§ Order for Second Reading read.
§ 3.43 p.m.
§ Sir Eric Errington (Aldershot)I beg to move, That the Bill be now read a Second time.
It is, perhaps, a rather peculiar juxtaposition in our business that, having discussed lotteries for some time, we come now to the—I hope—more secure matter of trustee investments. The object of the Bill is to deal with the situation which exists in regard to the Trustee Act and trustee investments. The last Trustee Act was the Act of 1925, and in the 30 years which have elapsed since then the situation has greatly changed.
It can be said that it would be a good thing if in any event the Trustee Acts, categorising, as they do, a list of investments, should from time to time automatically be reviewed, say at intervals of 10, 15, or 20 years. Since 1925 the situation concerning currency has become so extremely different that the considerations of the proper investments for 638 trustees are entirely different to what they were prior to the last war.
The position has been well summed up by a Report of the Institute of Chartered Accountants, which, dealing with the change that has taken place, states:
If a long view is taken, inflation appears to be a natural tendency of currencies and the trend of the last fifty years may be regarded as merely an acceleration of this natural tendency. The acceleration has, however, become a matter of grave anxiety; the real value of some currencies has been entirely lost and that of even the soundest greatly reduced.There is no evidence that the inflationary tendency of currencies is likely to be reversed and this forms the major problem of the trustee whose range of investment is confined to money stocks. The restrictions, which were intended as a safeguard, have become a source of danger.The object of this Bill is primarily to give an opportunity to trustees to invest in what are called equities, and, secondly, to invest in building society deposits. It is the belief of myself and those who support me that that would bring the situation more in accord with the modern conditions.When one thinks that there is authority to invest in certain Indian railways and, indeed, in certain water stock ordinary shares under certain conditions, and even certain colonial stocks which may be very unsatisfactory, and if we remember also the situation in regard to pre-nationalised railway stocks, it will be realised that the trustee arrangements at the moment, whatever may happen in future, are unsatisfactory.
I should like briefly to summarise. I have only a minute or two in which to do so, because I should like my right hon. Friend the Financial Secretary to the Treasury to have the opportunity of saying a word or two. It is very easy to talk in terms of millions, but one of the financial papers has worked out that between 1st January, 1919, and 1st January, 1955, a period of thirty-six years, if £1 million had been invested in 1919, in equities, it would, with the addition of bonuses and various interest payments, have become £25 million. If however, the same figure of £1 million had been invested for the same period in Government securities, instead of becoming £25 million it would have become only £4 million. That indicates the immensity of the figures.
639 I do not pretend that it is particularly desirable that trustees should invest entirely in equities. I am asking that they should have the opportunity of doing so subject to certain reasonable safeguards, and the safeguards which I have put in the Bill are only an indication of the sort of possible safeguards. They include the requirements that the paid-up capital of the company concerned must exceed £5 million, that the Ordinary share dividend paid for the past ten years be not less than 5 per cent., and that the quotation must be accepted on a recognised stock exchange in this country.
It may be thought desirable that there should be some limitation on the amount invested in equity stocks, in relation to the total amount of the fund of a trust, and since the Bill was printed I have been able to find some particulars for a Clause which might meet that situation.
I understand that some take the view that the passing of the Bill would give an opportunity for incompetent trustees to lose their trusts or at any rate to avoid making the best arrangements, but I do not believe that, generally speaking, people appoint trustees who are not reasonable and sensible people. The operation which, I think, in other circles is known as "hedging," namely, putting a portion of the money in one kind of security and the other portion in the other type of security, is a reasonable operation which is appreciated by those who have the handling of money, even if they are not necessarily very experienced in investment on the Stock Exchange; and provisions to that end could be incorporated in the Bill.
