TAKE-OVER BIDS

HC Deb 11 February 1954 vol 523 cc1383-462

4.5 p.m.

Mr. Roy Jenkins (Birmingham, Stechford)

I beg to move, That this House deplores recent manifestations of the technique of take-over bids in so far as they have put large, untaxed capital profits into the hands of certain individuals and seriously undermined the policy of dividend restraint. It therefore calls upon the Government to appoint a committee of inquiry into all aspects of these activities, including the effect upon dividends, share prices, and company savings, the sources of the finance used, the capital profits obtained, and the counter-measures taken by the directors of the companies concerned; such a committee to be empowered to suggest remedies as well as to investigate facts. This Motion seeks to do two things. First, it deplores a number of recent manifestations of the technique of take-over bids that have taken place, and secondly, it calls upon the Government to appoint a committee of inquiry to look into the whole subject, to shed a little light into dark places and to tell us something more about the way things are developing in this increasingly flexible economy of which the Government claim to be so proud at the present time. Both these objectives are eminently reasonable, and I hope that the Chancellor of the Exchequer may find it possible to accept our Motion on behalf of the Government.

It can be argued, of course, that there is nothing new or objectionable about one company taking over another and that it has happened very often in the past. It can be said that it is in many ways quite habitual and serves the interests of economic progress. Many of our biggest and most successful businesses have been built up by a process of amalgamation. I do not dispute that such developments may be entirely reasonable, even when they involve take-over bids. If we looked among the spate of announcements of take-over bids in the Press for an example which certainly on the face of it appeared to be quite reasonable, I would be inclined to cite the case of Wiggins Teape, the paper manufacturers, who are taking over Thomas Owen and Company, who are also paper makers. There one has no cash passing, but merely an exchange of shares between two companies in the same line of business who come together and are operated in the future as one business.

On the face of it, that seems perfectly reasonable and a process to which no one could take objection. The only people whom I might expect to object to developments of that sort would be certain hon. Members opposite who, every year when we are dealing with Death Duties during debates on the Finance Bill, proclaim the sacrosanct nature of family businesses and ask the Chancellor to make sure by his taxation proposals that nepotism is preserved, whatever happens.

But there is no doubt at all that a great number of the developments which have been taking place recently are entirely different from the example which I have just given to the House. There has been a great number of developments in which one is dealing with financial manipulation that is concerned not at all with the long-term development of businesses but almost exclusively with quick money returns. Even the chairman of Barclay's Bank was moved to refer to this the other day in his annual report as the "apotheosis of the spiv." Many of the people involved in developments of this sort have comparatively little knowledge of the detailed working of the businesses with which they are concerned. They are financiers, pure and simple.

Mr. Jack Jones (Rotherham)

Neither pure nor simple.

Mr. Jenkins

They are straightforward financiers. [Hon. Members: "No."] They are nothing but financiers, then. Their object is to exploit what the Americans call a "special situation." How does a special situation arise? What is the situation which they try by this system of take-over bids to exploit? First and foremost, these special situations are caused by policies of conservative dividend distribution which have been taking place in recent years. Under the Labour Government there was a very large and rapid increase in the total of company profits. There was no corresponding increase, as a result of appeals from successive Chancellors of the Exchequer, of the amounts distributed in dividends. In consequence, these increases in company profits were able to take place without any very adverse distributive effect and to provide the most important source of our savings in this country.

Of course, the money which was earned by the company and which was not distributed was put to reserve to increase the assets of the company and belonged, legally, certainly to the shareholders who owned the company. But, as the Stock Exchange is always primarily interested in questions of current yield, that growth in the assets of companies concerned did not find itself fully reflected in the prices at which the shares of those companies stood on the Stock Exchange. As a result, one now has a situation in which, if company dividends were pushed up much nearer to the earnings ceiling, it would be possible to raise the price of the shares of the companies very much above the levels at which they stand. That is one of the major factors in this situation which certain people are seeking to exploit.

The other factor is that we have had a decade and more of rising prices in this country. As a result, the real value of the assets of many companies, particularly where this applies to real property, is very much higher than the value at which the assets stand in the balance sheet. Parallel with that, it is perfectly possible to have a situation—as we have in many cases—in which a company is earning quite a tolerable rate of profit on the balance-sheet value of its assets, but is earning only a comparatively small rate of profit on the real value of its assets. In that situation there is a temptation to certain people from outside to bid high prices in order to get control of the company—not because of the profits the company is earning, but because of the assets of the company—either to put the assets to a new and presumably more profitable use or, alternatively, to sell the assets off at a heavy capital profit.

Those are the two main factors in the situation which is causing this state of affairs in which we have a great spate of take-over bids. They are certainly far more the cause than the old King Charles's head of heavy direct taxation, which is all that is mentioned in the Amendment put down to this Motion by hon. Members opposite.

One should admit straight away that, within the framework of a free enterprise, capitalist economy, there is something—I stress "something"—to be said for the activities of these bidders for control. Certainly the arguments in favour of what they had been doing were deployed, for instance, very persuasively by Mr. Harold Cowen when he wrote in the January number of the "Banker." There are certain points made there, and in other articles dealing with the issue, which are of some validity. I do not think that we on this side of the House are concerned with the cosy preservation in office of directors—possibly inefficient directors—nor are we interested in the wasteful use of assets. But even if it be allowed that take-over bids may in certain circumstances help to prevent these two undesirable consequences from taking place, they do so at a very heavy price and bring in their train a substantial number of very undesirable other consequences.

What are these other undesirable consequences about which we on this side of the House are very worried? The first and most important is without doubt that the whole technique of take-over bids drives a coach and four through the policy of dividend restraint. There is no doubt about that at all. The first thing which a threatened director, afraid that some take-over bidder will remove him from his job, does is to give his shareholders more in order to try to buy them off before the take-over bidder. There is example after example of the way in which that operates. If I may, I will briefly cite a few examples of the way in which this has been operating recently. I start by mentioning the case of the Isle of Man Steam Packet Company, for which a take-over bid is in process at present.

Colonel O. E. Crosthwaite-Eyre (New Forest)

Given up this morning.

Mr. Jenkins

That does not affect my point in the least. The point about the Isle of Man Steam Packet Company is that the dividend this year is up—not sensationally—on last year from 12½ per cent, to 17½ per cent. In addition, the existing directors, in order to stave off the attack, have made a three-for-two bonus issue. It does not matter whether the take over bid was successful or not; the interesting thing is the proportion which these directors, threatened with this take over bid, have been distributing—out of the total £106,500 available for distribution they have distributed no less than £105,000. That is not what one could call a conservative dividend policy. There is not much dividend restraint there. There is another example, which is not so straightforward. That is the case of J. Sears and Company, the shoe shop people, who, as many hon. Members know, were taken over by Mr. Clore about a year ago. The dividend of J. Sears and Company this year has actually gone down from 62½ per cent. to 50 per cent., Mr. Clore smoothly remarking that the present board do not favour excessive distributions by way of dividends.

Colonel Crosthwaite-Eyre rose—

Mr. Jenkins

I hope the hon. and gallant Member will restrain himself for a moment. The point about J. Sears and Company is that last year, when the previous directors were righting to stave off Mr. Clore's bid, they put the dividend up from 22½ per cent. to 62½ per cent. So even now, with Mr. Clore's conservatism, one is left with a dividend more than twice as high as that which previously existed.

Colonel Crosthwaite-Eyre

I am not challenging the figures given by the hon. Member— they are quite correct—but, in stating what J. Sears and Company have done, he might remind the House that, since Mr. Clore took over in the last year, I understand that a completely new bonus system, which gives extra wages to every person employed by the company, has been instituted.

Mr. Jenkins

I really cannot understand the relevance of that interruption. I am discussing the dividend policies of particular companies. As a matter of fact, I was discussing at this stage the actions in raising dividends which were taken, not when take-over bidders take over, but by threatened directors before they take over. It would be irrelevant to try to give an account of everything that has happened during that period. I was dealing not primarily with events after Mr. Clore's arrival but before he came.

The third example is the case of the Savoy Hotel Company, an increase of whose dividends has recently been announced. It is understood that they will be forthcoming. There, again, we have an attempt of the directors to make the shares worth the very high price they eventually paid to Mr. Samuel for them. There is no doubt that in this business of take-over bids, whether threatened or actual, to vote a substantial increase in. the dividends on shares is absolutely common practice. I would quote what was said by "Lex," a commentor of the "Financial Times," writing after the Isle of Man dividend had been announced. He said: It is now almost a reflex action for boards, threatened with justifiable bids to raise their dividends. It is obvious that this practice will not only affect companies which are-threatened with take-over bids but may have a very much wider application altogether. It may be that the bidders will succeed in taking over only a few companies and will remove from their positions only a handful of directors, but a great many other companies will read the writing on the wall and will realise that the only way in which they can safeguard their position against becoming an object to such bids is to give their shareholders as much as they can from the-company before the take-over bidders arrive.

That is the whole tenor of activity in the City at the present time. Another brief quotation from "Lex" might be given. Writing yesterday, he said: It is now a basic change in the board's policy that dividends on the market will no doubt continue to rise. There we have what Mr. Harold Wincott, another well-known financial commentator, had in his mind when he spoke of "a silent revolution" in the City.

What is the Chancellor's view about all this? He still pays lip-service to the policy of dividend restraint, and I still believe that he does not want any violent change away from the present distribution of the national income; but if he is going to allow this to go on without any move, if he is going to allow shareholders, to proclaim for themselves a new deal and to reassert the principle that the duty of a company is to give the shareholders as much as possible as quickly as it can, then without doubt there will be a very big shift in the distribution of the national income, and without doubt the Chancellor will have a very difficult and continuing wages situation. There is no question about it.

I hope that the Chancellor will really tell us this afternoon what he thinks about these issues. It is no good doing as some of his colleagues at the Treasury have been doing, trying to pretend that nothing of any importance at all is happening to dividends. They are contradicted every day by commentators writing in the financial Press and in "The Times," the "Manchester Guardian," and every other paper which has studied this matter. It is obvious that there is a very substantial movement going on. As Mr. Wincott has said, there is "a silent revolution." It is not good enough for the Chancellor to pretend that nothing is happening. Something very big is happening. Is he in favour of it, or is he against it?

I turn to the second of our main objections, to what follows from this technique of take-over bids. In certain instances these bids have revealed some very ugly capitalist practices indeed. In this connection I will say something about another side of the affair of the Savoy Hotel in which almost everybody concerned behaved extremely badly. Let me briefly recount some of the facts of that story.

In the early autumn of last year, the ordinary shares of the Savoy Hotel Company stood at about 28s. At that stage it was apparent to Mr. Clore and Mr. Samuel that if they could get control of the company and change the use of the Berkeley Hotel, they could probably make a very substantial profit. They therefore went into the market and started buying on a big scale. The board of the Savoy also wanted to rebuild the Berkeley, but to keep it as a hotel and not to let it be used as offices. They got worried at what was happening, and asked for an inquiry under the Companies Act to find out who was buying the shares. Mr. Clore and Mr. Samuel operated largely through nominees, and it was not easy to discover exactly what was happening there.

Mr. Gerald Nabarro (Kidderminster)

It was not illegal.

Mr. Jenkins

I am not saying that it was illegal at all.

Mr. Nabarro

I did not attribute to the hon. Gentleman any suggestion that he had said that it was illegal. He did say that the interests concerned asked for an inquiry under the Companies Act, 1948, and it was at that point that I interpolated: "What could be illegal about it?"

Mr. Jenkins

It seems to have been an irrelevant interruption. An inquiry was set up, and the conductors of the inquiry made a report which showed that Mr. Samuel, through his company, owned rather more than 20 per cent. of the ordinaries and that Mr. Clore had managed to get control of about 10 per cent. At that stage, when that report was published, Mr. Clore and Mr. Samuel came together and Mr. Clore sold his holding to Mr. Samuel, taking a handsome profit for himself. The holding of Mr. Samuel went up to 37 per cent. of the ordinary shares.

At this stage the Savoy directors got extremely worried and they thought of that very odd device of establishing the Worcester Building Company, which acquired from the Savoy Group the Berkeley and one or two other small properties. In return for them, they gave to the Savoy Group so-called first preference shares. I say "so-called" because in fact these first preference shares were in fact equity shares, in that they had a right to the residual profits. But they were not normal equity shares in the one important respect that they conferred no voting rights at all. Those voting rights remained with the so-called ordinary shares which were preference shares in every other respect.

The so-called ordinary shares were taken up by the trustees of the Savoy Group Staff Benevolent Fund, who were in fact the existing directors of the Savoy Hotel. The whole thing was a clever—possibly rather over-clever—device to ensure that whatever changes there were amongst the shareholders the existing, directors should continue to control what happened to the Berkeley.

What did Mr. Samuel do then? He was extremely angry at this move, be cause he did not like people dealing with him as toughly as he was accustomed to dealing with other people. He asked for a Board of Trade inquiry into all the affairs of the Savoy Group. A few days after this, operating on two fronts at once, as it were, he offered to sell his shares to the Savoy directors at the price of 62s. 6d. The Savoy directors turned this down flat. They said the price was excessive. They said that they might pay about 40s., but they certainly would not pay 62s. 6d. The "Financial Times" commented: The price asked was purely a 'bid' price and one only a bidder with similar plans to his (Mr. Samuels) own would be willing to contemplate. What did Mr. Samuel do then? He made public his demand for an inquiry, using it without doubt as a threat to the existing directors of the Savoy. The existing directors at that stage saw the red light, and within 48 hours they had paid the price of 62s. 6d., which was 22s. 6d. more than they had been willing to pay, and which involved a total sum of £1,346,000 for shares which they had said were excessively expensive at 62s. 6d. per share only a short time before.

I do not think one can escape the conclusion, in considering this history, that the price of 62s. 6d. which was eventually paid contained a very substantial element of hush money. The Savoy directors did not want an inquiry and they were prepared to pay this price, totally in excess of what they had previously said the shares were worth, in order to avoid an inquiry taking place. When all that had been done, the Worcester Building Company was wound up, and Mr. Samuel withdrew his request for a general inquiry. How did Mr. Samuel come out of it?

This brings us on to our third objection to the developments which have been taking place, which is that they lead to very substantial tax-free capital gains on the part of certain individuals. In its leading article this morning "The Times," which allowed that we had something on our side at any rate so far as our worries about dividend restraint were concerned, said that to link this with the question of tax-free capital gains to individuals was "an unworthy part of the Motion." I do not quite understand how it is an unworthy part of the Motion, because it is a very important part of the whole issue.

It appears that Land Securities Investment Trust, Mr. Samuel's company, made a profit of somewhere between £200,000 and £300,000 on this deal in Savoy Hotel shares. The shares on the open market had £200,000 added to their value almost overnight as a result. I understand that this company is accepted by the Inland Revenue as an investment company, and.

as such, it does not pay any tax on profits in the dealings in shares, although it has to use those profits for capital rather than for revenue purposes. If my information about this is correct, there is no doubt at all that there is a very large amount of untaxed capital profits about, and I should like to know what the Chancellor has to say about this aspect of the matter.

Mr. G. P. Stevens (Portsmouth, Lang-stone)

In view of what the hon. Gentleman has said, I wonder whether he knows to which company the leading article in "The Times" refers when it says that one of the principal parties was a property company which is taxed on profits of this kind. Is the hon. Gentleman's information better than that of "The Times"?

Mr. Jenkins

I do not know to which company the leading article in "The Times" was referring. All the points which I have just given—I put them forward tentatively—I have taken from the "Financial Times," so I suggest the hon. Member for Langstone (Mr. Stevens) argues it out with his hon. and gallant Friend the Member for New Forest (Colonel Crosthwaite-Eyre), who is sitting in front of him.

In any case, the fact that there is dispute about this adds force to our demand for an inquiry into all these and other related matters. Rather than learning what the hon. Member for Langstone thinks, I should like to know in particular what the Chancellor thinks about these very large tax-free capital profits, if they are tax-free. What does he think about the whole range of activity in the case of the Savoy Hotel deal which I have described? Does he regard these gentlemen as being worthy instruments of his policy of moving towards a more flexible economy? I do not know; perhaps he does.

Last week, in the Commonwealth debate, the Chancellor told us, in one of those penetrating sentences that we sometimes have from him, that in economic affairs we should remain cool, calm and collected. It seems to me that Mr. Clore and Mr. Samuel remained pretty cool and pretty calm, and they have certainly collected.

I now turn to the fourth of our objections, which concerns the possible diversion of assets away from use which is most in the national interest. There are some disturbing illustrations from what has been happening to certain textile companies. My right hon. Friend the Member for Leeds, South (Mr. Gaitskell) will, I think, say a little more about this. Certainly in the case of the Isle of Man Steam Packet Company— although the deal has not actually come off, it was extremely near coming off and it is perfectly relevant from this point of view— a great number of responsible people have been worried because what they regard as important public interests could not be safely left to the pulls of the market place.

The bidder in this case has been a Mr. Jay. One is tempted to add that his activities have caused consternation in Douglas. He does not seem to be particularly well informed about local conditions in the Isle of Man. Indeed, the directors in a recent statement said: This gentleman is wholly without knowledge of an island which, it is understood, he visited for the first time in November and certainly is unaware of the nature of the business on which this company is engaged. But it is not merely the directors, whom one would hardly regard as being impartial witnesses in a case of this sort. We had the Governor of the Isle of Man flying over to London for talks with the Home Office and saying at the airport that Defence of the Realm Regulations might have to be invoked to safeguard the interests of the islanders in the Isle of Man. Is the Chancellor watching issues of this kind? Will he, if necessary, make a statement?

