|5||(1) The Treasury may by order made by statutory instrument direct that, subject to subsection (3) of section four of this Act, any division of trust fund made in pursuance of subsection (1) of section two of this Act during the continuance in force of the order shall be made so that the value of the wider-range part at the time of 5 the division bears to the then value of the narrower-range part such proportion, greater than one but not greater than three to one, as may be prescribed by the order; and in this Act "the prescribed proportion" means the proportion for the time being prescribed under this subsection.|
|10||(2) A fund which has been divided in pursuance of subsection (1) of section two of 10 this Act before the coming into operation of an order under the foregoing subsection may notwithstanding anything in that subsection be again divided (once only) in pursuance of the said subsection (1) during the continuance in force of the order and before the expiration of twelve months from the coming into operation thereof.|
|15||(3) If an order is made under subsection (1) of this section, then as from the 15 coming into operation of the order—|
|20||(a) paragraph (b) of subsection (3) of section two of this Act and sub-paragraph (b) of paragraph 3 of the Second Schedule thereto shall have effect with the substitution, for the words from "each" to the end, of the words "the wider-range part of the fund is increased by an amount which bears the prescribed 20 proportion to the amount by which the value of the narrower-range part of the fund is increased";|
|(b) subsection (3) of section four of this Act shall have effect as if for the words "so as either" to "each other" there were substituted the words "so as to bear to each other either the prescribed proportion or".|
|25||(4) An order under this section may be revoked by a subsequent order thereunder prescribing a greater proportion.|
|(5) An order under this section shall not have effect unless approved by a resolution of each House of Parliament.—[The Solicitor-General.]|
§ Brought up, and read the First time.
§ The Solicitor-General (Sir Jocelyn Simon)
I beg to move, That the Clause he read a Second time.
Perhaps it would be convenient, Mr. Speaker, to discuss at the same time, all the Amendments to this Clause, standing in the names of the hon. and learned Member for Kettering (Mr. Mitchison) and the hon. Member for Gloucester (Mr. Diamond).
§ Mr. Speaker
We must arrive first at the point where the Clause has been read the Second time, so as to give us something to amend.
Then I was going to suggest, subject to those with wisdom about the Bill, that we might be able to discuss together the following proposed Amendments in the names of the hon. Member for Kettering (Mr. Mitchison) and the hon. Member for Gloucester (Mr. Diamond), in line 6, to leave out from the beginning to "as", and to leave out "three" and to insert "ten"; in line 8, at the end to insert:and a proportion includes the proportion of one to nothing".and in line 26, at the end to insert:(which may be greater than three to one)".and then refer to their Amendment in line 12, to leave out from "order" to the end of line 13.
1882 That is a grouping which, I think, might be convenient for the House.
§ The Solicitor-General
If you please. Mr. Speaker.
This new Clause is in response to an appeal, and in place of an Amendment moved, by the hon. and learned Member for Kettering in Committee. He moved an Amendment which he was good enough to withdraw at a later stage because, in some ways, it did not fit exactly into the Bill. But he expressed his desire and the purposes of the Amendment in this way:The broad purpose is to allow the Treasury to vary the fifty-fifty rule from time to time and to make any such variation not compulsory upon any trustee, so that the trustee, if he so chooses, may simply continue the existing proportion."—[OFFICIAL, REPORT, Standing Committee B. 25th April, 1961, c. 344.]The hon. and learned Gentleman withdrew the Amendment upon an undertaking by my hon. Friend the Economic Secretary that he would introduce a suitable Government Amendment. He was supported by the hon. Member for Gloucester, who said that if we did what he wanted to do faces could be saved. That is not a consideration which weighs with the Government.
§ The Solicitor-General
But he said that everything could be made reasonably happy, and, of course, that is a very powerful consideration, not least on this Bill, where, at times, it seems very difficult to make anybody happy about anything. It is in response to that challenge that I move this new Clause.
Subsection (I) gives the Treasury power to direct, by Order, that any division of the trust fund into wider range or narrower range parts shall be in a proportion greater than fifty-fifty, but not greater than seventy-five-twenty-five. It might be more convenient if I defer at the moment giving the House the reasons why we stop at a maximum of seventy-five-twenty-five until we come to the proposed Amendments to the Clause.
Subsection (1) covers the case of a trustee who has not previously divided the fund. Subsection (2) allows the trustee who has previously divided the fund to make a new division in the new proportion; and, in response to the particular point made on this by the hon. and learned Member for Kettering in Committee he will see that the power is permissive. The reason for this is that the new division will be based on the value of the fund at the time when the new division falls to be made. There might well be cases where there has already been an appreciation on the equity side in the wider range part of the fund. The proportions that were mentioned in Committee were forty-sixty, and it may well happen that, when the new Order came to be made appointing a new proportion of forty-sixty, the proportions in any particular fund of the wider range and narrower range parts were already in excess of forty-sixty. It was for that reason, I imagine, that the hon. and learned Member wished the power to be permissive. It seemed to us that that was a cogent consideration.
Subsection (3) contains consequential provisions. Subsection (4) provides for the contingency that the Government might wish to proceed by stages from the proportion of fifty-fifty contained in the Bill to the ceiling of seventy-five-twenty-five, which will be permitted by this new Clause. I should point out that there is no provision for reducing the proportion. That was, I think, a feature of the hon. and learned Member's Amend- 1884 ment, but it seemed to us unrealistic to suppose that a downward movement would be likely to be necessary. Certainly, it would be a new situation which would seem to demand a new Act, rather than a Statutory Order. Subsection (5) invokes the affirmative Resolution procedure.
§ Mr. Mitchison
I thank the Government for paying some attention to this matter. It arises out of much more sweeping proposals about leaving, in effect, the choice between the narrower range and wider range investments entirely to the discretion of the trustees. I am not referring to that question now, and when I say "entirely to the discretion of the trustees," I am not speaking to the other safeguards in the Bill—matters of advice and contents of the various Schedules we shall come to in due course—but within those limits the proposal was that they should be given entire discretion.
It was pointed out in the course of argument that, under the provisions of the Bill, a fund would start in the fifty-fifty proportions, but that one thing that was quite certain was that, in the course of time, the proportions would vary and probably, in the present trend of things, in the direction of increasing the proportion of wider range investments. It was in consequence of that, and to import a little elasticity into what seemed to us to be a very rigid scheme, that we suggested what the Solicitor-General has just indicated and with which this new Clause is intended to comply, at any rate partially.
I do not, however, recollect that when the Government undertook to look into the matter anything was said about fixing some other proportion. I speak subject to correction. The proceedings were lengthy. I think that the right hon. and learned Gentleman will find that that was the position.
§ The Solicitor-General indicated assent.
§ Mr. Mitchison
The limitation of a three-to-one proportion is the Government's own addition. This proportion is intended to be, as I understand it, the final proportion.
Further, the new Clause provides that, once an Order has been made prescribing a different proportion, a trustee must 1885 elect within twelve months whether he will take advantage of it. That too is, I think, a new suggestion. We saw no objection, provided that the election was definite and final, to the trustee making it at a later stage. The circumstances of these trusts will be almost infinitely various and we saw no reason for any provision of that sort. It was not in our own Amendment which was withdrawn.
Accordingly, while we welcome the general idea of the proposed new Clause, we wish, on the one hand, that the Government had been able to go much further and, on the other, we make the objections which I have indicated today.
May I now move my first Amendment to the proposed new Clause, Mr. Speaker?
§ Mr. Speaker
No. That is not quite right. We have first to find out, aye or no, whether the House assents to the proposed new Clause being read a Second time. We will then have something that we can amend and can get on to the Amendments.
§ 11.30 a.m.
§ Mr. Mitchison
I am very much obliged, Mr. Speaker.
On the Clause itself, therefore, I should like just to pick out a single word in the speech which the right hon. and learned Gentleman made a few minutes ago. He said that it would be unrealistic to suppose that the proportion would ever become a smaller proportion of wider-range investments; that is to say, if changes were made they would all be changes in the direction of a higher proportion of wider-range investments.
