§ 11.6 a.m.
§ Mr. Wilfred Proudfoot (Cleveland)
I beg to move,That this House, whilst welcoming the work of the Restrictive Practices Court and of the Monopolies Commission and the review of existing legislation concerning monopolies and mergers which is being carried out, calls on Her Majesty's Government to direct its policies towards ensuring keener competition throughout all sections of the economy.I welcome the Amendment on the Order Paper in the name of my hon. Friend the Member for Leeds, North-West (Sir D. Kaberry), at the end to add:to the end that the ultimate consumer shall have the widest choice of commodities at the most reasonable prices consistent with free and unrestricted selection".I want to make it clear right at the outset that I shall not refer to the I.C.I. Courtaulds merger. After Wednesday's debate, that is rather cold porridge. I have wanted to speak on this topic for two years, and I was not persuaded to do so because of the events which have taken place during the last few weeks. I believe that we should have a forward look at the possible effects of these type of events. We should go out to ensure competition. If we ask ourselves whether we have had enough competition since the war, we give the immediate answer "No".
What has this lack of competition meant? It has given us cost inflation. People have demanded wage increases which have very often been totally unrelated to production. Trade protection, both internal and external, has made many of our industrial companies 1668 senile, and has kept them alive long after they should have been decently buried. I hope that my party will not sit on its hands and fail to take action. It should go all out to enforce competition, to give us economic vigour. Laws to this end are not new. Many countries have them. They come under the general heading of anti-trust laws.
I want to quote from a book which has been written by an Englishman, Mr. A. D. Neale, whom I have had the pleasure of meeting. This book—"The Anti-trust Laws of the U.S.A."—illustrates the basis on which those laws are drawn up. As hon. Members know, there are two main Acts—the Sherman Act of 1890, and the Clayton Act of 1914, although there has been a good deal of amending legislation in more recent years. Mr. Neale's book quotes the Sherman Act as saying:Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States or with foreign nations, is hereby declared to be illegal…Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanour.The Clayton Act is much more specific. It took the American nation some time to build up these anti-trust laws. Mr. Neale's book says that the Act specifies four main categories of restrictive or monopolistic practice:
My opinion is that these laws provide the basis for action on our part. Indeed, the Common Market Treaty—and I sincerely hope that we join the Common Market—has anti-trust law provisions built into it.
- "(a) price-discrimination (section 2),
- (b) exclusive dealing and tying contracts (section 3),
- (c) acquisitions of competing companies (section 7),
- (d) interlocking directorates (section 8)."
I would like to take some of our home-grown anti-trust laws to the bargaining table when the time comes to negotiate them but which, obviously, is yet in the future and after our possible entry into the Common Market. The basic structure in America, as I have said, has the Sherman and Clayton Acts. It has been said to me in this House in recent months that some of this 1669 legislation is a negation of freedom. I cannot accept that. I believe that if we accept laws telling us at what speed to drive on the roads and to stop at halt signs we should, likewise, accept laws which ensure that we have competition.
Laws are made so that we can live in comfort with each other, and with no competition there is little comfort. The Monopolies Commission has operated quite well so far, but it is producing, as we now see, some side effects of, as it were, like some of the new drugs. The side effects are causing mergers. We must build on these two pieces of legislation. In my opinion, they are the clothes of my party, and I want to see that they are not stolen. The Liberals are laissez faire and the Socialists, of course, are the State monopolists.
I want to trace my thoughts on antitrust from the retail end and back to its source, the manufacturer. It is, I think, quite a logical way of doing it, not just because I am a retailer myself. Retailing in this country, strangely enough, is still considered to be "infra dig." I do not know why, because it is an essential part of our economic fabric. We must begin to realise that distribution is part of production. Until the goods are in the consumers' hands nothing has really happened. I want to say with blinding clarity that the only reason for production is to consume. Hon. Members opposite sometimes seems to have forgotten that. It is no good producing and stocking in fields. We must sell the goods when they are produced.
If anyone dreams up a product or a service, and if he succeeds with it, then, of course, he immediately has imitators. When he, or some of his competitors, grow big the take-overs logically start. Therefore, this gives the logical sequence to my argument. I would start by opening shops longer. We should get rid of the crazy idea of opening shops when people are at work and closing them when they are not. This appears quite ridiculous to the man in the street. In fact, he does not know that laws to this end exist.
I am proud to say that I have been prosecuted for breaking this law. Indeed, I did it by invitation. I invited the local inspector of weights and measures to 1670 watch me. We even gave him a cup of tea and took evidence while he had it. These opening hours are quite ridiculous, and the qualifications regarding what one can sell are even more ridiculous. I live in Scarborough. At Filey, no shop is open on a Sunday. In my own town certain commodities can be bought, but not a plastic "mac" in a downpour! But I have gone to Morecambe and bought what I wanted. I bought a shirt there on a Sunday from a national multiple stores. The law is operated in such a way that it is not equitable throughout the country. This means that it is a bad law.
We must all admit that there are far too many retail outlets in the country. If this sounds like an attack on the small man, may I point out that that is not my desire? The small man will always survive provided he sells goods at a fair price and gives service. When one talks about opening hours for shops, the next snag that crops up is from where does one get the staff. I believe that some of the girls who work for me would sometimes very much like to come in at mid-day and finish at eight in the evening so that they could go to a dance and sleep a little longer the next morning. Indeed, wherever longer opening hours have been tried there has almost always been accommodation with the trade unions, and I am delighted to know that excessively long hours would not be allowed to be worked by people. The trade unions and the Retail Foods Council would see to that.
When we talk about fewer shops, we should realise that that has some significant factors. It would immediately ease the traffic congestion if shops were open longer. That is something which is desirable. It would also liberate some capital. In other words, capital involved in retail distribution would be used to greater advantage. There would be greater productivity in the retail stores. "Productivity" is a word hardly ever used in connection with retailing, yet it is a vital part of it today. Consumers would benefit if this were carried out both price-wise and service-wise.
The next step on the ladder, as it were, about which I wish to speak is anti-discrimination. Let me try to tell the House what the public really feels 1671 about anti-discrimination in the retail field. The public is often frightened of big multiple stores coming to a district, cutting prices so drastically as to drive out competition and then, when they have done that, jacking up prices and making, as it were, a killing. This is a factor about which people think. Hundreds of people have spoken to me on this point during the last few years.
How would anti-discrimination work? We must have easily transportable units from factory to store. The Americans use a rail freight car, but I do not think that this method would be suitable in this country. We should, perhaps, specify a five-ton or ten-ton truck. If a firm bought one truckload or a thousand truckloads, the price per truck would be identical. This system has been operated in America for a considerable time. It applies not only in retailing, but in the entire field of manufacture. If an aeroplane manufacturer bought a thousand engines by this method, the price per unit would be identical to that paid by the small manufacturer. So it is not only in the retail field that anti-discrimination operates.
I am not satisfied also that the multiple concerns in this country take advantage of the margins which they earn. I am quite confident that their internal distribution is sometimes very insufficient and that the extra margins which they make, as opposed to the smaller man, are lost internally. I also think that subsidiaries of the large companies, particularly in the retail trade, should always carry the name of the parent company on their billheads and letterheads, and even on their shop fronts. I would go as far as to make the minimum sign for the lettering on the shop fronts two inches, which would mean that it would be inconspicuous and discreet so as not to interfere with the design. This would apply to all multiple shops, such as the General Universal Stores and the Home and Colonial, and to manufacturing industries.
If such a system were adopted it would afford consumer protection. Of course, when we talk about antidiscrimination, it appears to be protection for the small man in the retail trade, but, in fact, ultimately it is a 1672 sophisticated kind of consumer protection, and this is the angle from which to look at it.
In my opinion, retail price maintenance must go. The grocery business has already got rid of it. I am glad to read in the Financial Times this morning that an ex-Member of this House, Garfield Weston, is doing it in Germany, where he is hauling down prices. Retail price maintenance will never protect a retailer if he is inefficient. I urge my right hon. and hon. Friends at the Board of Trade to hurry these inquiries and to get rid of retail price maintenance.
I now come to what I think is next in my logical sequence, to the manufacturers and monopolies. I believe that monopolies are morally wrong. No one person or one group of people in this country is good enough to have a monopoly. It is often said by politicians that absolute power corrupts, and I think that that applies in this field. My hon. Friend the Member for Lewisham, North (Mr. Chataway) helped to break the four-minute mile, but no one has won the four-minute mile by running against the clock. He has to have a competitor. The same applies to competition in business—you must have competitors to get the best out of a business.
Worse than the private monopolies are the State monopolies. No one can start up in opposition to a State monopoly. When one thinks of the State monopolies and the facilities which they have for lobbying in this House, it is incredible—[HON. MEMBERS: "Oh."] We are often told about the American oil lobby, but, Mr. Speaker, that must be a kindergarten compared with the "coal lobby" in this House. State monopolies have been rejected by the public, and we are just as much against private monopolies, because they are inherently wrong——
§ Mr. John Morris (Abenavon)
What does the hon. Member mean by the "coal lobby"? Is he suggesting that there is anything improper about it?
§ Mr. Proudfoot
I was born a hundred yards from a coal mine. My regular pair comes from my home town in Crook, County Durham. My grandfather was a colliery blacksmith. I know that there is a "coal lobby" in this House. I talk coal to the representatives of coal miners in this House. 1673 They are very good people, but nevertheless there is a "coal lobby".
I wish, Mr. Speaker, to take you into the realms of fantasy. I want to the House to imagine that I have a monopoly of the grocery business in this country. I could show hon. Members how immoral I could be if I had such a monopoly. I could show them how to jack up the prices and give bad service. This would happen if I had a monopoly, but, seriously, I should not like to be in that position. As Parkinson said, expenses always rise to meet income, and that is why the monopolists keep jacking, up the prices.
Then, I should go in for rationalisation. I should have fewer shops because it would be more efficient for my organisation, or so I should tell myself, and the customers would have further to go. The next step in this rationalisation—notice the similarity between the words "rationalisation" and "nationalisation"—I should sell only one brand of peas and one brand of jam. Why should I clutter up my shelves with Chivers, Hartleys, or Moorhouses jams, and all the rest of them? I remember that when I worked in an American super-market on one shelf there were forty kinds and sizes of apple sauce. That was truly consumer selection. I believe that if I had a monopoly I should be driven along by this urge for rationalisation and that there is a good argument for it, but it is not in the customer's interests.
My aesthetic values would come into play. Why should one destroy the beauty of any display by putting on price tickets? Why put window bills on the front of a store and spoil the appearance of the architecture? And then, think of the size of the desks of my executives. They would be like tennis courts, and there would be apparent the new status symbol, which consists of always having the desks completely clear. And think of the secretaries which my executives would need. They would want one of a different colour for every day of the week. Again, we must remember that Parkinson says that expenditure rises to meet income, and certainly it would in my grocery monopoly.
Of course, my better side would assert itself. I should want to do good and 1674 build churches and chapels. If one goes to the West Riding of Yorkshire, one can appreciate that as soon as a man got a woollen mill "cracking", he built a chapel as a monument to his own goodness. Today, we endow scholarships and that sort of thing. But, actually, the prices of my groceries would be paying for this and I never want to build that kind of monument to myself. Rather let us build a monument to laws to enforce competition.
Oligapolies—that is a horrible word—come into the same category ultimately as monopolists. Too much power in too few hands is bad. But I cannot say that I am against monopolies without saying how I should act in respect of them, and this is where we should be forward-looking and consider the ways in which we should develop the economy of our country. What is a monopoly, and how should we deal with it?
We have to realise, I think, that this House is no judge of the kind of thing which has been going on in the last few weeks in respect of the proposed I.C.I.—Courtaulds merger. This House is not equipped to do the job. It is not a function of this House, and the House of Commons has not the technical ability to be a judge in such matters. We must, however, make the rules here, and in my opinion we should set up a court which would sit in judgment on infringements of anti-trust laws. The House should be responsible for drawing a "Plimsoll line" above which any industry or supplier would become a monopoly.
Normally, monopoly is represented by 30 per cent., but the position would be examined in relation to world competition, and in some cases it might be necessary for the percentage to be considerably higher to preserve the economic security of the country. Such a court as I envisage would have the power to hold up proposals to merge if the proposed merger would create a monopoly using the "Plimsoll line" to which I have referred as a means of measurement. It should have the power to hold up——
§ Mr. John Diamond (Gloucester)
I am sorry, but I did not hear the hon. Member state whether he took part in the Division after the debate on Wednesday. I know that he did not take part in the debate.
§ Mr. Proudfoot
No, I could not agree with the wording of the Motion. My approach is forward-looking and I do not think that the Opposition's Motion was.
The court to which I have referred should have a power to say "No" to a proposed merger and it should also have the power to divest industries or suppliers of any type of a business which grew too big. I should not reject every monopoly out of hand, because that attitude would be silly in a modern techtical world. There are certain conditions under which I should be prepared to accept a monopoly, and an obvious one relates to patent rights. If someone invents something, or buys the licence to manufacture an invention, he must have protection.
That situation exists already and I do not think that anyone would wish to disturb the present state of affairs. But if modern methods on our tiny island, with a population of 52 million people, mean that we need only one manufacturer of collar studs, for instance, or a particular item, then that industry must face international competition alone and have no kind of tariff or quota protection.
When Tube Investments got the monopoly on bicycles in this country I wrote to the President of the Board of Trade to ask whether I could import bicycles from Japan. I am pleased to say that my right hon. Friend said, "No". I do not know what I should have done with the bicycles had he said "Yes". But I feel that this is the way to tackle businesses which have to be oversize because of modern techniques. We must let our industries compete with the labour intensive industries in other countries which are not as developed as ours, while we develop the capital intensive of industries here.
Some industries have been protected for too long and they have been protected too well. They are hampering us. We should kick the props from under such businesses and allow them to face real competition. In a word, I am a "low tariff Tory". As a taxpayer, I have no desire to prop up any more decayed industries no matter how traditional. We should let such industries organise themselves.
Politicians are very clever fellows—[HON. MEMBERS: "Hear, hear."] Most 1676 politicians seem to believe that they are cleverer than the laws of supply and demand. I do not believe that. I do not believe that any political set-up anywhere has ever beaten the ultimate laws of supply and demand. I listened the other day to a speaker from the Front Bench opposite talking about logical and rationalised retailing. When one gets a customer in a shop one finds out a lot about illogicality. It is incredible how illogical consumers can be. But I believe that they have a right of choice and I am willing to let them make it. If one applies rules and makes laws to regulate supply and demand the time comes when those regulations have to be taken off because of the pressure of the natural economic laws, no matter what party is in power.