This leads me to the whole difficult question of the responsibilities of big public companies. To whom are these companies responsible? Are the interests of their shareholders paramount, or must they be tempered by a responsibility to their employees, to their customers and to the nation as a whole? I think it can be agreed that a sort of de facto situation has grown up recently in which it has been accepted that at least the very big public companies exist for a great number of reasons other than that of making profits for their shareholders. The importance of the whole take-over bid situation is that it is a direct challenge to that understanding. Mr. Clore, Mr. Samuel and people like that are challenging that understanding by their actions, and a lot of financial commentators have been challenging it recently by their words.

After the end of the Savoy Hotel affair, a leading article which appeared in the "Financial Times," referring to these other responsibilities, said: But all these are comprehended in the responsibilities of the directors to their shareholders and the shareholders' interests are interpreted as they should be, in the widest possible sense. It may be that that is not very different, except that it is less pithy, from the remarks of Mr. Charles Wilson about what was good for General Motors when he became Secretary of Defence in America. In "The Times" this morning there appeared the statement, which is not very different either: So long as private enterprise provides the main motive force in the economy, the difference must be settled in favour of those who are prepared to back their views furthest with their money. What is the Chancellor's view on this issue? Where do the Government stand so far as the responsibilities of big public companies are concerned? Do they think their actions can be left solely to the rules of the market place? In December the Chancellor said he was worried about this whole issue, and he issued an appeal, through the Bank of England, to the banks and insurance companies not to provide money for these speculative purposes. The leading article in "The Times" this morning said that that appeal has had little effect. What is the Chancellor going to do about it? Is he going to sit down under that or go further? We need a clear, unequivocal statement from him about where he stands on these issues at the present time.

Also, he should accede to the demand for an inquiry. There is much which is still not known and much which is still in dispute. We ought to have more information about all these matters. After all, if there was a case for an inquiry into the Savoy Hotel shareholdings when Mr. Samuel wanted it for his private purposes—a public inquiry—surely there is now, in the interests of the public, a very strong case for a much wider inquiry.

4.40 p.m.

Mr. Austen Albu (Edmonton)

I beg to second the Motion.

The subject, which my hon. Friend the Member for Stechford (Mr. Roy Jenkins) has so admirably covered, is not only highly technical but has wider implications; quite apart from the economic effectiveness or non-effectiveness of the actions which we are at present discussing. It has been said by some of the financial commentators that the recent spate of take-over bids and the revolution in the boardrooms which has followed from them has, in fact, given the lie to the arguments that have sometimes been deployed in recent years about the managerial revolution that has taken place in large-scale industry during this century.

I believe that, in fact, no significant changes have taken place. I do not believe that the respective relationships of the participants in industry have been changed to any significant extent at all, but that, in fact, these actions have only been engendered by a very small number of financiers acting as shareholders, and that they could not have taken place without substantial support in the City, and. as I believe, with the willing connivance of the Government by its financial policy. If, in fact, shareholders are really taking a greater part in the management in industrial undertakings, then I would refer the House to a report in the "Evening Standard" in December referring to the annual general meeting of the B.S.A.: For half an hour, Sir Bernard"— that is, Sir Bernard Docker— read a 4,000-word speech. At the end of it all, Sir Bernard congratulated shareholders on their attendance. Nine turned up this year—two fewer than last time. Again, dealing with the British Motor Corporation, it said: Promptly at 11 o'clock today Mr. Leonard Lord, boss of the Austin-Morris merger, opened a shareholders' meeting. At 11.3, he sat down—meeting over. Some hon. Members may have seen a very interesting letter which appeared in the "Financial Times" of 13th February from a lady who owned some shares in a small manufacturing company which was not doing very well, and who wrote: On the appointed day, I duly arrived at the company's offices and explained the reason for my presence to a clerk in an outer room. From behind a grille he surveyed me with horrified surprise, and, unable to cope with the situation, he disappeared and returned with a senior, who appeared equally shattered. I was covered with confusion in the realisation that I had committed a major indiscretion in coming. It is bad enough to feel guilty when one has had fun in being indiscreet; there was no fun in this situation, which was doubly distressing.

Mr. Charles Pannell (Leeds, West)

On a point of order. The other day Mr. Speaker ruled 'that conversations in the chamber should not be loud or prolonged. May we not have some protection against file committee meeting which has been going on on the other side of the House.

Mr. F. J. Erroll (Altrincham and Sale)

Further to that point of order. We have all heard of the letter which the hon. Member for Edmonton (Mr. Albu) is quoting and have read it for ourselves.

Mr. Deputy-Speaker (Sir Charles MacAndrew)

I did not hear any noise, and I was perfectly able to hear what the hon. Member was saying.

Mr. Pannell

As I am very much nearer to the hon. Members concerned, will you take it from me, Mr. Deputy-Speaker, that there has been a subcommittee in session all the time?

Mr. Derek Walker-Smith (Hertford)

I am very much nearer to my hon. Friends than the hon. Member for Leeds, West (Mr. Pannell), and I have heard with interest every word spoken by the hon. Member.

Mr. Albu

It is my experience that, when matters are being discussed which hon. Members opposite do not like or which get under their skins, they always kick up a row.

May I now finish the quotation: 'No shareholders ever attend these meetings,' announced the senior clerk severely. It is hardly surprising that the letter is signed "Frustrated Female."

It is perfectly true that the actions we are discussing today are on a comparatively small scale, but they are of great importance, taken together with the general movement of financial policy, in changing the climate of the dividend policy of companies and leading to a very substantial Stock Exchange boom, which itself must have led to very substantial capital profits, whatever the particular actions concerned may have produced. There are two classes of take-over bids. The first is by a group or by a company with manufacturing or trading knowledge in a particular industry which intends to use the productive resources of the company which it is taking over for beneficial reasons. The second is that by a group of financiers who intend to exploit the assets of the company by the sale of its property or by increases in the distribution of its profits. There is no doubt a considerable justification for the first type of take-over bid. There is certainly no atom of justification for the second. It is clear that, in the first case, where a company takes over a business in a similar line, there may be very good opportunities of an increase in the scale of operations and so of efficiency, an improvement in management and in the better and more efficient use of technical resources, with lower overheads and so on.

The second type is a very different matter indeed, and it can in no way be acceptable to hon. Members on this side of the House. It involves the complete or partial destruction of an enterprise in order to realise enhanced property values by a number of financiers and on behalf of those who have played no part in the management and operation of the business. But, in truth, purely economic considerations are insufficient; there are other considerations which are by no means unimportant when we are considering this matter. Industry is not only an economic process; it is also a social process, and when we are considering industry and the practices of industry, we must be careful, and industry itself must be careful, that these practices do not offend the natural feelings of justice which are so strong among the people of this country. If these feelings, in fact, are harmed, enormous harm would be done to the economic life of the country.

Accusations are often made by company directors, capitalists, financiers and others, supported by hon. Gentlemen opposite, that the workers are ignorant of the financing and operation of industry and of how profits are made and distributed, and it is said that we have created an exaggerated suspicion in their minds. I would remind hon. Members of what Professor Gilbert Murray said when speaking of Greek religion: The best seed ground for superstition is a society in which the fortunes of men seem to bear practically no relation to their merits and efforts. I invite hon. Members opposite to apply those words to this situation. If it happens that the present institutions of our society cannot function efficiently except under conditions such as have been described by my hon. Friend, then the institutions of our society will have to be changed. It is not for hon. Members on this side of the House to defend these institutions which we have been criticising for so long. Let hon. Members opposite defend them, if they can, in economic and social terms, but also in terms which correspond to the very urgent need of the country for increased production.

I will also remind bon. Members that these bids have been welcomed, not only on economic grounds, but have been substantially welcomed throughout the financial Press because they have broken down the policy of dividend restraint. The arguments for higher dividends for shareholders are extremely confused. I have had some argument in the Press with the hon. Member for Langstone (Mr. Stevens)—it was in the "Daily Herald"—and also in private conversation, and I have watched with interest the letters which have been written on this subject in the Press.

Two arguments are used, and they are really, if not in contradiction of each other, at least irrelevant to each other. The first is that the shareholders are entitled to more money and a higher distribution from profits at the present time because the increases in dividends since before the war have not kept pace with the increases in wages and salaries. I have seen this argument attacked in the Press by those who support higher dividends on the grounds that the real justification for higher dividends is purely economic. In my opinion, there can be absolutely no justification for higher dividends to shareholders solely on account of the fact that their incomes and their rewards have not risen commensurate with those which come from wages or salaries.

Mr. Stevens

Would the hon. Gentleman not agree that a very large number of organisations which are very much trustee in character, such as the life assurance companies, friendly societies and others, do invest a substantial proportion of their surplus funds in ordinary shares as a hedge against inflation?

Mr. Albu

That is exactly the point I was coming to, but, of course, if we are arguing solely from this point of view, then what about pensioners, some of whom, I agree, have had an increase, and what, in particular, about those other savers who put their money into fixed-interest securities? Are they not also entitled to hedge against inflation if the case is based solely on the argument that those who save and those who invest are entitled to get more at the present time?

On this argument alone there is no difference between the ordinary shareholders and those who put their money into fixed-interest securities. But this argument is frequently muddled up by people who try to confuse the issue with the second and economic argument, which is quite different. Let us be sure which argument we are having, because the hon. Member for Langstone in the "Daily Herald" argued, not on the ground of economic justification, but on the ground that people with money invested in ordinary shares ought to get more at the present time. That is a very different argument.

The second argument which is based on the economic justification depends on the function of the shareholder and the way in which the process of investment is carried out at the present time. It is frequently said that there must be a higher return for equity shareholders because there are insufficient savings in the community and not sufficient risk capital. Is it seriously suggested that the operation of take-over bids and the increased distribution which results from them are going to increase the total savings of the community and are going to provide more risk capital? I do not believe that there is any reason for believing that at all, and, with the present distribution of the national income, a higher distribution in the form of dividends will undoubtedly mean less investment, because, no doubt, a very large proportion of it will be spent.

As to the other argument sometimes used, that somehow the market is a better judge than the directors of companies themselves of how investment should take place, I do not think there is much to choose between them. I do not like either method, and I am certainly not prepared to rely on the market and on the City of London to determine the way in which investment shall go in the next 20 years or so. Today, most new investment is carried out by institutions. It cannot be argued in the majority of cases that the present returns on investments, certainly in large public companies, do not adequately cover the risks involved.

We on this side of the House welcomed the trend towards greater equality which took place during and immediately after the war, and particularly have we welcomed the relative increase in earned income as against unearned income, and the majority of shareholding incomes are unearned incomes. We believe—and this is where my hon. Friend's questions to the Chancellor are so relevant—that the Government have, in fact, encouraged the reversal of this trend towards greater equality and a more just society.

Therefore, we shall very seriously have to consider what we are going to do when we get back into office to prevent the continuance of the reversal of the trend which has been encouraged by the present Government. There are a number of things that can be done. We can consider a very considerable extension of the public ownership of the shares of these companies; we can consider a very substantial increase in the taxation of the profits of these companies, or we can consider some form of dividend limitation.

Personally, I have always favoured some form of dividend limitation, in spite of the well-known difficulties involved. It is interesting that a growing number of industrialists have recently been suggesting that an attempt should be made to assess what is the fair reward for capital invested in different industries, and to limit the return in accordance with that.

It is not only hon. Members on this side of the House and those who have Socialist leanings who hold this view. This sort of view is spreading quite widely through a large part of industry. Hon. Members may have seen the remarks made by Lord Reith at the annual conference of the British Institute of Management last year, and the hon. Member for Langstone may have read the very interesting article by Mr. A. H. Boulton in the journal of the Chartered Institute of Secretaries, not, I think, exactly a revolutionary body. Mr. Boulton pointed out the limited risk undertaken by the modern non-entrepreneurial investor.

I can assure hon. Members that these feelings are very widespread indeed, and cannot be neglected if there is to be that co-operation in industry which we all agree is so badly needed. In my opinion, these feelings of injustice, which are real and justified, are among the most powerful of the deterrents which are holding back the productive energies of our people.

4.56 p.m.

Colonel O. E. Crosthwaite-Eyre (New Forest)

The two speeches to which we have just listened fulfilled, I think, very much what was expected by hon. Members on this side of the House when this subject was first placed on the Order Paper. Indeed, the hon. Member for Stechford (Mr. Roy Jenkins) showed—and I say this in all seriousness—a sense of political dishonesty for which it is difficult to find a parallel. To give one example, he wrote only last month in a periodical called "The Socialist Commentary." In his speech this afternoon, he seemed to forget many of the arguments that he advanced in that periodical.

Mr. Albu

Not a single one.

Colonel Crosthwaite-Eyre

I will quote one which he conveniently forgot. When talking about the increase in the amounts distributed through dividends, he forgot to mention the fact that he carefully wrote in his article thatthe rise in the distributed profits between 1946 and 1951 was less than the fall during that period in the value of money. So that, in fact, according to his own article, the shareholder received less in 1951 than he did in 1946.

The hon. Gentleman also quoted the "Financial Times," and here I must declare an interest, because I am a director of that paper. He chose very carefully all the quotations that suited his argument and did not mention any that did not suit him. For instance, he forgot that convenient quotations by "Lex" were offset by other statements in the paper. It is also true that it was the "Financial Times" who were the first people to complain about the way in which the Savoy take-over bid and counter take-over bid were made.

Mr. Jenkins

The hon. and gallant Gentleman opened his speech with what I thought was deliberately strong language, to which I do not object at all. I hope, however, that he is going to say more than that. I did not read out every article I have written in the last month, nor did I read out the whole of the "Financial Times."

Colonel Crosthwaite-Eyre

That is quite true. My case is that the hon. Gentleman carefully chose those passages in his own articles and from the "Financial Times" to suit his own arguments.

Mr. John Strachey (Dundee, West)

Come off it.

Colonel Crosthwaite-Eyre

As we on this side of the House listened without interruption to what seemed to us partisan statements by hon. Members opposite, perhaps I might be allowed, in my turn, to develop my speech.

Mr. Ernest Popplewell (Newcastle-upon-Tyne, West)

Prove it.

Colonel Crosthwaite-Eyre

I will prove it, or try so to do, which is all that any hon. Member in this House can say. For instance, the hon. Gentleman quoted in support of his argument Mr. Wincott in the "Financial Times." He also quoted "Lex," but he forgot to say that in its first editorial today the "Financial Times"very severely questions the arguments which he has put forward. He went on to talk about bankers, and quoted Barclays Bank in particular. He said that the bids were styled by the chairman as "the apotheosis of the spiv." Those were the words, but he did not quote the statement made this morning by the chairman at the annual general meeting when he said that any remarks he may have made were not to be construed as meaning that higher dividends were not in his view a thing that might be of genuine benefit to the country.

The hon. Gentleman forgot to tell the House that the other chairman, Mr. Bibby, of Martins, happens to be the banker for Mr. Wolfson of the Great Universal Stores. Here we have a banker on the one hand opposing these take-over bids and on the other lending credit to a person who is responsible for more take over bids than any other undertaking.

Mr. Hugh Gaitskell (Leeds, South)

Does the hon. and gallant Gentleman suggest that if a banker disagrees with a customer he should sack the customer?

Colonel Crosthwaite-Eyre

If one takes the line taken by the hon. Gentlemen who have spoken so far, it is essential that the full facts should be brought out and not only those facts which happen to suit the case. After having listened to the hon. Gentlemen, I feel that they are not so much concerned about take-over bids. In fact, the hon. Member for Stechford said that most take-over bids never even reached the Press, and very few of those which did reach the Press ever became the subject of party propaganda. There it is. He has seized on two today out of the countless thousands that he knows about.

Mr. M. Follick (Loughborough)

They are the most glaring.

Colonel Crosthwaite-Eyre

Yes, because they suit him. I have to argue with him about Sears, one of the two specifically quoted, because he forgot to tell the House that, while the dividend had been reduced, equally the conditions of the workpeople had been improved. That is something which should be brought to the notice of the House. It is a factor in considering whether that take-over bid was of value to the community or not. Surely that is fair. That is all that I would ask hon. Gentlemen opposite to do when they report these matters to the House. They should give all the facts and not just the ones that merely happen temporarily, because of political considerations, to suit them.

Mr. Roy Jenkins

I understand the hon. and gallant Gentleman to suggest that it was unfair for me to concentrate upon the Savoy and one or two others and that I should have given exactly equal space to a great number of other bodies. Would he tell me whether the "Financial Times" does that?

Colonel Crosthwaite-Eyre

I do not see what that has to do with the debate, but I would say that we pride ourselves as a paper on the fact that we give all the news affecting industry. If the hon. Gentleman finds an instance where we do not, we shall be the first to accept his criticism. It is true to say that we try to report what happens, be it favourable or unfavourable to any case we may wish to make.

What I think is the truth in this matter is that we have from hon. Members opposite yet another attempt to decry, because of their pathological hatred of profit, anybody who makes money. That may well be because they have been singularly unfortunate in the public sector of enterprise in their dealings. The hon. Member for Stechford talked about the price of shares, especially with regard to the Savoy as though it was something very wrong that they should have risen.