There is no certainty about these matters, obviously, but I should have thought that the history of ordinary shares in the past thirty or forty years, or even in more recent times, entirely supported that proposition. I feel a great deal of sympathy with what was said just now by my hon. Friend the Member for Oldham, West (Mr. Hale). Having looked at the Bill, he was not certain that it really did very much. It imposes, let us say, an optional bed of a somewhat procrustean character, and in view of the changes which will happen to any fund which has been divided in the way the Government propose, I doubt whether this bed will 1886 long prove one on which trustees will elect to lie.
The Bill will be improved to some extent by the Clause now proposed, and so far we are glad of it, but it still remains an uncommonly rigid Measure, though much less rigid than when it went to Committee and less rigid now that the Clause is being introduced, assuming that it is passed.
Therefore, we shall not oppose the Clause as a Clause. We merely take it and the felicitous words which the right hon. and learned Gentleman chose as an indication that this will be a very awkward scheme. It will be one which many people may refuse to use even with this modification because of its still somewhat rigid character and the promise given in Committee by my hon. Friend the Member for Gloucester (Mr. Diamond) that the Bill would not last long and that we should have a wider one in course of time. I would merely say on that that trustee legislation appears always to be belated and always to arrive at rather long intervals.
§ Mr. Diamond
I should just like to say how grateful I am to the Government for having given such full consideration to this matter, and I should like particularly to endorse the reasons which they have given for having tabled the new Clause. It is most kind of them to have regard to everybody's happiness and to have decided to disregard all face-saving. I should like to reciprocate the courtesy and say that we appreciate their consideration for everyone's happiness and that we have every consideration for saving what are to us most acceptable and pleasing faces.
However, can we be told a little more about why, although this represents a very considerable breach in the original proposals of the Bill—the Government have gone a very long way; it would be discourteous not to accept that—they have at this stage introduced a new limitation to the discretion of the trustees?
§ The Solicitor-General
I proposed to deal with that on the Amendments in the name of the hon. and learned Member for Kettering (Mr. Mitchison).
§ Mr. William Warbey (Ashfield)
As my hon. Friend the Member for Gloucester (Mr. Diamond) says, the new Clause represents a substantial departure from the original proposals in the Bill—in fact, a major departure. Although the Clause does not go as far as some of my right hon. and hon. Friends want, it goes a very long way to meet their desires.
In fact, by the power taken in the Clause not only to increase the proportion of wider-range investments up to 75 per cent. by Statutory Instrument, but also to introduce further variation upwards by further Statutory Instruments, in effect the House would, by adopting the new Clause, be giving general legislative sanction to the proposition that in the course of time, if not immediately, the powers of trustees should be extended up to a point where they may be entitled to invest perhaps the whole of their funds in industrial equities instead of gilt-edged securities.
This is what some of my hon. Friends desire, and the possibilities of achieving it being contained within the scope of this Clause, and as I am opposed to any form of extension and, therefore, a fortiori, to the greater degree of extension proposed by my right hon. and hon. Friends, I think that this is the moment when I should put my objections. My hon. Friend the Member for Oldham, West (Mr. Hale) appears to want to interrupt me. I have not really said anything yet about which he can interrupt me, but I will give way.
§ Mr. Warbey
If my hon. Friend will allow me, I will come to that point a little later. That is, in fact, one of my objections to the Clause—that it will make it worse for him and others in his position.
In putting forward the Clause, the Government have abandoned the position taken by the Nathan Committee, the position taken by them in the White Paper and the position they took up on 1888 Second Reading when the Solicitor-General, with great emphasis, said that the fifty-fifty proportion was fundamental to the scheme and indicated that there could be no budging on that whatsoever whatever concessions he might make. Now he has given way.
The duty of the Government in the matters covered by the Bill is, first, to safeguard the value of Government securities and their ability to borrow money cheaply, and, secondly, to protect the beneficiaries of trust funds from unwise investments. It is true that the Economic Secretary has emphatically denied that the Government are at all concerned in the Bill with the first. I do not know why he should have denied it, because it is a perfectly right and proper thing to do; he should be concerned with the general public interest as well as the special interests involved However, if the hon. Gentleman was shy in being willing to accept so honourable an intention, that intention was, nevertheless, very clearly disclosed by my hon. Friend the Member for Gloucester on the Second Reading of the Bill, when he said:if the Bill goes through in its present form, limiting investment in equities to 50 per cent., there will be a certain effect on the price of Government securities and the ability of the Government to borrow.implying, as he said earlier, that it would be an adverse effect.
My hon. Friend went on to say:If, on the other hand, it does not limit it to 50 per cent., there will be a further fall in the price of Government securities and the ability of the Government to borrow as cheaply as at present will be prejudiced. Those are the effects that follow from the Bill…"—[OFFICIAL REPORT, 26th January, 1961; Vol. 633, c. 391.]I think that there are very few hon. Members who would be prepared to deny that those are the effects which will follow from the Bill and the effects which will follow still more sharply and adversely from the adoption of the new Clause and still more from the Amendments set down by my hon. and learned Friend the Member for Kettering (Mr. Mitchison). I am astonished that my hon. Friend the Member for Gloucester should desire to take a course of action in support of this new Clause which will have the effect he says it will have, namely, to lead to a further fall in Government securities and make it more 1889 difficult for the Government to borrow money cheaply.
The general economic policy of the Government is to blame for the fall in the value of Government securities and their inability to borrow money cheaply. They have pursued a deliberate policy of dear money, the paying out of high dividends, and of allowing people to speculate widely in property values, industrial shares, and the like. This, together with the effects of continuing inflation, has led to a serious fall in the value of what for the sake of convenience I call gilt-edged securities, in spite of what was said by my hon. Friend the Member for Oldham, West.
This is having a serious effect on a number of citizens in this country, and that effect will be made still worse if this new Clause is carried. I have a letter from one of my constituents, and I am sure that many hon. Members receive similar letters. The writer of this letter is a man of 86 with a wife of 82—
§ Mr. Speaker
Order. I do not think that on this new Cause we can go in detail into the lamentable fate of holders of this stock. I think that the point can be validly made that gilt edge is not so gilt, but I do not think that one can go into a detailed discussion of the fate of 3½ per cent. War Loan.
§ Mr. Warbey
I was putting forward the proposition, which I do not think is seriously contested, that the effect of the new Clause will be to make the position worse in this respect, that it will lead to a further fall in the value of gilt-edged securities and a further inability on the part of the Government to borrow easily and cheaply. I was going on to illustrate that point by giving an example of the difficulties experienced by a number of people, difficulties which will be made worse if the new Clause is accepted. Would I be in order in pursuing that a little further, Sir?
§ Mr. Speaker
I might have stopped the hon. Member too soon. I was warning him that I did not think that we could go very far along the line of the woeful tale of the holders of 3£ per cent. War Loan without getting out of order. It is valid to say that the stock is so unattractive that the Government will have difficulty in borrowing again, but once 1890 that point is made I think that the limit is reached.
§ 11.45 a.m.
§ Mr. Warbey
I respect your Ruling, Mr. Speaker. I will content myself with saying briefly that there are a number of people in this country who, like my constituent, are in an embarrassing and penurious position as a result of the fall in the value of the savings they have accumulated over a number of years.
Many people in that situation would like to apply for National Assistance, but they cannot do so because they cannot transfer their stocks into the type of stocks which are disregarded by the Assistance Board for assessment purposes, or cannot do so without experiencing a drastic fall in the value of their capital.
That is one aspect of the matter. It follows from this that the ability of the Government to borrow cheaply will be prejudiced by the same process, but there is another aspect of the matter, the one which the Government have acknowledged as being their responsibility, namely, the protection of the beneficiaries of trust funds from the consequences of unwise investment.
During the Second Reading debate the Economic Secretary acknowledged that certain risks were involved in allowing people to invest substantially in what is appropriately described as risk capital. Over the last two or three years good industrial equities have appreciated enormously in value—although during the last few weeks there has been a temporary decline—and this appears to be a process which, so long as the present Government are in power, is likely to continue even with slight "dawns" to balance some of the "ups".
