§ Order read for resuming adjourned debate on Question [13th April], That the Bill be now read a Second time.
§ Question again proposed.
§ 11.15 a.m.
§ The Financial Secretary to the Treasury (Mr. Henry Brooke)
Perhaps I may recall to the memory of the House that the debate on this Question began two months ago, on Friday, 13th April, at 3.43 p.m. The mover and seconder, my hon. Friends the Members for Aldershot (Sir E. Errington) and Wimbledon (Mr. Black) purposely kept their speeches very short in order to give me a minute or two in which to reply on behalf of the Government. I rose to reply at 3.55 p.m., and after speaking for five minutes I was necessarily interrupted at 4 p.m. in the middle of a sentence.
If it were the wish of the House that I should do so I would continue my speech now, but I have received certain indications that it would be more for the convenience of the House if I were to say nothing further at this stage but were to listen to the debate. Hon. Members on both sides of the House may wish to make further contributions as this is the first opportunity to debate the Bill, except under extreme pressure of time. Then, Mr. Speaker, if I have your permission and that of the House, I should like to wind up the debate and to answer any points which have been made.
§ 11.16 a.m.
§ Mr. Glenvil Hall (Colne Valley)
I am sure Mr. Speaker, that, subject to anything that you may say, it would meet the convenience of the House if the Financial Secretary did not continue his speech at this stage but spoke again at the end of the debate. I do not know that many hon. Members wish to take part in the discussion but, in view of the shortness of the time we devoted to it two months ago, it would be useful if we further debated the Bill, although nothing much may come of it at this stage.
It is a very short Measure. It has only two Clauses, and its object is a very simple one which ought to have received attention a long while ago. The purpose of the Bill which was introduced by the 920 hon. Member for Aldershot (Sir E. Errington) two months ago is to allow trustees to invest trust funds in what are called equities and in building society deposits. At present trustees are bound by the trustee list which is embodied in Section 1 of the Act of 1925, passed, as one can see from a simple arithmetical calculation, over thirty years ago. Much has happened since then, and it is common ground that something ought to be done to widen the range of investment open to trusees under Section 1. The only question is "What?"
When the Financial Secretary spoke on the previous occasion when the Bill was before us, he said enough in five minutes to indicate that the Government were opposed to Clause 1, the Clause dealing with equities. I think that his attitude can be summarised in this way; that while the Government thought that something should be done, and were willing to do something, they were not prepared to accept the Bill as it stood. As I understood the right hon. Gentleman, he thought that the suggestions of the hon. Member for Aldershot were much too sweeping.
The right hon. Gentleman referred us to the statement which he made on 27th July, 1955, when he announced the Government's policy on this matter. The occasion for that announcement, just about a year ago, was the publication of the Nathan Committee's Report on the Law and Practice relating to Charitable Trusts. The Nathan Committee made some fairly drastic suggestions, some of which—the more important, perhaps—have been embodied in the Bill by the hon. Member for Aldershot.
The Nathan Committee was definitely of the opinion, certainly so far as charitable trusts were concerned—it even went so far as to suggest that the same changes should be made for all kinds of trusts—that with certain safeguards the trustee list should be considerably widened. It suggested, in fact, that it should include debentures and stocks and shares of financial, industrial and commercial companies quoted on the Stock Exchange. Nothing could be wider than that. That was the Nathan Committee's considered view, and whilst quite a number of people might not be prepared to go so far, I think most of us would be willing to see some of these various investments included.
921 In his short speech two months ago, the Financial Secretary took the view that to accept the findings of the Nathan Committee, and certainly to accept the Bill as it stood, would give cause for grave objection. According to him, it might lead to substantial losses of trust funds and thus frustrate the object of the trustee list, which is to safeguard funds and to see that trustees do not fritter them away in speculative investments.
It is, I realise, open to a settlor himself, with his eyes open, to widen the powers given under a trust, but settlors may die and circumstances change. What might appear to a settlor today to be a reasonable provision and limitation to make might not necessarily be a fit and proper limitation to make thirty or forty years thereafter.
It is unfortunate for many trust funds that they have been so limited in some cases to gilt-edged securities. As the right hon. Gentleman knows only too well, no securities have gone down more than many of our gilt-edged securities and stocks. Therefore, bearing in mind the principal reason given by the right hon. Gentleman that to alter the list would open the door wide to substantial losses, I am afraid that at present that safeguard to which he referred does not exist, and losses have been incurred by a large number of trusts.
From what he said in the short speech that he was able to make, I think that the right hon. Gentleman is willing to make changes to the trustee list. He indicated that the Government were willing to allow for the purchase of certain local authority securities and those of the Bank of Reconstruction and Development, and that they were also willing to simplify the procedure to enable such trusts to widen their powers of investment. I think, too, that there was some reference to allowing trustees to buy investments at a premium under certain circumstances.
The question I should like to ask the Financial Secretary on this point is whether that is still the furthest that the Government are prepared to go. If so, is it still their policy to confine even these small concessions to charitable trusts only or are they willing to extend them to trusts of all kinds?
922 Unfortunately, when the Financial Secretary spoke two months ago, he did not have time to deal with the suggestion made by the hon. Member for Aldershot in Clause 2 of the Bill to allow trust funds to be invested in building society deposits. I hope, therefore, that before the debate ends the right hon. Gentleman will be able to let us have the Government's view on this proposal.
The right hon. Gentleman will, 1 think, agree that the main argument which he used about his inability to accept Clause 1 does not apply to building society deposits. So far as capital is concerned, there can be no possibility of loss where moneys are invested in building societies—I am talking, of course, of reputable building societies—and I think the House will agree that moneys deposited with them are about as safe as they can be. They cannot depreciate, the capital remains intact and it is today one of the most conservative forms of investment, which I think should appeal strongly to the right hon. Gentleman and to hon. Members opposite.
Most of the building societies which have been established in this country are models to the world, and the funds which they advance are advanced on the best of all security—namely, property, which normally goes up in value rather than depreciates. I have been looking at the figures, and I see that the combined assets of all building societies at the end of 1955 exceeded £2,000 million. At that time also, in addition to the mortgages on various kinds of property, well secured, they held nearly £300 million in liquid assets, cash and investments, mostly short-term, in trustee securities. That is worth remembering when discussing the proposal which is made in Clause 2 of the Bill.
In the light of the Government's attitude, as indicated by the right hon. Gentleman two months ago, and in view of the late stage of the Session at which this Bill is being introduced, I think it likely that it may not get very far. The Government have, however, promised to introduce legislation of their own, and I should like the Financial Secretary, when he replies to the debate, to give an indication as to when we may expect that legislation.
923 I would urge upon the right hon. Gentleman, however, that when that legislation does appear, although he may not be able to include all the suggestions made by the hon. Member for Aldershot, he should seriously consider including at long last the building societies in the trustee list. If he does so, I think it would be a mistake if he prescribed a limit as to the total assets which a building society must have before it can be included in such a list.
The hon. Member for Aldershot has suggested that no building society should be included in the list unless it has assets to the value of £5 million or more. There are, however, quite a number of building societies whose assets do not reach that figure. Of the 364 societies which are members of the Building Societies Association, only about 62 have assets of that amount and more, and yet it can be said, I think, without challenge that all the societies at present in the Building Societies Association are reputable and well founded.