There is an element of truth in what he said, but how much more fortunate would he have been if he could have quoted any share in the public sector that has gone up. We on this side of the House remember what happened to "Daltons" and many other stocks of nationalised interests that have been put up.

Mr. Albu

Has the hon. and gallant Gentleman seen the reports of the steel companies?

Colonel Crosthwaite-Eyre

I am not talking about companies but the value of stocks issued by the late Government. Perhaps the hon. Gentleman would listen and then his interruptions would be of more value. What has happened is that since 1938, whilst there has been a considerable amount of restraint in demands for wages, there has been a far bigger restraint in dividends.

Figures are given in the Press this morning which show that, between 1938 and the last available date, while wages have gone up 180 per cent., dividends have gone up only 60 per cent. It might be more realistic to take the period between 1946 and 1951, which is a post-war period. There again, whereas dividends have gone up by only 40 per cent., wages have gone up by 60 per cent.

I feel, and I say it without any hesitation, that it is time that we realised that investors are equally entitled to a larger share of a larger national cake. [Hon. Members: "No."] I say that without any fear at all. Why should they not? There seems to be some idea among hon. Gentlemen opposite that the investor is a great moneyed gentleman. There seems to be the idea that there are very few of them and that they are immensely rich. Nothing could be further from the truth. A recent investigation into the holdings of ordinary shares in companies showed that 70 per cent. to 80 per cent. of such shares are held by people who invested less than £100.

Mr. Albu

In each company?

Colonel Crosthwaite-Eyre

In each company. The hon. Gentleman may think that he has scored a debating point, but is it likely that the big investor will go round investing only £100 in each company so as to try to describe himself as a small investor? The idea is nonsense. It is a typical remark by the hon. Member.

Mr. Albu

Can the hon. and gallant Gentleman tell the House how many there are?

Colonel Crosthwaite-Eyre

No. What is true is that the vast majority of British industry is owned by the small shareholder, and his interest comes from his personal savings from the amount which he has been able to put by, generally during a lifetime of work, in order to give himself a settled income when he retires. It is time that we realised that these people are equally entitled to have a further and better share so as to promote their way of life. That is my conviction. It is a view from which I will not diverge.

It is equally true if we assume—as hon. Members opposite do—that the people who own industry are the great moneyed investors, that it does not matter to them how much dividend they get. They are taxed so heavily that even if one accepted the figures given by hon. Gentlemen opposite, it could not make the slightest difference to their net income. It would be taken away entirely by the present rate of taxes.

It is the same with capital profits. Why should not the small investor be allowed a capital profit if he puts his money into shares with prudence and foresight and, as a result, those shares go up? If he puts money into a gold mine why should not he be entitled, if the shares go up, to reap the benefit of the risk he has taken? There is no reason at all why not, except the prejudice put forward by hon. Members opposite—

Mr. FoIIick

On a point of order. We are not talking about shares but about take-overs. Surely the debate is about take-overs.

Mr. Deputy-Speaker

I always imagined that shares were taken over.

Colonel Crosthwaite-Eyre

May I thank you for your Ruling, Mr. Deputy-Speaker, that it is impossible to make a take-over bid without acquiring shares.

We have heard of these take-overs which are alleged to bring great capital profits. The only case which has been advanced is the one by the hon. Member for Stechford about the Savoy. I am willing to give him everything he says about the Savoy case. It was thoroughly bad, and I think that every section of responsible opinion attacked it. But he would not be able to tell me of another single occasion in which a capital profit of this nature had been made. There is no such evidence whatsoever. I have gone into this matter with great care, and if he or any other hon. Member opposite can bring any evidence which will bear investigation, we shall be grateful to hear about it.

May I also refer to the vague fears—and again this is what I disliked so much in his speech—vague fears which he raised, without ever producing concrete examples, except again the case of the Savoy, to show on what they were based. He talked about how people might sell their assets, how they might divert them against what he called the national interest in the feathering of the nests of the people who bought them. There is no evidence whatsoever in any take-over bid of something like that having occurred.

The only evidence available shows just the reverse. In a case such as I have quoted, that of J. Sears and Company, the real truth is that no one would make a take-over bid unless, in his prudence and with the consent of his colleagues, he knew he could use the assets of a company more appropriately and more efficiently. That is a fact which hon. Members opposite acknowledge with lip-service, but do not realise to be the real truth. I suggest that before asking, for committees, before considering all these allegations which appear on the Order Paper, it would be well if we had a little more information.

I think it was the hon. Member for Edmonton who talked about the Isle of Man Steam Packet Company. He again forgot to tell the House that the first thing Mr. Jay came to do after his bid had been submitted was to offer to talk to the unemployed in the Isle of Man to see how far the assets of this company could be used to better advantage to meet the special unemployment problem in the Isle of Man. Surely it is necessary that the House should be informed of these things before we listen to all these vague innuendoes. The truth of the matter is very simple. Hon. Gentlemen opposite do not want any profit to accrue to the individual. They have an intense dislike of it.

I am afraid that they have another idea at the back of their minds, which is that the cheaper they can keep the price of shares on the Stock Exchange the more easily they will be able to further their nationalisation programme if they ever come back to office. [Hon. Members: "No."] Hon. Members opposite may say "No," but it is remarkable that the right hon. Member for Leeds, South (Mr. Gaitskell), who at the time I am referring to was the Minister of Fuel and Power, spent a long time explaining that the Stock Exchange was the mirror of truth, that the share values displayed on the Stock Exchange adequately represented the sum it was fair to offer to the investor. Both he and his colleagues spent a long time proving that when they took over great industries and paid Stock Exchange prices that they were dealing fairly with the shareholders.

The hon. Member for Edmonton and the hon. Member for Stechford have made it clear that they do not believe that Stock Exchange prices represent fairly the value of companies. They do not want to see those prices represent fairly and adequately the value of companies, so that one is justified in saying that it would suit their political aims if those prices were depressed.

I hope that the Chancellor of the Exchequer will have nothing to do with this Motion, which is not founded on any evidence, but is designed purely as spiteful and vicious party political propaganda. I should like the Chancellor to state that he will have no part in depressing the investor, but rather that he recognises the vital part played by the small investor in the economic life of this country. Hon. Members on this side of the House realise the part played by the thrift and initiative of the small investor in our full economic recovery. I hope that my right hon. Friend will say this and that he will couple with it the comment that those who, through their initiative and effort, benefit the community should have a just and fair reward.

5.15 p.m.

Mr. W. T. Williams (Hammersmith, South)

The hon. and gallant Member for New Forest (Colonel Crosthwaite-Eyre) might, as it were, sit in the place which could be called the apotheosis of financiers—and I, who make no claim to be an economist or anything of that kind, am somewhat encouraged by his speech—but he appears to me to be the epitome of a quip which I once heard, that if all the economists in Britain were put end-to-end they would still point in all directions. That is inevitable when economics are divorced from what I may perhaps be permitted to call political morality and social morality.

These take-over bids, like that of the Savoy, quite rightly cause alarm. The hon. and gallant Gentleman is not prepared, and nor would any other hon. Member be prepared, to defend that kind of activity. We are all agreed that it is a bad thing that purely speculative transactions should occur, and, as the "Manchester Guardian" put it. that a few quick-witted gentlemen—I beg your pardon, Mr. Deputy-Speaker, I have got it wrong, the "Manchester Guardian" did not speak of quick-witted gentlemen, but a few quick-witted City men—should carry out financial raids of this kind.

These take-over bids serve no social purpose and achieve no end other than that of lining the pockets of adventurers. It is understandable that in this extreme example even people who support the general practice are themselves disgusted. It would apear to me—and it is about this that I wish to speak—that it is these extreme examples which point to the real danger of things which, in normal practice, are not complained about. For there is really nothing in these operations which is not in the classical or, perhaps, supra-classical view the normal financial practice in this country, and indeed in the whole Western world. They are the logical conclusion of things which, if not carried to their logical conclusion, arouse no complaint in particular from right hon. and hon. Gentlemen opposite.

It seems to me that the true significance of these events lies in the fact that these take-over bids do not so much reveal any evil in themselves but rather the danger inherent in a pattern of society in which they are. As the hon. Member for Kidderminster (Mr. Nabarro) said, they are not only possible, but legally possible. It would appear that the rottenness of some of the fruit of this tree is born out of the fact that the roots of the tree themselves are rotten. As long as company finance in this country is permitted to proceed upon the lines on which it is now operated, this kind of thing is ultimately inevitable.

As I see it, this is a matter not so much of economics but of social philosophy. If an inquiry were held within the terms of reference asked for, it is my opinion—and I would agree that I am perhaps more radical in this than some of my colleagues—that such an inquiry would achieve little more than ensure that financiers who do not want their activities inquired into would run to cover for a while. The real sin is to use money as an end in itself, and not as a means of achieving a society in which all classes of people might live with decency and dignity.

I am one of those who makes no claim to much knowledge of finance but who feels that there is something rotten in a State in which this kind of evil—which is repudiated even by the adherents of the system—happensmore than once. The activities of the take-over bidders perform a social evil far greater than any financial good they might do. They create in the minds of ordinary people a feeling of unrest, and in particular persuade working people that, in the distribution of wealth, the scale is being tipped against them. That is a matter of sociology and moral philosophy that must profoundly disturb those who are concerned to see Britain, and the world, a decent place for decent people to live.

I know that hon. Gentlemen opposite—and I suppose their opinion is shared perhaps in some cases on this side of the House—quite sincerely hold the view that, without a capital or profit motive—for which I have no bitter hatred, although I do not like it—finance would not be forthcoming, directors would not direct and commerce would cease. Many people believe quite sincerely that the evils in this system are necessary evils because the system, on the whole, leads to "the greater good of the greater many." I suggest, however, that at the same time as the great joint stock companies grew during the last century and capitalism moved into its present phase, there has been a less spectacular, but sounder, and ultimately a much more socially important development in this country, which has spread to all parts of the world.

I refer to the co-operative movement, and here I declare my own interest. I am a co-operative Member of this House, but I have not great vested interest in the movement. Indeed, I have insufficient capital to hold as many shares as I would be entitled to under the Industrial and Provident Societies Act. The co-operative movement has profound social significance, and I would commend it to the House as being probably the most significant development in this country and a means of developing an alternative form of capital, activity, and industry which could be of greater help to mankind than these rather unreal incentives described by the hon. and gallant Member for New Forest as being absolutely essential for capital development and to keep the wheels of industry and commerce turning.

Sir William Darling (Edinburgh, South)

The hon. Member must be aware that some societies, and particularly the London Co-operative Society, have entered into a number of take-over bids. The London Co-operative Society took over a large store in Camden Town some time ago.

Mr. Williams

I do not complain when other people score debating points. I have no objection to take-overs; but the whole gravamen of my argument is that something which serves a socially useful purpose and assists in the creation of a society in which people can live with dignity fulfills its existence. I do not criticise all take-overs. If, by them, Mr. Clore ensures that the people who work in Sears get a better living, that is, in itself, desirable. What is undesirable is that, in doing these things, these people do not give their primary, secondary or even tertiary concern to the welfare of the people employed; their concern is to collect a profit, as Mr. Samuel collected a cool half-million pounds profit.

I am not asking other people to share my view that, in spite of any special advantage that might be created, any financial benefit that might accrue, any clearing out of incompetent or undesirable directors that might be achieved by these take-over bids, they are, in themselves, so socially evil that their ultimate social significance outweighs any good they might achieve casually and, as it were, by the way.

The merit of the co-operative movement, on the other hand, is that the benefits from any take-overs that may occur—for example, the case of the London Co-operative Society—do not accrue to any one individual. There is no artificial dealing in shares; no complete lack of interest in the organisation and running of the society so characteristic of modern finance and shareholding. Shares in the co-operative society are withdrawable but not transferable, and there are no share transactions between shareholders. Dividends are paid out in proportion to purchases made, not on the value of shares held. Distribution of surpluses is not a function of money, but of an active and significant participation in the dealings of the society itself. Co-operative shares are always at par, and their value does not depend on dividend expectations, because it is the member of the society—the person who deals with the society—who receives a dividend and not merely a shareholder with no interest in the running of the organisation.

The method of running the co-operative society has been tremendously significant socially, because of the contribution it could make to the creation of the more just and equal society in which I believe. However worthy or powerful a man may be, he cannot buy himself into a dominating position in a co-operative society. He cannot hold shares worth more than £500 and cannot take over other people's shares, because that is expressly made illegal. Even if Mr. Samuel wanted to, and could buy a huge block of shares, it would avail him nothing in terms of voting power. In the society one man or woman has one vote—no more and no less.

The real point is that it is people who count, and not money. I gather that there are hon. Members who would not want to be members of a co-operative society, but its membership is easily known to everybody. Its list of members is open to inspection, but it often takes a Board of Trade inquiry to discover who are the shareholders in big joint stock companies. In the case of the co-operative societies there are no nominee shareholders, there is no secrecy, and no need for a Board of Trade inquiry to ferret out the truth.

Although it is the case in the co-operative societies, as everywhere else, that there is a great deal of apathy on the part of the general run of members, and most members are not actively concerned with the affairs of their society, there is no reason why members in their thousands should not take an active part in its conduct. A member of a co-operative society votes because he is a person, and not because he happens to hold a block of shares which gives him privileges and advantages over others.

Mr. Deputy-Speaker

Order. The hon. Member is getting a little away from the Motion.

Mr. Williams

With respect, Mr. Deputy-Speaker, this Motion suggests that an inquiry should be held and that the committee which carries out the inquiry should be empowered to suggest remedies as well as to investigate facts. I suggest, for the consideration of the Government and hon. Members, that if and when this inquiry is undertaken it might be very profitable to consider whether there are not other ways of keeping industry and commerce going than by means of these joint stock companies.

The retail co-operative societies, with shares whose value do not change, with fixed dividends, and with limitations laid upon them by law and in practice, have successfully accumulated over £225 million in capital and have developed, in the Co-operative Insurance Society, the Co-operative Permanent Building Society and the Wholesale Society, a tremendously powerful contribution to the life of this country.

Sir W. Darling

On a point of order. Should not the hon. Member declare his interest?

Hon. Members

He has done so.

Mr. Williams

I am grateful to the hon. Member for that interruption, because it shows how much attention hon. Members opposite pay to speeches made by hon. Members on this side of the House. The hon. Member was present when I declared my interest. It appears that, on economic grounds alone, this practice which has grown up in modern capitalist society is undesirable, but, apart from its undesirability on economic grounds, there are also political grounds. Even from the point of view of morals, the assumption that, within the law, it is right for people to do the kind of thing with which we have been concerning ourselves today, should be inquired into, and I suggest that when this activity is undertaken far more consideration should be given to alternative forms of building up our industry and commerce than has been the practice in years gone by.

5.35 p.m.

Mr. G. P. Stevens (Portsmouth. Langstone)

The hon. Member for Hammersmith, South (Mr. W. T. Williams) clearly believes—as he said with great sincerity—that take-over bids spring from a financial system which is evil throughout. Our debate this afternoon is too short to enable me to reply to that very very large proposition, although I shall be very happy to do so on a suitable occasion, on the same high moral plane on which he pitched his speech.

I wish I had time to continue my friendly though acrimonious correspondence with the hon. Member for Edmonto (Mr. Albu) in the columns of the "Daily Herald," on the theory of ordinary dividends in relation to inflation. I should have thought that inflation is certainly a form of risk. I should like to express my very cordial agreement with one thing which the hon. Member for Edmonton said. He was deploring the remoteness of many individual shareholders, and he told us a story of the rather depressing experience of a girl friend of his called "Frustrated."

Mr. Albu

She is not my girl friend.

Mr. Stevens

She must have been the girl friend of the hon. Member for Stechford (Mr. Roy Jenkins).

I could not agree with him more. I hope that, realising the situation as he does, he will henceforth—as he has not done in the past—bend his energies towards lowering the rates of death duty on private companies. That is one of the reasons why remoteness has sprung into the relationship between shareholders and their companies.

The Motion deplores the recent manifestations of take-over bids for two reasons. The first reason is that they have put large, untaxed capital profits into the hands of certain individuals.… and the other is that they have seriously undermined the policy of dividend restraint. I notice that in all the speeches which have so far been made by hon. Members opposite not a great deal has been said about the question of large, untaxed capital profits. Far more has been said about undermining the policy of dividend restraint.

I am not surprised. When I saw the Motion on the Order Paper I was puzzled. I wondered if, in Socialist eyes, there was something inherently anti-social and evil about the receipt of large, untaxed capital gains. I wondered if there was something inherently evil in the receipt of football pool winnings, or in cashing in on the paper profit made by buying a house in 1937 and selling it at an inflated price in 1948, or even in 1954.

I wondered what was the objection, in principle, to large, untaxed capital profits. If the right hon. Member for Leeds, South (Mr. Gaitskell) believes that all large, untaxed capital profits should be brought within the net of the Inland Revenue, I hope that he will tell us this evening whether he thinks that, "Vote for me and let me tax your football pool winnings" would be a wonderful election cry. That is really what this Motion means, if it means anything at all, which I doubt.

I leave that manifestly absurd part of the Motion and come to the part which is at least supposed to have some kind of meaning—the part which deals with the undermining of dividend restraint. We have heard a great deal about that. If I knew nothing whatever about the history of dividends in the last 14 or 15 years I might have thought, as the "Daily Herald" has so frequently stated in the last few weeks, that large and powerful organisations have been distributing an ever-growing quantity of largesse to their wealthy shareholders. I have taken the opportunity which is accorded to hon. Members of this House to obtain from Her Majesty's Stationery Office an interesting booklet, which I commend to hon. Members opposite. It is Cmd. 9030, and is the 96th Report of Her Majesty's Commissioners of Inland Revenue for the year ended 31st March, 1953. There, instead of party propaganda and the sort of language that comes from Transport House, one gets the true and factual story with regard to what has been happening in relation to dividends in the last 15 years.