I wish to say a word about trade associations, which can be extremely protective, although I do not like that side of the associations. They have a job to do. Let us think about what has happened since the war. Competition has not been brisk enough and young men with "clean noses" have secured promotion. The technique of getting promoted in a nice, tranquil industry is, "Keep your nose clean and you are sure to rise." The rumbustious, aggressive, independent-minded men have not won through in sufficient numbers since the war. What happens when the "clean nose" reaches the board room? He becomes a member of a trade association, and what a bounder he would be if he broke the rules of that club! His business environment forces him to this sort of thinking. I am glad to say that in my trade association I am an acknowledged "bounder" because I will match prices with anyone and be invigorated by the experience. Young people must kick over the traces of trade respectability. Unfortunately, human nature being what it is, they become respectable. But there is a supply of young people coming into business all the time.
It might shock some hon. Members when I say this, but I do not think that it should. I would have the police administer our anti-trust laws. The police administer traffic laws. Owning a monopoly is as bad and as wrong as driving a car dangerously. The weights and measures department administers laws and the police should administer 1677 laws about when shops should be open. The inborn willingness of an Englishman to be law-abiding would assert itself and that would be effective in maintaining the laws for the enforcement of competition.
I wrote to the last President of the Board of Trade telling him of an American executive who had been imprisoned for breaking anti-trust laws. I said that it did my competitive heart good to find that an executive had been put into gaol. My right hon. Friend wrote back and said what a bloodthirsty chap I was. If people break these rules I feel morally indignant. We must carry on from the foundation we have in the Restrictive Practices Court and the Monopolies Commission. They have been working for some time and patterns are developing, so that there is a good foundation on which to build. I hope that today I have trodden on many established and respectable corns and I hope that I have got my argument over. Now, Mr. Speaker, for your eye, let competition commence.
§ 11.32 a.m.
§ Mrs. Barbara Castle (Blackburn)
We have all listened with great interest to the entertaining speech of the hon. Member for Cleveland (Mr. Proudfoot), but it would have had a little more effect on the House if at the end of last Wednesday's debate he had practised what he preaches. There was a unique opportunity for the hon. Member to strike a blow against the immoral monopolies to which he has so eloquently referred. When we on this side of the House challenged him about what part he had played in the Division on that occasion, he admitted that he voted against our Motion.
§ Mr. T. H. H. Skeet (Willesden, East)
The hon. Lady is referring to a Motion which called for a public inquiry. That was entirely different.
§ Mrs. Castle
Why was it entirely different? The hon. Member for Cleveland said that he was opposed to the terms of our Motion. I wonder what exactly it was to which he objected in that Motion. Did he object to our describing Her Majesty's Government's attitude towards monopolies as "timid 1678 and complacent"? He has given some excellent evidence to support that view.
§ Mr. Proudfoot
Does the hon. Lady really think that this House has the capacity to judge about the merger we discussed on Wednesday? I do not believe that it has the technical ability to do so. Hon. Members opposite were trying to lock the stable door after the horse had bolted.
§ Mrs. Castle
The hon. Member is evading the whole point about last Wednesday's debate. We were saying that what was needed to judge the merits or demerits of the proposed I.C.I.—Courtaulds merger was not an arbitrary argument on either side of the House, but an independent inquiry. I am at a loss to understand how the hon. Member thinks that he can achieve the break-up of public monopoly unless it is done by some form of independent inquiry. Indeed, we were told by the Board of Trade that it is all right but we cannot do anything now about this merger, which is the biggest in the history of British industry. The President of the Board of Trade agreed that it could be of decisive importance for our economic development and our export trade, but we could not do anything about it today. Some time in the future when the whole policy on monopolies has been reviewed it might be decided whether or not inquiries are necessary. At the very moment when the Government suggested action for the future, the President of the Board of Trade was advancing arguments against any action by any body that might be set up.
The real test of our attitude to monopolies came last Wednesday. By evading it the hon. Member for Cleveland, and his colleagues generally, showed that under this Government we are not to have an anti-monopolies policy for the simple reason that if we start interfering with take-over bids in private enterprise society we shall be cutting at the very heart of capitalist philosophy and at the very motivations which make that society work. The President of the Board of Trade took the very opposite view to the one which has been described by the hon. Member. He warned us that the inevitable pattern of development in modern industry is towards larger and larger units.
1679 We were told that this was a fact of twentieth century life and that it was not altogether a bad thing. The right hon. Gentleman suggested that there was common ground between the two sides of the House on that. I, for one, welcome the fact that the Government Front Bench are becoming positively Marxist in their analysis. It is lovely to hear them echoing phrases which I thought came only from Socialist debating societies. The President warned us that there would be an inevitable concentration of capitalist industry in modern conditions. I think that is very good Marxism, and I agree with him. I think that this concentration is inevitable.
I suggest to the hon. Member who moved the Motion that he is pinning his hopes on a will o' the wisp if he thinks that our entry into the Common Market will provide an alternative form of competition. I think that for two reasons. One is because of the provivisions of the Treaty of Rome with regard to cartels and the regulations that have been drawn up under Articles 85 and 86, which make it perfectly clear that the Treaty of Rome does not provide any protection against mergers as such or against large-sized units even when they have a dominant position in European industry. The Treaty says that they may be interfered with only:to the extent to which trade between any Member States may be affected thereby.That is an open invitation to by-pass the regulations for the Common Market by mergers which have taken place in one country and to overcome the cartel legislation by another set of mergers in the Common Market itself. If we do not deal with the I.C.I.-Courtaulds merger now by saying that it will not matter when we go into the Common Market, that will give no protection when Du Ponts of America may decide that the time has come to merge with I.C.I. We cannot get away from tackling this problem by relying on some sort of gimmick like going into Europe, because Europe is capitalist, too, and these are all manifestations of modern capitalist society at work.
§ Mr. Diamond
I think that my hon. Friend will agree that it is fair to say Europe is a mixed economy, too.
§ Mrs. Castle
Only to a far-from-dominant extent. I agree that the only safeguard against the capture of industry in Europe by a very few private companies lies in the extent to which we can develop forms of public ownership. There my hon. Friend and I are entirely in accord. That is why he and I support public ownership. This is the challenge which faces us today.
The hon. Member for Cleveland must realise that we have to make a choice between these decisions being left in private hands and private industry being made publicly accountable in some form or another. I say to the hon. Member, who has just been so eloquent, that if he opts for leaving these decisions in private hands, then the takeover bids will be irresistible and, what is more, they will be incompatible with the public interest, because the decisions will then fall to be taken not by a group of experts, even within private industry, not by the directors of companies, not by their management, not by the users of their products—for we have seen how the Silk and Rayon Users' Association has protested against the I.C.I.-Courtaulds merger as being contrary to its interests—and certainly not by the consumers, who will become the helpless receivers of whatever policies are dictated from above, but by the shareholders. Even if we allow that there are many public-spirited people in private industry, as long as the private ownership of our industry remains, then the decisions will be taken by the shareholders.
Surely we have had a classic example of this in Courtaulds-I.C.I. and, what is more, we even had the Government Front Bench in last Wednesday's debate maintaining that this was a good thing. The President of the Board of Trade said that he was sure that we could rely upon the private shareholders to decide these matters in the public interest—an astonishing statement for any Government representative to make at this moment when we are witnessing the most cynical piece of huckstering in the battle between Courtaulds and I.C.I.
I am sorry that we have not a weightier representative upon the Government Front Bench this morning to answer my questions. I mean no disrespect to the 1681 hon. Member the Parliamentary Secretary to the Board of Trade; I am talking about his position in the Government hierarchy and not his personal qualities. But in view of the fact that the House today has been given this second opportunity to discuss monopolies and mergers, and in view of the developments which have taken place in the I.C.I.-Courtaulds battle since Wednesday's debate, surely the President of the Board of Trade should have come to the House this morning to defend the Government's inaction in the face of evidence that the public interest is going for nothing in the current battle. I ask the Government whether even now they will step in and exercise the rights of the House by stopping the proposed action, which can jeopardise all our efforts to bring this country out of its economic difficulties.
We had a long homily from the Chief Secretary to the Treasury in concluding last Wednesday's debate in which he said that everything we had been talking about was irrelevant. Accountability or non-accountability, mergers or no mergers, he said, were irrelevant issues, and all that mattered was the battle for exports and for the country's economic survival. How can the Government maintain that in the light of the news in the Press yesterday, in which we were told,Courtauld launches a heavy last-minute counter-attackagainst I.C.I.? What form does this counter-attack take? We were told that the Courtaulds directors, in order to offset the I.C.I. bid, had offered their shareholders the following: higher dividends in future; a special tax-free cash distribution of 2½ per cent. in each of the three years; and a free issue of loan stock. The Guardian financial correspondent commented:In promising to distribute not less than half Courtaulds' trading profits together with the whole of the company's investment income, if stockholders would reject the I.C.I. offer, the Courtaulds board said yesterday that in 1962–63 each stockholder could expect to receive dividends totalling £20 10s. for every £100 of stock held, against £16 5s. if he accepted the I.C.I.'s offer of loan stock in exchange for his shares.
§ Mrs. Castle
I ask hon. Members how we can talk about an economic planning policy for this country in the light of this situation? What do they intend to do about it? Are they not ashamed? I have never seen a more crestfallen bunch than I saw on the benches opposite at the end of last Wednesday's debate. I sat here and watched their faces while the Chief Secretary was winding up the debate, and I know that they knew that it was wrong and indefensible. In fact, I heard some of them muttering "This is terrible", as the right hon. Gentleman was limping from one lame excuse to another as to why the Government could do nothing at all.
What are the social implications of this monopoly policy? The right hon. Gentleman did not touch on these in his unproductive speech. As we on this side of the House maintain, the social implications are that the control of the economic life of the country is not in the hands of the Government's planning body or of experts or of any body with any accountability to the public interest; it is in the hands of the shareholders. Indeed, that citadel of Conservative orthodoxy, the Sunday Times, has realised this. This is not just a piece of Socialist propaganda It is what the Sunday Times said on 21st January:The whole future of our chemical and man-made fibres is too important to be decided on short-run investment considerations by investors glad to make a few shillings profit. It must be regarded as a political question.Of course it is a political question, and it is that political question which we raised last Wednesday—and that was the opportunity for the hon. Member for Cleveland to strike a blow.
§ Mr. Proudfoot
The hon. Lady says that she does not like shareholders. In my division, in one of the steel companies the workers are tired of filling in football coupons and have started investment clubs. They are shareholders.
§ Mrs. Castle
I do not care who is a shareholder. We are in the middle of launching, or trying to launch, a national planning policy. We have been told, even by the Prime Minister, that Tory freedom does not work; it is finished; it is scrapped; it is out of date. The 1683 slogan for the next election is to be, "Tory planning works." If that means anything at all, it means that the Conservative Party has admitted that its old traditional guiding light of self-interest is inappropriate. When the slogan was "Tory freedom works," the appeal to every section of the community, whether they were workers, shareholders, managers or anything else, was, "You have never had it so good and you are entitled to go all out for number one and make it better." That is what they were told. That is the basis on which the Tories got their majority in the last election.
It has brought us to the pass we are now in. Therefore, the Government change their tune and say, "No, self-interest will not do. It must now be the national interest." Nobody pretends that we have any guarantee that the national interest will be served by the I.C.I Courtaulds merger. The conflict of evidence in last Wednesday's debate from both sides of the House proved that this matter is not established.
How in the end is this to be decided? Simply by the question whether the shareholders can be given a bigger bribe by I.C.I. or by Courtaulds. In the process of the shareholders being given cash bribes, assets that ought to be used for investment and the development of the export trade are being thrown into the battle. The Government sit back and refuse to do anything.
§ Mr. R. Gresham Cooke (Twickenham) rose——
§ Mrs. Castle
I keep giving way. I must get on with my speech. What are the consequences? I suggest to hon. Members opposite that this lies at the heart of this country's social malaise, because we are being offered a double morality. In the Government's White Paper, "Incomes Policy: The Next Step", the wage earner is being told that all the normal criteria for wage increases under a system of free enterprise must go. Even the criterion of a rise in the cost of living must be abandoned. The criterion of shortage of labour is irrelevant. The criterion of comparability between different industries must go. We are even told that the wage earner may not take the criterion of the 1684 increase in profits or productivity in any particular industry. He is even told that hard work is irrelevant. In the White Paper we are warned that in assessing what wage increases are possible in the coming year it is not only basic wage rates that are to be taken into account. It is higher earnings.
Therefore, the harder the worker works the more he is in danger of having to suffer either a reduction in, or a restraint on, his basic wage rate. All the normal criteria have been abandoned. We are told that in future there must be only one for the wage earner. The Prime Minister sheds tears of sympathy for wage earners because they will unfortunately suffer under this new criteria. He admits that they do not deserve to suffer.
There is only one criterion, namely, that the overall increase in personal incomes must not exceed the overall increase in national production in the coming year. That is what the Prime Minister told the railwaymen. What is the House going to tell the shareholders of Courtaulds in the face of this new cash bribe in this merger battle? How dare the Prime Minister deliver these sympathetic homilies to the railwaymen and then say that he is impotent to do anything about Courtaulds? When are the Courtaulds shareholders going to meet their Passchendaele? No blood, sweat and tears for them. This is the kind of mental problem hon. Gentlemen face when they are deciding what to do about mergers and monopolies. The fundamental challenge that faces them is this. Are they prepared to say as a matter of national policy that decisions affecting the industrial development of this country shall not be made in the light of the short-term self-interest of private shareholders?
§ Mr. Gresham Cooke
The hon. Lady surely realises that both I.C.I. and Courtaulds have a very good employee shareholding scheme, so many of their employees will benefit.
§ Mrs. Castle
I do not care who benefits from this gamble. All I am saying is that, if there is to be a national plan, all must fit into it. If there is to be a demand for sacrifices, all should share in it on the basis of the national interest. What will this Courtaulds offer mean in cash terms? Somebody 1685 has said that it will mean £40 million. Forty million pounds worth of somebody else's production is to be thrown in the form of a bribe to a few individuals. A planned society cannot be run on that basis. A planned society cannot be run on the basis of a double morality—the morality of the national interest for the wage earner and the morality of self-interest for the private shareholder.
We on this side agree that larger units have come to stay. In a world of mass markets there are also going to be larger and larger units of enterprise. The question is whether these units are to be made publicly accountable to the national plan. What we are doing in Parliament is what we did in the days before the war when unemployment in this country was rife and the Conservative Government said they could do nothing about it. Aneurin Bevan accused them then, as he would accuse them now, of making Parliament the public mourner for private economic crimes. As long as we do that we shall have the growth of cynicism in our society, the growth of selfishness in our society, and the growth of private interest taking precedence over national interests. And we shall have the continued economic deterioration of the country.