I am sure that the House will agree with me when I say that no building society should be included in the list unless it has sound assets and complete solvency and is of a kind which will ensure security to those who invest their money in it. I should therefore like the right hon. Gentleman to consider whether it would not be possible for the Registrar to stipulate the conditions which should be laid down to permit a building society to be included in the list. The value of money changes and conditions alter, and rather than have a fixed sum in any Act which the Government might introduce, which might lead later to difficulties, it seems to me and to some of my hon. Friends that it would be better, when the Government include building society deposits in the list—and I hope they will —to leave to the Registrar the fixing of the conditions under which they should qualify.
It is possible that this Bill is still-born, but if it is I hope that our discussion upon it has been well worth while. I trust that it will stimulate the Government to action, and imaginative action at that, and that we may see at no distant date—if possible before the end of the present Session—the Bill which the right hon. Gentleman has promised.
§ 11.32 a.m.
§ Sir Spencer Summers (Aylesbury)
I was sorry that in his statement on 27th July my right hon. Friend the Financial Secretary poured so much cold water on the objectives of the Bill. One of the reasons he advanced for the Government's objection to such a change as is contemplated here was that trustees would thereby be allowed to incur risks which were not thought proper in the Government's eyes.
It is quite evident from the way in which things have worked out that it is no longer a valid argument to assume that to invest money in gilt-edged securities does not incur risks which are to be found elsewhere. We all know that in fact the situation is entirely different. The objection in the statement to which I have referred seems to be based on facts and considerations which may have been valid 20 or 30 years ago but which, as a result of the inflationary trends in recent years, are completely out of date.
The restrictions which are placed upon trustees with the object of ensuring that they shall provide security for the capital of which they are trustees have precisely the opposite effect in a great many cases to that which the regulations were originally designed to produce. The absence of power to safeguard the funds against inflation involves them in these losses which it was the purpose of the regulations to prevent.
I hope we need not dwell at any length on the nature of the safeguards against opening the door too wide which are inherent in the Bill, because it seems to me much more important to take a view whether it is justified to make a major change than to consider the detailed safeguards against going too far which have been provisionally devised.
I have heard it suggested that were the right given to trustees to invest in ordinary shares, however complex and manifold the safeguards, the public might be led on that account to believe that there was some form of official underwriting or guarantee of the stock concerned which is not the case today. It seems to me that that conception is founded on circumstances which are quite out of date. At the moment the public tend to regard gilt-edged securities, on account of their trustee status, as quite safe for investors and trustees. We well 925 know that that is far from being the case. It will not do to say that objection could be taken to the enlargement of the range of trustee securities on account of the official blessing which would thereby follow, because the argument is not valid.
I have also heard it suggested that the inflationary situation which we are now examining is a result of two world wars and that if we take a long view the situation is in fact much more static from the point of view of the subject we are discussing today than it has been in the last 20 or 30 years. In other words, so the argument runs, there is no need to open the door to changes in respect of trustees because further changes in the situation are not contemplated. It is argued that many of the circumstances which we observe today spring from changes consequent upon two wars in a comparatively short time.
I think it would be very dangerous to assume that major changes of this kind arise solely from wars. Much as we may believe and hope that no other war will occur in our lifetime, I do not think it is sound to believe that there will be no major changes affecting the status of and need for trustee stocks. We know the immense changes which spring from the applications of scientific invention. Who knows what the impact of nuclear inventions will be on all sorts of economic situations and on the future of various companies?
Personally, I take the view that, bearing in mind the responsibilities which trustees are given, it is only right to give them a certain freedom of manoeuvre so that they may be able to discharge the responsibilities which the original founder of the trust gave them. Incidentally, when the trust was set up the founder could not possibly have foreseen the changes which would follow in the decades lying ahead.
The conception that trustees must be protected from their own folly is entirely out of date, because it rests on the assumption that, broadly speaking, the conditions in which they will operate are static and the only fluid element in the situation is the judgment of the trustees. We know quite well that that is not so. Once it can be established, as I believe it can, that conditions are no longer as static as to warrant protection against trustees' folly, it seems to me to follow 926 automatically that freedom to manoeuvre is indispensable to a responsible trustee if he is to carry out the responsibilities originally placed upon him.
We are indebted to my hon. Friend the Member for Aldershot (Sir E. Errington), who has introduced the Bill. I again express regret that the Government has not taken more kindly to it and I hope that in the course of time, with the contributions which my hon. Friends will make, we may induce them to see the validity of some of the arguments which we are advancing.
§ 11.40 a.m.
§ Mr. Nigel Fisher (Surbiton)
I must first apologise that I was a little late in arriving and, therefore, did not hear all that the right hon. Member for Colne Valley (Mr. Glenvil Hall) had to say, but I must say that everything I did hear I fully agreed with. Like my hon. Friend the Member for Aylesbury (Sir S. Summers), I think that my hon. Friend the Member for Aldershot (Sir E. Errington) has, if I may say so, performed a valuable public service in bringing forward this Private Member's Bill, and, like other hon. Members, I should like to support the principle which it incorporates.
I must say that, in view of the present inflationary trend in the economy, which has persisted now for many years, I fully agree with my hon. Friend the Member for Aylesbury that there is real danger that the restrictions on trustee investment, originally intended as a safety measure for trusts, have become no longer a safety measure but a real source of additional danger to those trusts. Trustees today should have the power to invest not only in so-called gilt-edged securities but also in equities and good building society shares.
There are a great many examples of much better and safer trustee investments than such undated Government stocks as 21½ per cent. Treasury stock, Consols, and 31½ per cent. War Loan—as many of us have learned to our cost. It is important that any trustee portfolio today should have a very wide spread of investments. It should, of course, include some Government securities—naturally—but it should also include some "blue-chip" equities and some good building society shares as well. Perhaps not more than 927 50 per cent. would be an appropriate proportion for equity holdings by trustee portfolios.
May I say something about Clause 2 of the Bill, which deals with building societies? This Clause limits trustee investments to those building societies which conform to certain conditions which are to be laid down by the Chief Registrar of Friendly Societies. That is the sort of condition which I think all of us would agree is most reasonable, but it also limits trustee investment to those societies which have total assets of more than £5 million. The Building Societies Association, while strongly supporting the principle of the Clause, does not support the proposed minimum of £5 million. Nor, from what I heard, does the right hon. Member for Colne Valley. And nor do I.
Perhaps at this point I ought to declare an interest, not only as a director of a building society but also as a director of a building society with assets of less than £5 million. I should equally say that this society would conform to every other conceivable condition that could be laid down by the Chief Registrar as to what is a safe and proper trustee investment.
As at 31st December, 1955, there were 783 building societies in Great Britain and, as the right hon. Gentleman pointed out, only 62 of them had total assets of more than £5 million at that date. If, under this Clause, those societies with over £5 million in assets are almost automatically to be given trustee status and if societies with assets of under that figure are given no such status, I see one very real danger to the smaller, but nevertheless very reputable and safe societies. That danger is that not only trustees but the ordinary potential investor in building societies might well draw the inference that those smaller societies were less safe than the larger ones because they were not earmarked as suitable trustee investments.
The effect of Clause 2 as it stands. therefore, might well be prejudicial to the smaller societies in regard to the raising of money for their mortgage business, however safe and reputable those smaller societies, in fact, really are. I would go so far as to say that there 928 are many smaller societies which would make much safer and more suitable trustee investments than some of the bigger ones. My hon. Friend the Member for Wimbledon (Mr. Black) who is not present today, but who was on the last occasion and who is himself a director of one of the best of the large societies, would, I am sure, agree with me on that point.
To my mind, liquidity and a high ratio of reserves to assets is a far more important factor in assessing the suitability of societies as trustee investments than is the test of the amount of total assets. If I am correct in that premise, it is perhaps not without significance that some of the largest of our societies have, in fact, the lowest ratio of reserves. I notice that in the Report of the Chief Registrar of Friendly Societies for the year 1955 the top group of societies there listed—those with assets of £10 million or more—have the lowest average liquidity of any group shown.
