary to the tenets laid down in his speech by the President of the Federation of British Industries.

Unfortunately, the amount of the dividends is not the whole story. I suppose there will be a certain amount of agreement on that from the other side of the House, but not in the sense I mean, because the actual percentage of a dividend is not an accurate guide to what actually has been paid out. There are all sorts of ways, such as forming subsidiary companies and holding companies, by which the real position can be disguised. I quote from a recent newspaper a passage about Lilley and Skinner, Ltd., the boot and shoe makers. They are setting up a holding company, called Lilley and Skinner (Holdings), Ltd., which will acquire shares of the parent company by giving three 5 per cent. preference shares of £1 each in exchange for every two 7 per cent. preference shares, and three £1 ordinary shares for every one held. That sort of thing is disguising the real amount which is being paid out in dividends. It is euphemistically called capital reconstruction, and is quite legal. There are several of these devices, which are quite legal as the law now stands: you can sub-divide shares, transfer "A" shares into "B" shares—and all sorts of other devices are used.

The one to which I will call particular attention is best known as the bonus share. I am aware of the argument that it is necessary to retain reserves, and that where big profits have been made it is better to hold them in a company by creating bonus shares. Unfortunately, the argument sometimes falls down because these bonus shares when issued can immediately be resold by the holders, thereby causing further inflation. I have been looking at a list of the bonus shares issued within the last year. The list is incomplete.

We got from the Chancellor of the Exchequer some time ago some figures which show that 331 cases up to a certain total were put before the Capital Issues Committee. I understand that where more than £50,000 is involved, cases have to go before the Capital Issues Committee. In 331 cases of that kind put before the Committee, nearly all were granted. Of these 331, 317 were granted by that Committee before the Chancellor of the Exchequer clamped down. I have not get the full list of these, but I have a list of 248 cases in which companies had decided to issue bonus shares from 1st April last until early December, when the ban was imposed. That list shows that 127 of them gave bonus shares to the extent of 100 per cent. or more, 44 gave 200 per cent. or more, 23 gave 300 per cent. or more, nine gave over 400 per cent., and three gave over 900 per cent.

There is no excuse for figures of that kind. It may be that in some cases they have been paying extraordinarily high dividends, and they feel rather ashamed of the rate of dividend, and that by giving bonus shares they can reduce the amount of dividend and by paying out the same amount of money it will appear to the uninstructed that smaller dividends are being paid.

That ban was imposed in October last year, and it was lifted in December. Since December it appears, from a Question that I put which was answered by the Treasury, that there have been 63 applications since the ban was lifted, and apparently the Capital Issues Committee are paying attention to the new instruc- tion of the Chancellor of the Exchequer, because they have allowed only about half. That is a big improvement on the figures we had previous to October. Nevertheless, I cannot help feeling that there is still far too much of this kind of thing going on, and I should like the Minister of State, if he can, to indicate that the Treasury are not only well aware of it, but that they can do something to prevent the large increase in dividends that has been taking place in so many cases, and particularly this issue of bonus shares.

If we do not do something about it from this House, it will make the task of the trade unions extremely difficult. Trade unionists know about these things. They are very anxious at the present time because they feel that increases are desirable, particularly for the lower-paid workers, and, while many of them are anxious to be loyal to Government policy, there is undoubtedly a feeling that it is a one-sided bargain with the restraint all being put on the wages and not on the dividends paid out by these companies, companies which may be regarded as the black sheep of industry while the greater proportion of companies are adhering to the wishes of the Federation of British Industries and the Government. But if the appeal for voluntary restraint which has been made by the Government and the Federation of British Industries is not more successful than has been showed by the evidence I have produced, then the Government must consider further measures for meeting the situation. I invite the Minister of State to say what the Government think about this and what they are going to do about it.

11.9 p.m.

Mr. Arthur Colegate (Burton)

I do not wish to keep the House long, nor do I want to speak about increased dividends. They are a trifling percentage of the total, and the percentage is less than the increase in wages and earnings which has taken place in spite of the Chancellor's appeals, but as we are on both sides of the House in favour of restraint, I want to correct this foolish fallacy about bonus shares.

It is to everybody's advantage that the true capital employed in a business should be known, and that the earnings and dividends and profits and taxes should be paid on that. If the hon. Member for Accrington (Mr. H. Hynd). wants to reinforce the Chancellor's appeal, he should ask that all companies should issue bonus shares so that their nominal capital is seen in relation to the true capital, and then these enormous earnings will be found to be in relation to the true capital, which in many cases carries very great risks. The issue of bonus shares, approved by the Capital Issues Committee, is not a method of inflation, but is merely a method of telling the truth to all concerned.

11.12 p.m.

Mr. John Lewis (Bolton. West)

It is an illusion that people daily issue bonus shares with the object of deceiving the public or the shareholders. That is not the case. When a company has need to expand, it has either to raise new money, on which it would have to pay preference or another form of dividend, dependent on the classes of shares issued, or it can use its own reserves for the purpose.

What was disinflationary in its effect was the encouragement given by the Government which had been responsible for people not distributing their reserves in the form of dividends, but using them in such a way as to convert them into plant and production The amount of money invested in fixed assets in the firm was thus increased, and the dividend was paid on that. I think my hon. Friend did appreciate that point, but he had in mind some cases cited when the Electricity Bill was before the House in which the original capital bore no relation to the issued capital on which compensation was paid. I regard bonus shares as being anti-inflationary in the use which I have described.