§ 11.57 a.m.
§ Mr. A. R. Wise (Rugby)
I will endeavour, following the hon. Lady the Member for Blackburn (Mrs. Castle), to extract as much out of a forceful piece of rabble-rousing as is relevant to the Motion. There is regrettably very little, but I will do my best.
I begin by saying that the hon. Lady's attack on my hon. Friend the Member for Cleveland (Mr. Proudfoot) for his vote on Wednesday night was based on a grave irrelevancy. She accused him, as far as I remember, of speaking against monopolies today, but failing to vote against them on Wednesday. In fact, nobody was asked to vote against monopolies on Wednesday. Indeed, the final speaker from the Opposition Front Bench announced it as his opinion that monopolies are necessary in the modern world and have come to stay. He went on to say that they should be only State monopolies, but I will come to that later.
1686 Nobody was being asked to vote against monopolies as such, but only against larger owners. If one believes that monopolies are bad generally, as my hon. Friend does universally and I only partially, he was perfectly right not to go anywhere near the Opposition Lobby.
§ Mrs. Castle
Does that mean that the hon. Member for Rugby (Mr. Wise) has no objection to private monopolies, but only public monopolies?
§ Mrs. Castle
I gave way to others very generously during my speech, and what the hon. Gentleman has just said is very unfair.
§ Mr. Wise
As the hon. Lady had no order in her speech it was not interrupted.
I must refer to our debate on mergers last Wednesday, because it is pertinent to our present deliberations. I shall not go back to the old, rather worn-out business of I.C.I. and Courtaulds, or whether the Imperial Tobacco Company was right to buy shares in another company which happened to be prosperous, or various other things that were, in my view, quite unsuitable for debate, and should not have been allowed to use parliamentary time.
The right hon. Gentleman the Member for Battersea, North (Mr. Jay)——
§ Mr. Diamond
On a point of order, Mr. Speaker. I think that the hon. Member said that some of the speeches which were made on Wednesday should not have been allowed to use up Parliamentary time. Is not that going rather too far? And is it not even a reflection on the Chair?
§ Mr. Speaker
No. I do not think that that was necessarily a declaration that some abuse had occurred. I find that hon. Members quite often think that other hon. Members' speeches should not have been made.
§ Mr. Wise
Thank you, Mr. Speaker. No reflection on the Chair was, of course, 1687 either said or intended, nor did I say that those speeches were out of order. I hinted that they were nonsense, but, unfortunately, nonsense is not necessarily disorderly.
We heard a fascinating attack on monopolies by one hon. Member opposite, and we ultimately heard them defended—as is common in the party opposite—by another. The fact is that the party opposite basically likes monopolies and has always urged their establishment. It would like to have a monopoly in the sale of fuel. Time and time again we have heard complaints because we do not like imposing penal taxation on oil in order to give a clear market to coal, which would then be a monopoly, as hon. Members opposite would, in fact, like it to be.
Again, how many complaints have we heard from them because we do not allow the railways to have a total monopoly of transport; that we allow road transport to exist independently of the railways? They call that "integration", but that is just a rather clumsy word which still means monopoly. They urge it, because they all the time believe in monopolies. In that debate, the hon. Member for Cardiff, South-East (Mr. Callaghan) spoke about the place of monopolies in the modern world, and he described the sort of monopoly that his party was prepared to support. He did not, of course, use the term "public accountability," as the hon. Lady did; he spoke of public ownership", which is very different.
That makes me believe that the only sort of monopolies that really appeal to hon. Members opposite are those that can be guaranteed to put a burden on the taxpayer; "If they want subsidy—fine!—let us have a monopoly"——
§ Mr. G. W. Reynolds (Islington, North)
Is the hon. Member aware that that sort of monopoly was not a burden on the taxpayer until his right hon. and hon. Friends took over the government of the country in 1951?
§ Mr. Wise
No. that is not true. I can recall many speeches made by the previous Chairman of the Transport Commission, and the one I thought to be most out of reach of fact was that in which he said, of the railways, that if 1688 one did not count the interest they had to pay on their loans they were making a profit. That was the nearest they ever came to it and, of course, it would amount to telling any company that provided it could steal the whole of its capital equipment it might be a paying concern. As it was, the party opposite got the railways by a swindle and at a bargain price—and still could not make them pay.
Further monopolies have, from time to time, been urged by hon. Members, and there is no doubt that they are not even wholly attached to monopolies under public ownership. That is another point worth considering. A year or two ago, the hon. Member for Wednesbury (Mr. Stonehouse) urged that the cooperative societies should have a monopoly of the distribution of milk—and he used the word "monopoly." The cooperative societies are not publicly owned—they are trading concerns—but again and again, at their annual congress, they have urged that they should have a monopoly of the distribution of coal. After all, the Co-operative Party and the Labour Party are, I believe, friends and allies at the moment, although, as is usual, fissiparous tendencies appear from time to time.
Hon. Members opposite genuinely believe in monopolies. They raised a frightful outcry when the monopoly of the B.B.C. of the distribution of radio and television was allowed to be challenged. They may have been right in saying that the B.B.C. programmes were better, but they were still urging monopoly, and denying the right of open competition.
The present trouble over mergers and monopolies should not be approached from the two aspects from which it is too often approached. The first is the doctrinaire aspect, the Socialist outlook, which is really based on the old "sacred cow" of Clause Four. That is a burden they say they cannot shed—and thank heaven for it, because it does them more harm than almost anything else. They also condemn profitable investment by other companies.
I was staggered the other day to hear hon. Members complaining of Imperial Tobacco's shareholding in Gallahers. That complaint came from people who had been suggesting in their more 1689 Right-wing publications, such as Socialist Commentary—which is, I believe, read by quite a number of them—that instead of endeavouring to carry out nationalisation they should devote themselves to buying shares, with Government money, in more profitable companies. Hon. Members cannot have it both ways. If the Government are entitled to make profitable investments, so is anyone else. That doctrinaire approach to our existing problems is not really suitable.
On this side of the Chamber there is what I think is another fallacy—the purely economic approach to the problems of great combinations. We have heard it often enough said that the railways must be made to pay. I agree with that, but they must not be made to pay regardless of any obligations they have to carry passengers from one place to another if it is reasonably possible for them to do so. The purely economic approach to that major industry is not, in itself, absolutely right. Both the outlooks I have mentioned are away from the real practical solution, which is somewhere between them.
There is a social aspect to major amalgamations, and we should do very ill to neglect it. There is a social aspect in the amalgamation of which we talked so much the other day, because the almost unanimous opinion of the employees of one company was that they did not want to be associated with the other. That might be said to be purely old-fashioned loyalty to their firm, but the feeling did exist, and it must be taken into account. That is why I welcomed the statement made by my right hon. Friend the President of the Board of Trade that his Department was making further inquiry into the question of major mergers. I sincerely hope that that inquiry will be stepped up to a rate of urgency before we are faced with a fait accomplit which will do great harm to a large number of persons.
I am speaking with some knowledge of this, because between 200 and 300 of Courtaulds' employees live in my constituency, although they work in Coventry, and I have never seen such unanimity among all grades about their desire to remain with their own firm. Although I admit that it might be possible, in certain circumstances, for a merger to over-ride that will, I do not 1690 think that in normal cases these views should be neglected and I believe that Her Majesty's Government could take a slightly stronger line about this.
§ Mr. Diamond
Is the hon. Gentleman going to say, in this interesting example about the need to consult Courtaulds' employees, that this is a principle that should be adopted when all mergers of this size are under consideration?
§ Mr. Wise
The answer to that is both "Yes" and "No". If there is no particular demand or objection among the employees of one side or the other there would seem no point in having an inquiry about a proposed merger. But if there is, and if it is a manifest objection, then, certainly, that is a factor that should be taken into account. In other words, my answer is "Yes" and "No." and I hope that the hon. Gentleman will agree that it is a just answer.
I suggest that it is not necessary for the Government to wait for the results of one of these mergers before doing anything about it. Admittedly, from the purely financial aspect, one cannot judge whether it is going to be a success or not commercially, but there are other things which can be considered and it is possible to distinguish between a merger and a take-over. That is something which should be borne very firmly in mind. A merger has the full agreement of the two boards of directors who, of course, consider that it is in the interests of their companies to amalgamate their concerns in the interests of either. In such a case there is no quarrel and there is a perfectly simple arrangement on both sides. However large that merger may be, I do not see how one can make it the subject of an inquiry unless, as I understand the intervention of the hon. Member for Gloucester (Mr. Diamond), there is a very violent expression of opinion by the employees of one or other side.
But a take-over bid is a quite different thing and bears no resemblance to one of these friendly mergers. It is a battle conducted by propaganda, bribery and by juggling the share market between the two boards of directors to try either to force or avoid an agreement. That is, unquestionably, socially undesirable. There can be no doubt about 1691 that and I would have thought that a simple suggestion might make it very much more difficult for this sort of thing to happen. A simple move would be that whenever such a battle started the party wishing to annexe the other should have to put down in hard cash at least a half of the price offered. That would be an effective and very simple brake.
I do not believe that even Imperial Chemicals could have raised between £90 million and £100 million in hard cash. Certainly, the firm could not have raised that money if the Treasury had not wished it to do so, for there is sufficient, control of currency and credit. That is my only positive contribution to the debate; that the Government should really try to see whether something cannot be done to set up machinery to stop these sorts of lamentable performances that we have been enduring recently.
I have great sympathy with the employees of Courtaulds because, as I have said, a great many of them live in the same place as I do. But I have very little sympathy with either of the boards of directors. Indeed, were I a shareholder in the threatened party I would be asking bitterly why about £40 million of admirable assets had been withheld from me all these years and I would be claiming a little back interest on what was, in fact, my capital.
I urge the Government to take serious notice of popular concern in these matters. They should try to adopt a simple method of investigation and control wherever there is an actual clash. Where there is no such clash I suppose that we must accept mergers. After all, we shall be faced with highly merged competition in the years to come, especially if we get ourselves involved in the Common Market. The whole vast complex of I.G. Farben was rebuilt under the nose of the British Government between 1945 and 1950 under a series of other names. I was there and I watched it happen, and I know that that will provide very serious competition.
I am not sure, however, that it is inevitable that we must necessarily only fight a giant with another giant. We have the fairly classic historical example of David and Goliath—and the smaller man was successful.
§ 12.16 p.m.
§ Mr. Elwyn Jones (West Ham, South)
My hon. Friends and I echo the fierce denunciation made by the hon. Member for Rugby (Mr. Wise) of take-over bidding. His language had a business which was most striking when he spoke of the methods of "propaganda, bribery and rigging the market" as part of the stock-in-trade of take-over bidding. Parts of his speech seemed to show a contrast between a desire, on the one hand, to see the disintegration of publicly-owned corporations and, on the other, a rather complacent attitude towards private monopoly. Whether the process be called merging or otherwise, it has increased the concentration of power in private industry and these vast concentrations can affect our whole economic life and future.
It is an admirable thing that the hon. Member for Cleveland (Mr. Proudfoot), by moving the Motion, has given hon. Members an opportunity for the second time this week—this time perhaps on a more general plane—to consider these monopolistic tendencies in industry. The public interest is very much involved. It affects not only the interests of the shareholders, important as they may be; it affects not only the managements but also the workers. It also affects the community, the productivity of the nation and the economic life of the country.
Some of the amalgamations, mergers, and, in particular, forced mergers under blackmail and threats of take-over—and I cannot help thinking of the massive tendency in this direction in the last few years—are doing great harm to our economic and industrial life. I have recently seen the proposals of two companies—the Westland Aircraft Ltd. and the Bristol Aeroplane Company—to take over the Fairey Company. I suggest that these proposals reflect a very unattractive state of things indeed.
The House will recall that in 1960 the aircraft industry was concentrated into five main groups. In the course of that concentration the Fairey company disposed to the Westland and Bristol companies of its interest in the research, development and manufacture of aircraft. One of the major acquisitions of Westland was Fairey's interest in the 60-seater Rotodyne. Since then the Westland company has undoubtedly 1693 flourished on the basis almost entirely of contracts with Government Departments or with public air Corporations. When one considers that about 90 per cent. of its contracts are made with either the Air Ministry or with the Admiralty or with great public Corporations, it gives one cause to ponder on what basis those contracts can have been negotiated.
The Westland company has circulated some propaganda—to use the word of the hon. Member for Rugby—from Lazard Bros & Co., Ltd., relating to its activities and the state of its economic health. I confess that I find the figures of profits which emerged from that propaganda quite remarkable. In the twelve months ended 30th June, 157, the profits of this company were just over £1 million. In the twelve months ended 30th September, 1960, they were over £2½ million. In the twelve months ended 30th September, 1961, the profits before taxation were £2,781,000. The net profit after tax was £1,384,000. When one bears in mind that the capital is about £6 million, it seems a gigantic return of profit. That profit is made, as I say, on the basis of a company almost all of whose contracts are with either Service Departments or with the great public air corporation.
Strengthened by this remarkable profit, the Westland company now apparently has in mind to extend its empire, when one would have thought it already had enough on its hands in the development of the helicopter industry. The Westland and Bristol companies have now in effect got a monopoly in the helicopter industry. It is a fascinating picture of a monopoly in operation. Again the propaganda handout states that in terms, so we are not concerned with whether a monopoly is a 50 per cent. control or under. The propaganda sheet states that WestlandNow comprises virtually the whole of the British helicopter industry and the main types in production are the Wessex, Whirlwind. Belvedere, and Scout Wasp. In addition Westland produces the Gannet, Mark III, a fixed-wing aircraft.It is also engaged in the manufacture of hovercraft and manufactures also the Black Knight missile.
Here, then, is a company which has been given by licence practically a 1694 monopoly of the helicopter industry. /t is now engaged in the advanced stages of development of the 60-seater Rotodyne, and it is at this stage that it has launched into this massive endeavour to take over the interests of Fairey which has developed in rather a different field and which has now established a certain lead in nuclear engineering which one would have thought was a separate branch of industrial advancement with which the present interests of Westland and Bristol would have little or nothing to do. But it is into this domain that Westland, the profiteers of a State-protected monopoly this time, now propose to enter.
What has emerged from the jungle of take-over bidding is, I submit, not very attractive. The first offer of Westland was made on 21st December, 1961. It offered two Bristol ordinary shares of 10s. and two Westland ordinary shares of 5s. for every three Fairey ordinary shares of 10s. That was the first bid.