It would, of course, be quite wrong in the trustee context to include the very small societies or, indeed, the private societies, but I do think that the £5 million limit is too high and is also too arbitrary. I hope that in Committee, if we reach that stage, my hon. Friend the Member for Aldershot would be prepared to consider some modifications of Clause 2 which would take into account the sort of points that I have tried to make, and which were also made by the right hon. Member for Colne Valley.
§ 11.46 a.m.
§ Mr. Frederick Mulley (Sheffield, Park)
I agree very largely with what the hon. Member for Surbiton (Mr. Fisher) has just said. I am sure that there is a case both for the inclusion of building societies in the Bill and for reconsideration of the £5 million limit. I would not go so far as to suggest that all building societies are suitable for trustee investment, but that is a matter which could very properly be discussed in Committee.
I should like to congratulate the hon. Member for Aldershot (Sir E. Errington) both on his good fortune in the Ballot and on bringing forward this Bill. I recollect that he had a rather similar experience last year. He was the promoter of a Bill which did not, in that Session, succeed in getting its Second 929 Reading, but I also recall that the same Bill, in substance, has this morning passed all the Parliamentary stages and is awaiting the Royal Assent. I venture to predict, or at least to hope, that the hon. Member will next Session have the fortune of seeing his present intention put into legislative form in similar manner. But, perhaps, we should not be too optimistic until we have heard what the Financial Secretary has to say.
I should also like to pay a tribute to the Nathan Committee on the Law and Practices relating to Charitable Trusts, set up in 1950. That was a very distinguished body of people, and my regret is that although the Committee reported more than three years ago we have had nothing but a short statement of the Government's intentions in regard to that valuable Report. I think that the position has now been reached when the Government will find it very difficult to get people to give up their time to serve on these Committees if the only consequenec is that their reports are pigeonholed.
No one would suggest, of course, that any Government are bound, having set up a Committee, to implement its recommendations in toto, but this House should have the opportunity of considering and debating the recommendations of distinguished committees of this sort. It may well be that the present Government did not like the fact that the Charitable Trusts Committee had been set up by their predecessors and that if the Government had not changed the Report might have been given legislative effect before now. However, I do not want, on this very quiet Friday, to introduce matters of political controversy into our discussion.
Beyond any doubt, as my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall) said, the Trustee Act, which was passed over 30 years ago, is in need of revision, not only with regard to this particular matter of the range of trustee investments, but with regard to other matters also which, as the Government themselves have indicated, need new legislation. It may be that I have missed the Government's statement which was predicted in the White Paper on Government Policy on Charitable Trusts in England and Wales, Command Paper 9538 of 1955, when they said: 930The Government propose to deal with the wider question of amending the Trustee Act, 1925, and the position of non-charitable trusts, in a statement which will be made separately.It may well be that I have missed that statement, or, equally—no doubt the Financial Secretary will tell us—it may be that no such statement has yet been made.
While it is a very valuable privilege that private Members should have an opportunity to try and implement such reforms as this, I think it would be the common opinion that to tackle the whole question of trusts and the Trustee Act, as it needs to be tackled, is rather beyond the range of a Private Member's Bill. I hope that we shall have from the Financial Secretary some firm assurance that there will be legislation on this matter before long.
The case for the simple but effective suggestions contained in this Bill has already been presented very cogently by right hon. and hon. Members who have spoken. Whether or not it is the fault of anyone in particular, there is no argument but that inflation is, and has been, operating to the very serious disadvantage of all persons who hold trustee securities: and, as far as one can foresee, that tendency is likely to continue. It seems, therefore, quite reasonable that some modest extension in the range should now be possible. The Government, of course, if we get to the root of the matter, are concerned less about the bits and pieces of what might be extended than they are about the possibility that there will be a switch over from Government securities to non-Government securities. I think that is really the reason why the Treasury is so unenthusiastic for this sort of reform.
It is true, of course, that the Government and Members of the House of Commons must be concerned for the safety of trust funds. No one would for a moment suggest that the principle of a trustee list should be abandoned. It is obvious that all securities in that list must be such that no unreasonable risk is taken if moneys in trust funds are there invested. But does anyone really suggest that the proposals of this Bill would involve the inclusion of any securities of an exceedingly risky character? In fact, the hon. Member for Aldershot has gone beyond the recommendations of the Nathan Committee both as regards the 931 paid-up capital of companies and as regards the amount of interest that they must have paid over the preceding ten years. The only safety measure which he has not included is the percentage of a trust fund which can be invested in these equities or building society funds. If that is the Government's only objection, I would suggest that that is a defect which could very easily be remedied in Committee.
I do not take serious objection to the Government talking out a Bill; I suppose it is just as reasonable, or unreasonable, for Governments to talk out Bills as it is for private Members to do so; but I do regret that a Bill of this sort was not given an opportunity in April of proceeding to the Committee stage, when we could have gone more fully into the possibilities of giving legislative effect to these proposals. Since it was largely in the hands of hon. Members opposite, who, we are told, are very amenable to the wishes of the Government—at least, that is the public face they like to show —I am sure that if, after the Committee stage, the Government had been dissatisfied, they would have had no difficulty in then killing the Bill. By that time we should all have been the wiser as a result of those detailed discussions.
I would suggest to the Financial Secretary that we need to be concerned not only with the well-being of Treasury and Government funds but with the total volume of investment. Of course, a change of this sort would probably not have any harmful effects in that sense. I fail to understand the reference the right hon. Gentleman made in his statement of the 27th July last, I think it was, that somehow or other this proposal might tend to favour the life tenant against the remainderman. My experience over the last few years has been that the investment of funds in Government securities proved disadvantageous to both the life tenant and the remainderman. Whether it be a good or bad thing—I have views on that which I will not inflict on the House today—there is no doubt that the kind of equities which are covered by this Bill are those where substantial capital appreciation can be predicted and expected; so that, in that sense, the life tenant will enjoy a larger income and the remainder-man will have the expectation of a larger capital sum. In my view, therefore, the 932 Financial Secretary's suggestion was a rather weak get-out on his part.
Of course, we all know that in trust matters there are occasional cases of incompetence and dishonesty. Such things may occur just as readily in the existing range of trustee investment as they would if the range were extended as suggested by the Bill.
It is true, of course, that in certain circumstances trustees may apply to the court for an extension of their investment powers. I believe that, in a number of trusts, such application has been made under Section 57 of the Trustee Act, and the court has widened the trustees' powers of investment far beyond the particular proposals of this Bill. That, of course, is a wise and proper safeguard. But it is an expensive matter to go to the courts. In small trusts, particularly will trusts where there is a widow or children to be provided for, the legal expenses of such an application may very well offset any financial advantage by way of income which could be expected as a result of such a change.
I may well be speaking against my own interests in this matter, since I seek to practise in the Chancery Division. Of course, this Bill would limit, rather than extend, the amount of litigation of this character. Nevertheless, I believe it is something of which the Government ought to be more aware than it would seem to be, that going to the courts is an expensive and worrying business, not lightly undertaken either by trustees or their advisers. I hope the Financial Secretary will not rely too much on that argument today.
The other argument which I am sure he will deploy is that it is probably wrong for this House to set aside the wishes of the settlor or testator. In many cases, of course, there is some force in that argument; but a great number of these trusts were settled many years ago, in quite different circumstances, when conditions were very different from what they are today. Moreover, many testators, as the courts know only too well, are not extremely well advised when they make their wills, either as to the law or as to the possibilities of investment.