11.13 p.m.

The Minister of State for Economic Affairs (Mr. Gaitskell)

My hon. Friend was right in emphasising that the operation of restraint in personal incomes applies just as much to profits and other forms of income as to wages and salaries Nobody would disagree with that, and we all agree that it is of the highest importance not only that there should be restraint but that there should clearly appear to be restraint.

As regards the distribution of dividends, I am bound to say that in the main that policy has been carried out to a large extent by the major part of the companies of this country The figures I have certainly do not Dear out what I think was suggested—namely, that there had been something of a breakdown in the policy. If my hon. Friend will look at the national income White Paper, he will see that in 1948 the total of dividends and interest paid by companies was £715 million, and in 1949 it was £710 million. In other words, there was a reduction of £5 million, despite some considerable increase in production

When we turn to more recent figures, according to my information, the figures of the net dividends distributed by 583 industrial companies in the period January to March, 1949 and 1950, are as follow: 1949—total profits, £195,600,000; net ordinary dividends, £26,100,000; 1950—total profits, £206,100,000; net ordinary dividends, £26,500,000. The increase was slight—£400,000 in £25 million or £26 million. I do not think that we can regard that as a serious breach in the policy of the limitation of dividends.

Mr. H. Hynd

Whilst not disputing his figures for the gross totals, may I take it that the right hon. Gentleman is not disputing either what I was saying about certain individual companies?

Mr. Gaitskell

I am not sure to which companies the hon. Member refers, but I at once agree it is well known that, in a limited number of individual cases, there have been increases. Unfortunately, in one or two cases, though there have not been many, there has been what one might call a deliberate attempt to flout the limitation of dividends. That is unfortunate, but we must be careful not to condemn the vast majority of companies because of what one or two may have done. I do not think we have reached the stage when we could possibly say it was necessary to take any further action. The Chancellor of the Exchequer reiterated his concern about this matter in his Budget Statement and I have no doubt due note will be taken of what he said.

As to bonus shares, I think I had better remind my hon. Friend of the history of this. No bonus share issues were permitted during the war and after, until 1947, when a Stamp Duty was imposed and companies who wished to issue bonus shares were required to go in the ordinary way to the Capital Issues Committee.

There was no great restriction imposed by the Committee at that time, presumably because of the Stamp Duty. The Stamp Duty was later repealed, and it is true that in the earlier part of last year the number of bonus issues increased quite substantially—that was in the period to which my hon. Friend referred. In October the issues were stopped altogether, and they were allowed again on certain terms in December. I should like to read to my hon. Friend the actual instruction which the Chancellor of the Exchequer gave to the Capital Issues Committee, because I think it will convince him that adequate consideration is being given to this matter. My right hon. Friend announced in the House on 15th December, 1949: So far as Bonus Issues are concerned, have carefully reconsidered this matter since I requested you on 24th October to suspend all action with regard to them. I am now prepared to remove that absolute suspension, but I would ask your Committee not to make any recommendations to the Treasury to permit any such issue unless you are satisfied that each Bonus Issue in question is necessary to enable the Company to continue or to expand its production or to increase the volume of its exports.

I should consider that, in the case of a company which was exporting a considerable percentage of its production to hard currency markets, the onus of proving such necessity would be very much lighter, and that consequently your Committee could make a favourable recommendation more freely.

In addition, I must ask that the Committee should not, save in exceptional cases, recommend the Treasury to consent to any Bonus Issue taking the form of preference shares."—[OFFICIAL REPORT, 15th December, 1949; Vol. 470, c. 296.]

These are fairly stiff instructions, I think my hon. Friend will agree, and the issues which have been permitted since then have been plainly limited. I can add to the information to which he referred in this way. From 15th December to 22nd April 63 applications were received. Fifty-five of them had been dealt with. Twenty-seven of these were allowed, 28 refused and eight were under consideration. The total amount involved in the applications was £30 million and the total value of the issues permitted was approximately £11 million. I think my hon. Friend will agree with me that a pretty close watch is being kept on this particular matter.

I do not pretend, and in any case I have not the time tonight, to go into the precise inflationary or disinflationary consequences of bonus issues. It is a fairly complicated matter and it is pretty difficult to generalise, but we should all agree with two things—first, I do not think it is reasonable to take the line that under no circumstances should bonus issues be made. It obviously may be a quite reasonable thing, when undistributed profits have been ploughed back into a business, for its nominal value to be brought up to its real value, and it may well be if that is not done the company may suffer to some extent in having great difficulties in raising capital or even bank accommodation. Secondly, we should all agree that there may be cases where bonus issues are by no means desirable. In general, there is a certain danger that if we had no control over them, the impression might get abroad that there was widespread evasion of the limitations on dividends. That, in turn, would have rather unfortunate consequences on the whole of this extremely difficult problem.

In the circumstances, the type of restriction which is being imposed now at any rate—and this is shown by the figures which I have given—shows that the matter is under satisfactory control. On the other hand, in good cases where there is obviously a strong case for a company making bonus shares the Treasury, through the Capital Issues Committee, are not raising any objection to it.

Question put, and agreed to.

Adjourned accordingly at Twenty-two Minutes past Eleven o'Clock.