By the end of January, in the face of the refusal by Fairey, the bidding went up. Indeed, it went up by 50 per cent. In addition to that, Westland offered a cash alternative of 28s. a share for each Fairey share and the benefit of a claim that the Fairey company had in respect of the Great West Aerodrome. Who knows what higher offer may yet be made in this jungle warfare?
The Fairey company, for its part, in order to keep alive and protect itself from what was so attractively called company cannibalism in the debate earlier this week, has sought to fight back and it has now proposed that there should be for the shareholders a capital distribution of assets having an aggregate value of not less than 12s. 6d. for each Fairey share, and consisting, first, of cash of not less than 6s. 6d. a share and, secondly, of all the shares of the wholly-owned subsidiary Siebe Gorman and Company, Ltd. Then the company would distribute in the form of participating certificates the benefit of the claim in respect of the Great West Aerodrome.
Whether the Westland company really is in a financial position to dissipate its capital resources in this way is extremely doubtful. Whether the Fairey company is in a position that it would be well advised in the public interest to dissipate 1695 its own capital resources similarly in order to keep alive is equally doubtful. But what emerges from the battle is that in the very sphere where our industry should be pioneering, developing and ploughing back all the cash it has got into further development, the jungle warfare of the take-over bid has pushed those basic considerations into the background and we have got a straight fight for hard cash and economic power.
I cannot believe that these developments can be good for our industry. What can be the reaction of the skilled personnel, for instance, of the Fairey company? How can they feel now, when, after the major rearrangement of their enterprise two years ago and now that they have become established and are showing great promise in the nuclear field, there is this threat hanging over their heads? It is bound to have a demoralising effect. The Westland-Bristol side of the matter paints a very unattractive picture of economic imperialism, a picture into which the public interest does not, or does not appear to, come.
Has the hon. Gentleman's Department considered this matter? What action does it propose to take in view of the grave disturbance which it is liable to cause to such an important part of our industrial life? It may be said by the Minister that he has no power to intervene, that this is part of the free-for-all where there are no statutory powers for the President of the Board of Trade to use. I am not sure. I should have thought that this kind of subject would certainly be appropriate for an inquiry. The House rejected the suggestion of an inquiry last Wednesday, but I wonder whether, in a territory like this, where the major companies concerned are almost entirely supported by the public purse, the profits which they make being profits derived from the public, from the taxpayer, whether, in other words, the taxpayer's interest in the matter is so direct and immediate and the public interest so great that the Board of Trade can and should intervene.
Without myself taking sides in the matter, I ask the hon. Gentleman very earnestly what can be done to protect the public interest, which seems to be seriously threatened by this jungle warfare.
§ 12.32 p.m.
§ Mr. R. Gresham Cooke (Twickenham)
I congratulate my hon. Friend the Member for Cleveland (Mr. Proud-foot) on his good fortune in the Ballot, on having the good sense to choose this subject, and on putting his Motion before the House in the lively, amusing, cheerful and rumbustious way that he did.
My hon. Friend had been criticised for choosing the subject so soon after Wednesday's debate, but I think that a consideration of it will be very useful not only for the reason he gave, but because we were not able, in the narrow compass of Wednesday's debate, to discuss positive suggestions for the future, and because we should not have had the useful contribution made by my hon. Friend the Member for Rugby (Mr. Wise) if it had not been for this debate.
I do not go far with the hon. and learned Member for West Ham, South (Mr. Elwyn Jones) along the road he trod in denunciation of mergers and amalgamations generally. I shall come to that presently. We must accept that British industry during the past fifty years has been built up on mergers and amalgamations. When I speak of mergers and amalgamations, I mean those which have come about voluntarily, with the agreement of directors on both sides. I agree with my hon. Friend the Member for Rugby that the word "take-over" has a sinister connotation implying an appeal to shareholders over the heads of boards and management and I, therefore, distinguish between the two.
My twenty-five years' experience in industry convinces me that this getting together is an inevitable trend up to a point. I emphasise "up to a point". For instance, in the steel industry several of the great combines were built up as a result of mergers of iron and steel works. United Steel, with which I was intimately connected, was formed at the end of the First World War by the merger of four great iron and steel companies, bringing in the vertical support of coal mines in South Yorkshire and forming a successful and prosperous company which gave a great deal of work to many people.
Of course, the process did not stop there because, over the years—I was 1697 involved in some of the amalgamations—United Steel took within its ambit voluntarily certain smaller companies to make products which it was not already making.
§ Mr. Gresham Cooke
Thirty-three, yes. I have not been associated with it for that number of years.
It is interesting to note, if one goes back into history, that even Clarence Hatry, who was much reviled and who went to prison for forging steel company certificates, had some very interesting proposals for amalgamating steel companies.
To take the example of the motor industry, there were in 1920 no less than 80 motor car manufacturing companies exhibiting at the first motor show after the First World War. Those 80 companies have now become seven groups of motor car manufacturers, and if one adds to them the outstanding large commercial vehicle group which is not engaged on the motor car side, one sees that eight large groups now control well over 90 per cent. of the industry. Many hon. Members—I am sure this applies to the hon. Member for Edmonton (Mr. Albu)—would like that process to go a good deal further. There is, nevertheless, a great deal of competition remaining.
In machine tools, with which I am connected now, the same process has gone on, yet this industry, too, is still highly competitive.
There are certain facts in regard to mergers which ought to be made clear to the public. As many propositions come from those asking to be taken over as from those who want to take over. I am willing to wager that Mr. Clore gets a take-over offer on his breakfast table two or three time a week. He receives far more than he is able to absorb. Why is this so?
Some companies realise that their production run is too small to be economic. They cannot afford the research and development. Perhaps a man has built up a small business in his lifetime and wishes to dispose of it before he dies. Others realise that their buying power for raw materials is too small 1698 to get the best terms and they are in danger of being squeezed out. Others know that their products might fit neatly into the programmes of larger companies.
There are, of course, the failures which disappear for one reason or another. We have seen two or three of these in recent years. Either such a company must be taken over by another or its assets, its personnel and its machinery must be dissipated. Clearly, the take-over is preferable for both the workpeople and the company's future. One company with which I am now connected receives a take-over proposal from a small unit every month or two.
I emphasise that this is a democratic movement coming upwards, not the result of the "big boys" always looking dawn. Having been born well in this century, I call myself a child of the merger age, and none the worse for that. All mergers do not lead to monopoly by any means. Far from it. There are the instances I have mentioned where the industries are still very competitive. This, I think, is the point at which we should stop, when competition merges into monopoly.
The knowledge that there will be a 96 per cent. monopoly in synthetic fibres if the I.C.I.-Courtaulds take-over comes off is the reason why I myself do not like it and why I abstained from voting for the Government on Wednesday. I call it a take-over and not a merger, because it amounts to a direct offer to shareholders over the heads of directors and management and not a willingly negotiated merger.
I must disclose that my only interest in the matter is that I am a modest shareholder in I.C.I. Naturally, I have followed with great interest the proceedings between the two companies. I have recently felt that there was something rather odd about the presentation of the news of this take-over bid by I.C.I. on Monday, 18th December. I have re-read the report in the Financial Times of 19th December of Mr. Chambers' Press conference that day. It confirmed the impression I got when I first read it, that negotiations had been going on for some time, that there had been talk of a merger, and that it had been intended by the two companies to make a joint statement.
1699 Mr. Chambers said at that time that he could not say whether the terms were acceptable to the board of Courtaulds. However, I understand that it is now well-known in the City that the board of directors of Courtaulds had a meeting on the previous Friday and turned down the I.C.I. offer before the Press conference. I am told by a source in no way connected with Courtaulds that the rejection of I.C.I.'s terms was delivered to Mr. Chambers on Saturday, 16th December. There may be some explanation for all this. Then there was the unfortunate Press leak on the Sunday which led to the I.C.I. Press conference on the Monday, and the explanation of the I.C.I. offer. Obviously, the whole matter was very rushed and hurried.
We now know that this was a takeover offer against the desires of the directors and management of Courtaulds. I, as a modest shareholder in I.C.I., have not been consulted at all in this matter; and I have no right to be consulted. But one cannot help following and observing all this with much interest. If my humble advice were asked for by the other I.C.I. shareholders, I would tend to say that, reading the I.C.I. annual reports, the I.C.I. management might be rather over-extended anyway at present. Of course, that is a matter of opinion.
But there is a much wider interest in this matter, the public interest. As guardians of the public interest we must take into account the consumers' interest. The consumers of synthetic fibres are obviously not happy about this proposed monopoly. The letter from Sir Ernest Goodale, who is President of the Silk and Rayon Users' Association, in The Times on 23rd January, made that clear. He said that users preferred a choice of supplier. Of course, nationalisation would not be the answer because the user would not get any choice of supplier at all. It is no answer to say that prices would come down under nationalisation if the coal industry is taken as an example.
A few years ago the House went to much trouble to fashion and to pass the Restrictive Trade Practices Act. Its purpose was to break up collective agreements within competitive industry. I said at the time—I do not retract it now—that the Act would hasten the growth 1700 of mergers because, if one company felt that it was being hit too hard or unfairly, it might make an approach for a merger. That has come about in some cases.
However, I think that the Act was passed on the basis that there would be competitive industry. We did not contemplate monopolies of 96 per cent. in any one industry. Such a monopoly could drive a horse and cart through the Act, because it could virtually ignore competition and the tiny units left over, whatever price they sold their product at, would not be able to supply the customer anyway. In effect, there would be only one supplier.
My suggestion for the future is that when it is proposed to bring about a merger which will secure over 80 per cent. of the market there should be machinery by which a judge or a court could conduct an inquiry in private before amalgamation. I say "in private"—and that is why I did not agree with the Labour Party's Motion the other day—because there must be full disclosure by each side to the judge or court. If the merger were not recommended, the parties would not be prejudiced by the public disclosure of secrets, and so on. If that were the law, in practice there would not be many mergers which had over 80 per cent. of the market because not many companies would face the court unless they had very outstanding reasons to suggest such a merger. The Westland—Fairey arrangement might come within that.
I take the figure of 80 per cent., because, in my view, it puts the monopolist in an impregnable position over the customer. The figure of 33⅓ per cent. in the Monopolies Act is out of date and is not relevant in this connection because some companies already have that share of the market, and a merger with a modest one could give them over 50 per cent. of the market in a competitive industry.
Another suggestion which we should consider is the one made by my hon. Friend the Member for Rugby about a 50 per cent. cash payment in the case of a take-over. I would not use that figure in the case of a voluntary merger or amalgamation, because we do not want to upset beneficial mergers and amalgamations at the lower level.
§ Mr. Diamond
Will the hon. Gentleman tell us what virtue there is in having cash as opposed to other assets? Why consider the national interest if a company has loose cash in its bank, which, presumably, it has not been using as it should have done, and ignore the national interest if it has used all its cash and assets?
§ Mr. Gresham Cooke
What I have in mind is the rather sinister take-over in which the firm secretly acquires the shares of another perhaps to obtain the big bank balance of the other firm. I do not like that kind of take-over. It is a purely financial transaction.
§ Mr. Wise
In advocating a 50 per cent. cash payment, my idea was that in any of the bigger mergers it would be patently impossible for the organisation trying to force a take-over to raise the cash. In view of the amount of control of credit and cash which the Government exercise, it would be about 99 per cent. impossible if we did not wish that to happen. That is the safeguard. In the current case, even I.C.I. could not have laid its hands on £106 million in hard cash.
§ Mr. Diamond
That is assuming that it is wrong for I.C.I. to take over Courtaulds, and I just do not know whether it is.
§ Mr. Gresham Cooke
I will not follow up this interesting discussion. It is one perhaps to which my hon. Friend the Parliamentary Secretary will refer.
It is all very well to say that we may be going into the Common Market and that the Common Market will itself provide a solution to these problems and will supply competition. First, we are not in the Common Market. Secondly, if we were, it would take ten years for the tariff arrangements between the European countries to bring about complete competition.
I must confess that there are certain fears about this. I do not know whether they are well-founded, but one was expressed in the first letter in The Times of today. There is a fear, the writer states, thata European nitrogen cartel is already in an advanced stage of formationWhat would happen if there were only two or three chemical companies in Europe?
1702 Tariff reductions can and should be used by the Government to check monopoly and exploitation of the public if it exists. That is why I liked the proposal made by my right hon. Friend the Member for Reigate (Sir J. Vaughan-Morgan) the other day. But I wish to impress on the President of the Board of Trade—I am sorry that he is not here—that the public are worried about mergers which may lead to monopoly. In 1962, we should take positive steps to allay their fears. I am glad that there will be a Government review of this matter, and I hope that a report will emerge quickly from it and that it will lead to some action being taken along the lines that I have suggested.
§ 12.48 p.m.
§ Mr. H. Hynd (Accrington)
I apologise that I did not hear the beginning of the debate, but as a matter of fact I did not expect it to take place after the debate on Wednesday. I am surprised to hear this encore performance. Nevertheless, it gives an opportunity for some other points of view to be brought forward.
Let me make it clear at the outset that I have no financial interest in I.C.I.-Courtaulds, or any other possible or probable merger. I would go so far with the hon. Member for Twickenham (Mr. Gresham Cooke) as to agree with him about the beneficial results of certain mergers; there is no doubt whatever about that. The other day, reference was made to the fact that the co-operative societies had taken over certain businesses, some of them old-established. I know of one case in which it was certainly of tremendous benefit to the staff of the business that was taken over.
They found to their astonishment, having suffered from rather poor conditions of service for a considerable time, that by being taken over by a cooperative society they became entitled to holidays with pay, pay during sickness, trade-union wages, a 48-hour week and certain other benefits which they had never visualised as being possible in their previous employment. As the hon. Member for Twickenham said, up to a certain point mergers of small businesses of that nature are to be encouraged.
1703 The hon. Member suggested, however, certain other reasons why bigger mergers might take place. When he described himself as a child, I had rather a mental reservation, because he omitted certain other reasons why mergers might take place, one notorious example being the possibility of obtaining tax-free capital gains. There is no doubt that that possibility enters into some of the mergers of recent times.
The hon. Member said that there is a time when the process of merging should stop. What worries most of us on this side of the House is what is to be done if the progress does not stop. That is one problem with which we as public representatives are faced. If the process of merging gets beyond the point of no return that the hon. Member had in mind, what then is to be done? As the hon. Member for Loath (Sir C. Osborne) suggested the other day, when a merger reaches a monopoly stage, must it become a public company in order to have public accountability? That is a point of view that I should be prepared to support. Hon. Members opposite probably would not support that line of policy. In that event, what would they do? That is the question which we asked on Wednesday and to which we still await an answer.