§ Mr. Mulley
As my right hon. Friend says, sometimes, when wills are drafted by lawyers, they give rise to even more litigation than home-made wills. For my part, I certainly would be the last to regret these testamentary ambiguities, because they do provide opportunities for litigation from time to time; but it is stretching matters to say that every settlor or testator knows exactly how he would like his money to be invested twenty-five or fifty years ahead.
If the Financial Secretary relies on that get-out, he cannot also rely upon the get-out of going to court, because that would certainly be reversing the wishes of a testator or settlor in extending the range of investment. In my view, there is a very strong case for the formulation of some Government policy in this matter. Some amendment of the Trustee Act is required, even if it is not necessarily achieved in the detailed way set out in the Bill.
Clause 2, which relates to building society investment, raises a matter which may well be of some urgency. It may be true that the Government do not face the prospect of a switch from Government funds with enthusiasm, but if they really believe in their housing policy they should be equally concerned about the lack of funds available to building societies for lending to prospective house purchasers. This is not a subject upon which I have as much knowledge as the hon. Member for Surbiton, but I am informed that in many cases building societies are already pledged up to September, and in some cases up to twelve months ahead, and they have no funds to lend to someone who wishes to buy a house.
This is a very serious matter for those who are forced, not always from choice, but often through force of circumstances, to buy or sell houses at this time. It is a very great hardship for a person to go to a building society and find that his security is accepted only to be told by the building society, "We would very much like to lend you the money, but all our funds are committed till next December, or next March." This presents a very great difficulty to persons who have to change their jobs suddenly.
I do not pretend that building societies are able to tackle the problem of working-class houses, and it is not our policy 934 to rely as much as the Government do upon the question of individual house purchase. We recognise that some people wish to buy their own houses. Not only do we believe in their doing so, but we think that the Government's policy in this respect and in the matter of the rate of interest has been detrimental to individual house purchase, although on public platforms they often make a song and dance about their ideas of a property-owning democracy.
The Financial Secretary must know that the credit squeeze is having very adverse affects in this connection, and I put this point to him at some length now because I feel the furthering of the Government's housing policy under Clause 2 would offset their concern about the loss of some Government investments under Clause 1. At any rate. I am firmly of the opinion that this matter should have gone to Committee for discussion in April. I still hope that the Financial Secretary will allow it to go to Committee today.
I do not hold out any great hopes of a Bill of this sort going through all its stages in both Houses before the end of the present Session, but if it could be discussed in Committee and examined in detail, it may be—as happened in the case of the hon. Member for Aldershot's previous Bill—that if the Government will not take it up another private Member will bring it forward with greater success next year. I hope that we shall have a reasonable reply from the Financial Secretary and also—considering the state of the "betting"—that if he has to talk the Bill out again he will not have to go on without pause until four o'clock.
§ 12.5 p.m.
Major W. Hicks Beach (Cheltenham)
I apologise for being late in arriving and not hearing the earlier part of the debate. What I have heard, however, I have entirely agreed with. Although the Financial Secretary was in the middle of his address when this matter was discussed in April, I understand that we are going to hear from him again today, and I will therefore deal with some of the matters to which he referred in April. In the meantime, it would be ungrateful of me if I did not say how glad we are to see the Financial Secretary here after his very strenuous week on the Committee stage 935 of the Finance Bill, during which he was able to make a number of concessions. Those who are supporting this Bill hope that he will be in an equally happy a frame of mind towards it.
I also want to pay tribute to my hon. Friend the Member for Aldershot (Sir E. Errington) for all the trouble he has taken over the Bill. Owing to the shortness of time when he was proposing it, he did not have the opportunity of saying as much as he would have liked, and I hope that he will be allowed another opportunity of speaking during the course of this debate.
A great deal has been said about the position of trustees and investments. As far as I understand it, however, not very much has been said about the tasks of the trustees of a settlement. They are really twofold. First, the trustees have to protect and increase, if possible, the income and, secondly, they have to preserve the capital for the remainderman. In fact, they have a definite duty to two classes of people.
One of the most difficult tasks which trustees have to face today is the maintenance of a fair balance between the life tenant and the remainderman. Their task has been made much more difficult in recent years owing to the high rate of taxation because, in the case of big trusts, there is sometimes no object in increasing the income to any degree. Trustees have a very real task and a duty to ensure that the capital is increased as far as possible.
I am surprised that the Treasury does not take more interest in this matter; perhaps the Financial Secretary will have something to say about it. If trustees increase the capital of a trust they are also largely assisting the revenue, because a very large part of that increase will probably go to Estate Duty when the life tenant dies. Therefore, the question of giving trustees more scope for investment is a matter of interest both for the Treasury and the remainderman.
Owing to the shortness of time available when this matter was last discussed in April, it was not possible for my hon. Friend the Member for Aldershot or my hon. Friend the Member for Wimbledon (Mr. Black) to draw the attention of the House to some anomalies which exist 936 under Part I of the Trustee Act, 1925, which deal with trustee investments. I do not propose to read out the whole of Section I because it would take too long, but I want to draw the attention of the House to one or two anomalies which it causes. Section I says:A trustee may invest any trust funds in his hands, whether at the time in a state of investment or not, in manner following, that is to say: (a) In any of the parliamentary stocks or public funds or Government securities of the United Kingdom "—and no one quarrels with that—(b) On real or heritable securities in the United Kingdom, including the security of a charge on freehold land by way of legal mortgage and a charge under section thirty-three of the Finance Act, 1896…I do not know what that is, but it is something to do with mortgages, and I do not think that anyone would quarrel with it. In a great number of cases, mortgages are extremely good investments for trustees. They protect capital, and give a reasonably high yield for the life tenant.
I now come to the paragraph which I want specially to draw to the attention of the House. Paragraph (c) says that a trustee may invest any trust funds in his hands:In the stock of the Bank of England or the Bank of Ireland.It has always been beyond my understanding why it should be said that a trustee may invest in the stock of the Bank of Ireland. I am not criticising that Bank or its stability in the slightest degree; it has very large assets. But it is a completely anomalous situation when trust funds can be invested in the Bank of Ireland and not in the Bank of Scotland.
Then we come to Section 1 (1, d), which is hopelessly out of date as trustees are authorised to invest—In India Seven, Five and a half, Four and a half, Three and a half, Three and Two and a half per cent. stock, or in any other capital stock which may at any time be issued by the Secretary of State in Council of India under the authority of any Act of Parliament, and charged on the revenues of India, or any other securities the interest in sterling whereon is payable out of and charged on the revenues of India:".That may have been an attractive investment to a number of trustees in 1925, but the House will appreciate that that opportunity does not now exist and that 937 the Section would not cover present investments in India, if trustees wanted to invest in that country.