This process may not continue all the time. In fact it is unlikely that it will, and it would be very unjust if it did, because, the present values of industrial equities are totally artificial and grossly inflated as a result of processes which are contrary to social justice and reason. They are inflated at the moment partly because of the fall in the value of gilt-edged securities, causing people to go into these other forms of investment. They are inflated because of the high profits which are being permitted by the Government; the high dividends which are being paid out with the approval of the Government; the fantastic increase 1891 in property values; and the speculative increase which is taking place without any effective opposition from the Government.
They are being inflated still more by the artificial scarcity value which has been given to good industrial shares as a result of the mad scramble of people to get into what is really a paradise for gamblers. The Stock Exchange today provides the perfect gamblers' paradise, a casino in which only a fool can lose and even a half-wit is bound to gain.
That situation ought not to continue, and it is unlikely to do so. A warning ought to be given to people who might wish to take action when this Bill becomes law. They should be warned that it would be very unwise indeed to make use of the powers which will be conferred on them if this new Clause is carried.
Suppose we had a Government—as we might well have in the not too far distant future—who introduced a severe tax on distributed profits and. Imposed dividend limitations when it was necessary to make an appeal for wage restraint. Suppose we had a Government that went further and introduced a capital gains tax and took drastic measures to ensure that capital gains were limited and that speculative increases in values were stopped or accrued to the community and not to private individuals. Suppose we had a Government who were determined to capitalise and channel savings into publicly worthwhile enterprises—
§ Mr. Speaker
I am sorry to interrupt the hon. Member, but I have the interests of other hon. Members in mind. I quite understand that in connection with the new Clause it is a valid point to say that certain securities are inflated, and to make submissions about the period through which that state of inflation would endure, but we cannot make the discussion into a general expression of approval or disapproval of various financial and economic policies.
§ Mr. Warbey
No, Mr. Speaker. Perhaps I went a little far in indicating approval or disapproval of the merits of certain policies, but I was trying to indicate what might happen in the future—a future which will affect the actions which could be taken by people under the provisions of the new Clause.
1892 It is quite possible that in the near future we may have a Government which will take actions of this type, because they are actions approved by my right hon. Friends who have put their names down to the Amendments to the new Clause.
§ Mr. Warbey
I am sorry; I should have said my hon. Friends.
In any case, those actions are also approved by my right hon. Friends, one of whom is here today. Therefore, it is quite likely that it may happen, and that we shall create a situation in which these current inflated values of industrial shares collapse. It is only fair that that warning should be issued to people who may take action under the terms of the new Clause. They should be warned that it would be very unwise for them to follow the lax standards which have been permitted by the Government, and will be permitted still more if the Amendments to be moved by my hon. and learned Friend were adopted.
I hope that other hon. Friends of mine will oppose the new Clause, because if a situation arises in which this or any future Government are able to pursue an economic policy based on the channelling of savings into worthwhile enterprises at reasonably low rates of interest, the actions and standards laid down by the new Clause will set a pattern completely contradictory to such a policy.
§ Sir Hugh Lucas-Tooth (Hendon, South)
I have some sympathy with the early part of the speech of the hon. Member for Ashfield (Mr. Warbey), although I would not wish to follow him in some of his wild excursions in the latter part. I do not agree with him that the Clause should not be accepted on the ground of its effects upon the value of War Loan. When we are considering these matters we treat what is fair and proper for those who are directly concerned in the value of War Loan as a separate policy. On the other hand, the new Clause appears to be based on the assumption that War Loan and other similar so-called gilt-edged securities are likely to continue indefinitely to fall in value.
§ Mr. Diamond
I said that it was a less desirable form of investment. Nobody is saying that such securities will fall; we are merely saying that they will not rise, or keep pace with inflation to the extent that other types would, thereby benefiting beneficiaries accordingly.
§ Sir H. Lucas-Tooth
The hon. Member is on record as expressing a totally different view from that. In Committee, he said:It is clear that there is a general feeling by everyone concerned with this matter that gilt-edged securities are likely to fall over a long period."—[OFFICIAL REPORT, Standing Committee B, 4th May, 1961, c. 501.]I could hardly have expressed what he said more clearly or precisely.
The attitude of the Opposition—and also of the Government—is that the general tendency will be for gilt-edged securities to fall and equities to rise in value. In my opinion, we ought not to make that assumption. We should not base our policy on it, and for that reason I regret the introduction of the new Clause.
§ Mr. Hale
I want to express substantial agreement with what has been said by hon. Members on both sides of the House in the last few minutes, although I hope that my constituents will not accept my hon. Friend's precise description of Stock Exchange operations. I am not sure that I am a half-wit, or even a quarter-wit, but I have never met with any success in my limited excursions into the Stock Exchange. Therefore, I doubt whether my constituents will profit if they assume that they can operate there without any knowledge. Indeed, it is the exposition of explicit knowledge which is much more desirable in those operations.
I want to speak briefly, because I do not desire to obstruct the Bill in any way. I know that sometimes, in the interchange of ideas in our debates, we may say a lot about the difference in the effect of various party policies, but it is fundamental in this case, and what my hon. Friend the Member for Ashfield (Mr. Warbey) said is quite correct. I am not trying to make a polemical point; I am talking about trustee investments. I began to practise in 1923, when the postwar inflation was just about to come to an end, and I lived in a time when equities fell so rapidly that some drastic events followed.
1894 I recall the case of one large estate, the administration of which, thank goodness, I had nothing to do with. It was a very substantial estate which, deprived of a reasonably rapid realisation after probate, was not then sufficient in value to pay the Estate Duty, and so became bankrupt, in the few weeks that had elapsed between the death and the granting of probate, because of the fall in the value of equities. These things happen.
In 1937 or 1938 banks were advising investment in 3½ per cent. Conversion Stock, and it was not then bad advice. Very few of us had realised what a disastrous effect could come from the absence of dating. I have never had much knowledge of these matters, and I do not now profess to have any specialised knowledge. I have rarely had any investments, and those that I have had have nearly all been bad, but so far as I recall there was no previous striking example of the fact that dating the redemption could produce such disastrous results as occurred in this period of a rise in the value of equities.
What worries me about Bills of this kind is that I have a feeling that they have been thought out in the City of London. I do not say that there is anything nefarious about it. I would not wish to use the old description of the City of London as the moneylenders of the world. I am merely pointing out the geographical position of London as the capital City of the Empire, which provides expert services in these matters and where advice is readily available. What happens in the little estate in the country, however, is that the trustees go to a solicitor and say, "We will leave it to you."
The average country solicitor is likely to have more things to think about than the value of equities, and he goes to the bank. Sometimes he is told, "Why not resign and transfer to our trustee investment department? Leave them to carry on. They have rather more expert advice." In general, he will take the advice which the bank gives him. He invests the estate as advised, and it will not be until about five years later—unless something drastic has happened economically, or a General Election has occurred—that he realises that 25 per cent. of the estate has gone, or that there has been an accretion.
1895 12 noon.
This is really what happens and I do not see any way of avoiding it. It is for this reason, of course, that the whole of our law of trusteeship frowned on investment in equities where the trustee was liable to be the least well-informed person in connection with the operations of the company concerned. It really is true that my right hon. Friends are committed on this part of their policy—with my support—to a reduction of the interest rate. A reduction of the interest rate would inevitably, if it succeeded at all and allowing for the fact that the operation would involve some dangers—I am not trying to make a political point—mean a rise in what my hon. Friend, who is always a kindly man, calls gilt-edged and a fall in the value of equities. It would be almost inevitable.
However, it is not even limited by this. The result of the policy of this Government from time to time, whether they be right or wrong, wise or not, have had immense repercussions on the Stock Exchange. The coming of the bank squeeze meant that people whose overdrafts were secured by Government stocks were often forced to sell those stocks in order to realise the money with which to pay off the overdrafts at a price very much lower than the investment, although normally trustees would not, of course, be interested in overdrafts.