The debate two days ago has been illuminating for many people who up to now did not quite understand what was going on. They heard about take-over bids and tax-free capital gains, but unless they were in the City or connected in some way with finance, it was difficult for them to understand exactly what was taking place. Now, we have heard a lot of interesting information which, I am certain, will be quoted in the House for years to come because of what actually happened in connection with I.C.I. and Courtaulds.
Reference has been made to the need for retaining a certain amount of competition, and for avoiding mergers to ensure that competition continues. The trouble is that even when mergers take place, leaving certain blocks apparently in competition with each other, there is no guarantee that honest competition continues. Arrangements can be made between the various blocks, not necessarily in writing. They can be done over the telephone. We have had ex- 1704 perience of how prices have been raised simultaneously by firms ostensibly in competition with each other. That is the kind of hidden merger, if "merger" is the right word—certainly it is a hidden arrangement—that has exactly the same effect as though a merger had taken place up to the monopoly stage. The motor tyre industry is a notorious example of that sort of thing.
§ Mr. Gresham Cooke
I looked into that very point the other day, because it was alleged in a letter to me that that had happened. The position was that Dunlop reduced its prices by 6 per cent. on 4th October and all the other companies followed suit a week later. There is nothing sinister in that. All the smaller companies in the industry simply have to follow the price leader in that case.
§ Mr. Hynd
Of course, they have to follow when there is a reduction, but they do not have to follow when there is an increase. When there is a simultaneous increase of the prices of a certain commodity by firms which are supposed to be in competition with each other. I suppose that the most childlike Member of the House begins to get suspicious.
I want to mention in particular an industry which was referred to obliquely earlier this week—the boot and shoe industry. Again, I assure the House that I have no financial interest in it. I have, however, heard about difficulties which are occurring in the boot and shoe industry because of the coming together of so many firms into a few blocks which virtually control the retail side of the industry. I believe that it is now in the hands of only three or four different firms. That is causing difficulties on the manufacturing side of the industry.
I am told that, although there has been amalgamation on the retail side, the manufacturing side is still very much in the hands of a large number of small manufacturers who are being forced to cut their prices because fewer large firms are buying their products. The workers in the industry have an agreement under which their wages are raised automatically with increases in the cost of living. This means that the manufacturing side has to pay these increases at the same time as its prices are being squeezed down by the amalgamated retailers. The danger 1705 from the viewpoint of the workers is that because of this double pressure, sooner or later there will be an attack on wages in the industry.
Therefore, if the Minister is looking into amalgamations and mergers, I suggest that he might look specially at the retail side of the boot and shoe industry to see whether the point of danger has not already been passed, not only because of the interest of the workers, but also because of the interest of the consumer.
Again, we are always assured by people who defend private enterprise competition that one result of better organisation, of scientific merging and of price-cutting to the manufacturer is cheaper goods in the shops. That this theory does not always work out hag been well illustrated in the boot and shoe industry. Whereas the retailers have been able to force lower prices from the manufacturers, those lower prices have not been reflected in the shop window. That is one of the matters which we as public representatives must have well in mind. We must defend the interests of the consumer as well as of other interested bodies.
I ask the Minister, therefore, to consider the boot and shoe industry when examining the effect of the big industrial movements which are now taking place.
§ 12.58 p.m.
§ Mr. Frederick Gough (Horsham)
We are grateful to my hon. Friend the Member for Cleveland (Mr. Proudfoot) for initiating this debate. When the business of the House for the present week was announced, he might well have felt that his thunder would be stolen by the debate that we held on Wednesday. I feel, however, that my hon. Friend should be doubly congratulated. If we are honest with ourselves, we would admit that the debate on Wednesday was a good old party crack, one side against the other, whereas today's debate has followed the time-honoured Friday custom when hon. Members, on both sides, can put forward their own points of view. I have listened to some interesting speeches.
My hon. Friend should also be congratulated upon giving hon. Members the opportunity, not of tearing up their notes after Wednesday's debate, but of coming here today and having a second go. That would, perhaps, be a fair 1706 definition of the speech by the hon. Lady the Member for Blackburn (Mrs. Castle). I am sorry that the hon. Lady is not now present, but it might be doubtful whether she had any notes. At least, she was able to get it off her chest.
Had the hon. Lady still been here, I should have liked to have answered her one challenge. I thoroughly enjoyed her speech, which had a sort of red-headed attractiveness to it, but the gravamen of her case was that the people must make the choice. As far as I can understand, the choice was really not so much—the hon. Lady is coming back. I am glad. I must tell the hon. Lady that I was just saying a thing or two about her speech and I hope they were complimentary. I listened with great interest to her speech and I came to the conclusion that her object really was to bring out one point of difference of principle between the parties, namely, that one must make the choice between private enterprise and public ownership.
I think that that is a fair question which she put. The only thing I can say to her is that the public have had the chance to make that choice three times in my recollection and each time they brought me back as a Member of this House. I hope that when they have a General Election again the same choice will be open to them and that they will make the same decision.
§ Mrs. Castle
Will the hon. Gentleman not agree that public ownership has never had the chance to develop on the lines of the objective criteria of efficiency which, I believe, should dominate both private and public industry? For example, if the railways were privately owned, and Dr. Beeching were in charge of them, he would clearly spread sideways, as The Times pointed out the other day, into the fields of his competitors where traffic would be more lucrative, and to balance his overall problem; but for political reasons the Government have refused to allow him to integrate transport as a whole, which they would not have done had the railways been privately owned.
§ Mr. Skeet rose——
§ Mr. Gough
May I deal with one intervention at a time? The hon. Lady was cheated out of making her speech last Wednesday. I am sure, as a back 1707 bencher, that I know exactly how she felt, but I really do not think, with great respect, to the Chair, that she ought to be allowed to make two speeches now. One speech was nearly out of order, and if I pursued her along her present line I think that I should very soon be out of order myself. I am here to speak of one or two other matters and I should like to get on with my speech.
I was extremely interested in both the speech of my hon. Friend the Member for Rugby (Mr. Wise) and that of my hon. Friend the Member for Twickenham (Mr. Gresham Cooke). Of course, anybody who has been in business for many years, as I have been, realises that mergers or amalgamations or whatever we like to call them are inevitable in business. They happen in business every year and every day and I really do not think that anybody is against them at all. They happen because there is an approach between the interested parties. They happen sometimes because one firm's management is old and that of another is young; they may happen for all sorts of reasons. However, the basic factor of them is that the parties approach each other because they want to approach each other.
I speak with some personal experience. Even on that criterion I can tell the House there can be mergers of such a character that it takes years for the parties to understand each other; people do not understand one another when they come into the mergers, which are absolutely voluntary, and are, in my opinion, essential for the furtherance of business.
We come to this other type of merger which very nearly becomes or completely becomes a take-over bid. I have no intention of speaking at very great length on this subject, which was dealt with so exhaustively last Wednesday. I have another particular subject to discuss, but I would say, in passing, that I think that one of the great difficulties of these take-over bids is that they reduce the value and status of the board of directors, and that is extremely important in company law and in the whole system of our public companies.
May I explain the situation? I would not mind take-over bids if the take-over company, for the sake of argument, went 1708 to the board of the company which it wants to take over and accepted its answer. But, of course, it does not. Had that been the case in this Courtaulds-I.C.I. business none of this would have come to this House.
I also agree with previous speakers that I do not think that this House is in a position really to judge that issue. What I do say is that once the company which is wanting to take over the other company has received a "No" from that company's board of directors, there is still nothing to prevent it from making any offer it likes to the individual shareholders.
So we get the ridiculous situation that the interests of those shareholders who have always put their faith in their board of directors, though they have every ability under the law of the land to call either an extraordinary general meeting or to go to the annual general meeting and change their board, so long as the board is not changed, are in its hands. The hon. Gentleman shakes his head. Does he want to interrupt me?
§ Mr. Diamond
The reason I was shaking my head is that I do not agree with the general proposition that all directors of companies are always right and that if the board of directors says, "No", we must accept that it must, by some natural law, be right. Nor do I accept the general proposition that it is easy for every single shareholder in a company to succeed in calling a meeting, especially if the directors do not want it.
§ Mr. Gough
I do not want to get drawn into a discussion on company law, of which I am sure the hon. Member has a greater knowledge than I have, nor do I want to pursue that line today. It has been dealt with, and I am sure that other hon. Members will go back to it.
There is another form of take-over or merger which has brought itself to light in the last decade, certainly since 1945, and that is the sort of merger in which the Government have a very great deal of interest. In some cases the Government have brought one or both of the parties to the particular merger or takeover. I will not discuss now the nationalised industries, nor will I make a party point, but at the stage when the Government of the day decided to 1709 nationalise industries the Government did take a very great responsibility for those industries, and, therefore, I say, in passing, that the Government of the day should have a very much greater interest in those industries than they actually have today.
I am coming to the Government now in power, and I want to remind my hon. Friends of the declaration by the then Minister of Aviation, who is now the Secretary of State for Commonwealth Relations, when he decided to reorganise the aircraft industry. I would say to the House, as I am sure it would expect me to say, that I have spoken to my right hon. Friend the Minister of Aviation about this and I told him that I wished to raise this matter today. He said that he was very sorry, but he could not be here. I am sure that my hon. Friend the Parliamentary Secretary to the Board of Trade will convey my remarks to him, and perhaps my right hon. Friend may even look at HANSARD. I am also extremely grateful to the hon. and learned Member for West Ham, South (Mr. Elwyn Jones), because he has touched on the very point that I want to raise.
It will be remembered that in the autumn of 1959 the then Minister of Aviation declared that it was essential in the public interest that the aircraft industry should be brought together by a series of mergers. In December, 1959, the Westland company approached Fairey Aviation—as that company then was—inviting it to sell its interests in the United Kingdom. I think that the hon. and learned Member for West Ham, South did not mention that it was the company's interests in the United Kingdom. I say that because it still has Avions Fairey in Belgium.
By February, 1960, an agreement was come to whereby Faireys sold to West-lands the whole of its interest in rotary wing aircraft and also in the Gannett aircraft for the Royal Navy, and, as part of that agreement—this is where I have also been making very careful investigations—one member of the Fairey company was invited to join the board of Westlands, and that gentleman was Mr. Chichester Smith. He was invited, I think I am right in saying, in February, 1960, when the agreement was made.
The important thing is that the agreement was come to very quickly indeed. 1710 It demanded, and rightly demanded, a series of protracted discussions at both the technical and financial levels in regard to the whole set-up of Faireys, whose aircraft and other interests were at that time very much mixed together.
Those discussions took a further year. A little later, in the spring of 1960, my right hon. Friend the Minister of Aviation again approached Faireys and told them that he had decided to do a similar streamlining in connection with guided weapons. I will not trouble the House with the details of the development which Faireys have done. It is widely known that Faireys had been making tremendous advances in secret weapons of the guided missile type, but the Minister made clear to the company that in the national interest he had decided to do the same thing with guided weapons and, therefore, its guided weapon division was to be amalgamated with what is known as the British Aircraft Corporation. This is a group—and this point is important—in which are Vickers, English Electric and Bristol.
Over the past year, in this respect, I am told by the Fairey directors that they have been having the most amicable negotiations, the whole time in close conjunction with the Ministry of Aviation. Not long ago a decision was reached whereby the guided missile division would be transferred to a joint company representing Faireys, on the one side, and B.A.C., on the other, and that company would be managed by B.A.C. but the profits would be divided and Faireys would receive their just share.
I hope that I am not too suspicious, but the next paint I want to make might be a very serious one. The negotiator on behalf of British Aircraft Corporation, which, I repeat, consists of Vickers, English Electric and Bristol, was the Bristol Aeroplane Company. It was that company which did all the negotiating. All that negotiating, again, meant that the Bristol experts had a complete insight into the whole of the set-up of the Fairey company. On the one hand, there was Westlands, looking into all the affairs of Faireys and getting a great deal of private confidential information out of the company, and, on the other hand, the Bristol company was doing the same thing.
1711 I do not know whether I am unduly suspicious, but within one month of its signing an agreement with Bristols on behalf of B.A.C., Bristols, in its own right and quite irrespective of English Electric and Vickers, made with West-lands an offer for Faireys. I have made serious inquiries and I am certain that neither Vickers nor English Electric knew anything about it. I should be very surprised if my friend Sir George Edwards knew anything about this and allowed it to go on. The spokesman for the offer was Sir Reginald Vernon Smith, of Bristols.
The next point is that when that offer was made on behalf of Westlands, Mr. Chichester Smith was still on the company's board. I understand, and it can be easily confirmed, that Mr. Chichester Smith never received any notification of a board meeting and was never told of any board decision to make this offer. This is something which should be probed into.
I should like to mention to the House a few interesting dates. On 7th December last, Faireys had its annual general meeting. At that meeting, because of these reorganisations which had been taking place, the new chairman, very rightly, not knowing what compensation the company would be getting for London Airport, and when it would be received, made the type of speech which had the effect of reducing the company's shares in the market. On 20th December, Faireys received intimation from Bristols and Westlands that they wished to make an offer and make a Press announcement.
On 20th December, Mr. Chichester Smith tendered his resignation. I have here the last company report and balance sheet of Westland Aircraft Limited, which was for a general meeting in February and on which Mr. Chichester Smith's name was printed. Inside the balance sheet was an addendum, which stated:Mr. Chichester Smith resigned from your Board on 20th December, 1961.I say, and I make these accusations, that Westlands made that offer to Faireys without one of the directors, and the one director who must have mattered more than anybody else, ever having been notified of the board meeting, ever having understood what was taking 1712 place, or ever having known that the offer was coming forward. It is not for me to go further than to say, having looked into the matter, that there is something definitely and seriously wrong. It is possible that at this moment a further offer has been made, a higher bump-up on the same lines as have already been discussed in this debate.
I put it to my hon. Friend the Parliamentary Secretary to the Board of Trade—and I ask him to take it up with the President of the Board of Trade and the Minister of Aviation—that here is a clear-cut case on which the Government should take action. In the aircraft industry there has been rather lighthearted talk of blackmail. It has been said that the then Minister of Aviation was able to get his amalgamations on the basis of, "No merger, no orders." I should say that this is now a case of, "If there is a merger, then no orders." In a sense it is tit-for-tat.
This matter affects business ethics There are people who, ethically, would never dream of taking advantage of information which they have received in a privileged position. If I am not proved to be wrong, this is the case in a nutshell. These two companies, with the assistance and the approval of the Government, through the Minister of Aviation, have had an insight into the accounts of the Fairey Aviation Company and within an incredibly short time they join together, although one of them, through Government action, is in another group and members of that group know nothing about it. They join together and make this offer and when it is turned down they make an offer to the shareholders. I say that it is the absolute duty of Her Majesty's Government not only to look into this matter, but to take action.