The next paragraph is perfectly all right. It is:In any securities the interest of which is for the time being guaranteed by Parliament;Then we have paragraph (f):In consolidated stock created by the Metropolitan Board of Works, or by the London County Council, or in debenture stock created by the Receiver for the Metropolitan Police District, or in metropolitan water stock;That is largely out of date. Under pararaph (g) trustees may invest:In the debenture or rentcharge, or guaranteed or preference, stock of any railway company in the United Kingdom incorporated by special Act of Parliament, and having during each of the ten years last past before the date of investment paid a dividend at the rate of not less than three per centum on its ordinary stock;In view of events since the war, that is hopelessly out of date. Paragraph (h) reads:In the stock of any railway or canal company in the United Kingdom whose undertaking is leased in perpetuity or for a term of not less than two hundred years at a fixed rental to any such railway company as is mentioned in paragraph (g) of this subsection, either alone or jointly with any other railway company;That is hopelessly out of date, as is paragraph (i), which reads:In the debenture stock of any company owning or operating a railway in India the interest in sterling on which is paid or guaranteed by the Secretary of State in Council of India;I do not think that any of those stocks exists today. Under paragraph (j), which is also hopelessly out of date, trustees are authorised to invest:In the 'B' annuities of the Eastern Bengal, the East Indian, the Scinde Punjaub and Delhi, Great Indian Peninsula and Madras Railways, or in any securities substitute therefor, and any like annuities which may at any time after the commencement of this Act be created on the purchase of any other railway by the Secretary of State in Council of India, and charged on the revenues of India…I do not want to continue to read the remaining paragraphs of Section 1 of the Trustee Act, 1925, because I hope that it will be said that I have read out enough to show that there are several grounds for revision, because those stocks are either not available or would not be selected by trustees at the present time.
938 Another point which we must remem- ber is that the Trustee Act, 1925, although no doubt perfectly satisfactory for trustees in those days, was passed more than 30 years ago. It is my view and, I believe, the view of most people who consider questions of investment by trustees, that such provisions should be periodically reviewed, every 25 or 30 years, and brought up to date with modern conditions.
That being so, it is interesting to refer to some figures which were given to us by my hon. Friend the Member for Aldershot when this matter was discussed in April. He gave us figures showing the difference which has arisen between gilt-edged and equity shares since 1919. He said: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."—[OFFICIAL REPORT, 13th April, 1956; Vol. 551, c. 636.]That indicates the immense change in the value of equity shares which has taken place since 1919.
I have sought to work out comparable figures and I have taken two trusts created in 1934, one with an investment clause limiting investments to strict trustee investments. The trustees in each case are similar people with considerable knowledge and skill in managing investments. If we take the trust limited to strict trustee investments, where the investment is solely in gilt-edged securities, we find that today that stands at approximately 90, so there has been about a 10 per cent. fall, although it must be remembered that if the comparison had been made a short time before I calculated these figures—about a fortnight ago—there would have been a slight rise to more than 100.
In the trust where equities were allowed, with some limitations, but where only a proportion has been invested in equities, never more than 50 per cent., the figure is about 140, so that there has been a 40 per cent. rise since 1934 in that trust compared with a 10 per cent. fall in 939 the other. Those figures form a strong support for the Bill. The Bill is purposely drawn in a simple form and in a form which does not in its entirety follow the recommendations of the Nathan Committee. It is drawn to follow a very common form of investment clause which is used today by many practitioners who deal in these matters as one of the most attractive forms of investment clauses for trusts where one wants the trustees to be given the opportunity of investing in equities.
I entirely agree with the hon. Member for Surbiton (Mr. Fisher) in what he said about building societies. It is probably a fair criticism of the Bill to say that the limit of total assets of £5 million is too high and it may well be that that limit should be reduced to, say £2 million. I should have thought that that was a matter which could be discussed in Committee. For my part, while keeping an open mind on the subject, I think that £5 million is a trifle high.
We had the opportunity of hearing some part of the Financial Secretary's criticism when he spoke for a short time on 13th April, and I should like to deal with some of the points he made. The right hon. Gentleman said: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.That is perfectly correct, but we deliberately did not follow the recommendations of the Nathan Committee. Although we appreciated the enormous amount of work done by the Committee, we thought that its recommendations in some respects did not go far enough. What we wanted was a simple provision which would have extended this particular provision so far as the restriction of interest paid during the previous years was concerned.
The right hon. Gentleman also said: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."—[OFFICIAL REPORT. 13th April, 1956; Vol. 551, c. 639.]940 That, of course, is perfectly correct, but what I think the right hon. Gentleman has overlooked is that he will find, if he goes through the records—and I suppose he can get them from the Stamp Department at Somerset House, where copies of settlements are kept—that in practically every trust today, indeed, I would almost say practically every trust created since the war, it is very rare to find these limited trusts. In fact, in practically all cases, not only is there an extended investment clause, and that is the reason why my hon. Friend has drawn this Bill so widely, but, even more common, they are given power of investment in equities. At least, that is certainly my experience in practice as a solicitor.
Therefore, what I want the Financial Secretary to take into account is not so much what they can do today, because that is their concern, and most prudent trustees are perfectly capable of seeing that they get a proper investment clause, but the kind of settlement, whether by will or deed, which was created 20 years ago, and in some cases longer than that, which was created under financial conditions quite different to those existing today. That is the problem that we have to face. The right hon. Gentleman is perfectly correct in saying that, if he liked, the testator could limit the settlement to the fixed investments referred to in Section (1) of the 1925 Act, and that that is entirely his concern.
I would be loth to suggest that this House should change the powers to settle in that way, but I feel that it is the duty of the Government now, when conditions have entirely changed and when it is fairly evident, when a settlement has been created, that it can be created in financial conditions relating to an entirely different form of investment clause. Therefore, I think the Treasury and the Government have a duty to give very careful consideration to this matter, particularly after receiving such a strong recommendation that something should be done at an early date from the Nathan Committee.
I feel that it is possible, in fact probable, that criticism will be levelled at this Bill, but I think it is a good steppingstone from which to start off, and that we ought to get the Bill into the Committee stage. Since the Bill was introduced, I have had a great number of 941 representations made to me, and I have talked with a large number of people, including managers of investment trusts, trustee departments and people concerned with individual trustees who manage trusts.
There are a number of alternatives which could be considered to this present clause. It is strongly advocated in many quarters that there should be a percentage limit in any trust on the amount which the trustees may invest in equities. I think there is a very sound argument for that, and I would not object to that proposal being put forward. Another proposal is that not more than 2½ per cent. or 5 per cent. of the funds should be invested in any particular investment, and there again I have an open mind and would not personally object very strongly to that.
But I am not at all sure that, when we come to look at this great number of restrictions, we shall not find ourselves at the end more tied down, as far as the trustees are concerned, than if they had a wide clause, such as that drawn by my hon. Friend. It is of interest to consider for a moment what has been done in this matter in America. There was the New York State Act of 1950, which was the American equivalent of the form of the Trustee Act in this country, which gave investing trustees very wide powers indeed. It invented a thing which is called the "prudent investor rule." which runs as follows:A fiduciary holding funds for investment may invest the same in the kinds and classes of securities described in the succeeding paragraphs of this subdivision, provided that investment is made only in such securities as would be acquired by prudent men of discretion and intelligence in such matters who are seeking a reasonable income and the preservation of their capital.Then it goes on to set out a list of all companies in which trustees are authorised to invest.
Personally, I have no objection to an investment clause such as that, which I should have thought under our law existed anyway, but I do not think that we should follow a proposal to have a set list of investments, because it would be very difficult to compile such a list. It would mean that, if we made such a list, it would automatically force up the price of those shares, because it would create a big demand for them. I therefore 942 hope that if the Bill goes to Committee that proposal will not be adopted.
In my judgment, this Bill, with certain alterations to be made in Committee, would be perfectly welcome, and I hope very much that it will be given a Second Reading, although we know the present position in regard to the Bill. What is more important, I also hope that we shall have a welcome for it from the right hon. Gentleman the Financial Secretary, and some statement that, if he is not prepared to accept the Bill in its present form, he will give us an undertaking and an assurance that something will be done in the fairly near future to assist the great number of trustees in the predicament in which they now find themselves, owing to the fact that Section (1) of the Trustee Investment Act is now hopelessly out of date.