It is a wrong thing that when the bank squeeze comes along again trustees could be penalised in any event. Their difficulties are very great. The right hon. and learned Gentleman will, I know, recall one of the stories of the law about the articled clerk who was given a book on trusts and trusteeship to study. He studied it for six months and then his boss called him in for one of those interviews which are inevitable in such circumstances, and said to him, "How far have you got with the book?" The articled clerk replied, "I have come to the conclusion that only a fool would become a trustee, I certainly would not become one." The boss said to him, "You have mastered the matter."
One must also remember that, after all, if the testator is concerned about his investments, he has directive powers. 1896 If he wants investment in certain stocks he can authorise it. He can provide much wider powers on investment if he wishes to do so. He can give the trustees absolute discretion as to investment. Very often he gives a discretion to retain certain investments, and so on, and, provided the will is sufficiently clear, the testator's wishes can be carried out and the trustees can still apply their own caution to the matter in the exercise of discretionary powers.
The Bill goes further, and I suggest that if we are to lay down proportions we might well say three equities to one gilt-edged during a Conservative Government, three gilt-edged to one equity during a Socialist Government, fifty-fifty in the event of a Liberal Government, and no power at all to invest during a Communist Government, and thus have the matter covered. Otherwise, it means that trustees and solicitors will have to have a political liaison officer constantly reading the Press reports of Parliament to try to ascertain the Government's intentions regarding investments which they hold on behalf of widows, orphans, or the object of the trust.
§ Mr. A. J. Irvine
I think it right that should say a word at this point upon certain matters—I shall be very brief—arising from the speeches made by my hon. Friend the Member for Ashfield (Mr. Warbey) and my hon. Friend the Member for Oldham, West (Mr. Hale). I think it is desirable that we should make it plain to my hon. Friends what has been in our minds in this connection having regard, among other things, to the kind of considerations to which my hon. Friend the Member for Ashfield has referred.
I thought that my hon. Friend spoke on this matter with great reasonableness and cogency, and I wish to make it quite clear that I agree with a great deal of what he says. I agree with him that the economic policies which have been pursued have contributed markedly to the movement of what we are, I think, calling for this purpose gilt edged. But I would ask him to remember that we do not regard it as following from the passing of the legislation now that it will, perhaps, have an ill effect on gilt-edged prices. We do not regard that as a necessary event.
1897 What we are doing here is making an attempt in the Amendments which we have tabled, and the attitude we have taken up, within the limits imposed by the Bill, to help a particular class of person who is affected, and very sadly affected, in the way my hon. Friend has so reasonably and cogently described. After all, some of the people who are suffering from the movement of prices of gilt-edged stocks are trusts and beneficial trusts. My hon. Friend will have constituents of this class of person who are being adversely affected by this movement. I want him to realise that those of us who have been concerned in the matter are anxious, within the limits that the subject of the Bill imposes, to come to the assistance of a particular class of person who is suffering precisely in the way he has described. We cannot go further. Our interventions in this field have been designed with that purpose in mind.
In conclusion, I would say to my hon. Friend that he must also realise that any action to be taken by a trustee under the Bill is optional. A trustee is not required to take action. He need not do anything if he does not care so to do, but if he wants to take action which he thinks will have the effect of safeguarding or improving the prospects of the beneficiaries of his fund or of the cestui que trust, then he can take that action. We have been inclined to take the view, and do take the view, that the trustee should be given considerable liberty when he has come to a decision about the action which he should take.
§ Mr. Warbey
Before my hon. and learned Friend sits down, I should like to put this to him. He said that his hon. Friends took the view that the Bill, and more particularly this new Clause, would not make the situation worse as far as gilt-edged securities were concerned, but I would remind him of the passage which I quoted from the speech of our hon. Friend the Member for Gloucester (Mr. Diamond), in which he said that the Bill, and, still more, the variations of the fifty-fifty relationship, would, in fact, lead to a situation in which there would be a further fall in gilt-edged securities and that the power of the Government to borrow cheaply would be prejudiced.
§ Mr. Irvine
In reply to my hon. Friend, I would only say, first, that I do not 1898 admit that this will be the necessary consequence of the Bill. What I do say to the House and to my hon. Friend is that if that is a possible consequence, then for goodness' sake let us give trustees the opportunity, by provisions of this kind, to come to the assistance of beneficiaries and cestui que trusts who are likely in that event to suffer.
§ Mr. Stratton Mills (Belfast, North)
This Bill is likely to become law at some time later this year. At that time there may be a lot of funding going on in the steel industry and the yield there will be about 5 per cent. and 5½ per cent. and may well be attractive to trustees. Can the hon. and learned Gentleman give any assurance to trustees who are very likely to invest in these shares that they will be protected from people like the hon. Member for Ashfield (Mr. Warbey)?
§ Mr. Speaker
Order. I think that shows that it is necessary to consider what the rules of order must be in this discussion.
§ The Solicitor-General
This debate has ranged very wide, but I desire to make just three or four observations. First, I want to make it plain that the Bill is not erected on a basis of, and does not presuppose, a secular inflation causing a fall in gilt-edged and a rise in equities. As I pointed out on Second Reading, in a situation of economic growth, which is what all parties wish to see, the strong tendency will be a rise in equities without any inflation. It is because of that that the Bill is intended to give a new flexibility in the investment policies of trustees, so that the beneficiaries can take advantage of and participate in the country's economic growth.
Having said that, I find myself in complete agreement with the hon. Member for Ashfield (Mr. Warbey) when he emphasised that it is still risk capital, and it was for that reason that we built into, and still have built into, this Bill the fifty-fifty basis. When I pointed out that it was risk capital, I did not, because I wanted to avoid controversy on the Bill, link it to the naked exercise of political terrorisation that we have had from the hon. Gentleman, but even apart from political risks this necessarily remains risk capital in the wider-range part of the fund.
1899 It is also true, as the hon. Member for Oldham, West (Mr. Hale) pointed out, that we must not be concerned only with large trustees, institutional trustees, in London. What we are concerned with is the whole mass of small trustees who may not, as the hon. Gentleman said, be able to call rapidly on expert advice. That is why we have this fundamental feature of the fifty-fifty basis.
Nevertheless, we saw that it was desirable to give a certain greater flexibility, which is what is done by this proposed new Clause. Whether the proportion of fifty-fifty shall be varied at any time will depend on the circumstances of the case and of the time, and a decision can be taken in the light of the prevailing and prognosticated circumstances. I therefore commend the new Clause to the House.
§ Question put and agreed to.
§ Clause read a Second time.
§ 12.15 p.m.
§ Mr. Mitchison
I beg to move, as an Amendment to the proposed Clause, in line 6, to leave out from the beginning to "as".
This Amendment seeks to leave out the limiting words which provide that the proportion shall not be greater than three to one.
Turning to the other Amendments which it has been agreed shall be taken with this one, that in the same line—to leave out "three" and to insert "ten"—is an alternative to the Amendment I have moved because it would substitute a limitation of ten to one which is, of course, a much wider limitation then the three-to-one limitation.
The next Amendment—in line 8, at the end to insert:and a proportion includes the proportion of one to nothing "—really goes with the first Amendment, and provides for a proportion which the more mathematically inclined of us will suspect corresponds to infinity. The object of all these three Amendments is to extend the present prescribed limitation, or to remove it.
The next Amendment—in line 26, at end insert:(which may be greater than three to one)1900 is related to a slightly different question. Subsection (4) of the new Clause provides that the Order may be revoked by a subsequent Order prescribing a greater proportion.
The right hon. and learned Gentleman, when speaking on the Clause itself, explained that that was not intended to be a proportion greater than three to one, but was to enable the Treasury if, finally, the proportion was to come down to three to one, to get there in stages and, perhaps, first prescribe two to one and then, by a subsequent Order, prescribe three to one. We, on the contrary, feel that there should be no limitation on the first Order so, a fortiori, there should be no limitation on a second Order, and that, at any rate, it should not be tied to the proportion of three to one. Those are the four Amendments we are now considering.