§ 1.19 p.m.
§ Mr. Peter Walker (Worcester)
I am sure that my hon. Friend the Member for Horsham (Mr. Gough) would not expect me to follow him in his remarks concerning the Fairey Aviation Company. I am certain that with the attention this matter has received from both the hon. and learned Member for West Ham, South (Mr. Elwyn Jones) and my hon. Friend it will be swiftly looked into. If the fears as stated by my hon. Friend are correct, I would certainly support his 1713 wish that the Government should speedily look into it.
In the course of the week it has been interesting to note the dilemmas of the different political parties in the House. The Labour Party has found itself in the difficulty of not wanting to present an image of being too enthusiastic about public ownership, with the possible exception of the hon. Lady the Member for Blackburn (Mrs. Castle). The Conservative Party has been in the position, while wanting to show that it is interested in competition, of not wanting to take a hasty and perhaps ill-considered attitude on the problem of the merger immediately facing the country and, therefore, perhaps presenting an image that it is in support of monopolies. The Liberal Party, noticeably completely absent from our proceedings today, is embarrassed by the fact that in a recent poll among Liberal voters for nominations for a Liberal Government the voters chose Mr. Paul Chambers as shadow Chancellor of the Exchequer. Possibly this is an appointment which they already regret.
I want to examine the merger or takeover proposals in the I.C.E.I.-Courtaulds case, with a view to considering the lessons to be learnt from the happenings in recent weeks. I fully support my right hon. Friend's decision not to hold a public inquiry, and I believe that those hon. Members opposite who wanted an independent inquiry, in the hope that it would prevent a merger, may well discover that their object has been achieved far more quickly by what has happened in the market.
Let us examine these two great companies—both with excellent records of labour relations; both previously with an image of progressive expansion, but having certain differences of policy. One difference concerned their financial policies. The basic policy of I.C.I. was always to give a generous distribution of profits and to obtain its fresh capital from the market. The policy of Courtaulds was the opposite; it tended to plough back a large proportion of its profits and not go to the market so frequently.
We gradually saw the emergence of certain problems for these two companies. I.C.I., with its wonderful record 1714 of growth since the war, suddenly discovered that it was entering an era of declining profits. The new chairman, obviously enthusiastic to display the fact that he would be as successful a person as his predecessor, decided to back the main products in the plastics and manmade fibres divisions. After a period, alas, he discovered that the plastics situation throughout the world was deteriorating. Profit margins were very small, and great problems faced this section of his industry.
He then discovered that the other section of I.C.I. which, as a policy decision, he had decided to back—manmade fibres—was also facing problems, and, further, that Courtaulds, his main competitor in this sphere, was showing more success in its research and the application of that research than was his own company. He therefore decided, probably correctly from the point of view of his company, to enter into negotiations on the man-made fibres position with the directors of Courtaulds. He further examined the situation, and saw that Courtaulds shares were heavily under-valued in the market. This situation was provoked by the unfortunate interim dividend statement of the Courtaulds directors, which they have since confessed was a major mistake.
We must consider why this mistake was made, and also what is the effect of current political thinking upon the problem of dividends as opposed to profit. In this matter I feel that both political parties are deserving of criticism. There is a constant examination of dividends. There is a natural outcry from the benches opposite whenever they are increased, this being taken as yet another example of capitalism exploiting the workers. But the figures to look at are those relating to profits. If the profits are too high vis-à-vis wages, or the profits are so high as to affect our competitive position in world markets, Governments may have to make taxation decisions in order to see that those profits are reduced.
In the case of individual companies, however, I suggest that if we are to support a free enterprise economy it is much more important to encourage the maximum distribution of profits, so that the companies wanting fresh capital for new plant and machinery have to go to the market and prove that they can 1715 usefully and wisely use the money they require.
I recall visiting Western Germany some years ago, when this country had a differential system of profits tax. We taxed distributed profits at a far higher rate than undistributed profits. I inquired of some German commercial and banking people whether they had a similar system. They said, "Certainly. We have a differential system of profits tax". But I was shocked to discover that theirs was the reverse of ours. Their tax on undistributed profits was higher than that on distributed profits. Having been brought up in an era when political parties were telling us how basically bad dividends were and how basically good the ploughing back of profits was, the German system struck me as incredible.
The Germans, however, correctly argued that such a system was not inflationary in encouraging an increase in consumer demand; in fact, it encouraged investment. As they said, if a company made a profit of £100 it made no difference whether it kept £80 in the kitty, and distributed £20, or distributed the whole £100 and asked its shareholders to let it have £80 back for new plant and machinery. The hon. Member for Accrington (Mr. H. Hynd) suggested that certain take-over bids had been made for the purpose of making capital gains. These take-overs have been made simply because the directors of certain companies have been sitting on large cash reserves, which they were not using with wisdom, and they thoroughly deserved to be taken over.
Let us return to the I.C.I.-Courtaulds situation. We can imagine Mr. Chambers, the Chairman of I.C.I., discovering that his profits had fallen heavily during the past year and then discovering that his main competitor, whose shares were under-valued, was entering upon a period of great recovery, because the younger members of the board of Courtaulds had been successful in developing and producing some new and attractive fibres. He followed with interest the interim dividend and the further decline in the share prices and, naturally and wisely, came to the swift conclusion that if he could obtain Courtaulds at this sort of price it would be a wonderful bargain for the shareholders of I.C.I.
1716 Then he decided to mention to the directors of Courtaulds that this was a feasible thing for him to do. As far as we are aware, the board of Courtaulds never agreed to this as a possibility, but obviously, out of a sense of duty to the shareholders, they felt that they would have to consider any offer put to them. Then came the mysterious dinner party on 15th November, at which we gather these proposals were first mentioned.
We must consider the terrifying prospect of what would have happened if, at that dinner party, the wines had been particularly good, or the port particularly strong. In the happy and congenial atmosphere of this dinner party the proposal might have found some attraction in the minds of the board of Courtaulds, especially if it had consisted of members who had been nearing the end of their business careers. They might well have decided that this would be a happy and successful way to leave the business community. If that had happened the board of Courtaulds would have recommended to their shareholders the acceptance of the 3-for-4 offer, in which case Courtaulds would have been obtained by I.C.I., on that basis, at a price that in no way represented its prospects or assets.
Unfortunately, at this stage Mr. Chambers made his great mistake. Instead of entering into negotiations with the board of Courtaulds and trying to ascertain a fair price, he decided to make this a public offer, and begin a public debate on the whole issue. In doing this he may have gambled that the board of Courtaulds, with its well-respected chairman—an eminent City banker and a person greatly to be admired, whose caution in business is typical of that caution which has made British banking and insurance so strong—would decide to accept the offer rather than make a fight of it. Mr. Chambers underestimated the power of the younger directors of the board, who recognised their opportunities and the future of the company and decided to fight this issue.
Then we had the great re-assessment of recent weeks. The offer by the Courtaulds directors to their shareholders is not a bribe; it merely brings up to date the assets of the company. 1717 This brings out one great weakness of the present structure of our economic system in connection with mergers and take-over bids. It is impossible for the ordinary shareholder to judge wisely what is the value of his company.
Here, I believe, we have to look at some new measures. I would appeal to the Stock Exchange Council to put this in order. It certainly has the power to do so. Already any company which wishes to go to the public and obtain a quotation for its shares has to go to the Stock Exchange and to fulfil certain conditions. These conditions are carefully examined. The company's accounts have to be audited and the valuations of its assets have to be approved, and it has to give full details of the present and future prospect of the company.
I suggest that it has now become an urgent matter that the Stock Exchange should insist, in the event of a takeover, that a prospectus is prepared by both companies upon a sound and similar system of valuation. Indeed, I suggest that some eminent firm of auditors or valuers is appointed so that a correct balance can be given to the shareholders. If the Stock Exchange fails to do this, it will, I think, come under ever-increasing criticism for the fact that really the market price of shares is not an accurate assessment of the assets and the potential earnings of the companies concerned. This is a disastrous situation.
Those of us who support a free enterprise system in this country are concerned. I would also ask the Minister to look at the position of the application of the Prevention of Frauds Act to these problems. Indeed, I think I am right in saying that in a take-over bid, such as the one going on at present, under the various provisions of the Prevention of Fraud Act the company making the bid has to give only three days' notice to the directors of the other company as to the terms of the offer which it is going to make. It does not have to give to the other company the full details of the letter and of the arguments which it is going to present. This, I suggest, is a very dangerous situation. I should like the Minister to look into it with the possibility of his seeing that a longer period of notice is given to the directors concerned, with full details of the letter and arguments going to be used by the com- 1718 pany making the offer, in order that a speedy and effective reply, if available, can be given by the directors of the company concerned. These are all matters which require the urgent attention of those interested in continuing with a competitive system.
We on this side of the House rejoice in the fact that at the moment my right hon. Friend is reviewing all the legislation in connection with the market. We hope that the examination will be speedily undertaken. This matter is one of extreme urgency and I certainly urge my right hon. Friend the President of the Board of Trade to recognise that, both within the Conservative Party and within all the elements in the country that support the free enterprise system, there is a great deal of concern with this matter.
§ 1.34 p.m.
§ Mr. T. H. H. Skeet (Willesden, East)
We are all concerned about the position of monopolies in the United Kingdom and, particularly, with the image of capitalism, but before I come to the wider issue, may I first deal with one or two matters raised by the hon. Member for Worcester (Mr. Walker).
I think that a fair analysis of any company is its market valuation. A sum of £1,000 invested in Courtaulds in 1927 would have a value today of £1,660. A similar sum invested in I.C.I. at the same time, according to the analysis of the Financial Times, would have a value today of £8,230. That is the way the market has looked at the great prospects of Courtaulds as a company. It is perfectly right, as my hon. Friend may say, that we should look at the prospects ahead. Courtaulds has gone into fibres, but on a sales basis, the company is particularly tied to the older fibres such as rayon, and as far as the newer ones are concerned we must admit that I.C.I. has shown a greater interest in them. I.C.I. has obtained rights from Montecatini of Italy to manufacture polypropylene.
I am disturbed by the recent negotiations which have been going on. Courtaulds reduced its dividend recently and explained this on the basis of social reasons. How the company estimates the accuracy of its future prospects it does not say, but in the to and fro of bargaining it offers 1719 Danegeld to withstand a possible aggressor against its assets. These matters have to be looked at carefully.
I do not think that many hon. Members on this side of the House would favour monopolies, either public or private, if they thought that any abuse would occur. The hon. Member for Cleveland (Mr. Proudfoot) indicated this morning that we could import into the United Kingdom the anti-trust legislation of the United States. Let us examine what that was. There is, first of all, the Sherman Act of 1890 followed by the Clayton Act of 1914. The point there was to deal with a small economy in which certain oil interests had grown very powerful. At the turn of the century there was the consolidation of the steel industry. A further consolidation occurred in the 1920s, and indeed, a third consolidation occurred recently. When Standard Oil was decartelised in 1911 it was smaller than Standard Oil Co. (N.J.) today, which is not subject to decartelisation. Thus, we come to the important proposition that a country with a large population may have large companies, but a country with a small population, like the United Kingdom, must apparently have smaller companies to avoid the charge of monopoly. Yet we are dealing with the same world, and world industry is gearing up.
We have to deal with some of these large American interests. And now, of course, we are dealing with I.C.I. and Courtaulds. The firm of Du Pont comes immediately to mind. It has been decided that a very substantial interest of Du Pont in General Motors purchased in 1917, must be shed. I assume that as vast sums become available Du Pont's investments in Europe, which amount to $60 million, will be advanced considerably. That enterprise already has ten plants in seven countries in Europe and is competing with our industry. Let me follow this a little further. It would seem that we are concerned with size. Of course, we are, but as far as I.C.I. is concerned it was referred to the Monopolies Commission on the question of fertilisers and on that subject it has very largely been given a clean bill.
Courtaulds has 95 per cent. of the British rayon market and is, therefore, a monopoly. On the other hand, if we 1720 take I.C.I., we can say in certain other ways that it is a monopoly in certain British chemicals. But the question which has to be asked by the nation and by the House is whether I.C.I. has abused its position or would do so if the merger went through. If there is any evidence of this then the House would have to take a determined step.
I have mentioned, of course, in dealing with the anti-trust legislation in the United States that Americans do not look favourably on a monopoly. They say in Section 7 of the Clayton Act of 1914 that they will deal with the matter ifthe effect of such acquisition substantially lessens competition or tends to create a monopoly.This is a matter into which I looked a little time ago. The hon. Member for Cleveland indicated that the anti-trust legislation had been integrated into the Rome Treaty. That is not so. Let us look at Article 86 of the Rome Treaty, which states:To the extent to which trade between any Member States may be affected thereby, action by one or more enterprises to take improper advantage of a dominant position within the Common Market or within a substantial part of it shall be deemed to be incompatible with the Common Market and shall hereby be prohibited.It does not say that monopolies are wrong, but that the abuse of power is a matter that will be examined by the appropriate authority, and it goes on to deal with the provision of regulations.
That does not preclude member States from having their own legislation. Belgium, for instance, has anti-trust legislation. I would recommend further to the Minister that we must first go ahead and collect as much information as possible on the question of monopolies in this country. We would be ill-advised to take action before a decision has been made about whether we are going into Europe. It may be possible then to have a European code on how to regulate these interests in Europe.
The hon. Member for Gloucester (Mr. Diamond) is not at present in the Chamber. In answer to a matter raised by the hon. Member for Blackburn (Mrs. Castle) he said that in fact the European economy was a mixed economy. I should prefer to put it that way. We 1721 have certain examples of State control in France; a lesser number in Western Germany and more examples in Italy and in Austria.
I think that the House should know that 70 per cent. of the pig iron production, practically 50 per cent. of the steel and 72 per cent. of shipbuilding, plus the oil industry, is controlled in Italy by two companies, E.N.I. and I.R.I. If anyone wished to look at a public monopoly as an example to be followed in this country he should not look to Italy. Regarding fibre production, we should bear in mind, when considering size, that in France, Rhône Poulenc, one company, controls between 80 per cent. and 85 per cent. of synthetic fibres production. Independently, two companies in Belgium and the Netherlands control 90 per cent. of the fibre production. S.N.I.A. Viscosa, an associate company of Courtaulds, in Italy controls 55 per cent. of the synthetic fibre production and Montecatini another 10 per cent. In Germany Glanzstoff controls 45 per cent. and two other members of the former I.G. Farben control a further 10 per cent. each. Therefore, in Europe we are facing big stuff, and, as has been said, Europe is cartelising in size.