§ 12.27 p.m.
§ Sir Jocelyn Lucas (Portsmouth, South)
I should like to say a word or two in particular on the subject of entailed estates. Entails were originally made so that the capital could come down to the head of the house in order that he could do public work and look after his family. Now that taxation is so high and Estate Duty is still heavy, it seems only reasonable that a bigger return should be available.
I hope that I shall not be out of order in suggesting that it would be more in keeping with the original intention of entail clauses if such trusts were now broken up and divided up amongst the relatives in proportions to be approved by a High Court judge. I should like to commend that suggestion to my right hon. Friend.
§ 12.28 p.m.
§ Sir Ian Horobin (Oldham, East)
I want to address the House mainly on what I think is the real point on which any rational difference of opinion can arise, namely, on the question of equity investments. I do not think that any sane person on either side of the House, or anyone else, needs to be convinced that the original trustee list is completely out of date. The need for some amendment of it may be taken for granted.
The real point to which we have to address our minds is this question of equity investment by trustees, charitable or otherwise, whose trusts were drawn up before it became quite obvious that 943 nobody who did not see that he had a wide investment clause was fit to be a trustee. I do not want to weary the House with a lot of figures, though I could give them, from the very many trusts, charitable and otherwise, which I have managed, because I can put the point quite simply in this way.
In the case of a bank or insurance company, the game is played in pounds, and it does not matter to the bank or insurance company what the money will buy. An insurance company has a contract to pay a certain sum of money at a future date, and it does not matter to the company whether the money buys anything or nothing.
If one is a trustee, whether of a charitable trust or otherwise, dealing with real things, it is a different matter. If one has to keep up a house, for instance a charitable alms house, or to pay staff, it is quite useless to say, after twenty years, "I have still got my capital intact," in the sense that a bank or an insurance company would say that. One is concerned with what the capital will buy.
One of the instances which I have given is a most common form in which the burden becomes crippling to trustees, whether of a charitable trust or otherwise—houses. If, today, one has intact in the bank the capital fund of a trust, at the figure it was even before the last war, one has lost three-quarters of one's money. That is the plain fact with which trustees are faced.
I remember many years ago Maynard Keynes telling me a story about Lord Bradbury when he was head of the Treasury—he was not Lord Bradbury then, of course. It was in the early days, when they met outside the old Treasury offices in Whitehall, the offices which they abandoned because they could not stand the mute reproach of its walls, which had seen much more austere and cautious management of our affairs. This was when the first Bradburys were printed. Maynard Keynes said to Bradbury, showing him his signature, "Now you are famous, Bradbury." Bradbury's answer was, "My dear Keynes, I shall live to see the day when one of my notes will not buy a box of matches." He was not far wrong, except in his timing.
944 That is the situation which we all face, and there is, of course, only one way out for the prudent investor—to invest such portion of his money as he thinks wise in such equities as are suitable, so that he has some hedge against inflation, and some share in the increase in the wealth of the community. It means that if he has a share in I.C.I. or Shell he has something to set against the depreciation of the currency which has been going on steadily all through our lifetime, and longer.
It is particularly interesting to point out that we trustees of all these various trusts are pressing this matter very strongly at a time when it might appear that for the first time in living memory a prudent trustee could invest in gilt-edged securities without deserving to go to Brixton. It is now clear that the next move in the Bank Rate, when it comes—and presumably it will not be soon—will be down and not up; and therefore one could buy gilt-edged securities as a prudent investment for capital appreciation, probably for the first time in our lifetime.
But let us examine the deduction to be made from that. The deduction to be made is that no prudent trustee can any longer invest, if he has any freedom of action, in gilt-edged securities, unless he treats them as a market to job in; he has to job in gilt-edged, if he is to be a prudent investor, just as the speculator would job in second-rate rubber shares. That is what the gilt-edged and trustee list has been reduced to in the last fifty years of the administration of the finances of this country.
It is to some of us quite intolerable that we should be told over and over again that as trustees we need protection from the Government. Here are these people running a bucket-shop on widows' and orphans' savings. They juggle with one account and another, they rig the market before every Government issue, and they perform in a way which would have made Hatry cheer and Bottomley blush; and they have the cheek to say, the State having performed as it has done in the last thirty years, that the State has to protect the beneficiaries of trusts. It is not in a fit position to give anybody lectures on financial morals or to pose as the protector of anybody.
945 Of course, it is perfectly true that if we can get power to invest in equities, that is not an easy and certain way out. Of course it will be difficult. It has not been easy since the days when Timothy Forsyte invested all his money at 3 per cent. in Consols and watched it appreciate while the cost of living fell, in old-fashioned, less progressive Victorian times. We live in more progressive and expensive days, and the suggested change will not be an easy way out, but it will be at least a chance of a way out. If we have these powers we may still lose, but we are certain to lose if we are tied to gilt-edged securities.
Of course, there are Committee points which can be considered—whether we can in any way reduce the proportion and so on. But the one point which I think the House should have in mind in deciding this issue is whether, considering the treatment of the currency of this country and of other countries which we have grown to accept ever since before 1914, any prudent manager of other people's money can afford to have it all in fixed interest securities?
In my submission, that is, briefly, the point which has to be borne in mind, and put in that way it seems to me that there can be only one answer. By all means let us find ways, if it is possible to find them, of protecting ourselves and the beneficiaries of our various trusts, but the one certain thing which has brought charity after charity and private trust after private trust to the position where it cannot carry on, and the one certain risk which the trustees are running, is that if trusts are in fixed-interest securities they are bound to lose. As the years go by the trustees cannot carry out their trusts, because whether they are looking after property or paying salaries, or meeting educational expenses, on a fixed income they lose.
I very much hope that, whatever the Financial Secretary has to say to the House from the point of view of minor modifications, he will not try to ride off on a promise of amending the list which still leaves it as a list of fixed-interest securities, because that does not touch the main issue. Secondly, I hope that he will not try to cover up the damage which has been done to these funds by the ceaseless inflation by trying to suggest that trustees cannot at least be given some opportunity to escape certain death, 946 even if there is a chance that they may be run over in crossing the road.
§ 12.38 p.m.
§ The Financial Secretary to the Treasury (Mr. Henry Brooke)
If I may have the leave of the House to speak again, I will assure the hon. Member for Sheffield, Park (Mr. Mulley) that I do not rise with the intention of talking out the Bill. At the same time, let me point out that 31½ hours would be nothing to me in this connection, because I started my first speech on 13th April and have continued it over nine weeks.
Now that I am not under quite such a pressure of time as on the first occasion. when I had only five minutes, I should like to be a little more expansive and to deal at any rate with some of the important and substantial points which have been raised from both sides of the House. I want to give evidence to the House that I myself have no narrow personal prejudices in this matter, for I am one who for the past 25 years, in my private capacity, has never in normal circumstances agreed to become a trustee of a trust unless the trustees were to have wide investment powers. Having thus proved that I do not lie within the class of people described by my hon. Friend the Member for Oldham, East (Sir I. Horobin) as unfit to be a trustee, I add that I do not take the view which some hon. Members have perhaps ascribed to the Government of assuming that all trustees are liable to be incompetent.
Let us keep a balanced mind in this. The trustees of many trusts are highly efficient and competent people who give a great deal of constant thought to their duties. I am sure that, equally, it will be recognised that among the mass of existing trusts there are a good many where the trustees are not of that quality. They are inclined to go to sleep on the job, and, indeed, if they were to wake up and try to operate with vigour in the stock markets, the results might not, owing to their own ignorance, be particularly successful.