In this book the results of companies are treated as a percentage of their gross proceeds on sales, and that is treated is 100. The trade and industry of the country are split up into 14 convenient groups. I shall not bore the House with the figures for all 14, but let me take one group, chemicals. The percentage of gross proceeds paid away by way of dividend in 1938–39 was 14.6 per cent.; in 1951–52, the last year for which figures were available—and this book was published only last month—the percentage was reduced to 4.6, which is a reduction of 68.5 per cent.

In the case of the electrical group, dividends expressed as a percentage of takings were down from 6.4 per cent. in 1938–39 to 3.1 per cent., less than half, in 1951–52. If the stories we have been hearing today of the rising trend in dividends, the abuse of the quest for dividend restraint, and all that kind of thing are true, why do not these figures show it?

Mr. F. Beswick (Uxbridge)

These comparisons of amounts distributed with total turnover are misleading. Would not the true picture be obtained by comparing the total distribution with the amount of money originally put in by the shareholders?

Mr. Stevens

There are some children on both sides of the House, but I have never heard such a childish question as that.

Mr. E. Fernyhough (Jarrow)

Answer the question.

Mr. Stevens

I will certainly answer the hon. Gentleman's question. How can we have a fairer comparison than that of the gross proceeds on sales one year with the gross proceeds of another, and split them up into the various slices of the available cake? That is precisely what these figures do.

If the hon. Gentleman the Member for Uxbridge (Mr. Beswick) really thinks what he says is correct why did he not get in touch with his right hon. Friend the Member for Leeds, South who, when he was Chancellor of the Exchequer, had a great deal of responsibility for the facts that are published in this booklet? Why did he not get in touch with him and say, "Sorry, chum, you are doing it all wrong. You ought to do it the other way"?

Mr. Beswick

rose—

Mr. Stevens

I have given an adequate answer, and if the hon. Gentleman does not understand it, I suggest he reads the OFFICIAL REPORT tomorrow to study it

. I admit that these figures are a year out of date. They go only up to 31st December, 1952, and we have been concentrating today chiefly on the year following, but I pray in aid "The Times" in support of my own experience and observation. If one looks at the whole gamut of the trade and industry and finance of the country, it is always possible to pick out, as the hon. Gentleman the Member for Stechford did with such felicity, such glee, such practised ease, some particular example to suit one's case. "The Times" tries to do these things more objectively, and dealing with last year's results it says today: The rise in dividends has lagged far behind the rise in profits and far behind the rise in wages and prices. Many individual companies have lagged so far behind that the market value of their shares is much below what it would be if the board paid dividends more in line with the 1954 level of profits, wages and prices. There is a fair and objective statement of what has happened.

I was glad that, at any rate, some hon. Members opposite admitted that some share take-over bids can be good. Of course, there is nothing new in take-over bids. They have been going on since the first joint stock company was formed nearly 100 years ago, and in some forms they are good, for they inject new blood into industry and can put a board of directors on their toes, or, in the case of very successful bids, enable the bidders to put their own people onto the board of directors and so give a new impetus to the business.

The real trouble has been that direct taxation in recent years has been so high that the income game has not been worth the candle for the merchant venturer of the very best type. If any hon. Gentleman opposite does not like the term "merchant adventurer" I commend to his attention the valuable work done by a company with which I am not in any way associated, the Gallant Company of Adventurers Trading into Hudson's Bay. I think that if we had a few more merchants of that sort we should have no need to feel any gloom about the future.

There was a 6d. reduction in the standard rate of Income Tax last year, but even so only Is. is left out of every £ in the top ranges of incomes. The consequence is that the objective of the take over bid has tended to change. It has not wholly changed, but it has tended to change into activities which, if well devised, bring to the people who make these bids a profit which is not caught in the taxation net. I agree that that as a practice is lamentable, and I believe a reduction in the standard rate of Income Tax would put that right.

This Motion comes ill from the right hon. Member for Leeds, South, who was principally responsible for the three greatest take-over bids in the history of this country, the bids for taking over the fuel and power enterprises, the transport businesses and the iron and steel businesses. This is not the time to talk about those, but a great many people deplored those particular take-over bids more than any that had occurred before them. If the taxation of incomes of individuals and of limited companies can be reduced to reasonable proportions these new forms of take-over bids will not be necessary, and the old form of take-over bids will continue to play its part in developing the trade and industry of this country for the benefit of all.

5.47 p.m.

Mr. John Strachey (Dundee, West)

Whatever take-over bids are or may be, and whether they are successful or unsuccessful, and whatever their motives are, good, bad or indifferent, their effect is to put up the rate of dividends. There can be no doubt about that whatever, and it is a thing we are seeing in the Stock Market today so very sharply.

What we have to consider today is the breaking through of the barriers of dividend restraint, which had existed up to 1951, and about which hon. Members opposite kept quoting figures to show—

Mr. Stevens

The right hon. Gentleman said up to 1951. I did say quite clearly up to 1952.

Mr. Strachey

Those were not the figures to which I was referring. I was referring to hon. Members who had spoken earlier, who quoted figures up to 1951, figures which showed a great deal of dividend restraint.

The point is that after that there has not been that restraint, and in recent months, above all, it has broken down, and the battering ram that is breaking it down for good or evil—hon. Members opposite think for good—are these take over bids. The effect of dividend increases and of the capital gains that go with them, that are indissolubly associated with them—anybody who looks at the Stock Market can see that very easily—is a stark counter-redistribution of income towards the well-to-do. There can be no doubt about that whatever.

If the hon. and gallant Gentleman the Member for New Forest (Colonal Crosthwaite-Eyre) is in any doubt about the number of shareholders there are, he has only to look up one of the books on the City of London by the late Hargreaves Parkinson whom, I am sure, he will accept as an authority on the subject, to see that there are about a million and a quarter, say 3 per cent. of the population as a whole. Those are the people benefiting. It is not a few hundred, of course; it is not a few millionaires; but still it is a very narrow section of the population who are the people benefiting from the extraordinary financial game going on today.

That counter-redistribution of income will have the most marked sociological effects. It will make nonsense of the appeal to the trade union movement for restraint in wages. If it is thought good to go back to free-for-all laisser faire private enterprise, good to have take-over bids and unlimited dividend distribution, how can we ask the organised workers of this country to show restraint in using their economic power and their economic leverage? When hon. Members opposite support this kind of policy they should think of the consequences in the new world in which we are living and in which all the economic power is not on their side. It can have very different consequences indeed from those which they expect.

I have in mind a second very important consequence. I believe that the general raising of the level of dividend distribution has the opposite effect to that which is claimed for it. It has been held that it helps the accumulation of capital. I believe it has exactly the opposite effect. The main source of the accumulation of capital—and we all agree, on all sides of the House, that this accumulation is of the utmost importance today—lies in undistributed profits. The main way in which this country accumulates capital and is able to invest in new equipment is by keeping dividends down.

It is by the great public companies of this country not distributing their full profits, but reinvesting them, not necessarily, even, in their own company—not necessarily ploughing them back; for they can invest their reserves in each other, as it were, so that the capital may circulate between firm and firm and industry and industry. It is precisely by the raising of the dividend level that this collective or semi-collective accumulation of capital is dissipated.

Furthermore, the higher dividends paid out to the shareholders today are by no means all saved. A considerable amount will be spent. I believe it has the effect of dis-accumulation, which is precisely the opposite effect to that which hon. Gentlemen opposite claim.

To my mind, the chief interest of the debate today is that it has been held at all. In the older form of capitalism, the one for which hon. Members opposite still hanker, there could be no criticism of take-over bids or increases in dividends. The way in which the capitalist system was supposed to work was precisely by maximising profits in all circumstances. By means of the hidden hand of Adam Smith, that was supposed to maximise the public interest.

The very fact that the increase in dividend distribution, which is the real essence of this debate, is being questioned, and questioned not only by us but also in that uneasy article in "The Times" today, shows the change in the social and economic climate in which we are living. The great corporate bodies, the great companies of this country, have at least partly realized that they are no longer simply profit-spinning organisations, that they are no longer simply organisations which have one duty and one duty alone—to maximise the distribution of profits to their shareholders.

It shows that the mental climate of the country is changing. It shows that at any rate the major public companies of this country have many duties and many obligations, and that their obligation to pay some return on their borrowed money, whether on preference shares or an equities, is only one of those obligations. In addition, there are their obligations to their employees and, to my mind the major obligation, their obligation to the community to carry on the productive life of the community.

What we say on this side of the House is that the take-over bid, this battering ram which has broken down dividend restraint, is carrying the country back from the point which it reached and at which it was seen that our major productive units were no longer simply profit-making organisations at all costs and in all circumstances; but were becoming national institutions: that they were becoming—and this is what hon. Members opposite do not like—semi-socialised institutions. The take-over bid is making us regress from that back to the older conception of capitalism as it existed in this country right up to the last war—the conception of it as a pure profit-making organisation.

Hon. Members opposite must realise that that will never work again. It is only in so far as the major organisations, the major companies of this country, realise the changed social climate in which they are working, it is only in so far as they show the greatest restraint in their dividend distribution, that the system of which they are a part will be tolerated.

5.58 p.m.

Sir Walter Fletcher (Bury and Radcliffe)

The hon. Member for Stechford (Mr. Roy Jenkins), who moved the Motion, and the hon. Member for Edmonton (Mr. Albu), who seconded it, made a very successful take-over bid for the time available for the debate, occupying over an hour and leaving very little time for other hon. Members. As a consequence, I will cut as short as possible what I have to say.

Every age brings in new words. Recently, "disinflation" and "convertibility" have come upon us. Now we have "take-over bids." The hon. Member for Stechford admits that these have always been known. He said there were only two categories but, as my hon. Friend the Member for Langstone (Mr. Stevens) said, there is a third which is the most reprehensible of all. That is the Government take-over bid, where the market has been carefully rigged against the shareholder by the Government.

That was the take-over bid of the Bank of England shares and the take-over bid of the nationalised industries, where the shareholders never had a chance of getting a proper value for their shares because the Government of the day most carefully saw to it that there was a delay in payment and an entirely wrong system of fixing prices.

Mr. Follick

rose—

Sir W. Fletcher

I cannot give way.

We have to go back a little way to understand this situation because, to my regret, this afternoon nearly everybody has discussed the symptoms without discussing the malady. What the take-over bid is based on is the delayed action effect of the catastrophic fall in the value of money. We heard, 70 times seven, from the right hon. Member for Leeds, South (Mr. Gaitskell), when he was Chancellor of the Exchequer, in clear-cut terms," We shall not devalue." But we did devalue to the extent of about 40 per cent. The delayed action effect, which has taken several years since then, is the main cause of the situation which allows the take-over bid.

Let me prove that. Suppose I am a Belgian citizen living in Belgium and I hold in this country shares in a hotel business. On the day on which devaluation to the extent of 40 per cent. takes place, I say to myself, "The asset is worth 40 per cent. more and should rise to that extent." But it did not happen at once. It has happened only very slowly. Those of us who have seen three devaluations in France since the end of the war have seen this strange effect: on the first two occasions of devaluation, prices have adjusted themselves very rapidly, but on the third occasion the adjustment has taken place only very slowly.

There has been this fall in the value of sterling. We have not noticed it in this country, but it is there. Let me prove it. Let us take the hotel business and the example of a hotel built in the West End of London 50 years ago. It has been maintained year by year, out of profits, in the original state of being a first-class London hotel—the state in which it was originally built. It has had its face lifted several times and quite horrible, tortured, steel furniture has taken the place of good club upholstered arm chairs. Tweed has replaced brocade. But the service remains admirable and the hotel is today exactly in essence the same as when it was built 50 years ago.

It has been maintained out of revenue in perfect condition. It has the same perfect service. Its intrinsic value has not altered in any way at all. Its replacement value has gone up by 150 per cent. That proves, if any proof is needed, my contention that the real difficulty is the catastrophic fall in the value of money, which was not mentioned by the mover or the seconder of the Motion.

Of course, when people see that the replacement value is very different from the book value, when assets were being maintained out of profits, the take-over bid is the natural result, but it is only a partial remedy. The take-over bid is a very useful corrective from time to time, but it puts the directors in a difficult position. Neither the mover or the seconder of the Motion were present in the old days of the Finance Act which arose from the Report of the Cohen Commission. I should like to go back to that, because it was then that we saw the main difference between the two sides of the House.

All the way through that Committee stage right hon. and hon. Gentlemen on the other side of the House looked upon the directors and the shareholders as being natural enemies and having no community of interests—one had to be protected against the other—and huge safeguards were put up in the way of accountancy, it being forgotten that 75 per cent. of the shareholders did not read accounts and 90 per cent. could not understand them. That may be true of directors to some extent. We on this side of the House believe, by and large, that there is a community of interest between directors and shareholders.

Let me get back to my hotel business. What is the primary duty of the director of a company? It is not only on the financial side of dividends. It is this. The shareholder invests in a company because it is the type of company into which he wants to put his money. Once he put it into the best type of London hotel, into textiles or something else, and, therefore, the first job of a director is to preserve continuity in the type of business of which he is a director. He is put in a very awkward position if the take over bid is made which would represent a very large capital profit arising from the delayed effects of the great inflation brought about by the extremely bad financial policy over five years of those who were in charge on the other side of the House.

Mr. Follick

Two world wars.

Sir W. Fletcher

And one American loan thrown away through the policy of the right hon. Member for Bishop Auckland (Mr. Dalton).

Nevertheless, what is the truth of this matter? Dealing with the symptom rather than the malady, it is this. The spirit of private enterprise centred, as I will describe shortly, in the small man who gradually increasing his business, assisted by the machinery in the City of London, has opened up progress in the way of increasing business and the building of property of every sort. I am saying this because the Chancellor saw fit in December to send out a reminder, not a new notice, which I think was sent out with the best intentions, to the City of London not to encourage the wrong type—and there is a wrong type—of take over bid. That has been seized upon to exaggerate and use wrongly: it was not a criticism but an appeal.

I want to say a word, declaring my interest as a director of one of the oldest insurance companies, on what has resulted from that. How have the great businesses of the City of London, the banks and the insurance companies been built up? They have been built up largely in this way. A small man, an auctioneer's clerk or a grocer's assistant, perhaps, in a small town, saves a little money. His Auntie May dies and leaves him a few hundred pounds, and he says, because he is interested and has a sense of real values, "I will buy a small block of shops with flats over them." They need improving.

He says to his friend, whom he meets playing darts in the "local" in the evening, and who is the representative of one of the insurance companies, "Do you think your people would help me out. I have about £600." The insurance company sends down its assessor, and he says, "This is worth so and so; we can safely lend so and so."

Mr. Follick

How much?

Sir W. Fletcher

I will not give actual figures because they are not relevant. The man puts up his proportion of the risk, and the premium interest of that goes into the insurance company.

He goes on doing that for 20 years, not always successfully. He has his failures. Some of the take-over bids on agricultural land a few years ago do not look so happy at the present moment. There is this point, too. In time the premium income accruing to the insurance company—the amount of business and new enterprise that flows from the association of small individuals gradually becoming bigger—is one of the greatest possible assets that we have in this country.

The right hon. Gentleman who was Chancellor of the Exchequer paid many tributes to the insurance world for the magnificent work they did by way of their great dollar earning power. But they could never have existed if they had not gone in for finance exactly of that particular order.

The real value of these companies is now much greater than it was. That causes a great many of the take-over bids. The shareholder is not hurt because he nearly always has the opportunity of cashing in and selling his shares. What we have to be very careful about—and here I agree with the Chancellor in many ways—is that the delayed result of inflation transplanting itself into take-over bids should not go too far or be too violent; but as a manifestation of its own it is a criticism of the catastrophic fall in the value of money more than anything else—and hon. and right hon. Gentlemen opposite were responsible for that.

I have noticed throughout this debate and many others how every opportunity is taken by hon. Members opposite to drive a nail into the coffin of the City of London. That is egregious folly. They may not like the City of London because they do not understand it, but it is the instrument which they have to use for the development of the Empire and Colonies for many years to come. No doubt they sit back and in their secret planning say that the insurance offices provide the ripest plum on the wall, and that once they can get there they will cull it and eat it. That will turn out to be bitter fruit, because if the insurance companies were not run by private enterprise on the basis I have suggested, they would entirely lose their value, in exactly the same way as the Bank of England has lost its value, has now become an East End branch of the Treasury and can exercise no individual voice.

Mr. Follick

Like the other central banks all over the world.

Sir W. Fletcher

The Bank of England was not like other banks and that is why the money market remained in the City of London and not in any other city.

I suggest that the eyes of the world are still financially centred on the City of London, and that the adjustment that goes on for a certain length of time, but not for ever, when translated into take-over bids should not be subject to some of the uninformed criticism which we have heard today. There have been people who have undoubtedly abused the process, and there may be others, but in the great proportion of cases it is a sort of renaissance. It is the infusion of new blood and new ideas and of a new sense of values which has taken a long time to come to the surface.