Industry in the United Kingdom is assembling to face competition from abroad, and in the United States we are again faced with big company integrations. I think that it would be wrong to judge companies in this country purely and simply in terms of size, and I should like to make one or two suggestions to the Minister. When a company has been taken over we should be very careful to see that the pension rights of workers are protected. We should make a thorough survey of the Jenkins Report, when it becomes available, to ensure that shareholders are given sufficient information; and also, if there is to be a take-over bid of any size, the public should be informed so that there may be some evidence of public reaction.
I am in favour of the advice already advanced by the hon. Member for Rugby (Mr. Wise) that there should be a substantial cash element in any big take-over. That would not preclude a take-over, but it would have a regulating influence. Before we lay down any course of action, or plan, we should carefully consider what we 1722 are to do in the context of Europe where there is in existence a code of practice. It is not the same as that of the United States, but it is one which deals with the matter in the context of a broader Europe. An industry may be considered large in this country but it may nevertheless be small when compared with the market in Europe. Are we to consider as a monopoly what is a large organisation in this country, or are we to consider it correctly in the wider context?
There are other major matters to be considered with regard to monopolies. The hon. Member for Cleveland indicated that not all monopolies are bad. All monopolies which give rise to abuses, and are in a position to bleed the consumer and make him pay high prices, are, of course, bad. If, however, a monopoly acts beneficently and brings down prices, that is an entirely different situation. There have been examples in the past where I.C.I. has dropped its prices. Many big companies hope to regain their capital investment, and that is understood. The whole problem is one of the big issues about which there will have to be a lot of public thinking before a solution is found. To decide preaturely would be foolish.
If we do not go into Europe we shall be very much on the periphery and we shall have to jump over the high tariffs which will be assembled about us. It may then be essential to integrate some industries. If we wish to protect consumers on the home front, this could easily be done by removing tariffs and allowing certain low-priced commodities in from abroad. I hope that the Parliamentary Secretary will recommend to my right hon. Friend that he should not be too impetuous regarding the I.C.I.-Courtauld merger. Probably it will not come off. The shareholders will have to look at it and make up their minds whether the assessments made by the two sides are correct. In this House we have not a parochial interest but a national interest in safeguarding the public interest. We have to be certain that, when we trim these monopolies, we are doing the right and not the wrong thing.
Looking back, we find that monopoly legislation in the United Kingdom has in fact fostered monopolies. The party 1723 opposite brought State monopolies into being and we have learnt that there is no strict accountability in respect of them. They may be discussed perhaps once a year in this House and certain questions may be asked, but that is all.
§ Mr. Diamond
Does the hon. Gentleman agree that back bench Members of Parliament have some say about who is to be the Minister and certainly who is to be the Prime Minister?
§ Mr. Skeet
I think that the back benchers have a lot to say on these matters. But regarding the British Transport Commission, if one tries to put down a Parliamentary Question about a rather preplexing matter, it may be ruled out of order by the Table Office as perhaps affecting the day-to-day interests of the Corporation.
§ Mr. Skeet
That is one matter. If there are changes of Government from time to time and a new man is appointed, he is not appointed on a party basis. But the point is that he has control over a monopoly in the United Kingdom and can set the prices which the consumer has to pay.
The hon. Member for Cleveland said that it was not so much a question of monopoly or of State control, but that the public should have more say——
§ Mr. Proudfoot indicated assent.
§ Mr. Skeet
My hon. Friend agrees. That is the principle he is putting forward. I say that it is high time that the consuming public had some interest in these matters, and the more buyer resistance there is the better. When we are looking at size, let us look at it in the European and the world context and not simply from the point of view of the United Kingdom. Let us be careful that we do not impair our international trade. I subscribe to the view of those people who say that we should look into these matters carefully in the years ahead. I am certain that ultimately something will have to be done. Do not let us make hasty decisions, otherwise we shall find that we have failed to sail between Scylla and Charybdis.
§ 1.50 p.m.
§ The Parliamentary Secretary to the Board of Trade (Mr. Niall Macpherson)
It is pleasant to have to reply to a Motion which, for a change, is not critical of the Government. Certainly, for the Government Front Bench that is a welcome change after Wednesday's debate.
This debate has been extraordinarily interesting, notwithstanding that it has not followed very closely the terms of the Motion itself. It was, I suppose, inevitable that there should be some hangover from Wednesday's debate, but, after we had listened to the speech of the hon. Lady the Member for Blackburn (Mrs. Castle), who is not now in her place, the debate settled down in a remarkably non-party atmosphere. We had some interesting suggestions from both sides of the House about how the question of mergers should be handled in future.
Among those proposals was one by my hon. Friend the Member for Rugby (Mr. Wise) that the party wishing to take over another company against the will of the board of that company should put down at least a half the take-over money in hard cash. I thought that perhaps my hon. Friend went a little far in suggesting that all opposed takeover bids were against the public interest. I was glad that my hon. Friends the Members for Twickenham (Mr. Gresham Cooke) and for Worcester (Mr. Walker) took a rather different view.
I think, also, that the hon. Member for Gloucester (Mr. Diamond), in an intervention, supported the view that it may well be that one of the reasons for take-over is that the board of the company for which the offer is made is not making the best use of its assets and the confidence of the shareholders in the board may to some extent have been misplaced.
My hon. Friend the Member for Twickenham suggested that a merger which resulted in 80 per cent. of the supply of goods being in the hands of a single organisation should first be examined by a judge in secret. That is one of the proposals which, with all the other proposals made today, will be most carefully examined by the Board of Trade. My hon. Friend the Member for Horsham (Mr. Gough) and the hon. 1725 and learned Member for West Ham, South (Mr. Elwyn Jones) drew attention to the take-over offer of Bristol and Westland for Faireys. As I think they will realise, this is not primarily a matter for the Board of Trade, although in so far as it is a matter of company law it comes under Board of Trade responsibilities. I do not think they would expect me to say more today than that we shall look most closely into what two hon. Members of such very high standing have said on this matter. It will be discussed with my right hon. Friend the Minister of Aviation and I think that there are others concerned as well.
§ Mr. Macpherson
I got that point and made a very careful note of it. I am obliged to my hon. Friend for raising it.
My hon. Friend the Member for Worcester, in a very stimulating speech, gave an extraordinarily penetrating psychoanalysis of the methods of the Chairman of I.C.I. in arriving at a decision to make the take-over bid for Courtaulds and conjured up alarming prospects of what might have happened if Courtaulds directors were less astute and determined than they plainly are. I noticed his suggestion that there should be a period of longer than three days' notice given to directors of a company which it is proposed to take over. I also listened with great pleasure and interest to the speech of my hon. Friend the Member for Willesden, East (Mr. Skeet) and have noted with interest his plea that we should be very careful to see that pension rights are protected.
All these are matters which will be most carefully looked at, but I think that the House will be interested to know how we stand in the matter of powers at present. The Motion welcomes the work of the Restrictive Practices Court and the Monopolies Commission and the review of legislation. I think that hon. Members would expect me to trace how we arrived at a decision where we thought a review was necessary. First, I express 1726 the appreciation of the Government of the work and time so generously given by the Monopolies Commission to the examination of problems referred to it.
The Commission was set up in 1948 as an advisory body. The Commission itself cannot initiate an investigation. The Board of Trade can invite it to investigate the supply of goods, or the export of goods, or the application of any process to goods where the Board of Trade considers that certain conditions prevail. I should mention, in passing, that what is referred is the supply of goods. The conditions under the Act were, that at least one-third of the goods of the description in question were supplied by one firm, or by inter-connected firms, or firms which voluntarily entered an agreement for the purpose.
I think that the hon. Member for Accrington (Mr. H. Hynd) said that one-third might be too low a proportion in certain cases and that we should look to what might arise in future. That was criticised at the time as being possibly too low a proportion. It is a matter which certainly can be examined.
The other condition was that, as a result of agreements or arrangements, the goods in question were not supplied, or the process was not applied in any substantial part or the whole of the United Kingdom, or competition in those goods was prevented or restricted as regards exports. Those were the two sets of conditions under the Act. The Act covered both restrictive practices and monopoly—which, I thought, and still think, was given a somewhat artificial definition. Violence was done to the language in a way which other countries seem to have been able to avoid, but no other word was discovered or applied.
I think that that was noticeable in the debate the other day. When people are talking about monopoly in this country it is difficult to know whether they have in mind complete monopoly, almost complete monopoly, or merely dominant enterprises.
§ Mr. Macpherson
The point I am making is that evidently in the debate the other day some hon. Members were using the word "monopoly" in the dictionary sense while others were using it in the technical, legal sense.
1727 During the first three years, 1949–51, nine references were made to the Commission. Most of them were concerned with price rings rather than with dominant enterprises. In the last ten years eighteen references have been made. In all, two—the supply of insulin and the supply of tea—were given a favourable report, although it was suggested that departments principally concerned with insulin should exercise such control over prices and profits as seemed to them necessary. It is the appropriate Government Department which makes an Order, subject to affirmative Resolution of the House. Two orders were made, one on dental goods in 1951 and one on imported timber, nine years later in 1960.
The Commission is an advisory, not an executive, body. Except where the investigation is limited by reference to the facts—that is to say, when the Commission is not asked for advice—it has to consider whether any action is needed and, if so, what, and it may make recommendations. As my right hon. Friend the President of the Board of Trade said in the debate the other day, there is no slur at all on the Commission if its advice is not always taken. The Commission has to investigate a particular industry or, rather, the supply of goods. The Government have to look at its recommendations in a much wider context. Advice, after all, except for one very noteworthy example, is not advice if one has to accept it. It has always been the view of successive Governments that it is for the Government to decide what to do in the light of the Commission's findings on fact and recommendations.
By and large, the Government have felt able to accept the Commission's recommendations—but not always. There were two cases which I will mention as examples where the advice was not accepted—the supply of insulated electric wires and cables and the supply of certain industrial and medical gases.
One of the most important references was made in 1952. It was already becoming apparent then that the machinery of the Commission was not really fitted to deal with restrictive practices. In the first three years, 1949–51, although five references were made in the first flush, all at once, on 1st March, 1949, only three reports were completed.
1728 Experience in North America has been mentioned, and it is fair to say that it shows that far more instances of restrictive practices arise than of monopoly or dominant enterprises. My hon. Friend the Member for Willesden, East referred to the famous Standard Oil case, in 1911, and the American Tobacco case, but these cases of monopoly or dominant enterprise have been relatively few. In this country, it was in consequence of the Monopolies Commission's Report that the Restrictive Trades Practices Act was introduced in 1956 and the procedure for restrictive practices was severed from that for dominant enterprises tending to monopoly.
Perhaps I should say a word or two about the Restrictive Trade Practices Act. Its provisions and procedure are very well summarised in two reports by the Registrar on Restrictive Trading Agreements published in January, 1961, and last month. He starts by explaining the circumstances in which an agreement is registrable. It is the Registrar's statutory duty to bring every registered agreement before the Court, and unless the parties to an agreement exercise their right to defend it, and succeed in satisfying the Court that it is not contrary to the public interest on the criteria defined, which include the maintenance of employment and exports, subject to certain conditions, the Court must declare the agreement void. Until the Court makes its decision, the parties are free to continue to operate the agreement.
Since 1956—and this is very important, because it is not generally recognised—well over 2,000 agreements have been registered, and of these over 1,000 have been abandoned or have had all restrictions removed from them. That is a measure of the great re-stimulation of competition which there has been under the present Government. About 80 agreements have been referred to the Court. Over 60 of these were not defended and were, therefore, automatically found contrary to the public interest. Sixteen agreements were defended, and very interesting comments on them are appended to the Registrar's Report.
§ Mr. Macpherson
I am coming to that.
As I said, 16 agreements were defended, and the great majority were found to be contrary to the public interest. Only three so far have been found not contrary to the public interest as defined in the Act. These are in respect of Water-Tube Boilermakers, the Black Nut and Bolt Association and the Cement Manufacturers' Federation.
§ Mr. Dudley Williams (Exeter)
If there are so few which are not contrary to the public interest, would it not be a good idea to abolish all restrictive agreements unless they are first agreed by the Restrictive Practices Court? Surely that is the best way.
§ Mr. Macpherson
That is exactly what happens. Under the Act, all restrictive agreements have to be registered. It is then the duty of the Registrar to bring all those agreements before the Court.
§ Mr. Dudley Williams
That is not the point. Would it not be far better if no restrictive agreement were allowed unless it had first been approved by the Court? At present, except for the odd two or three, all the agreements are being knocked out by the Court. Would it not be much better for people to have to apply to the court to operate an agreement?
§ Mr. Macpherson
We should still have to secure that the agreements were abandoned. The only way in which we can know about restrictive practices and see whether they exist is to have the agreements registered and to have someone to investigate that restrictive agreements have been registered. Many hon. Members on both sides of the House send complaints to the Board of Trade about the existence of restrictive practices, which, in some cases, have not been registered. We pass these corn-plaints to the Registrar, who examines them, but somebody has to be there to police them, and that is what the Registrar is doing.
I should add that 37 agreements have been removed from the Register as being "of no substantial economic significance."
My hon. Friend the Member for Willesden, East asked what is done to follow up these agreements, and there 1730 is talk of agreements going underground, as it were. It is hard to assess what this amounts to. Some agreements, after having been abandoned, have been reregistered in the form of agreements for sharing information, and agreements for sharing information—if it is only information—are not registrable under the Act, because information in itself plainly is not a restrictive practice. I am talking about the exchange of information and not about what it may lead to. The Registrar deals with this subject at length in his Second Report, which was laid before Parliament last month.
§ Mr. Glenvil Hall (Colne Valley)
Did I understand the Minister to say that restrictive practice agreements which have been sent underground often reappear in the guise of agreements for exchanging information and that these are registered? If it is not illegal to exchange information, why register the new agreement? Will not that of itself put the Registrar on inquiry?
§ Mr. Macpherson
Where an association has some kind of restrictive practice, that agreement must be registered. When it is called upon to abandon that practice it is free to amend its rules so as to register in its place some Amendment of the agreement which is not contrary to the Act. That is how these information agreements come to be on the register. It may well be that there are information agreements already in being at the time when other agreements, which are restrictive, are in existence, too, and when the restrictive parts of the agreement disappear, all that is left on the register is the information agreement.
§ Mr. H. Hynd
Is it the existence of these so-called information agreements which explains why so many firms, having given each other information, raise their prices simultaneously?
§ Mr. Macpherson
It might well be so, although in the case quoted today of following a price leader, it does not depend so much on the general circulation of information as on the fact that what the price leader is doing is very carefully watched by his competitors and may well be followed by them.