Again, if I may, I will try to fortify my own personal position in this matter by another reminiscence. Many years ago three private citizens were appointed trustees of a charitable trust. One of them was myself. I have since come under the baneful influence of the 947 Treasury and, of course, I am only too well aware of the notoriously lavish, speculative and irresponsible attitude towards the laying out of public money that one meets when one becomes resident in the Treasury. Fortunately, my feelings in that respect are tempered and offset by the fact that of my two co-trustees one has risen to a very high position in the Bank of England and the other, with great distinction and to the pleasure of all of us, holds the most honourable position of Clerk of the House of Commons. That personal experience of mine is surely proof that, however unworthy one trustee may be, there are bodes of trustees which can be rightly entrusted with the widest investment powers.
I wish, first, to consider Clause 2 of the Bill, which really deals with a somewhat separate issue, the right of trustees to invest in the deposits of building societies. This is a question well worth consideration by the House. It is quite true that the deposits of building societies were not included in the additional securities which, in my statement, of July, 1955. I indicated that the Government were disposed to include in future trustee lists, but I would certainly not say that they should be ruled out of consideration altogether.
I should like the House to bear one or two points in mind. There has not, so far as I am aware, been any general or strong demand from trustees themselves for the trustee list to be extended in this direction. Furthermore, if one were to include building society deposits, one would, I think, have to consider the claim of bank deposits, or, indeed, the fully-paid shares of banks, discount houses and insurance companies, and others would come along and claim that at any rate certain of the securities of some investment trusts had as strong an entitlement as building society deposits to be in the list.
§ Mr. Glenvil Hall
Might I suggest to the right hon. Gentleman that the analogy between building society deposits and bank and insurance company shares is not quite as complete as he appears to make it? The one set of securities goes up and down and the other does not. Building society deposits are invested almost completely in property. The 948 capital is secure and can never be altered up or down.
§ Mr. Brooke
Bank deposits may go up or down, but they do not go up or down in the sense that the right hon. Gentleman means, any more than do building society deposits.
The only point I was making was that it is not easy to draw a fresh line and say that unquestionably building society deposits should be in and all these others should be out. If one is going beyond the field of the present list, then there are a great many other directions of investment besides building society deposits which one should consider. I must say that I have a good deal of sympathy with the view expressed by my hon. Friend the Member for Surbiton (Mr. Fisher) and other hon. Members that if building societies were to be included one need not necessarily confine attention to those with assets of more than £5 million. There are certainly first-rate building societies of a smaller size than that. Without arguing about the figure, I would say that the inclusion of building society deposits was a matter of principle, but that, if it were decided that way, there should be no sanctity about so high a figure as £5 million.
I now return to the main issue of the debate, which is whether investment in equities should be permitted to trustees. My hon. Friend the Member for Aldershot quoted a calculation of the way in which a sum of money invested in equities in 1919 would have expanded in value by now. Of course, it is important that the money should not in 1919 have been invested in the wrong equities, and that we have to bear in mind. Not even average figures here can prove his case.
Investment in gilt-edged may, as has just been suggested, be something of a gamble in certain circumstances, but successful investment in equities certainly requires a high degree of knowledge, experience and judgment, and constant attention. I must emphasise that the purpose of having a trustee list at all is not to encourage the exercise of skill. but, rather, to lessen the possibility of imprudence. The fact that imprudence has to be guarded against was, I think, acknowledged by several hon. Members when they criticised the provision in Clause 1 to allow up to 100 per cent. investment in equities. Indeed. I think 949 that my hon. Friend the Member for Aldershot, to whom we are so much indebted for bringing this subject before the House, indicated nine weeks ago that he thought his own Bill ought probably to be amended so that the percentage which could be invested in equities should be lowered.
It must be borne in mind that investment in equities demands more skill and attention than I would say most trustees of small trusts can be expected to have or to procure. I hope that before coming to the case against Clause 1 I have made it sufficiently clear to the House that I fully appreciate the force of the argument which has been put before the House that during a period of inflation a trust which is confined to fixed interest securities may suffer very seriously. I am not questioning that for a moment.
It happens that we are discussing the subject after a long stretch of inflationary conditions and at a time when equities stand high. Had one been discussing it at other periods since the end of the first war, one might not have drawn quite the same conclusion as hon. Members are drawing at this time. We have to bear in mind all the different contingencies of the economic situation and the state of the stock market. I am not in any way seeking to minimise the force of what has been said by hon. Members. This is not an easy problem to which we have to find a solution, and I fully grant that the Government have to seek and find a solution for it.
It is suggested in Clause I that the test for a suitable equity of investment is that the company should have paid over the last ten years a dividend at the rate of not less than 5 per cent. There again, even dividend records are not necessarily a reliable guide. That test would exclude numbers of thoroughly bad investments, but even the securities of what I might call good companies can fall substantially in value, as hon. Members who have taken part in this debate may have discovered to their own cost in their private affairs at some stage in their lives.
When a company like that goes wrong, it may happen that it is unable to pay a dividend at all on its equity stock for a time. The suggestion was made that equity investment was much better and safer than undated Government stocks—I think that it was my hon. 950 Friend the Member for Surbiton who said that—but, of course, for these fixed interest securities on the trustee list, I must say in their favour that they may depreciate but the interest on them does not fall and, of course, the life tenant is very interested, and rightly so, in the interest.
I think that doubt was cast by my hon. Friend the Member for Aylesbury (Sir S. Summers), in his interesting speech, as to whether there really would be any danger of equities, if they were included in the trustee list, tending to be regarded by the general public as enjoying some kind of Government assurance that funds might safely be invested in them.
I should have thought that that aspect was something to which all of us needed to give some consideration because, of course, it could lead to considerable complications in certain circumstances when something exceptional was happening to a company if it had, owing to the action of Parliament, come to be a fact that the equity stock of that company was widely held by trustees who thought that it had some kind of Government approval.
I think it was the hon. Gentleman the Member for Sheffield, Park, who questioned whether I had been right in the first part of my first speech in calling attention to the value of having the present trustee list so as to protect the remainder man against the rapacious desires of the life tenant. One has to consider that also from the trustee's point of view. The trustee list is designed not only to protect beneficiaries against any dishonesty or incompetence on the part of trustees, but it also serves to protect trustees against claims by beneficiaries with interests which are different from, or inconsistent with, one another, and the outstanding case there would be, I should say, the importunities of life tenants whose interest may be to secure the highest possible income for a few years without proper regard for the security of the capital ultimately passing to the remainder man.
§ Mr. Mulley
I agree that the trustee has a responsibility and that he must exercise it so as to secure a balance between the conflicting interests of the life tenant and the remainder man. The point which I tried to make was that the present trustee list has the effect of 951 being disadvantageous both to the interests of the life tenant as to income and the remainder man as to capital, and I was not suggesting that there should not be a balance or that there should be no trustee list at all.
§ Mr. Brooke
I do not wish to cross swords with the hon. Member on that point, but merely to point out to him that I do not think that he has demolished the argument that I used many weeks ago that the trustee list does have this value of protecting trustees in certain circumstances from the pressure by the tenants for life whose sole interest may be to extract as high an income as they possibly can for a period without regard to the ultimate security of the capital.
I want to say to the hon. and gallant Member for Cheltenham (Major Hicks Beach) that the Government is well-aware that the trustee list is, in certain circumstances, out of date. Some of the stocks in it have a rather curious look nowadays, and some of them have in fact disappeared. Others, of course, have come into being. The trustee list as a whole has grown rather than shrunk. The stocks of nationalised industries are trustee investments, there are more Commonwealth stocks than there used to be and the range of Government stocks has widely increased with the growth of the National Debt.