I am sorry that my hon. Friend the Member for Oldham, West (Mr. Hale) has left, because I want to say that in approaching this matter I feel very strongly that we have to do what we can to protect people who are the beneficiaries under comparatively small trusts, many of them arising out of a death and a will, and others arising out of simple marriage settlements and the like, and including, as in fact they do, some much larger trusts, because, when we come to a later part of the Bill, it will be found that the limitations we are now considering apply also to local authority investments.
I feel that in all these cases—but, perhaps, particularly in those of the smaller trusts—we are concerned to be fair to the trustees, and I would accept that the Government have endeavoured to do so without regard to any effect on the gilt-edged market. What effect there will be is a matter of judgment, and my own view, for what it is worth, is that the effect is not likely to be very great.
That, however, is not quite the point. These are usually people not well off, who will be landed with irredeemable War Loan, to give an example, and other Government stocks that have depreciated very severely. They should be given the opportunity to get out of those stocks if the only reason that they cannot get out of them is the terms of the trust.
1901 It is the case, I think, that the great majority of recent trusts make much wider provision than even the law enjoins as the minimum, or as the Bill would allow but, assuming that there are no such provisions in these comparatively small and simple trusts, those are the people with whom we are particularly concerned.
One has in mind people like the constituent of my hon. Friend the Member for Ashfield (Mr. Warbey)—people with whom one has every sympathy—who found her funds tied up in 3½ per cent. War Loan, or whatever it was. There are many such people, and many of these trusts are cestui que trusts, not by virtue of any formal instrument but under wills, and we should try to be fair to them. It is because we on this side—indeed, I hope on both sides—are anxious to do what we can for these people that we have supported a considerable enlargement even of the terms of the B[11 and in the direction of giving people the opportunity to choose, if they so wish, to get out of the stock.
I agree that broader questions are involved, but one simple proposition that seems to be quite clear is that the law ought not to be such as it has been for some time; that people are compelled to keep the whole of a small trust in one particular form of security, because it is a Government security when they do not to—
§ Mr. Warbey
I am obliged to my hon. and learned Friend for giving way. Is he aware that although my constituents most certainly want to get out of irredeemable War Loan, they do not want to get into industrial equities but into other Government securities and, in particular, into Defence Stocks, which would be disregarded by the National Assistance Board.
§ Mr. Mitchison
They are, of course, at liberty to do that under the law as it stands at present, unless there is some special provision to the contrary in the trust. Nothing in the Bill removes that liberty; they will remain just as much at liberty to do that as now. There are people who have a lot of money tied up in irredeemable or long-dated securities and want to get out and in some, although not all, cases they are only prevented from doing so by the present provisions.
§ Sir H. Lucas-Tooth
When the hon. and learned Member says that they are only prevented from getting out by these provisions, it would be fair to say that to switch, for example, from 3½ per cent. War Loan to stock in I.C.I. would mean a loss of 50 per cent, income, and that is a strong deterrent.
§ Mr. Mitchison
I fully realise that. All we have been arguing is that on a division—and the Bill provides for divisions, although we may say it is not sufficient—people should be given the same opportunity to deal with their own investments, within reason, as a person who is not tied by the terms of a rather narrow Statute such as the present Trustee Act or by the investments which have followed. This is purely a question of whether we ought to allow people to look after their own affairs up to a point. There is nothing obligatory at all about this in the Bill or in the Clause.
Having made that preface, I suggest that it follows that there is no really good reason for limiting the power of the Treasury to make Orders under this Clause. We should have wished even more liberty for the trustees. I shall not repeat that, but at any rate the Government are conceding that the Treasury may make orders. It may make them once and may make them again and those Orders may vary the proportion. I have been somewhat critical in Committee of the Treasury's wisdom in dealing with investments. We may come to that later.
We hope they may be reasonably competent. In a matter of this sort I see no reason why the Treasury should not have the best interests of the trustees at heart. I do not think that under any Government the Treasury would exercise power-making powers in the interests of the gild-edged market or anything of that sort as against the interests of the cestue que trusts which we are considering here. Once we have given the Order-making power to the Treasury I think it unreasonable for us to assume that we are so certain of the future that we can limit that Order-making power to a particular proportion.
As my hon. Friends and others have pointed out, there have been many changes in the relation between these two types of investment and in the factors which would induce a prudent person to 1903 invest in one or the other. Surely no Government nowadays would be so arrogant as to claim that they know what the future contains in matters of this sort. As my hon. Friend the Member for Oldham, West so graphically said, this is a somewhat uncertain business. It is very much better that the judgment should be exercised in this matter by the Treasury at the time than that, on the one hand, we should give the Treasury some powers and, on the other, we should say that those powers must not exceed so-and-so.
Is there any really valid reason for putting a limitation on at all? This was not mentioned in Committee, but was put in subsequently. I do not think that Parliament, legislating for what might be a long period of years, ought to assume not only that it can prescribe a proportion now—I should not mind that so much—but that it can, whatever the circumstances may be, do so for ten or fifteen years' time. Then, we might have the Treasury making Orders putting in a proportion which may lead to considerable trouble.
That might lead to people who are not competent in the matter feeling that there ought to be a different proportion. They would be tied by the proportion in the Statute and find that this matter is not one at that time regarded by the Government of the day as of sufficient importance to justify amending legislation. That has frequently been the case over legislation about trustees. It is very much better to give a free hand in the matter. Ten to one is simply another way of doing it and getting a great deal nearer to giving a free hand. I shall not develop that argument, but my hon. Friends and I feel that it is wrong to fix this proportion for a period which may be quite long and to set ourselves up in Parliament today as the best judges of what ought to be done in what might be very different circumstances in the future.
For those reasons I have moved the Amendment and I should be interested to hear whether the Government will accept it.
§ Sir Henry d'Avigdor-Goldsmid (Walsall, South)
This is a Clause of major interest and major principle. I was very interested in the words of the hon. and learned Member for Kettering 1904 (Mr. Mitchison), because I think he put the position very fairly, but there was one point to which he did not address himself. That is the invidious position in which the trustee finds himself.
By his nature the trustee has two responsibilities. He has a responsibility for the ultimate preservation of the capital for the benefit of the future heir and also a responsibility to do his best in the interim for the life tenant. I speak with considerable personal experience here. Those are responsibilities which almost invariably clash because of the natural expectation of the life tenant to get the maximum yield and of the heir for the protection of the capital.
This very morning I read in The Times the report of a case of a financial institution of great standing which was acting at the request of the beneficiaries and got itself into trouble as a trustee. I have no doubt that there would be many other such cases if the trustees were in a position to meet a claim. In this case the trustee was a bank and therefore it had a rather ugly judgment against it because ii did what the beneficiaries asked it to do. This surely suggests that we must do something to help the trustee or no one will be willing to act as a trustee.
The sort of position I have in mind is where the trust fund is invested mainly in some small family business. The business is a success and seems to be doing very well. Is the trustee to leave all the funds there? The beneficiary says "Yes", and it is very difficult for the trustee to resist that if Parliament does not give him some protection. It is most important that Parliament should say that there shall be a fixed proportion of the trust fund invested in the narrow list of investments.
I must make quite clear that there is no suggestion that by doing so the trustee has to invest in undated securities or in securities where there is no year of redemption date. They can invest in stock where there is a redemption date. I think it most important that we should not allow it to go out without the trustees accepting an obligation to invest a certain proportion of the fund in such a way as to guarantee the protection of the capital.
At present there is a very small yield on equities and a very large yield on 1905 gilt-edged. I remember the time—I am sure that the hon. and learned Member for Kettering also remembers it—when the yield on gilt-edged was smaller than the yield on equities. Only in the last three years has the yield on gilt-edged fallen below that of equities. This will not be a permanent phase; it will be only a temporary one.
§ The Solicitor-General
My hon. Friend said that the yield on gilt-edged had fallen below the yield on equities. I think that he meant that it has risen above it.