I am bringing forward the Bill because I believe that, due to the circumstances that I have indicated of the way in which our money situation is developing, the time has now come for something to be done about these matters. It may be that the opportunities for a private Member to do much by means of a Private Member's Bill in April at five minutes to four o'clock are limited, but having brought the Bill to the notice of the House and, in consequence, to the notice of the Government, I hope that some consideration will be given to the matter, if not immediately, at least in the very near future.
§ 3.54 p.m.
§ Mr. Cyril W. Black (Wimbledon)I beg to second the Motion.
I shall not detain the House for more than a minute because I want the Financial Secretary to the Treasury to have time to say something about the Bill before we reach the Adjournment. I support the Second Reading for the reasons which have been mentioned by my hon. Friend the Member for Aldershot (Sir E. Errington).
I think I ought, in respect of Clause 2, to declare a personal interest, because that Clause relates to building society shares and deposits, and I happen to be a director of a building society. The attitude of the building society movement towards Clause 2 is, in the main, favourable, although I think that if the Bill were to get a Second Reading certain matters of detail of the limits and the restrictions which should be imposed would need to be considered in Committee. But on the general question of trustee status being granted to investment in shares and deposits in building societies, there is no doubt that the attitude of the building society movement is favourable and has been for many years past.
§ 3.55 p.m.
§ The Financial Secretary to the Treasury (Mr. Henry Brooke)I am very sorry that such an important subject as this should come up so late on a Friday afternoon, because there are big issues here which we ought to have time to debate at length. The time this afternoon is so short and the proposals in the Bill diverge so radically from the statement of Government policy on the matter which I made to the House on 27th July last year that I hope that my hon. Friend the Member for Aldershot (Sir E. Erring-ton) will feel that I am being as helpful as I am able to be in the circumstances if I say that I will give careful consideration to all that he has said this afternoon in support of the Bill.
My hon. Friend and my hon. Friend the Member for Wimbledon (Mr. Black) have indicated that they are not wholly satisfied with their own Bill and will have Amendments to suggest themselves. I fear that if the Bill was to receive a Second Reading today, it would not be possible, after this short debate, to get 641 it into workable shape in Committee, but I recognise that the matter deserves the attention of the House. Indeed, the Government themselves authorised me to make the statement last July which foreshadowed legislation, though much less far-reaching legislation, to amend the Trustee Act.
The Bill would appear at first sight to be founded upon the recommendations of the Nathan Committee on the Law and Practice relating to Charitable Trusts, which in Chapter 8 recommended that the range of investment allowed by the Trustee Act, 1925, should be widely extended and should go even so far as to include the equity shares of industrial, financial and commercial companies quoted on the Stock Exchange, subject to certain conditions, one of which was that no less than 4 per cent. should have been paid on the equities for the previous ten years.
The Nathan Committee itself stipulated that not more than 50 per cent. of the trust fund should be invested in equity shares. The Bill would permit, though my hon. Friend the Member for Aldershot said that he would not encourage it, the investment of 100 per cent. of the trust fund outside the present trustee list. Surely, everybody would agree that that is going much too far. The main question which Parliament will have to decide at some future date, however, is whether investments in equities should be permitted to trustees in cases where the testator or the settler had not included a wide investment clause in the trust.
In the case of new trusts, it is entirely within the power of the testator or the settler to give what investment power he likes. The trustee of an existing trust can obtain extended powers of investment by agreement of the beneficiaries in certain circumstances. In other circumstances, trustees may apply to the High Court under Section 57 of the Trustee Act, 1925, for an extension of their power, though I grant that that possibility is limited by certain recent decisions.
The great question is how Parliament should seek to protect both trustees and beneficiaries against the various risks of investment—the risk of the effect of economic forces and the risk of incompetence and dishonesty, which cannot be entirely ignored. To invest successfully in equities demands a high degree of skill 642 and also continuous expert scrutiny of the investment portfolio throughout the period of the holding of the stocks and shares—
§ It being Four o'clock the debate stood adjourned.
§ Debate to be resumed upon Friday, 27th April.