I think that what all this really amounts to is that there exists a strong case, as has been cogently put in the House today, for taking stock afresh of the position in the light of the difficulties caused to trustees as a whole, even the most competent, responsible and wise trustees by the present rigid limitations of the list. I hope that hon. Members will also, following this debate, give thought to the argument that I have addressed to the House that there is a substantial case also against general and automatic extension of the powers of all trustees, and we have to try to find a solution which will help to avoid both of the dangers which are in our minds.
It is already accepted that in a number of cases there may be sound arguments on the merits for extending the powers of investment. For public trusts this can be done by the authority of the courts or for chartered bodies, in appropriate cases, by the Privy Council, or for bodies 952 incorporated by Private Acts it can be done by Parliament itself. I grant at once that the powers of the courts are much more circumscribed in the case of private trusts. At the same time, it is right to remember that where all the beneficiaries of the trust are in existence, so to speak, of full age and sound mind, the powers of investment can be widened with their agreement without application to the courts.
I was asked one or two questions about the statement which I made in July, 1955. The right hon. Gentleman the member for Colne Valley (Mr. Glenvil Hall) asked whether the limited extension I then foreshadowed would extend to charitable trusts only or to all trusts. We had in mind that they should extend to all trusts, but I am not arguing for a moment that that limited extension would meet all the arguments which have been adduced today for a much wider extension. Certainly the Government will need to legislate on this matter. It will be within the knowledge of the House that at a date in June I cannot possibly give any forecast when it will be practicable to legislate, but it is the firm intention of the Government to legislate.
I want to assure the House that we have been considering possible methods of enabling trustees of private trusts to be allowed wider powers in approved cases. So far, we have not been able to devise a procedure that is both feasible and likely to avoid the real dangers of a general and widespread relaxation of powers without any distinction. Certainly, the search for a solution will continue vigorously.
I should like to try to set at rest one fear. I have had it said to me on various occasions, though I think not today, that the Treasury pays only lip-service to the extension of the trustee list because its real and private desire is to protect the gilt-edged market. The allegation is that if the trustee list were to be extended, the effect of that on the market in trustee securities, and particularly on the gilt-edged market, would be very serious and therefore the Treasury would fight tooth and nail against any such extension being made.
I assure the House that that is a great exaggeration. The fact is that it has always been open to any settler to lay down what investment provisions he 953 thinks fit. As my hon. and gallant Friend the Member for Cheltenham perfectly correctly said, a high proportion of existing trusts, particularly those formed in recent years, have been provided with wide investment powers. As he and the House will know, the biggest investors in the gilt-edged market are, without doubt, in no way confined to that market by the requirements of the Trustee Act.
I have looked into this matter and I can say that we are satisfied that the effect on the gilt-edged market of an extension of the trustee list would be quite marginal. By saying that, I hope that I have convinced the House that the Treasury is not approaching this matter in any narrow or prejudiced way. We are anxious to hammer out the right solution. I am afraid that, on behalf of the Government, I cannot offer any facilities in this Session for the later stages of the Bill, and I indicated in my first speech that I did not see how the Bill could be amended in Committee so as to make it acceptable to the Government. If, therefore, we were to go into Committee on the Bill we should occupy a good deal of time without any possibility of Legislative result in this Session.
Naturally, the matter is entirely in the hands of my hon. Friend the Member for Aldershot, who has given us the opportunity of this extremely informative and valuable debate, but he may possibly consider that, instead of going to Committee and discussing the details of the Bill there without hope of passing it into law, it might be well in the general interest if the Government were to take the matter back. He may think that it might be well if the Government looked at it again in the light of all that has been said in this debate and in the debate on 13th April and see whether, despite all the difficulties—for I cannot hold out any hope that general unlimited extension could be granted—we could find a solution that would meet the arguments which have been adduced against the continuation of the present situation while not opening the door too wide to the dangers that I have indicated.
§ 1.6 p.m.
§ Sir Eric Errington (Aldershot)
I can speak only by leave of the House, but in view of the fact that I cut my remarks somewhat short in my speech in moving 954 the Second Reading of the Bill, I should be glad if leave were granted. [HON. MEMBERS "Hear, hear."] The right hon. Member for Colne Valley (Mr. Glenvil Hall) said that the Bill was stillborn. I do not think that it is a very lusty infant, but I hope that the House will think that our discussion has been of value. Emerging from the discussion is the fact that possibly the Government have not fully realised the very rapid changes that have taken place in connection with trusts.
I was concerned with a trust which was provided by a testator in 1937. Roughly, it was to provide, for deserving and able young people who could not otherwise afford to go to university, funds to enable them to go. That fund has no application today because deserving and able young men and women can go to the universities. That was only twenty years ago. Therefore, when we have a Trustee Act which is dated 1925, that is, thirty-one years ago, it is not surprising that there are now the differences and anomalies, to which my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) has called attention.
Certain figures covering nearly forty years seem to indicate that throughout that period the yield on equities, taking into account capital appreciation or depreciation, in every period of ten years between 1919 and 1929, 1929 and 1939, etc., exceeded the yield on gilt-edged securities, with one exception. That was the period 1929–39 when the yield on equities was 4.4 per cent. and the yield on gilt-edged securities, plus capital appreciation, amounted to 5.9 per cent. Therefore, during that considerable period of forty' years, with the slight relapse between 1929 and 1939, the yield on equities far exceeded the yield on gilt-edged securities.
I am troubled, in connection with the Bill, by the position of the people who are concerned with small trusts. It is a rather difficult situation, because they are the people who most need the benefits of any improvement that can be made in trustee legislation, and yet they are the people who least of all are able to get the best advice. They are also very often unable to spread the investments in the estate when the estate is small. It is no answer to say that they could go to the court, because in relation to the small 955 estate the cost of going to the court, apart from the trouble caused, is very substantial.
If the Government intend to give consideration to these matters I wonder if it would be possible to consider whether some protection might be given to certain small estates by a requirement to obtain advice and a certificate of advice from a competent stockbroker. That sort of thing occurs in the valuation of property. One engages a surveyor, who gives full consideration to the matter from his professional knowledge.
There is no reason why that sort of procedure should not be applied to stocks and shares in order to meet the very grave need of people who are concerned with small trusts. Of course, the large trusts are in a very much stronger position, but, in view of the difficulties of the small trusts and their inability—to use the expression of my hon. Friend the Member for Aylesbury (Sir S. Summers)—to get freedom of manoeuvre, their position does require special consideration.
I should like to pay tribute to the care and the co-operation that my right hon. Friend the Financial Secretary has given in this obviously most important question 956 of principle. I am pleased to hear that legislation is intended over part of the field. I hope, however, that my right hon. Friend will continue to use his good offices to consider further whether the Government can do something to solve these admittedly important problems for quite an important section of the community.
I entirely agree with my right hon. Friend that in the circumstances it would not help anybody for me to press for the Bill to be given a Second Reading. Relying on the fact that we have had a full debate, even though it was spread over two days, I hope that the Government will eventually be able to do something in the matter. It only remains for me to ask leave to withdraw the Bill—
§ Mr. Glenvil Hall
Before the hon. Gentleman does that, may I say that we on this side of the House think that the hon. Member has taken a wise decision? We all appreciate that, in view of the situation it would be better, in the light of what the Financial Secretary has said, if the matter were left to the Government for them to do something about
§ Motion, by leave, withdrawn.
§ Bill withdrawn.