Sir H. d'Avigdor Goldsmid
I am obliged to my right hon. and learned Friend for the correction. Naturally, I meant it the other way round. Historically speaking, the yield on gilt-edged was lower than that on equities. I am sure that we shall all live to see the day when that state of affairs comes about again. That is why I press the Government to resist the Amendment. After all, a trust fund is something of importance to us in this country. Very few countries have our trust laws. They have been of considerable value to us over the years and I should be sorry to see them go or pass into disrepute. I urge the Government to resist the Amendment and to insist that a reasonable proportion of trust funds should be kept in fixed-interest investments.
§ Mr. Mitchison
Why does the hon. Gentleman think that the Treasury cannot do this? If it can do it up to one to three, why not altogether?
Sir H. d'Avigdor Goldsmid
I am sorry, but I have not taken the hon. and learned Gentleman's point. I say that we in this House should not pass the Bill without insisting that a substantial proportion of trust funds should be invested in the narrow range. The Treasury must be responsible for what it does subsequently.
§ Sir Barnett Janner (Leicester, North-West)
I have listened carefully and with a certain amount of sympathy to the speech of the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). Any matter relating to the Bill must be approached in the light of the new idea that trustees shall be given powers in addition to those which they possess at present. My experience 1906 is that usually, when one is drawing a trust instrument, if it is made clear to the person who is setting aside a sum of money or is making a will that it is possible for him to permit the trustees to use their sole discretion, the testator desires the trustees to have that discretion because he has faith in them. The trouble is that in many cases this possibility is not explained in detail to the person setting up the trust. Some people may say that they want to rely entirely on gilt-edged being preserved within that trust, which, in my experience, is an exceptional and unusual request. We know, however, that the court has power to vary the scope of investment in certain circumstances.
The Treasury has come forward, I think rightly, with the proposal that it should be given powers to make Orders to increase the proportion that shall be used for investment in equity securities. This is a very serious matter for the small investor or the small trust. The Government are not prepared to assist a person who has invested in gilt-edged, in Government stock, having been induced to do so by the Government because it is supposed to be a safe security, and who has lost a considerable amount of his capital as a result of the appeal which has thus been made to him to invest in gilt-edged.
§ The Solicitor-General
I hesitate to interrupt the hon. Gentleman, Mr. Speaker, but it might be of some guidance to the Government spokesman who is to reply to the debate to know whether on an Amendment to increase the proportion from 75 per cent. to 90 or 100 per cent. it is in order to discuss whether undated stock should be redeemed.
§ Mr. Speaker
I was waiting to see how the hon. Member for Leicester, North-West (Sir B. Janner) proposed to relate it to this suggested variation of the proportion. I was about to rise to interrupt him, but I am not certain that he is necessarily hopelessly out of order. I shall wait to see how his mental process proceeds.
§ Sir B. Janner
I am obliged to you, Mr. Speaker for, so to speak, giving me the benefit of the doubt. I intended to put it in this way. In order to decide whether the Treasury should be entitled to allow a larger proportion or the whole 1907 amount to be invested in equities at some future time we must examine the present situation and know why it should be allowed to do so. The only way in which we can do that is by examining what is happening at present with regard to investments which trustees have made in gilt-edged as against equities. If we had an assurance from the Government that when there is a drastic fall such as that which has affected many of my constituents, who are writing to me almost every day—
§ Mr. Speaker
We must keep away from the hon. Gentleman's constituents. The point, in so far as it is conceivably admissible on this Amendment, is made once it is asserted, "Unless Governments in future are going to give some foundation to stock of this kind, then it will be insecure". I do not think that we can go further into the lamentable results of its insecurity.
§ Sir B. Janner
I cannot get away from my constituents. They will not and should not let me do so. That is why I wished to divulge the information which I have received from them. Naturally, I bow to your Ruling, Mr. Speaker. I think that you have put the point very much better than I could have done. I could not have used better words than those which you have used.
I should like to know from the Government what they propose to do, in the event of their utilising the proportion which is suggested, for those people affected in the manner which I have suggested. In my view, the present investment range of trustees must be extended.
The hon. Member for Walsall, South overlooked one point. The Bill provides that a trustee must take advice before making investments. There are certain restrictions in the Bill. A trustee cannot do whatever he likes. He has to take advice about how he should invest money entrusted to him. Consequently, there is the protection for the beneficiary that before the trustee alters the investments under the trust he has to take reasonable advice in a proper way. Therefore, his hands are tied in that respect.
§ Sir H. d'Avigdor-Goldsmid
Because of the profession which the hon. Gentleman adorns, he has much more experi- 1908 ence of taking advice than I have. However, does it not occur to him that in almost every suit which comes before the courts both sides have taken advice and that in each case one side has been wrongly advised?
Sir B. Janney
I am reminded by that interruption of the person who decided to find a solicitor with only one arm, because his lawyer, when giving advice, always used the words, "On the one hand—and yet, on the other hand."
I am prepared to take the advice of the hon. Member for Walsall, South on this matter. Even though he sits on the other side of the House, I should trust him, if I appointed him trustee, to use his discretion in a way which would benefit the estate. I am sure that he would do so. If he can do so, then other trustees should be placed in a position, when advised in the manner imposed by the Bill, to invest accordingly.
There are other considerations. There is a later Amendment to enable municipal authorities to use further discretion. I am prepared to concede from time to time that the Treasury has wisdom, and if the Treasury is to be permitted to make Orders, then it should be permitted to make them, if not for the whole amount, at least for a very much larger proportion than is contemplated.
The Solicitor-General, who is the Government's spokesman on this occasion, is a reasonable man, and I hope that he will listen to reason and will recognise that what we propose would be not a step taken at random but a step taken after due consideration. I hope that he recognises that it is essential that the powers should be extended, otherwise an injustice will be done. He has gone a certain distance. I appeal to him to go much further. If he did, it would displease nobody in the House.
§ Mr. Diamond
Like my hon. Friend the Member for Leicester, North-West (Sir B. Janner), I hope that the Government will have second thoughts about the lately-introduced limitation and will be prepared to expand it to infinity. It must be borne in mind that the Amendment is being introduced against the background of a Bill in which the existing freedom of trustees is being limited. I hope that the hon. Member for Walsall, 1909 South (Sir H. d'Avigdor-Goldsmid) recognises that. Under the present law the trustee is free to invest in trustee investments according to what was then the understanding of a safe investment. That understanding has been brought up to date by the new law on what is a safe investment, and the only addition to the Bill is to put upon trustees the extra limitation and safeguard that they should take advice.
Having moved from the position as it was under the 1925 Act to modernising and bringing up to date what is a safe investment, and having put upon the trustees the requirement that they should take full advice, why is it necessary to limit trustees even further, and, in particular, why is it necessary to limit trustees of a particular class, namely, by and large, those acting for old settlements and old trusts and those acting for small settlements and small trusts? If one is acting for a big trust, one can go to the court and obtain power to invest freely. We are here concerned only with the small settlement and trust.
Why is it necessary to impose this further limitation, and, in particular, why is it necessary for the Government to take power only to a limited extent? The Government do not promise to give effect to these powers. I very much hope that they will, and I rely completely on the Government's good faith that, having introduced a modification of this kind, they will, if they think fit, at a future time not hesitate to use it. But why should they limit themselves in such a way so that, when they feel it appropriate to use it, they can use it to only a limited extent?
Surely we are back on the old simple principle which was followed during the 1925 Act and all the practice which followed that: give discretion to the trustees to take all matters into consideration and to act accordingly. My hon. Friend the Member for Ashfield (Mr. Warbey) referred to some of my remarks. There is no dispute between my hon. Friend and myself, although there may seem to be on the surface. We are trying to give the same help to the small man as the big man already has, and I am sure that neither by nature nor by philosophical outlook does he object to that.
1910 Let me remind him of what a very well-known solicitor said on this matter. He was a senior partner in a very large firm of London solicitors. He said, "In the course of about forty years of practice, I have made it a point always to advise that settlors and testators should leave the widest possible power of discretion to their trustees. My observation over a long period of time is that that advice was well-founded." That is a solicitor who bears the name of Lord Nathan, and I am quoting him as a solicitor.