It was staggering the day after we had announced that our currency was devalued by 40 per cent. that it had no effect. We move slowly in this country and not in the same way as other countries, but the effect is now being felt. When the effect is over, and under the admirable financial guidance that we now have, and when sterling is a climbing, instead of a sinking, currency, we shall find that this freedom which we possess to make take over bids, to change the directors of companies, and for directors to watch the type of business and not only the profit and the profit distribution, will be of great value.

The profit distribution which has come in for so much criticism must to some extent follow and be guided by the value and purchasing power of money. The small rentier—and there are a great many of them—is still a useful source of investment and helps to finance Government loans and other issues, but if the purchasing value of the dividend that he receives is reduced by something like the 40 per cent. of the devaluation that the right hon. Member for Leeds, South brought about, his position is enormously worsened. We have heard nothing from the other side of the House other than talk about the benefit that it is. It is. not a benefit; it is making up a little bit the terrific handicap that was placed upon them by the devaluation which took, place.

I suggest, therefore, a slightly different outlook on this matter. It would not be at all harmful if right hon. and hon. Members on the other side of the House were to look at these things as somebody resident not in this country but outside it. They would learn a very great deal and would see for themselves that the criticism that they have levelled, at such length and with such facility, without seeing the malady, was ill-founded, spiteful and done for purely political motives to harm the City of London and for no other reason at all.

6.13 p.m.

Mr. Eric Fletcher (Islington, East)

This debate has already covered a wide field and I am sure that the hon. Member for Bury and Radcliffe (Sir W. Fletcher) will not expect me, therefore, to follow him in his argument about the effect of devaluation. I prefer to revert to the specified and more limited terms of the Motion.

I have not yet heard in any of the speeches made on the benches opposite any reason why we should not have the inquiry which is all that the Motion asks. We have heard a number of alternative explanations as to why takeover bids have become so frequent in recent months, but we have heard no denial of the considerable ground for alarm in the country at these recent developments.

May I summarise, quite briefly, what seem to me to be six evils that result from the abuse of take-over bids in the modern technique? I do not deny—every other speaker has mentioned it—that there have been a great many take-over bids, both in the past and in the recent past, that have been sound, legitimate transactions and have served useful purposes; but there have come to light recently a number of take-over bids affecting important companies which have produced in the minds of the public a considerable sense of alarm, calling first for inquiry and subsequently, as I think, for action.

The six evils to which I refer are these. First, it looks as if very large capital gains have been made by certain individuals which are not subject to taxation. This has been disputed. We do not know the facts. If there were an inquiry, we should at any rate get an answer. There is no doubt that this can take place and the fact that as a result of Stock Exchange manipulations of this kind enormously large fortunes can be made in a few weeks and are not subject to taxation is regarded by a great many people as socially unhealthy and socially undesirable.

Second, there cannot be any doubt whatever, that the fact that these large tax-free gains occur and the public knowledge that they occur produces a considerable psychological effect, at any rate, on all workers in industry. It is quite impossible to tolerate this kind of thing happening and at the same time to expect workers to observe restraint in wage claims. It is socially unhealthy and is calculated to produce a disturbing effect in industrial relations.

I do not put it any higher than that as I am trying not to exaggerate the argu- ments, which seem to me to call for an inquiry. Indeed this subject ought not to be a matter of political division, because it is obvious from what has appeared in all sections of the Press, including sections generally favourable to the Government, that there is considerable disquiet and unrest. One has found this in recent weeks over and over again in articles in the "Financial Times," the "Economist," and so on.

The third of the undesirable consequences that has emerged from these recent take-over bids—and this is an incidental evil which, I should have thought, affected Members on the opposide of the House and their supporters more than it affects most of those whom we on this side represent—has been the excessive Stock Exchange fluctuations. Take-over bids inherently give rise to rumours—sometimes false rumours, sometimes deliberately false—with the result that there is excessive and undesirable speculation—again, a most disturbing and unhealthy effect on the general finance and economy of the country.

The fourth evil I need not stress, because the arguments for it have been put so forcibly by my hon. Friend the Member for Stechford (Mr. Roy Jenkins), who moved the Motion; and it is, perhaps, one of the most serious, if not the most serious. The fourth evil which, we contend, justifies our demand for an inquiry is that these take-over bids inevitably tend to promote excessive dividend distribution by all companies—not merely the companies in which take-over bids take place, not merely the companies which are threatened, or think they are threatened, with take-over bids, but among all corporations throughout the country, the vast majority of whom have for the last few years loyally observed the behest of successive Chancellors of the Exchequer for restraint on dividends.

Now that these take-over bids are becoming so frequent, there is an inevitable tendency for all companies to increase dividend distribution. Whatever may have been the cause—and I am not arguing that with the hon. Member for Bury and Radcliffe at the moment—for the frequency of take-over bids, there cannot be any dispute about the result. They are bound to lead to an increasing extent to a policy of dividend distribution by all companies. That must be a bad thing. It must be contrary to the public interest. It must lead to a diminution of the reserves of available capital that are required for re-investment in industry in this country.

The fifth evil that has been revealed in these take-over bids is the counter-measures that are taken to try to defeat them. The Savoy Hotel case is a glaring example of that. I do not know whether there are other cases or not. One hon. Member challenged us to give evidence of this, but it is not always easy to produce evidence of that kind.

The Savoy Hotel case is symptomatic of the kind of unscrupulous and reprehensible device to which boards of directors are driven when faced with take over bids. It is quite true that in the Savoy case that device was eventually cancelled, and the company suddenly formed to take over the Berkeley Hotel was put into liquidation. But that episode is symptomatic of that problem and is one of the reasons which justifies an inquiry.

What has happened? The Savoy directors' device was condemned in all quarters as unprincipled, dishonest and a breach of trust. Listen to what the "Economist" said about it: It is difficult to find condemnation too severe for what the Savoy Hotel have done. They have set a precedent which can divest the shareholders in any company of their legal assets, leaving them wholly at the mercy of directors over whom they could be powerless to exercise any control. It is unfortunate that in the circumstances which arose there was no opportunity to test the validity of the Savoy directors' device, but I am perfectly certain—and I say this without fear of contradiction—that if that device had been challenged—and it would have been challenged if necessary—by any shareholder in any court of law, its legality could not have been sustained for a moment. But there was no opportunity to challenge it. I would say that the counter-steps taken in the Savoy case and perhaps in other cases throughout the country, have in themselves produced a state of things calling for an inquiry.

Sixthly, and to come to the last point, I think the most important thing that has emerged in our discussion tonight and from previous discussions in the Press on this subject was touched upon by my right hon. Friend the Member for Dundee, West (Mr. Strachey) and other speakers, who drew attention to the changing nature of the whole conception of large important corporations in our social and political system.

Hon. Members on both sides of the House have recognised that whatever the legal position may be—and I am glad that we have the Solicitor-General with us listening to this debate, because there is a very important legal aspect of this problem on which we should like to have the benefit of his views—de facto today in our social system directors of big companies have duties and responsibilities not merely to their shareholders within the limits of the Companies Act, but also to their employees, to industry as a whole and to the nation.

I am sure that the Solicitor-General would confirm that there has been no change of the duty of directors of a company in the strict legal conception since the first Companies Act was introduced in 1861 and that it is the same now as it was 100 years ago. There is a legal duty to the shareholders and the shareholders alone, but there has come to be imposed upon that duty, and in some ways limiting it very considerably and sometimes introducing a conflict, a very widely recognised de facto obligation to regard not merely the interests of the shareholder but the interests of the employees of the company, and of the community as a whole. This is particularly so in the case of very large companies.

If it were not so, how is it that government Departments are able so successfully to make appeals to companies to follow policies of dividend restriction and so forth? One takes the example of a company like I.C.I. It is a vast combine made up of amalgamations of many interests, which incidentally was built up as a result of a number of take-over bids. I am not criticising I.C.I. It is a most successful company.

I do not know what my trade union friends would say, but I imagine that trade unions would prefer to deal with a company of that size than with such an undertaking split up into several small component parts. There are often advantages to employees, the staff and the nation resulting from amalgamations, but one of the consequences is that directors of a company of that kind have an obligation which transcends the limited obligations to their shareholders.

I do not suggest for a moment that I.C.I. would be threatened with a take over bid, because the size of the operation would probably be too large to make it feasible, but there are all kinds of other companies up and down the land which are performing a national service and which respond to appeals which the Chancellor of the Exchequer makes, but which are threatened with take-over bids. Therefore, the one thing I had hoped would have resulted from an inquiry of the kind which we suggest in this Motion was some further evidence of how this aspect of our social problem works at title moment. I can conceive the difficulties in framing any amending legislation, but the day moist come when legal recognition must be given to the changing, de facto conditions that operate throughout the whole of the private sector of industry.

I would add this. This demand for an inquiry is not confined to opponents of the Government. The need for some action was stressed in a speech the other day by Sir Harry Pilkington, President of the Federation of British Industries, reported in "The Times" of 22nd January, 1954. Indeed, when this matter was raised in the House, the Chancellor admitted that he was watching the situation and that he had taken certain steps, including a circular to the banks and the insurance companies.

But may I remind the Chancellor of the Exchequer that the action which he took and announced in the House on 15th December does not seem to be efficacious, because the President of the Federation of British Industries called upon the Government in January to take further action? He pointed out that industry wanted investors with a genuine interest in industry, and he was concerned about the evil consequences that might result from the take-over bids. He called upon the Government to intervene, and he used these words: But the Government can still exercise a control against that kind of abuse in more than one way. He listed one or two ways in which they could do it.

I hope that the Chancellor of the Exchequer, having listened to this debate, will realise, forgetting some partisan political elements which have been introduced into the debate, that there is involved a widespread demand in various sections of the country, political, non-political, financial and industrial, for an inquiry into this matter to get at the facts, then to examine what are the consequences of these steps, and what action ought to be taken to prevent the abuses to which attention has now been directed.

6.30 p.m.

Mr. F. M Bennett (Reading, North)

If I do not follow the speech of the hon. Member for Islington, East (Mr. E. Fletcher), he will realise that it is because I wish to keep my remarks short in order to enable other hon. Members to contribute to this debate. In the first place, I want to correct a misleading statement made by the right hon. Gentleman the Member for Dundee, West (Mr. Strachey), who has now left the Chamber.

The right hon. Gentleman produced some figures, which I cannot say were right or wrong, to the effect that there are only about 1½ million shareholders in this country. From that he went on to deduce that these represented 3 per cent. of the population. That deduction of course totally ignores the fact that a substantial proportion of the population is under the age of 21 and therefore cannot hold shares. It also ignores the fact that in many married families the shareholding is probably in the name of the husband and is therefore a family holding. It also ignores the large trade union holdings of shares, which presumably hon. Gentlemen opposite would agree were held for the benefit of the trade unions' members. It ignores too co-operative holdings, trustee holdings and a wealth of others. Therefore, to suggest that a figure of 1½ million individual shareholders means that only 3 per cent. of the population of this country are shareholders is grossly misleading.

I am pleased that in this debate we have at least heard a number of frank admissions from the benches opposite that there are good and bad take-overs. It is particularly appropriate because, as my hon. Friend the Member for Bury and Radcliffe (Sir W. Fletcher) said, those opposite, when in power, were not exactly guiltless in their political practice of take-over bids of one sort. I was particularly glad to hear mention of the Bank of England, because if ever there was a case of shares being taken over at an unreal value, it was in the case of the Bank of England. No account was taken for the shareholders of the fixed assets of the property in the City of London, to take only one item. I am prepared to suggest that the premises of the Bank of England in the City amount to a much more substantial sum than was handed out to the shareholders in what must be a record take-over bid of all time—I am quite prepared to give way to the perpetrator of this; if the right hon. Gentleman wishes to intervene.

Mr. Hugh Dalton (Bishop Auckland)

May I inform the hon. Gentleman that, on the whole, I was astonished at the time at the small amount of opposition to that act of Socialism? There was much to-do about others later on, but when I took the line I did at the time, that we would treat the Bank of England stock as being the equivalent of Government stock, there was very little objection. It was taken over at the market values of that time and hardly anybody made any criticism.

Sir W. Fletcher

The right hon. Gentleman did not recognise evil when he saw it.

Mr. Bennett

The fact that little or no protest was made at the time makes no difference to facts. I cannot believe that the right hon. Gentleman would deny that it was a classical example of take over bids as we know them today. I have said there are take-overs of several sorts. Another one, of which we have not heard much criticism, is that in which a moribund company, or one making insufficient use of its reserves, is taken over by a more active one. That is obviously good, because it is in this way that fresh blood can be injected into our free enterprise system for the benefit of all of us.

Now I come to the few specific examples mentioned today of evil takeovers. I was glad that nobody on either side of the House for a moment defended those cases, because no one would suggest that they are defensible. However, I have one or two words of caution to offer about the evils which we think will flow from them. It has been said that these result in large tax-free capital gains going by way of income to the perpetrators. I do not know, because I am not in the Inland Revenue, but it would be premature to suggest, that those who go in for those activities as a trading practice, whether corporate or individual, might in the long run be excused or be free of assessment for tax purposes; that is not for me to say.

A more serious aspect of these few evil take-over bids is one which has received little mention today, and that is when the fixed assets of a company are sold to another business concern and then rented back. Serious because if we come on lean times or a slump, or a depression, which would be just when a company wanted its reserves most in order to keep going, it would be robbed of them.

Mr. Gaitskell indicated assent.

Mr. Bennett

I am glad to see the agreement of the right hon. Gentleman opposite, because I make no secret that to my mind this is the chief danger in those cases I have described.

There is another aspect which must not be forgotten, and this is on the credit side. These occasional take-over bids, even of the bad kind I have mentioned, may, and probably do, have a useful purgative effect as long as they do not go on, for they may serve to stimulate some other concerns which are not making sufficiently productive use of their reserves to do so.

In my concluding remarks I shall touch more on the reasons why we are having these troubles. My remarks will be much shorter than they would have been because my hon. Friend the Member for Bury and Radcliffe made this point so excellently and fully in his speech that he has saved me from taking up the time of hon. Members by speaking about the same thing, I have no doubt not nearly so well.

In addition to the devaluation cause he mentioned, it is true, that I should have thought unarguable, that whether high taxation and dividend restraint are justified or not—I am not arguing one way or the other now—they have certainly contributed to creating a climate which is inviting certain people to adopt take-over bids. At the same time, the way in which tax has been levied at a higher rate on distributed dividends than on dividends held in reserve has contributed to a position where there are much larger reserves than might otherwise be held. And at a time of full order books in the past, when there was no excess of available labour ready to take on for new undertakings, I have no doubt that some concerns have not gone as far as they might have done in starting new enterprises.

Finally, I come to the question of remedies. I cannot believe that right hon. and hon. Gentlemen opposite really believe that an inquiry and recommendations would accomplish much more than the publicity about these cases has already done. If there were to be an inquiry and the recommendations were to have any greater effect, they would have to be followed by legislation. As long as we have our present economic system and the present working of the City of London—I do not imagine that any of us anticipate an early ending of that—I cannot see how it would be possible legally to differentiate between the motives of different kinds of take-over bids and incorporate them in an Act of Parliament. Indeed, I would be anxious to hear suggestions as to how that could be done.

Therefore, I think that the best way to cope with this undoubted problem is to leave things, as regards the short-term case, to the Chancellor of the Exchequer and the action that the Treasury and the Bank of England have already taken in issuing advice to the large financial institutions of this country as to the kind of conduct that they should adopt. I am perfectly confident that those institutions will live up to the high standard of responsibility which they have always shown. It is by that method, by advice and consultation, and by trusting to the sense of responsibility of the leaders of the big financial institutions in this country, that we are most likely to avoid too many examples in future of the kind of case about which we rightly heard complaints today.

I should liked to have developed too the question of long-term policy, but this is not the time. I would just say that to avoid this kind of contingency occurring in the future, it might be well worth considering introducing no par shares, because a close study of that particular system shows that there are aspects embodied in it curative of this evil if it were ever to threaten to develop into a serious aspect of our economic life.

6.42 p.m.

Mr. Hugh Gaitskell (Leeds, South)

The hon. Member for Reading, North (Mr. F. M. Bennett) agreed with us that there was a serious problem here, and indeed I do not think that he questioned the analysis of the situation which has been put forward from these benches. His difference with us was on the remedy. He thought that it was sufficient to leave everything to the Chancellor of the Exchequer and that there was no need for an inquiry. I hope to try to convince him a little later that on the matter of the remedy there is a good deal more to be said for our proposal than he imagines.

Generally, very little that has been said in the course of the debate has in any way controverted the clear, objective, and convincing speech of my hon. Friend the Member for Stechford (Mr. Roy Jenkins). Whilst various hon. Members opposite, and particularly the hon. and gallant Member for New Forest (Colonel Crosthwaite-Eyre) questioned his motives—I thought very unworthily—none questioned his facts. Questioning motives is just a political dodge, but questioning facts is a much more difficult operation.

Indeed, the attitude of supporters of the Government on the back benches opposite has been rather curious. It seems to me that most of them have been prepared to admit the abuses, to say "Yes, the wrong things have been done and there are dangers here," but apparently they are not prepared to do anything about it. They are prepared to concede these weaknesses, but by way of compensation they set up Aunt Sallys and say that, of course, they are not against all take-over bids and that it is wrong to be against all take-over bids.

