§ Mr. Barber
I beg to move, in page 3, line 3, at the end to insert:; and paragraph (a) of this subsection shall not include the case of a dividend or interest becoming part of a trust fund".This is a very little more than a drafting Amendment to put right what I frankly admit to be an error which we made in an Amendment accepted in 1919 Standing Committee. Frequently, dividends and interests on investments comprised in a trust fund are handed over to the beneficiary or otherwise disposed of and do not become part of the trust fund, but in some circumstances either the income is not wholly spent or the trustees are called upon to accumulate the income as it arises as capital. The intention always has been from the outset that such income should be treated as a fresh accrual of capital to be divided equally between the two parts of the trust fund.
As Clause 2 (3) was presented to the House on Second Reading and to the Standing Committee, this result was achieved and, although I do not remember a specific reference to it, I think that it is fair to say that it was implicitly accepted by hon. Members. In other words, accruing income did not fall within subsection (3, a) as drafted because, if I may use the words in the subsection then, the income did not accrue… by reason of the exercise of any right or remedy arising from the ownership of property.…It will be recalled that an Amendment was made to subsection (3) in Committee and particularly to paragraph (a), which now reads:if the property accrues to the trustee as owner or former owner of property comprised in either part of the fund, it shall be treated as belonging to that part of the fund;Those words will cause accrued income to come to that part of the fund which gives rise to it.
The Amendment puts the matter right. In other words, it restores the position to what it was when the Bill originally came to the House of Commons and it avoids the inadvertent alteration in this aspect which was made by the Amendment that I moved in Committee.
§ Mr. A. J. Irvine
If paragraph (a) of the subsection is not to include the case of the dividend or interest becoming part of the trust fund, It would seem to follow that paragraph (b) does so include. That interpretation of the Amendment has been confirmed by the Economic Secretary and this means, as I understand it, that when a dividend or interest income comes to the trust fund there then follows the process of apportionment or transfer contemplated in subsection (3).
1920 I think it right to raise one point which arises from that proposal. Why is interest, accruing to the fund in this fashion and setting on foot the process of transfer and apportionment which the Bill contemplates, distinguished in this way from property acquired in consideration of a money payment dealt with in the subsequent passages in the subsection under consideration? It is difficult, for me at, any rate, to discover the logical reason for this.
The House is well aware that in recent weeks there have been several examples of rights issues being made where shareholders owning shares worth up to £8 or more are given rights to buy three new shares for every one share held and to buy those new shares at par, which, in this instance, may be as little as 5s. a share. What is it that justifies so important an accretion of value to a fund, such as I have referred to, being permitted to attach itself to the appropriate range of investment without apportionment or transfer and, at the same time, being regarded by the Government as justifying this relatively meticulous treatment of dividend and interest accruing to the trust fund?
§ Mr. Graham Page (Crosby)
I am not sure whether this provision which my hon. Friend now seeks to insert in the Bill affects the special range of property in the next Clause. Supposing the dividend arise from the special range property, is one to apply subsection (3) and all its apportionment and division, or does it accrue to the special range property? It seems to me that this Amendment not only affects what I would call the Bill powers, but also the special powers under Clause 3.
§ Mr. Barber
I will deal in turn with the three points raised. On the two points raised by the hon. and learned Member for Liverpool, Edge Hill (Mr. A. J. Irvine), he stated clearly the purpose of the Amendment in that it excludes dividends and interest from the ambit of paragraph (a) and brings them into paragraph (b). He went on to say, "Does not this mean that this will involve apportionments and transfers contemplated in paragraph (b) in the case of all dividends and interest which become part of the trust fund?".
I would first say that this applies only in a case where the dividend or interest 1921 becomes part of the trust fund. I am advised that in the case where the income is being paid out, although it comes under the control of the trustees, it does not become part of the trust fund. Consequently, the division here required would not be required in that type of case.
With regard to the question of transfers, as dividends and interest come normally in the form of money, I cannot at the moment contemplate that transfers would be necessary, because it would be a straight apportionment, or a straight split, as between the two sides. In the normal case income is accumulated as capital and assuming—though I know hon. Members differ on this—that we are right in the basic principles embodied in the Bill of providing for a division, I think that it would follow logically that one should divide the dividends and interest which arise to the fund and which are to be accumulated as part of the capital of the fund.
§ Mr. Diamond
Does this not distinguish between the temporary collection of the income awaiting dispersal under the trust and a long-term accumulation of money which comes in as income but takes on the nature of capital because it is not to be distributed as income?
§ Mr. Barber
Broadly what the hon. Gentleman has said is right. Perhaps I may be a little more precise. I should prefer to rely on the words of the Amendment. In other words, it applies only where the dividend or interest becomes part of a trust fund. I agree that what the hon. Gentleman said was broadly to the same effect.
As to the hon. and learned Gentleman's second question concerning the concluding words of subsection (3) which deals with the case of a trustee acquiring property in consideration of a money payment, we discussed this in Committee and the basic reason why the property referred to there is treated in the way it is to be is simply because, in our view, it is more analogous to a normal type of investment. That being so, we felt that it should be treated as such and not as an accrual of property to the trust fund. Whether the hon. and learned Gentleman agrees with that or not, this is the reasoning which caused us to include that provision at the end of subsection (3). Perhaps my 1922 hon. Friend the Member for Crosby (Mr. Graham Page) would be good enough to remind me of his question.
§ 1.30 p.m.
§ Mr. Graham Page
When a dividend arises from special range property covered by Clause 3, does that have to undergo the operation of apportionment and so on under Clause 2 (3)?
§ Mr. Barber
I hope that my hon. Friend will allow me to reply by saying that this provision will cover the case of any dividend or any interest which becomes part of a trust fund where the fund has been divided in pursuance of Clause 2 (1). I should not like without notice to consider the circumstances of a particular case where a trustee has special powers to invest, or to say off the cuff whether or not in those circumstances the Amendment would apply to a case like that. It is a general Amendment, but application is governed by the opening words of subsection (3) which refer to property accruing to a fund after the fund has been divided in pursuance of subsection (1).
In other words, the Amendment would have no application to the case of a trust which included a special power of investment, the trustee relying solely on that special power to invest. On the other hand, if the trustee wished to take advantage of the additional powers of investment given in the Bill and, consequently, to operate both the special powers of investment and the powers given in the Bill, at any rate to some extent, the Amendment would apply. However, I am sure that my hon. Friend will forgive me if at this juncture I do not give an off-the-cuff answer to his specific question, because at this stage of the Bill I should not like to take the risk of misleading those who might have to follow what I am saying.
§ Mr. Mitchison
This sounds quite interesting. Is some arrangement to be made for the answer to be put into HANSARD in some form or other, and not confined to a secret missive from the Government to the hon. Member for Crosby (Mr. Graham Page)?
§ Mr. Graham Page
My hon. Friend has answered the question quite satisfactorily and I think that a dividend of this sort does become apportionable under subsection (3).
§ Amendment agreed to.