My hon. Friend referred to a Report under the same noble Lord's chairmanship. That was a Report which did not refer directly to this matter. It referred to charities. One can well understand that a charitable trustee takes very much into account the fact that he is acting for a permanent beneficiary, the charity. His trust will most likely never be brought to an end. The conflict to which the hon. Member for Walsall, South refers is resolved in the case of a charity. This was somewhat a different matter. In any event, the consideration by that Committee was some ten years ago and can no longer be regarded as quite as up to date as it was at the time.
All hon. Members who attended our Committee meetings upstairs know that every solicitor present confirmed, as my hon. Friend the Member for Leicester, North-West has confirmed, that this is the normal professional advice given in every case—to give the greatest possible discretion to the trustees. As we know, in an old trust where there is limited discretion, all that happens is that the trustees go to the courts and in normal circumstances have their powers of discretion considerably widened. I assume that the Clause which we have later in the Bill, under which the courts are to pay no attention to what Parliament says—
§ Mr. Diamond
Clause 13 is entitled "Saving for powers of court." It begins:The enlargement of the investment powers of trustees by this Act shall not lessen any power of a count to confer wider powers of investment on trustees…I assume that that power includes the wider powers given under this new Clause.
§ Sir H. Lucas-Tooth
The hon. Member for Gloucester (Mr. Diamond) said that where trustees want wider powers, they simply go to the courts and have the trusts expanded automatically. What is true is that where all the beneficiaries agree they go to the courts and the court gives them the power. But if any one beneficiary objects, there is no application to the court and the powers are not given. None of us knows how many such cases there are. I suspect that there are very many such cases in which an elderly beneficiary objects and in which the powers are not given.
§ Mr. Diamond
I can only echo the words of the hon. Baronet that none of us knows. It is unsafe, therefore, to make any allegations on that insecure foundation.
All I am saying is, quite simply, that the practice of trusts is well established. It is sound. It needs bringing up to date only in respect of what is now a safe investment as opposed to what used to be thought to be an unsafe investment. One does not need at this stage to develop what is not a safe investment. I am assuming in this connection that the later Amendment to Clause 5, page 4, line 44, at end insert:and(c) to the risks inherent in long-dated or irredeemable securities, that is to say fixed interest securities, debentures, guaranteed or preference stock or shares, rentcharges, feu-farm rents, feu-duties or ground rents, as regards any of which the holder is not entitled to repayment of principal within twenty-five years from the date of investmentwill be called, Mr. Speaker, and that one can address remarks to you on it.
§ Mr. Diamond
I am grateful, Mr. Speaker. Therefore, there is no point in commenting on that aspect at this stage, because there will be reasonable freedom to do so later.
I come back to my main point, that there is never, or there is rarely, justification for the Government limiting their powers in this way when they are only seeking to take powers to do something upon which they will require a confirmative Resolution by this House. If it were felt at the time that 87 per cent. was better than 75 per cent., the Govern- 1912 meat would surely feel it a pity that they had not given themselves that further discretion. The Government are not making an Order at the moment. They are merely taking power to bring an Order before the House in due course.
Secondly, one has the full protection of the existing Trustee Investment Act and the procedure and practice under it, as well as the additional protection that the trustee is compelled to seek advice. All that these Amendments do is to restore the position that a trustee has to look at all aspects of the matter, in the long-term interest of whoever succeeds to the property of the trust and the shorter-term interest of whoever is getting the benefit as a life tenant. There will be freedom to do that and to invest wholly in gilt-edged or not at all in gilt-edged depending upon the terms of the trust and the terms of the trustee's responsibility and the advice which he has given.
§ The Solicitor-General
The Amendment raises a narrow point. What the Government have done in the Bill is to give a greater flexibility for the investment of trust funds. Apart from some hesitation by my hon. Friend the Member for Hendon, South (Sir H. Lucas-Tooth) and the hon. Member for Ash-field (Mr. Warbey), that has met with universal approbation.
The new Clause which the Government have introduced gives a greater flexibility in response to the considerations that were urged in Committee, and allows the Treasury, by Order approved by affirmative Resolution of the House, to fix a higher proportion for the basic relationship of the wider-range part and the narrower-range part to alter it from fifty-fifty to seventy-five-twenty-five. What the Amendments seek to do is to say that either that proportion should be ninety-ten, or that there should be no limit at all.
Powerful considerations have been urged today in an earlier debate by the hon. Member for Ashfield and the hon. Member for Oldham, West (Mr. Hale) for preserving a basic element of gilt-edged, a basic element of narrower-range investments. That was powerfully reinforced in the speech on the Amendment by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). All those are general arguments in favour of retaining the basic 1913 element of the investment of gilt-edged. With great respect to the hon. Member for Leicester, North-West (Sir B. Janner), the question of the redemption of undated stock has nothing whatever to do with any of these considerations.
§ Sir B. Janner rose—
§ The Solicitor-General
The hon. Member has made his speech and I am pointing out to him how fallacious it was.
There is a case for giving greater flexibility whether or not undated stock exists and whether or not a date is given for its redemption. There are many other gilt-edged securities in the trustee list. The House feels, nevertheless, that there should be wider ranges of investments. It has nothing to do with the existence or the redemption of undated stock, nor has it anything to do with whether one has a higher proportion, 75 per cent. or 100 per cent. All that has nothing to do with this issue. It is a question of whether the Treasury shall have power to fix a higher proportion than 75 per cent.
§ Sir B. Janner
How does the right hon. and learned Gentleman know that it is not a point of order until he hears it? I know that he has a great amount of genius—
§ Mr. Speaker
We may pass the compliments by. Either this is a point of order, in which event I should like to hear what it is, or the hon. Member should not be on his feet. What is the point of order?
§ Sir B. Janner
May I ask for your Ruling, Mr. Speaker? You permitted me to make the point I was making. The Solicitor-General now states that it was entirely out of order.
§ Sir B. Janner
He said so. He said that it had nothing to do with the Amendment. Therefore, if it had nothing to do with the Amendment, it was out of order. I suggest that it was in order.
§ Mr. Speaker
If the right hon. and learned Gentleman wishes to 1914 criticise my Ruling he must take proper steps, otherwise he would be out of order. What the Solicitor-General has said is that the hon. Gentleman's speech was fallacious. That may or may not be right, but there is no need to rise to a point of order.
§ The Solicitor-General
I knew that it would not be a point of order and, therefore, I was prepared to give way to the hon. Gentleman, as I always should wish to do, but I wanted to finish the argument I was advancing.
The second argument which has been put forward is that advanced by the hon. Member for Gloucester (Mr. Diamond), who asked why we should differentiate in this respect between the small man and the big man. It is perfectly true that the big trust can go to the court. On the other hand, as pointed out by my hon. Friend the Member for Hendon, South, it does not necessarily follow, nor does it, in fact, follow, that on going to the court one gets investment powers of up to 100 per cent. in equities. Certainly in the case of charities that has not been necessarily the case. In addition to that, however, the answer to the hon. Member's argument was given by his hon. Friend the Member for Oldham, West—that in the case of the small trustee, and particularly the small trustee all over the provinces, he is not in the same position as the big trustee to call on rapid and expert advice.
In the end, what we come down to is whether there should be power by Treasury Order to prescribe a higher proportion than 75 per cent. We felt it right to go as far as we could to meet the arguments that were put forward in Committee. The reason why we stopped at 75 per cent. was quite simply a constitutional consideration. The fifty-fifty basis, as modified as we suggest, is linked with a whole number of other safeguards in the Bill. We felt that it would be proper to reduce the basic gilt-edged element by Treasury Order to as low as 25 per cent. If we go beyond that, a new situation has arisen in which Parliament as a whole should be able to express its view, not merely by an affirmative Resolution, which cannot be amended.
1915 1.0 p.m.