We have never suggested that all take over bids are wrong. It is not our purpose to make any such denunciation, and it is certainly not our desire to support through thick and thin any board of directors who may happen to exist at the moment. Indeed, this whole subject throws a most interesting light on the structure of industry today, and particularly on the question of ownership and control. The fact is that in all large firms, or in all but fairly small firms, the direction today is overwhelmingly in the hands of a self-elected and re-elected oligarchy. So long as they do not make such a mess of the situation that the lethargic shareholders are stung into doing something about it, by and large they are allowed to carry on.

I shall not suggest in criticisms which I shall make later on of certain take-over bids that directors who merely sit there and do nothing and who stick in the mud deserve any sympathy at all from any of us. Indeed, the situation in which they have all this power and are responsible to nobody is, to our mind, profoundly disturbing and is part of the situation that exists today which we think requires investigation.

We also have the strong impression that this power that they hold today is sometimes a reason for inefficiency, that they are not stimulated sufficiently from any quarter to achieve the greatest efficiency, which we all agree is essential for our country. Sometimes, I would agree, a take-over bid is a healthy way of dealing with a situation like that. There is no doubt about it. The shareholders in a sense become organised, because somebody buys a sufficient number of shares to make his opinion felt.

Nor, as my hon. Friend the Member for Stechford has made plain, would we question the very common case where one firm in an industry combines with another firm through amalgamation on getting control of the shares. But, unfortunately, there is also no doubt at all that in certain instances—and there have been quite a number recently—this has not been the character of the take over bids. On the contrary, there have been certain undesirable features about the whole mechanism, and certain equally undesirable consequences which have followed and, I am afraid, will follow what has been happening.

My hon. Friend the Member for Stechford referred to statements made by the chairman of Barclays Bank, and the hon. and gallant Member for New Forest made a very odd reference to the chairman of Martins Bank. I should like to quote what Mr. Bibby, the chairman of Martin's Bank said on this matter of take-over bids. I thought that it was very much to the point.

He said: Too often the victims…are companies that have virtuously responded to dividend restraint and have financed expansion by ploughing back instead of by competing for capital in the open market. Nobody could say that Mr. Bibby was any particular friend of the Labour Party. Indeed, if I carried out the wishes of the hon. and gallant Member for New Forest I would read a good deal more of his speech, which would succeed in evoking cheers from the Government benches but would be irrelevant to this debate. But he said, in spite of his political prejudices, that take-over bids are aimed at companies that have behaved in what we would always regard as a highly public-spirited manner.

My hon. Friend the Member for Stechford can take care of himself when attacked by the hon. and gallant Member for New Forest, but in defence of Mr. Bibby I must say that he is perfectly entitled to allow whom he likes to use the facilities of his bank, whether or not he happens to agree with that person. The prospect held out by the hon. and gallant Member that before one has a bank account one must find out what the chairman thinks about everything and whether he might decline the account is so extraordinary that I am surprised that he should have introduced it.

Colonel Crosthwaite-Eyre

I do not think that the right hon. Gentleman wishes to misinterpret what I said. I said that before the hon. Member for Stechford (Mr. Roy Jenkins) quoted the banks he should make quite certain what was their policy and how they carried out the advice which he was so anxious to press upon the House.

Mr. Gaitskell

I think that the hon. and gallant Member must be referring to something quite different. I was referring 1o the remarks made by the hon. and gallant Member about Mr. Wolfson of Great Universal Stores being a client of Mr. Bibby's. However, we will leave it at that.

Sir John Braithwaite, the chairman of the Stock Exchange, very properly criticised some highly undesirable premature leakages and false rumours that had been flying round in connection with some of these take-over bids. I agree that, as far as that kind of thing goes, the Stock Exchange Council is able to take care of it, and I hope that it will watch it very carefully.

In referring to this, the "Economist" went on to say something about the whole problem—and I hasten to add that the "Economist" sometimes takes one view and sometimes takes another.

Colonel Crosthwaite-Eyre

I agree.

Mr. Gaitskell

The "Economist" said: Many people also feel that there are dangers in a situation where the best-known and richest bidders have the power of ensuring a temporary rise in almost any shares that they buy and with which they associate their names, and that one of these dangers is that they may bludgeon their way on to the board of companies that they could gut, as well as on to those of companies that could be improved by managerial disturbance. I think that puts our anxieties on this matter extremely well.

I should perhaps be a little more precise and say that our anxieties fall into four separate categories. In the first place, we are concerned—as I think everyone is concerned in the light of speeches which have been made by hon. Members opposite—with the behaviour of some of the directors who were threatened with take-over bids. That is a matter to which we must return. I have in mind the Worcester Buildings episode.

Secondly, we do take a serious view, for reasons which I shall attempt to elaborate, of the tax-free profits which were made in an important case. We are seeking information here, as we are in the whole field of this subject. We have never said that we know all about this, but we know sufficient to justify a demand for a further inquiry. We have some worries about the change in use of resources resulting from take-over bids to one of which the hon. Member for Reading, North referred, and I will revert to that topic. Finally, the most important matter of all is that we are seriously concerned with the consequences on dividend restraint and, therefore, on wage claims, which seem to us to be inevitable, following the present course of events.

I return to the question of the Worcester Buildings episode. There is no need to record the facts again, as my hon. Friend has done that, but there we had a situation in which the directors of a company hived off part of the property—an important part of it—to a separate company and, by a device, put the control of that separate company entirely beyond the original ordinary shareholders of their own company. They put it in the hands of trustees who were to elect their own successors. That is a most extraordinary situation.

I have already drawn attention to the gulf between ownership and control that already exists in a broad way. But here is an extreme case in which, even if the shareholders bothered to interest themselves in the affairs of the Savoy Hotel Company, they could have done nothing whatever to influence any decision made about the distribution of dividends, amounts put to reserve or the use of the premises of the Berkeley Hotel. I must ask the Government a very specific question here.

Was the action of the directors in this matter within the law, or was it contrary to the law? If it was within the law—if there was no breach of the law being committed there—do the Government, nevertheless, approve of what they did; and, if the Government do not approve of what the directors did, when are the Government going to change the law? I think those are perfectly fair and reasonable questions for us to put. I think that the country in general, and certainly the City in particular, would be very glad to have an answer.

There is another aspect to which I am afraid I must also refer. That is the rather remarkable way in which the directors of the Savoy Hotel changed their minds about the price that they were prepared to pay to Mr. Samuel for his shares. It will be recalled that he offered to sell those shares to the directors—I think that by then he held about 30 per cent. of all the shares, or more—at a price of 62s. 6d. They rejected that offer because they said it was an excessive price for them to pay and they pointed to the undoubted fact that Mr. Samuel had begun bidding for these shares when they were 28s. and must have acquired a very substantial proportion at a price far below 62s. 6d.

It is said that they offered on their side to buy the shares for 40s. yet, two days later, they had accepted Mr. Samuel's original proposal for shares at 62s. 6d. Two conditions were attached—I do not know whether they laid down the conditions, but I know that these coincided. Mr. Samuel dropped his request for an inquiry by the Board of Trade and the directors of the Savoy agreed to put into liquidation the Worcester Buildings Company.

That is really a most alarming development. It does suggest, as my hon. Friend said, in the clearest possible manner that they paid 62s. 6d.—more than double the original price of the shares—to avoid a Board of Trade inquiry. I should like to know what the Government think about that. I am not quite sure what the position of the Board of Trade is in this matter. When someone asks for an inquiry, is it possible for him to change his mind and to say, "Please do not go on with it after all"? I see that we have the President of the Board of Trade and the Parliamentary Secretary present. I think we should have a definite answer on those points.

In any case, even if the Board of Trade was entitled to say, "We will not proceed with the inquiry because you have asked us not to," was it right in so doing in the light of what happened? Did not the whole episode call for inquiry? Yet we have not heard from the Government any suggestion that under the Companies Act such an inquiry is to be put in hand. The fact that there has been no statement from the Government so far is another very good reason for our Motion.

It has been said by several hon. Members opposite that the only reason why we are bringing this Motion forward is that we wish to smear the City. Believe me, that is not our intention. The fact is that what has happened has smeared the City and we should like to see an inquiry which would clear the whole thing up. Surely it is useful when some very regrettable incident occurs—as occurred in Kenya not long ago—to have an inquiry to find out what has been happening and to clear the good name of those concerned.

I pass to the second point to which we attach importance. That is the misuse of property. I would not deny that very frequently existing directors may be slothful in their habits and may not be putting the property of the company to the best use in the strict sense of earning the greatest profit. I was glad to hear what the hon. Member for Reading, North said, because the same point occurred to me. It is that the sale and re-letting of properties at very much higher rents is imposing on the company concerned a very much heavier burden. I am doubtful whether there is anything particularly virtuous about that change but there are some other aspects in this matter which at any rate call for some consideration. I do not press them too strongly.

Not long ago I received a letter from a gentleman in Manchester about a take over bid, or a transaction of this kind, carried out by the company to which the hon. Member referred, the Great Universal Stores. The letter pointed to the fact that recently they acquired two firms—the Eccles Spinning and Manufacturing Company and Rylands and Sons. Rylands and Sons is a very large textile firm. According to my correspondent—I have done my best to check up on it—they have calmly closed down the first-named firm and dismissed 480 highly skilled workpeople, sold off the plant piecemeal and are using the one remaining weaving shed as a warehouse.

In the case of Rylands, a very large firm which I understand they bought for about £4 million, and the assets are worth about £10 million, the same process appears to be taking place. I gather that they are closing down the spinning mill at Wigan, where a lot of people will be thrown out of work, the weaving department is to be closed down gradually and the Chorley dye works have already been closed down.

One is bound to ask whether the Government are wholly indifferent to this question. Does it not matter at all that an important textile firm can be bought up in this way, a firm which had a very substantial export trade, and the whole business turned into a warehouse? I do not deny that there are difficulties in deciding when to intervene in these matters, but I think that the question is a fair one to raise. I hope that if the President, if not already familiar with the details, will look into the matter and see whether he is satisfied about what has happened. Apart from anything else, the workpeople would seem to have received extremely scant attention from those who bought up these companies. On the other hand it is a regrettable feature of the whole of this sort of business that the directors of the original company are in a position to bargain so as to take care of their own position. This is what Mr. Cowan, whose article was referred to by my hon. Friend, said about it: As all practitioners in the take-over or deal traffic will agree as a rule the crucial point in such negotiations, for all that may be said to the contrary, is whether directors threatened with displacement feel that they will be adequately looked after. I dare say some of the workpeople cannot however fairly feel that they have been too adequately looked after.

I pass to the third point, that of tax-free capital gains. I do not know exactly what happened, but we know two things, Mr. Samuel's company, the Land Securities Investment Trust I think it was called, appears to have made profits of about £200,000. According to the "Financial Times" which certainly appears to be well informed, no tax was payable on it so long as the money was not distributed as dividends. There As no doubt at all that the shareholders in this company took this for granted because the value of their shares increased after the deal by just about £200,000 in all.

I wish to ask hon. Members opposite to put themselves in the position of workers, for example, in the engineering industry who are involved in wages disputes and whose leaders, on their behalf, are asking, not for hundreds or thousands of pounds, but for a half-penny more or a penny more an hour. What sort of feeling—[Interruption]—I ask the hon. and gallant Member for New Forest to contain himself and try to use his imagination—what sort of impression is made upon those people when individuals can apparently, by manipulation—I use that word because I think it is a fair word to use—achieve this enormous and apparently tax-free gain?

One must take account of the state of public opinion on this matter. The hon. Member for Langstone (Mr. Stevens) asked why we did not object to football pools. It is a fair question, and I think I know the answer. The gains to the individual—if we are talking about the £75,000 pool—are so enormous that people say, "Good luck to you if you can get away with it." Anybody can enter a football pool, but anybody cannot go into the City of London and make a take-over bid and clear these enormous sums—

Mr. Stevens

Would the right hon. Gentleman be good enough to estimate the odds against merchant adventurers making similar profits in the industrial sphere?

Mr. Gaitskell

What I will do is to refer the hon. Gentleman to the quotation from the "Economist," which, as I said, sometimes takes one view and sometimes another. But the question which is clearly the point here is that the richest and most powerful investors to a certain extent have it in their power to achieve this result. No one denies that losses are sometimes made—[Hon. Members: "Oh!"]—yes, of course they are, but here we are concerned not with the whole question of whether a risky investment should receive a due reward but with a particular type of transaction, and incidentally a type of transaction to which many people outside our ranks take an extremely strong objection. I was frankly surprised that apart from the hon. Member for Reading, North there was not more criticism of these transactions from the Government side.

I pass finally to the most important question of dividends. As my right hon. Friend the Member for Dundee, West (Mr. Strachey) said, there can be no doubt that in the vast majority of cases, certainly all the spectacular ones, these recent take-over bids have been in part caused—and I think this is accepted by hon. Gentlemen opposite—by the existence of dividend restraint and by the fact that companies have been paying out in dividends a smaller proportion of their profits than was previously the case.

It follows, therefore, that if dividend restraint breaks down, if dividends are increased, there is bound to be a reduction in corporate saving. I am not the only person who makes that point. Sir Harry Pilkington, the President of the F.B.I., made it only the other day when arguing for an educational campaign—I thought rather hopelessly—to educate shareholders to accept and indeed to favour companies putting large amounts to reserve. For if we have to have an increase in dividends at least part of which will go into consumption it does affect the general level of savings.

That is one point, perhaps the least although a fairly serious point. The other is the consequence on wages and here we cannot cut ourselves away from the history of this matter. In, I think, 1948, through the activities of Sir Stafford Cripps, we negotiated with both sides of industry an understanding about both wages and dividends. That understanding was faithfully carried out by both sides, and often I have paid tribute from the Despatch Box opposite to the way it was carried out. But I admit that in 1951 it was beginning to break down, and as a consequence I was obliged—because of the anxiety felt by everyone about inflationary danger—to indicate that if it went on we should have to introduce a compulsory statutory limitation on dividends. There is no doubt about it that there has been a further breakaway.

Mr. Stevens indicated dissent.

Mr. Gaitskell

The hon. Gentleman shakes his head but we remember his unfortunate and—if I may say so—offensive remark to my hon. Friend about a childish suggestion which the hon. Member had made that figures about the period of 1951–52 were relevant to the present period.

Mr. Stevens

Why does not the right hon. Gentleman make that remark in the context of his own efforts and those of Sir Stafford Cripps in 1948 and 1949?

Mr. Gaitskell

Because we are not talking of that period. We are talking of the recent period. That is the whole point. Indeed, to some extent, what we are concerned with here—as our Motion makes plain—is the recent manifestation of the evil consequences on dividend restraint generally.

I can well understand that there may be some who can pick out one or two cases and say that it is not so over the whole field. Yet there are many cases. My hon. Friends have mentioned a few and I will refer to two others. Lobitos Oilfields announced recently its intention to double the ordinary dividend.

The "Economist" comment on that was: Surprise and delight were reflected in the marking up of the companies ordinary stock by 13s. 6d. to 52s. 6d. The bird in the hand was certainly plump. Indeed it was. They go on to comment Lobitos can hardly be classed among the take-over bids though rumours have gone round and been denied, but the directors would appear to be doing their best to ensure that it will not become one. That is very typical.

Another case is English Sewing Cotton, the directors of which were perturbed at the take-over bid and in order to counter it put out a statement saying that the existing reserves were sufficient to support an appreciably higher dividend—promising more or less that it would be 20 per cent. instead of 12½ per cent. as at present.

Indeed the "Financial Times," the paper of the hon. and gallant Member for New Forest says: It is now almost a reflex action with firms faced with justifiable bids to raise their dividends. There is no doubt about it that this tendency is now sweeping across industry and trade and giving an impetus all along the line to increasing dividends.

I can well understand some hon. Members opposite saying, "So what? Why should not dividends go up? Is it not fair? Is it not about time they went up? They have not gone up as much as wages did since 1938." That is perfectly true, though I do not know why hon. Members opposite should assume that we are prepared to accept or that the country is prepared to accept the distribution of income in 1938 as something inviolate to which we always have to return.

We do not take that view at all. But while that may nevertheless be the view of some hon. Gentleman, I did not think it was the view of the Chancellor, and I must ask him, particularly in view of the statements made by his hon. Friend, whether he still wants to see dividend restraint. That is a plain question, and it deserves a plain answer.

Secondly, I want to ask him—these are the two crucial questions on policy—whether he still holds the views which he expressed last December. I thought it a reasonable statement, as I think I made plain in my supplementary question. He pointed out that the take-over bid covers a very wide range of transaction. We quite agree. But he said that others might be open to criticism on several grounds.

Then he went on with the well known statement that, with his concurrence, the Bank of England had told the banks and financial institutions to exercise special care in cases where there appeared to be a speculative element. The right hon. Gentleman was taken to task by his hon. Friend the Member for Bury and Radcliffe (Sir W. Fletcher) on that statement. Is he prepared to stand up to his hon. Friend and say that he believes that was right and that the banks should keep a very tight hold on this matter?

If he believes that, I think we deserve some definition of "speculative." What exactly does the Chancellor mean by that word?

Sir W. Fletcher

The right hon. Gentleman ought to know some similar word.

Mr. Gaitskell

I do not wish to interrupt any advice which the hon. Gentleman may wish to give, but I will give a definition which I think would definitely be accepted by many hon. Members opposite. It is the definition given by Mr. Cowan in the article to which reference has been made. He criticised the right hon. Gentleman's statement as …the free economy's tool for healthy change to sustain a due equilibrium in an unstable world. Is that the Chancellor's definition? If not, how does he define it? I hope he will not let us down and will not just tell us that he is watching the situation and hopes that people will behave. I want to know whether he takes the same view as his hon. Friend, that there should be complete freedom, that the time for dividend restraint has gone and that we should go back to a free-for-all. On the other hand, if he thinks that dividend restraint should go on, exactly what is he going to do about it?

In this debate we have not said that we think there is an easy and simple solution to the problem. I concede at once that it is a difficult problem, and we do not pretend that we know all the facts. However, we say that the case for an inquiry is overwhelming. It will be all the more overwhelming, if the Chancellor, as I fear, fobs us off with vague and indecisive answers this evening.

We have the case of the Worcester Buildings Company. What are the Government going to do? Is there no case for an inquiry? Should there not be some investigation into the sources of finance? Such an investigation would help the Chancellor in his efforts to prevent so-called speculative deals. There should certainly be some examination of the problem of taxation in relation to these capital gains. Perhaps the Chancellor can tell us something about that.

Finally, on broad social and economic grounds there is an overwhelming case for examining the consequences of this technique on dividends and on reserves and, therefore, on wages. We all know how serious the situation of the country is, for the Chancellor is always telling us about it. Here is an opportunity for him to show that he meant something by his statement and intends to get down to brass tacks and tackle the problem.

7.15 p.m.

The Chancellor of the Exchequer (Mr. R. A. Butler)

The debate is now drawing to its close. I certainly agree that it was introduced in true Parliamentary manner by the hon. Member for Stechford (Mr. Roy Jenkins). It has since been followed up by hon. Gentlemen on both sides of the House, and we have had some very useful speeches from my hon. Friend the Member for Langstone (Mr. Stevens) and my hon. and gallant Friend the Memberfor New Forest (Colonel Crosthwaite-Eyre).

I do not agree with the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) that I suffered a savage attack at the hands of my hon. Friend the Member for Bury and Radcliffe (Sir W. Fletcher), who happens to know quite a lot about this subject, and that is not a bad credential for taking part in the debate.

We ought also to show some satisfaction after the recent article in "The New Statesman," which I read with some interest, by the right hon. Gentleman the Member for Dundee, West (Mr. Strachey), who has also taken part in the debate, and I hope many hon. Members will read his article in "The New Statesman" of last week.

I was somewhat perplexed by the morality of the right hon. Member for Leeds, South. Evidently a spiv going in for the pools can be wished good luck, but an adventurer going into the City must be condemned as a villain on any account. I hope he will defend these sentiments in the very thoughtful and idealistic sections of his own constituency and try to differentiate between the two.

My moral position is absolutely clear. Perhaps that makes a good preface to the short speech I wish to make to the House. I dislike every type of spiv who gets something for nothing, however he gets it. That applies to this problem just as it does to any other that we have to meet in the ordinary course of events.

Let me now examine the problem and try to delineate a little more carefully just what it is. A great variety of transactions is covered by the genial phrase "take-over bid." It may be, for example, that the case is an absolutely normal one. Some reference has been made to some of these cases. For instance, a retailer with limited scope for selling his goods may buy a controlling interest in another undertaking in the same line of business. It may well be that the creation of a somewhat larger economic unit will lead to cheaper goods for the consumers as well as increased profits for the retailer, in which case I am certain that there are very fewhon. Members on either side of the House who would regard such a transaction as being anti-national or abnormal. If we were to do so, we should fall into the dialectical and general difficulty into which the right hon. Member for Leeds, South nearly fell,in that he does not want it said about him that he wishes to keep cushy directors immovable in their places, but also does not wish it to be said that he desires to upset them in some way and wants to stop any type of adventure which involves risks and speculation.

Mr. Gaitskell

The right hon. Gentleman has just said that he is against all speculation.

Mr. Butler

Not at all. I said I was against any spiv who gets something for nothing, but a man who risks his all, as has been shown in the history of commerce and industry in this country, very often achieves a great deal for his country and for his fellow citizens. That type of undertaking—the acquisition by a brewery of a smaller brewery, the acquisition by a firm of a smaller firm, the acquisition by a Co-op. of a smaller grocery, or anything of that sort—seems to me—I think it would be accepted by the hon. Member who interested us by his speech about the co operative movement—quite usual in the world and not unduly unhealthy. At any rate, I am convinced from the political philosophy with which I approach the matter that if we were to keep industry and commercial activity absolutely static, we should get nowhere. There must be a sense of adventure, a sense of risk and, at times, a sense of acquisition.

Someone said that we want to avoid "sharks." In any case, we cannot avoid whales or the normal natural law of either these great sea mammals or other animals. I suppose the easiest definition of take-over bids was provided when the whale swallowed Noah—[Laughter.]—I mean, Jonah—and finally decided that this was an utterly indigestible asset which had to be brought up at all costs. That illustration, simple though it may be, illustrates that, in the general law of nature, acquisition by one person of another person's property cannot be altogether stopped. Adventure and risk are good for the body politic and for the economic life of the country.

Having established that—and on this point the right hon. Gentleman was more or less in agreement, because he said he did not want oligarchies, whatever they may be, and another hon. Gentleman said he did not want cosy assurance in business, and "The Times" leading article said that it did not want business to rest on its laurels—having taken all these hon. Gentlemen and learned scribes as being in agreement, we therefore start from a common platform: namely, that risk is a good thing, that we cannot stop ordinary nature, and that there will be acquisition at one point or another, whether we like it or not.

Then we come to another type of take over bid. It may have become apparent to a purchaser that the capital resources of a company are not being used to the best advantage, and there may be scope in such cases for buying these resources from the existing proprietors, for a price with which they are wholly satisfied, in order that the purchaser may develop them more profitably. That, I think, would be counted as fairly normal. But then we come to another type: I would rather not, in my position, quote any individual firms, but would rather respect the anonymity of any examples brought to my attention. In such a type of case, it is alleged, and experience has shown, that it is the sole intention of the purchaser to make a capital gain; and that he cares little whether he destroys some long-established business, or whether he saps the financial strength of the business by distributing profits which ought, in fact, to be ploughed back. That is the type of case to which I think the majority of opinion in the House wants to turn its attention today.

In regard to that type of case, I can only repeat the point of view of the Government regarding which, as I said on 15th December, we have taken certain steps; in the course of my speech I propose further to elaborate on these. I also said that we want to plan some limitation of the extent of the damage which is alleged to have been caused by this practice. I will give an invitation to any hon. or right hon. Gentlemen to bring to my attention and that of the Treasury any case which they think is a genuine abuse. For example, I will certainly look into the case mentioned by the right hon. Gentleman opposite with the aid of my right hon. Friend the President of the Board of Trade. But I must say, as to limitation of the extent of that abuse, that we have no evidence, from the very wide examination we have made of this matter, that any such business has been literally destroyed or has had its resources plundered in order solely to realise capital gains. We have evidence of abuse—and I am going on to talk of the taxation point—but we have no evidence of widespread plundering or destruction of businesses.

It is against this background that we must now consider the various aspects of this Motion. The Motion, first of all, suggests—and I will take the main points of the right hon. Gentleman in dealing with it—that this practice has undermined the policy of dividend limitation. That was the view both of the right hon. Gentleman the Member for Dundee, West and of the hon. Member for Stechford, who said that a coach and four had been driven through the policy of dividend limitation.

I maintain that that is not the case. If it were the case, it would be a serious matter. In my opinion, however, there is no reason to connect any general increase in dividend distribution with these take-over operations. I have taken the trouble to analyse this matter, and have also looked into what the Motion itself says, because the rises in dividends began in the early part of 1951 before these take-over operations were thought of or noted.

Let me prove that point with these figures. In 1951, dividends were 8.8 per cent. higher than in 1950, and the right hon. Gentleman referred at that time to his own anxiety in this matter. In 1952—and I hope these figures will be noticed—dividends were only 3.9 per cent. higher than in 1951, as compared with 8.8 per cent. in the year before. These figures indicate that there was not the runaway lack of restraint in dividend distribution which the right hon. Gentleman suggested. When we come to 1953, taking into account the decrease in taxation, which we have to do, the comparative figure, as compared with an increase of 8.8 per cent. between 1950 and 1951, is 6 per cent.; that is, 10 per cent. before considering taxation, and, after the reduction of tax in the Budget of about 4 per cent., a figure of about 6 per cent. The alleged runaway trend of dividend distribution, in fact, started before this practice came upon the scene but restraint is now not completely abandoned and destroyed, as the right hon. Gentleman and others have been trying to make out. In fact, the situation of a runaway character of dividend distribution is not as bad now as it was in the years when the right hon. Gentleman was Chancellor of the Exchequer.

Mr. Gaitskell

I do not quarrel with these facts, which I used against the right hon. Gentleman on another occasion, but I ask him if he believes that a 10 per cent. gross increase or 6 per cent. net is sufficient to fulfil the undertaking with regard to dividend distribution.

Mr. Butler

I am coming to that. The right hon. Gentleman also asked me what I thought about the policy of dividend restraint, but, before I come to that—and I have a note of his main question to me—I want to follow up with these figures of what ordinary shareholders are getting. There has been very much talk about a runaway distribution of dividends, with great unfairness, and the House and the country ought to have these figures in order to understand what the real facts are.

The figures of shareholders' return on capital employed,—including reserves in the business—after deduction of tax, are as follows: In 1949, 3.4 per cent.; in 1950, 3.3 per cent.; in 1951, 3.1 per cent.; in 1952, 2.8 per cent.; and in 1953, 2.9 per cent. Moreover, if we have regard to the reduction of tax in the last Budget, this last figure is 2.8 per cent.; namely, the exact equivalent of the figure for 1952. That indicates a steady drop, on a comparable basis from 1949 to this day, of the amount returned to shareholders on the capital employed—including reserves in the business—and after deduction of tax.

These are very important figures for the country, because it seems very often that it is the absolute or total amount paid in dividends which is mentioned, and the reason why they have increased is the quite simple, natural and commonsense reason that the amount of capital employed has increased more than protanto. It is therefore in fact unfair to quote these large figures instead of the ones I have given to illustrate the validity of my point.

Mr. Gaitskell

Does not the right hon. Gentleman realise that that argument is really a very dangerous one to use? We have repeatedly said, in trying to persuade people to exercise wage restraint, that they should be concerned only with actual payments in dividends, and not with what is put to reserve. Now, the Chancellor is drawing attention to the fact that, year by year, the shareholders acquire additional property, and we have to take that acquisition of property into account when comparing the rewards to wage earners and to shareholders.

Mr. Butler

That I fully understand, but it is small comfort to the shareholder to feel that a proportion of what earlier was available for distribution is now put to reserve. I was well aware that the right hon. Gentleman would make the point he has just put, but it does not detract from the value of the figures I have given, which indicate a definite decline, on an equivalent basis.

The right hon. Gentleman asked me whether the policy of dividend restraint still remained, and I want to link this point with another raised in the debate. It is the point whether a company is right, when wishing to protect itself against a take-over bid, to give as an inducement a greater return to the proprietors of the company either by way of an increase in dividend or in other ways. It would honestly not be right if I said that it would be of no importance to concede that this was legitimate in certain cases; because, quite clearly, whether the proposed distribution is sound or not, must depend upon the circumstances of each individual business.

What I should like to make clear today on the policy of dividend restraint is this. The board that is likely to retain the confidence of its shareholders is not the board that "milks" the business by distributing all it can; rather is it the board that gives the shareholders a fair return on the capital employed, while retaining enough reserves to cover future risks and future development.

That is my definition of how, I think, companies ought to approach this matter. I am not desirous, nor are the Government, of seeing the policy which we describe as dividend restraint abandoned by companies. The Government adhere to it, and it is in the best interests of the shareholders. But that definition which I have given affords, I think, sufficient liberty to managements to defend themselves if necessary; it is a sufficiently common-sense definition to indicate how they can look after the legitimate interests of their shareholders, and also the legitimate interests of their company and of the country, by putting money to reserve in the future.

I want to mention a comparison with wages, because it is quite clear that the conception that we are just letting this matter go would not be good in the general industrial situation. I want to look, at the moment, at the comparison with wages and prices. The following figures which I am now going to give compare changes in average earnings—which are based on Ministry of Labour statistics—with the movements of the total ordinary gross dividends—whidh are based on figures given in the National Income Blue Book—and of the Consumer Price Index.

In 1952, average earnings were 184 per cent. higher than in 1938, and 30 per cent. higher than in 1948. Dividends paid in 1952 were 40 per cent. higher than in 1938, and 23.5 per cent higher than in 1948. Prices were 122 per cent. higher in 1952 than in 1938, and 22 per cent. higher than in 1948. I think it is important for hon. Members to get some relation as between the respective rises in these various sectors of the economy which are of so much importance to us all.

Now I come to the points in the right hon. Gentleman's speech about the Motion. I have already dealt with the question of dividends, share prices and company savings. I do not think that an inquiry is necessary, as we see the situation at the present time, so that is the answer to the right hon. Gentleman's first point. I do not think that the situation is out of hand. I believe that companies understand their duty, and I hope that what I have said will reinforce the general views that the Government have made known before, and which I most sincerely share.

The right hon. Gentleman's second point related to sources of finance used. On that, I would reiterate what I said on 15th December, namely, that I continue to support the guidance given by the Bank of England to banks and other financial institutions for special care in dealing with requests for facilities for take-over transactions in cases where there appeared to be a speculative element. The right hon. Gentleman asked me to define exactly what I mean by "speculative element." The funny part is that I believe that the Bank of England and the banks understand this matter just as well as any right hon. or hon. Member of this House. I am perfectly satisfied, from inquiries that I have made during the last few days, that this instruction that credit facilities—and I am defining it a little more closely—should not be given for the speculative buying or holding of securities, real property or stocks of commodities, is being followed by the banks and other institutions concerned. I believe that this is a valuable and appropriate way of dealing with the sources of finance. If it is not, I undertake that we shall watch the situation, and that if it is necessary to follow it up, it will be followed up.

The third matter raised by the right hon. Gentleman was the capital profits obtained—the question of taxation. I have dismissed the necessity for an inquiry over the field of dividends on the information which we have at present. I have dismissed the need for an inquiry over the sources of finance used. On the question of taxation, I regard an inquiry as an entirely unsatisfactory method of ascertaining the position. A committee of inquiry is not the proper method of investigating the tax affairs of individual persons.

The right hon. Gentleman said—and he knows a lot about this matter—that it is almost impossible to tell what capital profits are, in fact, being made. But I can assure him that the Inland Revenue are watching the position with that same perspicacity, ability and knowledge which we all associate with their activities. Further, while I cannot say any more today, because it is out of order at this season, before I have to undertake certain activities a little later in the year, I can assure him that this whole question is under the closest possible review, not only in regard to the personal activities of certain people, but also in regard to any policy which might have to be adopted to deal with them.

That deals with the first three matters, and it only remains for me to deal with the counter-measures that may or may not have to be taken by companies. What are these counter-measures? The company or the management of the company can advise the shareholders not to sell to the bidder because the shares are worth more than the bid, or will be worth more if the company continues to be managed by the present board. Or they can retain the shareholders' confidence by unfolding the board's plans for developing the concern and by making full use of the company's assets. Or they can take other action to make the company unattractive to the bidder by placing restrictions on the use or disposal of the company's property, provided they are entitled to do so under the Companies Act. All these things the companies can do to defend themselves.

The right hon. Gentleman did not doubt any of these points, but he asked the question about the particular position of the Savoy business and of the Worcester Buildings Company. On that there has been a good deal of misunderstanding and anxiety. My right hon. Friend the President of the Board of Trade gave an answer to the hon. Member for Aberdeenshire. East (Sir R. Boothby) on 4th February in which he said that there was no reason to think that the remedies available under the existing law are inadequate to protect shareholders against action by boards of directors which is ultra vires or in breach of trust or oppressive.

All I can add to that—and this was the specific question asked by the right hon. Gentleman—is that, regarding this question of the transfer last December of the freehold of the Berkeley Hotel to a new company, the Worcester Buildings Company (London) Ltd., my right hon. Friend the President of the Board of Trade is considering whether he should appoint an inspector under Section 165 (b) of the Companies Act, 1948, to investigate the transaction. It appears, from the information before the Board of Trade, that this transaction affords ground for such an investigation. My right hon. Friend is at present awaiting the observations of the Savoy directors, for which he has asked, before coming to a decision. Therefore, we cannot pursue that matter further today. But, in that sphere to which the right hon. Gentleman referred, he will see that the Government are fully alive to the situation, and are awaiting the developments for which they have asked.

I therefore sum up by saying that while I think this debate has been valuable and while it has been a good thing that we should have aired the situation and looked at it, I do not think the case has been made out for an inquiry. On the question of credit, on the question of taxation, on the question of the action companies may take, and on the question of this transaction about this Buildings Company, the Government have already taken action or are watching the

situation with a view to taking action if necessary.

Therefore I should not be ready to accept the Motion. I do not think that the Motion, as drafted, is necessary. But I will say this. All of us, whatever our views, adhere to two propositions. First, in a sound, developing, lively, flexible economy like our own, adventure of the proper kind should be encouraged. But, at the same time, adventure of an antisocial type with a view to speculative profit for one's own personal self without proper regard for the company should not only be watched but should be discouraged and action taken wherever possible. That remains the view of the Government, and I believe it to be the view of the House.