As I say, this fifty-fifty basic element, or the basic element generally, is linked with a whole number of other safeguards, a whole number of other considerations. If we are going on to a completely new basis at 90 per cent.—or still more, 100 per cent.—Parliament ought to be able to consider it in the light of all the circumstances, debate it carefully and consider it at leisure.
One has only to think of the history of this Bill. It was debated at length in another place. We spent 12 sittings in it on Committee, and it emerged from the Committee, as the hon. and learned Gentleman said, a very different Bill and, I freely admit, a very much improved Bill from the form in which it went in. If we consider the very great care which has been lavished on the Bill and the very great changes which have been made in it, I suggest to the House that we were right to bear in mind the constitutional consideration that a further change so momentous, which alters the very foundation of this Bill, ought to be the subject of full-scale legislation and not merely a Resolution of the House, possibly taken unamended or unamendable after ten o'clock at night.
§ Mr. Mitchison
The question is here, as the right hon. and learned Gentleman has just said, a simple one, but we regard it as of some importance. Put very shortly, it is this. Is Parliament now to decide a somewhat technical financial question of this sort for a number of years ahead, or are we content to allow the Treasury to make the decision at the time subject to parliamentary approval? We regard the Government's attitude, if I may borrow a phrase from my hon. Friend the Member for Leicester, North-West (Sir B. Janner), as a two-one argument and we propose to divide.
§ Mr. Warbey
I had not intended to speak on the Amendment to the proposed Clause, as I spoke before on the Clause, but I had not anticipated that my hon. Friends were proposing to divide the House on the Amendment. Therefore, I must intervene to say that I cannot follow them in taking this line, for reasons which I gave earlier, as I think that these Amendments are unwise.
I would take the opportunity of replying to a point made by my hon. Friend the Member for Gloucester (Mr. Diamond), when he said that all that he and his hon. Friends are seeking to do is to give powers to the small man which already exist for the big man. That really is not the case, especially in regard to the Amendment to increase the range for industrial equities up to 100 per cent., because, as the Solicitor-General has indicated, the courts will not necessarily give to trustees responsible for big trusts such wide-ranging powers as are sought by my hon. Friends.
If this power were to be put into the Bill, although the courts cannot take notice officially of the Bill in deciding matters brought before them by trustees, nevertheless it is bound to set a new pattern, and a new pattern of which the courts would inevitably take notice in coming to their decisions. That would open the door not only for small men, but for big men as well, to be able to invest all their investments quite freely in industrial equities and to ignore gilt- edged securities altogether. For that reason I feel that the House ought not to accept this Amendment.
§ Question put, That the words proposed to be left out stand part of the proposed Clause:—
§ The House divided: Ayes, 75, Noes 29.1917
|Division No. 245.1||AYES||11.5 p.m.|
|Aitken, W. T.||Buck, Antony||Grimston, Sir Robert|
|Allason, James||Cary, Sir Robert||Hall, John (Wycombe)|
|Atkins, Humphrey||Cordeaux, Lt.-Col. J. K.||Harris, Frederic (Croydon, N.W.)|
|Balnlel, Lord||Corfield, F. v.||Harvey, John (Walthamstow, E.)|
|Barber, Anthony||Costain, A. P.||Hay, John|
|Bell, Ronald||Cunningham, Knox||Heald, Rt. Hon. Sir Lionel|
|Biggs-Davison, John||d'Avigdor-Goldsmid, Sir Henry||Hill, J. E. B. (S. Norfolk)|
|Bishop, F. P.||Doughty, Charles||Hobson, John|
|Black, Sir Cyril||Drayson, G. B.||Holland, Philip|
|Bossom, Clive||Fisher, Nigel||Hopkins, Alan|
|Boyle, Sir Edward||Gardner, Edward||James, David|
|Braine, Bernard||Grant, Rt. Hon. William||Johnson, Eric (Blackley)|
|Johnson Smith, Geoffrey||Pott, Percivall||Sumner, Donald (Orpington)|
|Langford-Holt, J.||Prior-Palmer, Brig. Sir otho||Tapsell, Peter|
|Lewis, Kenneth (Rutland)||Pym, Francis||Thomas, Leslie (Canterbury)|
|Litchfield, Capt. John||Quennell, Miss J. M.||Thompson, Richard (Croydon, S.)|
|Longden, Gilbert||Redmayne, Rt. lion. Martin||Thorpe, Jeremy|
|Loveys, Walter H.||Renton, David||Turner, Colin|
|Lucas-Tooth, Sir Hugh||Ridley, Hon. Nicholas||Wakefield, Edward (Derbyshire, W.)|
|McMaster, Stanley R.||Ward, Dame Irene|
|Ridsdale, Julian||wise, A. R.|
|Maddan, Martin||Roberts, Sir Peter (Heeley)||Wolrige-Gordon, Patrick|
|Mawby, Ray||Roots, William||Worsley, Marcus|
|Mills, Stratton||Russell, Ronald|
|Page, Graham (Crosby)||Simon, Rt. Hon. Sir Jocelyn||TELLERS FOR THE AYES:|
|Peel, John||Smith, Dudley (Br'ntf'rd & Chiswick)||Mr. Chichester-Clark and|
|Pitt, Miss Edith||Studholme, Sir Henry||Mr. F. Pearson.|
|Brockway, A. Fenner||Janner, Sir Barnett||Oram, A, E.|
|Butler, Herbert (Hackney, C.)||Johnson, Carol (Lewisham, S.)||Pannell, Charles (Leeds, W.|
|Diamond, John||Jones, Rt. Hn. A. Creech (Wakefield)||Prentice, R. E.|
|Dugdale, Rt. Hon. John||Key, Rt. Hon. C. W.||Reid, William|
|Fletcher, Eric||King, Dr. Horace||Stross, Dr. Barnett(stoke-on-Trent, C.)|
|Hale, Leslie (Oldham, W.)||Lipton, Marcus||Weitzman, David|
|Hall, Rt. Hn. Glenvil (Colne Valley)||MacColl, James||Williams, W. T. (Warrington)|
|Holman, Percy||Marquand, Rt. Hon. H. A.|
|Hunter, A. E.||Mitchison, G. R.||TELLERS FOR THE NOES:|
|Irvine, A. J. (Edge Hill)||Moyle, Arthur||Mr. J. Taylor and Mr. Redhead.|
|Irving, Sydney (Dartford)||Noel-Baker, Rt. Hn. Philip (Derby, S.)|
§ Mr. A. J. Irvine
I beg to move, as an Amendment to the proposed Clause, in line 12, to leave out from "order" to the end of line 13.
I very much hope that the Government may offer the concession that we ask for in the Amendment. It relates to the Treasury Order which is dealt with in the new Clause now under discussion. As I understand, an Order by way of Statutory Instrument, which alters the proportion of wider-range investments made to the narrower-range investments, will presumably be made having regard to the economic situation at the time and market trends and a whole lot of other relevant factors.
Presumably, the Order thus made by the Treasury will remain in force while those trends are regarded as justifying it. One asks, therefore, what is the sense and reason behind the twelve months' limitation that is imposed. While the provisions of the Order are current, it would seem reasonable and appropriate that it should be possible to make, in this case, the second division of the trust fund.
I would ask the Government that where a first division of the fund takes place after the making of a Treasury Order it can be carried out at any time during the currency of the Order. Why should there be this differentiation between the first and second divisions of a fund during the currency of the Order?
1918 It does not seem readily defensible. I hope that the Government will be able to make the small concession asked for here and thereby simplify to some extent and improve the proposals in the new Clause.
§ Mr. Barber
We have always recognised that for some reason or another—and we had in mind reasons of a temporary nature—the trustee might wish to postpone the division of a fund and we thought that a year's grace would be sufficient to meet this kind of temporary difficulty. On the other hand, there is no objection, in principle, to trustees taking advantage of an Order to make a redivision at any time during the lifetime of the Order. Having listened to what the hon. and learned Member has said, I think that it will be as well if the House will accept the Amendment and I advise it to do so.
§ Amendment agreed to.
§ Clause, as amended, added to the Bill.