When I am asked whether we should at this moment regard the institutions, whether in the City or in industry, from the economic or the social angle, I say to the hon. Member for Edmonton (Mr. Albu) who raised the point that we should regard them from both angles. We should regard them from the economic angle with a view to earning future results for the benefit and the prosperity of our country, but also from the social angle because unless we take into account the industrial situation, the views of the workpeople, and the ideals of our people generally, we shall not carry with us the whole spirit of industry.

It is in this spirit that I believe the City of London is looking at this problem. I know they have been distressed by the bad features of it, but that does not mean that either in the City of London or in big business in this country—or in small business for that matter—we have not got standards of social belief and standards of social practice as good as any other country in the world.

Question put.

The House divided: Ayes, 223: Noes, 251.

Division No. 34.]	AYES	[7.42 p.m.
Acland, Sir Richard	Bing, G. H. C.	Brown, Rt. Hon. George (Belper)
Adams, Richard	Blackburn, F.	Burke, W. A.
Allen, Arthur (Bosworth)	Blenkinsop, A.	Burton, Miss F. E.
Bacon, Miss Alice	Blyton, W. R.	Butler, Herbert (Hackney, S.)
Baird, J.	Bottomley, Rt. Hon. A. G.	Callaghan, L. J.
Barnes, Rt. Hon. A. J.	Bowden, H. W.	Carmichael, J.
Bartley, P.	Bowles, F. G.	Castle, Mrs. B. A.
Bence, C. R.	Braddock, Mrs. Elizabeth	Chapman, W. D.
Benn, Hon. Wedgwood	Brockway, A. F.	Chetwynd, G. R.
Benson, G.	Brook, Dryden (Halifax)	Clunie, J.
Beswick, F.	Broughton, Dr. A. D. D.	Collick, P. H.
Corbet, Mrs. Freda	Jones, David (Hartlepool)	Reid, William (Camlachie)
Cove, W. G.	Jones, Jack (Rotherham)	Richards, R.
Craddock, George (Bradford, S.)	Keenan, W.	Roberts, Albert (Normanton)
Crosland, C. A. R.	Kenyon, C.	Robinson, Kenneth (St. Pancras, N.)
Cullen, Mrs. A.	Key, Rt. Hon. C. W.	Rogers, George (Kensington, N.)
Daines, P.	King, Dr. H. M.	Ross, William
Dalton, Rt. Hon. H.	Lee, Frederick (Newton)	Royle, C.
Darling, George (Hillsborough)	Lee, Miss Jennie (Cannock)	Shackleton, E. A. A.
Davies, Ernest (Enfield, E.)	Lever, Leslie (Ardwick)	Shinwell, Rt. Hon. E.
Davies, Harold (Leek)	Lewis, Arthur	Short, E. W.
de Freitas, Geoffrey	Lindgren, G. S.	S ilverman, Julius (Erdington)
Deer, G.	Lipton, Lt.-Col. M.	Silverman, Sydney (Nelson)
Delargy, H. J.	MacColl, J. E.	Simmons, C. J. (Brierley Hill)
Dodds, N. N.	McGhee, H. G.	Skeffington, A. M.
Donnelly, D. L.	McGovern, J.	Slater, Mrs. H. (Stoke-on-Trent)
Ede, Rt. Hon. J. C.	McInnes, J.	Slater, J. (Durham, Sedgefield)
Edelman, M.	McKay, J. (Wallsend)	Smith, Norman (Nottingham, S.)
Edwards, Rt. Hon. John (Brighouse)	McLeavy, F.	Snow, J. W.
Edwards, W. J. (Stepney)	MacMillan, M. K. (Western Isles)	Soskice, Rt. Hon. Sir Frank
Evans, Albert (Islington, S.W.)	McNeil Rt. Hon. H.	Sparks, J. A.
Evans, Edward (Lowestoft)	MacPherson, Malcolm (Stirling)	Steele, T.
Fletcher, E.	Mallalieu, E. L. (Brigg)	Stewart, Michael (Fulham, E.)
Fienburgh, W.	Mallalieu, J. P. W. (Huddersfield, E.)	Stokes, Rt. Hon. R. R.
Fletcher, Eric (Islington, E.)	Mann, Mrs. Jean	Strachey, Rt. Hon. J.
Follick, M.	Manuel, A. C.	Strauss, Rt. Hon. George (Vauxhall)
Foot, M. M.	Marquand, Rt. Hon. H. A.	Stross, Dr. Barnett
Forman, J. C.	Mason, Roy	Summerskill, Rt. Hon. E.
Fraser, Thomas (Hamilton)	Mikardo, Ian	Swingler, S. T.
Freeman, John (Watford)	Mitchison, G. R.	Sylvester, G. O.
Freeman, Peter (Newport)	Moody, A. S.	Taylor, Bernard (Mansfield)
Gaitskell, Rt. Hon. H. T. N.	Morgan, Dr. H. B. W.	Taylor, John (West Lothian)
Gibson, C. W.	Morley, R.	Taylor, Rt. Hon. Robert (Morpeth)
Glanville, James	Morris, Percy (Swansea, W.)	Thomas, George (Cardiff)
Gooch, E. G.	Morrison, Rt. Hon. H. (Lewisham, S.)	Thomas, Ivor Owen (Wrekin)
Greenwood, Anthony (Rossendale)	Moyle, A.	Thomson, George (Dundee, E.)
Grey, C. F.	Mulley, F. W.	Thornton, E.
Griffiths, David (Rother Valley)	Nally, W.	Tomney, F.
Griffiths, Rt. Hon. James (Llanelly)	Neal, Harold (Bolsover)	Turner-Samuels, M.
Griffiths, William (Exchange)	Noel-Baker, Rt. Hon. P. J.	Ungoed-Thomas, Sir Lynn
Hall, Rt. Hon. Glenvil (Colne Valley)	O'Brien, T.	Usborne, H. C.
Hall, John T. (Gateshead, W.)	Oldfield, W. H.	Viant, S. P.
Hamilton, W. W.	Oliver, G. H.	Wallace, H. W.
Hannan, W.	Orbach, M.	Warbey, W. N.
Hargreaves, A.	Oswald, T.	Webb, Rt. Hon. M. (Bradford, C.)
Harrison, J. (Nottingham, E.)	Padley, W. E.	Weitzman, D.
Hastings, S.	Paget, R. T.	Wells, Percy (Faversham)
Hayman, F. H.	Paling, Rt. Hon. W. (Dearne Valley)	Wells, William (Walsall)
Healey, Denis (Leeds, S.E.)	Paling, Will T. (Dewsbury)	Wheeldon, W. E.
Henderson, Rt. Hon. A. (Rowley Regis)	Palmer, A. M. F.	White, Henry (Derbyshire, N.E.)
Hebson, C. R.	Pannell, Charles	Whiteley, Rt. Hon. W.
Holman, P.	Pargiter, G. A.	Wigg, George
Houghton, Douglas	Parker, J.	Wilkins, W. A.
Hoy, J. H.	Parkin, B. T.	Willey, F. T.
Hubbard, T. F.	Peart, T. F.	Williams, Ronald (Wigan)
Hudson, James (Ealing, N.)	Plummer, Sir Leslie	Williams, Rt. Hon. Thomas (Don V'll'y)
Hughes, Emrys (S. Ayrshire)	Popplewell, E.	Williams, W. R. (Droylsdon)
Hughes, Hector (Aberdeen, N.)	Porter, G.	Williams, W. T. (Hammersmith, S.)
Hynd, H. (Accrington)	Price, Philips (Gloucestershire, W.)	Wilson, Rt. Hon. Harold (H_yton)
Hynd, J. B. (Attercliffe)	Proctor, W. T.	Woodburn, Rt. Hon. A.
Irvine, A. J. (Edge Hill)	Pryde, D. J.	Wyatt, W. L.
Irving, W. J. (Wood Green)	Pursey, Cmdr. H.	Yates, V. F.
Jay, Rt. Hon. D. P. T.	Rankin, John	Younger, Rt. Hon. K.
Jeger, George (Goole)	Reeves, J.
Jenkins, R. H. (Stechford)	Reid, Thomas (Swindon)	TELLERS FOR THE AYES:
		Mr. Holmes and Mr. James Johnson.
NOES
Aitken, W. T.	Bennett, F. M. (Reading, N.)	Bullard, D. G.
Allan, R. A. (Paddington, S.)	Bennett, Dr. Reginald (Gosport)	Bullus, Wing Commander E. E.
Alport, C. J. M.	Bevins, J. R. (Toxteth)	Burden, F. F. A.
Amory, Rt. Hon. Heathcoat (Tiverton)	Birch, Nigel	Butcher, Sir Herbert
Anstruther-Gray, Major W. J.	Bishop, F. P.	Butler, Rt. Hon. R. A. (Saffron Walden)
Arbuthnot, John	Bossom, Sir A. C.	Campbell, Sir David
Assheton, Rt. Hon. R. (Blackburn, W.)	Bowen, E. R.	Carr, Robert
Baker, P. A. D.	Boyd-Carpenter, R. Hon. J. A.	Cary, Sir Robert
Baldock, Lt.-Cmdr. J. M.	Boyle, Sir Edward	Channon, H.
Baldwin, A. E.	Braine, B. R.	Clarke, Col. Ralph (East Grinstead)
Barber, Anthony	Braithwaite, Sir Gurney	Clarke, Brig. Terence (Portsmouth, W.)
Baxter, A. B.	Bromley-Davenport, Lt.-Col. W. H.	Colegate, W. A.
Beach, Maj. Hicks	Brooke, Henry (Hampstead)	Cooper-Key, E. M.
Beamish, Maj. Tufton	Brooman-White, R. C.	Craddock, Beresford (Spelthorne)
Bell, Philip (Bolton, E.)	Browne, Jack (Govan)	Crookshank, Capt. Rt. Hon. H. F. C.
Bell, Ronald (Bucks, S.)	Buchan-Hepburn, Rt. Hon. P. G. T.	Crosthwaite-Eyre, Col. O. E.

Crouch, R. F.	Johnson, Howard (Kemptown)	Rayner, Brig. R.
Crowder, Sir John (Finchley)	Jones, A. (Hall Green)	Redmayne, M.
Crowder, Petre (Ruislip—Northwood)	Joynson-Hicks, Hon. L. W.	Rees-Davies, W. R.
Darling, Sir William (Edinburgh, S.)	Kaberry, D.	Remnant, Hon. P.
Davidson, Viscountess	Kerr, H. W.	Renton, D. L. M.
Deedes, W. F.	Lambert, Hon. G.	Robertson, Sir David
Digby, S. Wingfield	Langford-Holt, J. A.	Robinson, Roland (Blackpool, S.)
Dodde-Parker, A. D.	Leather, E. H. C.	Robson-Brown, W.
Donaldson, Cmdr. C. E. McA	Legh, Hon. Peter (Petersfield)	Rodgers, John (Sevenoaks)
Dormer, Sir P. W.	Lindsay, Martin	Roper, Sir Harold
Doughty, C. J. A.	Linstead, Sir H. N.	Ropner, Col. Sir Leonard
Douglas Hamilton, Lord Malcolm	Lloyd, Rt. Hon. G. (King's Norton)	Russell, R. S.
Drayson, G. B.	Lloyd, Maj. Sir Guy (Renfrew, E.)	Ryder, Capt. R. E. D.
Dugdale, Rt. Hon. Sir T. (Richmond)	Lockwood, Lt.-Col. J. C.	Sandys, Rt. Hon. D.
Duncan, Capt. J. A. L.	Longden, Gilbert	Schofield, Lt.-Col. W.
Duthie, W. S.	Low, A. R. W.	Scott, R. Donald
Eccles, Rt. Hon. Sir D. M.	Lucas, P. B. (Brentford)	Scott-Miller, Cmdr. R.
Elliot, Rt. Hon. W. E.	Lucas-Tooth, Sir Hugh	Shepherd, William
Erroll, F. J.	McAdden, S. J.	Simon, J. E. S. (Middlesbrough, W.)
Fell, A.	McCallum, Major D.	Smithers, Peter (Winchester)
Fisher, Nigel	McCorquodale, Rt. Hon. M. S.	Smyth, Brig. J. G. (Norwood)
Fleetwood-Hesketh, R. F.	Macdonald, Sir Peter	Snadden, W. McN.
Fletcher, Sir Waller (Bury)	Mackeson, Brig. Sir Harry	Soames, Capt. C.
Fletcher-Cooke, C.	McKibbin, A. J.	Spearman, A. C. M.
Ford, Mrs. Patricia	Mackie, J. H. (Galloway)	Speir, R. M.
Fort, R.	Maclay, Rt. Hon. John	Spens, Rt. Hon. Sir P. (Kensington, S.)
Foster, John	Macleod, Rt. Hon. Iain (Enfield, W.)	Stanley, Capt. Hon. Richard
Fyfe, Rt. Hon. Sir David Maxwell	Macmillan, Rt. Hon. Harold (Bromley)	Stevens, G. P.
Galbraith, Rt. Hon. T. D. (Pollok)	Macpherson, Niall (Dumfris)	Steward, W. A. (Woolwich, W.)
Galbraith, T. G. D. (Hillhead)	Maitland, Comdr. J. F. W. (Horncastle)	Stewart, Henderson (Fife, E.)
Garner-Evans, E. H.	Maitland, Patrick (Lanark)	Stoddart-Scott, Col. M.
George, Rt. Hon. Maj. G. Lloyd	Manningham-Buller, Sir R. E.	Storey, S.
Glover, D.	Marlowe, A. A. H.	Strauss, Henry (Norwich, S.)
Godber, J. B.	Marples, A. E.	Stuart, Rt. Hon James (Moray)
Gomme-Duncan, Col. A.	Marshall, Douglas (Bodmin)	Studholme, H. G.
Graham, Sir Fergus	Maude, Angus	Sutcliffe, Sir Harold
Gridley, Sir Arnold	Maudling, R.	Taylor, Sir Charles (Eastbourne)
Grimond, J.	Maydon, Lt.-Comdr. S. L. C.	Teeling, W.
Grimston, Sir Robert (Westbury)	Medlicott, Brig. F.	Thomas. Rt. Hon. J. P. L. (Hereford)
Hall, John (Wycombe)	Mellor, Sir John	Thomas, Leslie (Canterbury)
Harden, J. R. E.	Molson, A. H. E.	Thompson, Lt.-Cdr. R. (Croydon, W.)
Harris, Frederic (Croydon, N.)	Moore, Sir Thomas	Thorneycroft, Rt. Hn. Peter (Monmouth)
Harris, Reader (Heston)	Mott-Radclyffe, C. E.	Thornton-Kemsley, Col C. N.
Head, Rt. Hon. A. H.	Nabarro, G. D. N.	Touche, Sir Gordon
Heald, Rt. Hon. Sir Lionel	Neave, Airey	Turner, H. F. L.
Heath, Edward	Nicholls, Harmar	Turton, R. H.
Henderson, John (Cathoart)	Nicholson, Godfrey (Farnham)	Vane, W. M. F.
Higgs, J. M. C	Nicolson, Nigel (Bournemouth, E.)	Vaughan-Morgan, J. K.
Hill, Dr. Charles (Luton)	Nield, Basil (Chester)	Vosper, D. F.
Hill, Mrs. E. (Wythenshawe)	Nugent, G. R. H.	Wade, D. W.
Hinchingbrooke, Viscount	Oakshott, H. D.	Wakefield, Edward (Derbyshire, W.)
Hirst, Geoffrey	O'Neill, Hon. Phelim (Co. Antrim, N.)	Wakefield, Sir Wavell (St, Marylebone)
Holland-Martin, C. J.	Ormsby-Gore, Hon. W. D.	Walker-Smith, D. C.
Hollis, M. C.	Orr, Capt. L. P. S.	Ward, Hon. George (Worcester)
Hope, Lord John	Orr-Ewing, Charles Ian (Hendon, N.)	Ward, Miss I. (Tynemouth)
Hornsby-Smith, Miss M. P.	Orr-Ewing, Sir Ian (Weston-super-Mare)	Waterhouse, Capt. Rt. Hon. C.
Horobin, I. M.	Osborne, C.	Watkinson, H. A.
Horsbrugh, Rt. Hon. Florence	Page, R. G.	Webbe, Sir H. (London & Westminster)
Howard, Hon. Greville (St. Ives)	Peake, Rt. Hon. O.	Wellwood, W.
Hudson, Sir Austin (Lewisham, N.)	Perkins, Sir Robert	Williams, Rt. Hon. Charles (Torquay)
Hudson, W. R. A. (Hull, N.)	Peto, Brig. C. H. M.	Williams, Gerald (Tonbridge)
Kurd, A. R.	Pickthorn, K. W. M.	Williams, Paul (Sunderland, S.)
Hutchison, Sir Ian Clark (E'b'rgh, W.)	Pilkington, Capt. R. A	Williams, R. Dudley (Exeter)
Hutchison, James (Scotstoun)	Pitman, I. J.	Wills, G.
Hyde, Lt.-Col. H. M.	Pitt, Miss E. M.	Wilson, Geoffrey (Truro)
Hylton-Foster, H. B. H.	Powell, J. Enoch
Iremonger, T. L.	Price, Henry (Lewisham, W.)	TELLERS FOR THE NOES:
Jenkins, Robert (Dulwich)	Prior-Palmer, Brig. O. L.	Sir Cedric Drewe and Major Conant.
Johnson, Eric (Blackley)	Raikes, Sir Victor

Question put, and agreed to.