§ Mr. Gresham Cooke
Will my hon. Friend make it clear that the exchange 1731 of information to which he refers is an exchange of technical information and not an exchange of information about prices?
§ Mr. Macpherson
In some cases it is also prices. Even before receiving this Report, my right hon. Friend who is now Secretary of State for the Colonies had decided that, since five years had elapsed from the passing of the Act in 1956, it would be worth while to review its working. My right hon. Friend the President of the Board of Trade is now doing so. Naturally, the question of information agreements will be considered in the course of the review. So, too, will the other points raised by the Registrar, which are worth mentioning for themselves. One is the requirement on him to refer all agreements to the Court. Neither the Registrar, as he points out, nor parties to agreements are in a position to agree that one particular case should be treated as a test case, the results of which could be applied to other agreements without the need for them also to be brought before the Court. I think that this covers to some extent the point my hon. Friend the Member for Cleveland has in mind.
Other questions which are likely to be considered are these. Does the present legislation go wide enough? Are the present procedures, not only in the field of restrictive practices but also in the field of dominant enterprises, the best that can be devised in present circumstances? Is the definition of the public interest just right? Could it be amended? The review covers the Monopolies Act as well as the Restrictive Trade Practices Act.
There have been criticisms of the Monopolies Commission procedure, which I think I ought to mention. One criticism has been very much mentioned indirectly during the course of the recent debates, namely, that the inquiries take too long. They undoubtedly take a very long time and there is a danger that, while an industry is under investigation, people in it may feel inhibited from making adjustments which are commercially desirable. On the other hand, inquiries must be detailed and careful and it has been proved that it takes time to elicit the facts.
1732 Another criticism is that the Commission is in the position of being both prosecutor and judge. It is alleged that this is unfair. The Commission's position is implicit in having an administrative tribunal. The Commission's procedures were examined in 1955 by the Lord Chancellor and the Attorney-General and found to be appropriate and fair. In any case, the Commission only recommends. Decisions are taken by the Government.
Another criticism is that firms investigated do not know the nature of the charges against them. The Commission is not concerned with charges. It is acting on a reference from the Board of Trade to investigate. Another criticism is that the inquiries cost the firms involved a great deal of money and a great deal of the time of senior executives. We recognise the cost to the participants and that is one reason why the Board of Trade do not make references lightly. They are made only if the public interest seems to require them. Further, the terms are carefully drawn so as to limit the scope of the inquiry as much as possible.
Moreover, it involves not only the monopolist himself but others in the same line. There, too, there is a diversion of technical and managerial resources which, unless there was a clear need for such an investigation, might be more profitably employed in other ways. Therefore, the mere existence of a situation to which the 1948 Act applies does not justify automatic reference. There must be something more specific to justify setting on foot what is undoubtedly a costly procedure.
I think that it is right to say this. The reference does not imply a "taint." Two industries have been given a completely clean bill by the Commission—tea and insulin. Sometimes when the Commission has found things to criticise it has also found other things satisfactory. For example, as has already been mentioned, the Commission found very little to criticise in the case of metal windows and nothing in the I.C.I.'s part in the supply of chemical fertilisers.
The type of question which has been asked today is whether the Commission or a similar body should have executive powers. My hon. Friend the Member 1733 for Cleveland (Mr. Proudfoot), in his admirable and most stimulating explanation of his Motion, drew attention to the activities of the Federal Trade Commission. In our view, the fact that the Commission has no powers to implement its findings is not a bad thing. I think that the House will agree that there should not be arbitrary interference by an administrative body in the affairs of an industry. If things have to be done, it is better that they should be done either by agreement with the firm concerned—this is what generally results from the Commission's inquiries—or by Parliament, or by a court of law.
I am not saying that the Commission's recommendations should be or are taken lightly. By far the greatest number have been accepted by the Government. The usual practice is for the Government's representatives to have discussions with the industrial interests with a view to implementing the recommendations, either in the manner suggested by the Commission or in some other way acceptable to the Government.
Some reference has been made to one particular criticism of the Restrictive Trade Practices Act, namely, Section 25, which enables resale price maintenance to be enforced for the first time against third parties acquiring goods with notice that they had been sold subject to a condition as to the price at which they were to be resold. The whole question of resale price maintenance is under consideration at present and I do not intend to go into the pros and cons today.
This is the note on which I should like to end, because the substance of the Motion does call attention to the need for competition inall sections of the economyIn winding up the debate on Wednesday, my right hon. Friend the Chief Secretary to the Treasury emphasised that every question has to be considered nowadays in the light of the need to make and keep our exports competitive. We have to compete abroad in order to live. If our costs rise so that we cannot compete abroad, it is of comparatively little importance that we have unfettered competition at home.
We are perhaps a little apt to dramatise words. In the pantomime of 1734 our economic life, competition is cast as the good fairy, very often, and monopoly as the ogre. It depends occasionally on the circumstances and on which side the cast is published. Indeed, ever since the days of Elizabeth I and her Stuart successors monopoly has really been a dirty word—only in those days it really was monopoly. I have read that among the privileges conferred to charge fees for testing quality in those days was the "office for gauging of red herrings".
Economic power, as I think the hon. Member for Accrington said, like all power, undoubtedly corrupts and dominant enterprises have abused their power——
§ Mr. Macpherson
I am aware of that, but I thought that the hon. Member said it today.
Dominant enterprises have abused their power, not always by charging too much but sometimes by charging too little in order to defeat and end competition and win for themselves security, stability and a quiet life. Let it be frankly admitted that these rather than exploitation are the usual aims of monopoly in these days.
There are very few "monopolists" today who need fear no competition. Even the nationalised monopolies have to face it—coal from imported oil, electricity from gas, rail from road and air. Even if all the manufacture of man-made fibres—this is the only reference I propose to make to the matter today—came under the control of one firm in this country, it would represent less than one-third of the total amount of fibres used in this country and would be subject to competition from foreign-made fibres, with the possibility always before them of tariff reductions to take some of the stuffing out of the mattress. Of course, they are also faced with competition from foreign imported man-made goods, so there is no lack of competition.
If, by rationalisation, a firm can make itself so efficient as to be able to compete abroad with overwhelming success, how could it be in the public interest to stand in its way? What is important is to develop the spirit of competition. An industry that has waxed fat behind 1735 too high a tariff barrier and has organised itself comfortable in rings and agreements at home, is not likely to be able to strip and compete successfully in the international race. But competition is a means, not an end in itself. We must beware of erecting another golden calf, another overriding principle. Our public pedestals seem to be cluttered up with them, and they are quoted in defence of particular actions taken in defence of particular interests rather than in the public interest. We must have regard to the public interest as a whole, including the best use of our resources of men and materials.
I have gone over the record today. It is the record of an immense advance from the days of fixed prices, allocations, concentrations, and employers drawing profits for not competing, without the option to compete. I have referred to the further review that is taking place to try to ensure, not that our markets are plunged into a riot of cut-throat competition but that economy, efficiency and enterprise shall win their just reward of increased trade and prosperity for all who work in the firms that practice them; in short, that there shall be neither desperate price cutting nor rigid stability but the right atmosphere of healthy competition and steady progress.
Competition is undoubtedly the best safeguard for the consumer. In an economy such as ours it can offer him a wide choice of goods. But consumers must not expect too much. Competition must be such as to keep prices at a reasonable level, so as to secure a fair wage to the worker, a fair return to the employer, and a fair deal to the consumer—all at the same time. But, in these days, competition alone cannot be relied on to keep down costs.
The truth is that we are still in a transitional stage from war-time monopoly conditions. I think that the competitive spirit in industry is only just beginning to seep right through so that not only managements but workers understand that competition in world markets is now a reality. Firms that export a high proportion of their output understand that well enough; the trouble is that many people engaged in industries and services that do not export do not 1736 fully realise it. It is to be hoped that the pay pause has helped to bring it home to them.
The Motion talks of… all sections of the economy…and that is not the least important of the reasons why I welcome the Motion and the Amendment.
§ 2.22 p.m.
§ Mr. Stratton Mills (Belfast, North)
While I am sure that all hon. Members welcomed the speech of my hon. Friend the Parliamentary Secretary I believe many of us had a certain sympathy with him for having to make, inside forty-eight hours, the third Front Bench contribution to this general theme. He made, if I may say so, a very interesting and thoughtful speech. He gave a good deal of further information about the review that is going on in his Department, and very much more information about the reasons why it is taking place.
I was much impressed by his reference to the Elizabethan office—the office of red herring. I am glad to see that we have with us today a former Leader of the House, the right hon. Gentleman the Member for South Shields (Mr. Ede)—a much respected Member. He may know whether that is an office of profit under the Crown, whether it still exists, and whether it could, perhaps, be made an alternative to the Chiltern Hundreds and the Manor of Northstead, as there are not a few of one's colleagues on whom the office might be bestowed.
I do not intend to speak for long, because I know how many hon. Members there are who just cannot await the debate on positive neutralism. I bring to this debate no special knowledge of finance or of trade, but I hope that I may, in some way, reflect the view of the ordinary Member of Parliament who is disturbed, as are many other people throughout the country, by trends in the last few years. I have not come with a set speech, but with a few blank sheets of paper on which I made notes of the comments of hon. Members. That is, perhaps, to reverse things, as one normally comes to the House and tends to ignore the previous speeches and direct one's eye merely to one's own notes.
Before commenting generally on the previous speeches, I want to make two points. First, there has been much 1737 comment, particularly from the other side of the House, about Mr. Cotton and Mr. Clore. I have never met either men and I have no shares in either of their companies, but I cannot help feeling that the Labour Party is doing itself very great harm by its continual harping and complaints about the business ethics of Mr. Cotton and Mr. Clore. I would remind the House that those two men have brought many new methods to business and have brought also a high standard of ethics. Hon. Members opposite make a great mistake when they continually deride their activities.
It seems to me that two parallel threads have emerged from this debate, with which I shall deal in a moment. It is clear that the Restrictive Trade Practices Act of 1956—of which the Parliamentary Secretary gave a progress report—has been a very great success. But let us not foal ourselves. While that Act dealt with many great dangers in our commercial system, it did not attempt to cover all evils. By dealing effectively with certain matters, it forced other problems upon us. That brings me to the two parallel threads. The first is, how to deal with the growth of monopolies, and the second is the procedure of merger and take-over.
I certainly welcomed my hon. Friend's remarks this afternoon, and the remarks made by his right hon. Friend the President of the Board of Trade about the growth of monopolies. There is very great alarm here about the spread of monopoly. There is a mistaken tendency to over-simplify the problems involved; their commercial and technological aspects are most complex. Nevertheless, I reflect fully the views in the Financial Times editorial on 15th February, which asked:… should not the Monopolies Commission be strengthened to fill what is increasingly felt to be a gap?It also said that the Commission's… reports take far too long to come out. If it is to be effective, the Commission needs more staff.I think that very few hon. Members would disagree with that latter comment.
On the subject of mergers and takeovers, I fully agree with what was said by my hon. Friend the Member for Worcester (Mr. Walker)—in a characteristically vigorous speech—in his 1738 reference to the Stock Exchange Council. It is well known that for a new issue there is at present a special statutory form of prospectus, but the Stock Exchange Council goes much further in policing those activities. All prospectuses are submitted to a special subcommittee of the Stock Exchange Council, which then examines them further. The sub-committee has three professional groups; a group of accountants, a group of solicitors, and—particularly in the case of property companies—a group of estate agents and valuers, all of whom act as professional advisers to the sub-committee. Thus there is the double check of a new issue prospectus. There is the statutory check and to enable a company to get a Stock Exchange quotation it must be approved not only by the professional advisers of the Council but also by the Stock Exchange sub-committee. This, to a large degree ensures that a bad issue does not get to the public. It is interesting to note how much more successful the British Stock Exchange has been in this regard than has the American Stock Exchange. In New York in recent years, despite the statutory Stock Exchange Commission, very many bad issues have been foisted on the public. Furthermore, the activities of the "bucket shops" have not been fully restrained in New York.
My hon. Friend the Member for Worcester made a valid point in saying that in each take-over bid the Stock Exchange Council should approve some form of statutory document which is sent out to shareholders. It would probably be a mistake to insist on this in the case of voluntary mergers but for a takeover—over the head of the board—there is a lot to be said for this idea.
§ Mr. Walker
While my hon. Friend is making that point about voluntary mergers; in the circumstances of I.C.I. and Courtaulds, if the directors of Courtaulds had agreed to the three-forfour offer it would have meant that the shareholders of Courtaulds probably would have accepted this offer on the recommendation of the board because of the increased value it would have put on their shares, but they would never have known what were the true assets of their company. During a voluntary or agreed merger one should have a 1739 protection for shareholders so that they do not dispose of their shares at an artificially low price.
§ Mr. Stratton Mills
That may be right and I do not hold any strong view between the methods of dealing with a merger and a take-over. My sole concern was whether one was not running into a time problem. I should have thought that, even with the expertise of the members of the Stock Exchange subcommittee, it would, in the case of a medium-sized company, take up to six months to do this. It might be considered undesirable to have this activity spread over this period of time, except in the exceptional case where a bid is made over the head of a board. As I say, I hold no fixed or definite view on this distinction.
Further to the comments of my hon. Friend the Member for Cleveland (Mr. Proudfoot)—and I join in congratulating him—I cannot help but think it significant that he should have spoken from the third bench below the Gangway, from the position usually occupied by learned Privy Councillors. We indeed heard some wise words from him. I thought he made a valid point when he emphasised that our anti-monopolies legislation requires strengthening prior to our entry into the Common Market. Perhaps this may be done at an early stage, perhaps in the next Parliamentary Session.
Although the Parliamentary Secretary was not able to give any indication about how long the Departmental review was likely to take, one hopes that it will not run beyond the summer, and perhaps one might anticipate that the results of that Departmental inquiry may be reflected in the tones of the Speech from the Throne.
§ Mr. Macpherson
The regulations which were agreed by the Common Market in December have not yet been published, but my Department has a copy of them and they are being studied now in conjunction with other matters.
§ Mr. Stratton Mills
Perhaps my hon. Friend can give an indication when the Departmental Committee is likely to reach a conclusion and when a further statement may be made to the House?
§ Mr. Macpherson indicated dissent.1740
§ Mr. Stratton Mills
The hon. Member for Cleveland also mentioned the administration of our anti-trust and monopoly laws, but I am inclined to think that he was wrong in suggesting that perhaps these might be left in the hands of the police. The complexity of this subject is such as to make it unsuitable for the police to handle. In fact, the commercial complexities are such that the matter might be unsuitable for handling by a normal Departmental civil servant.
I am inclined to the idea of following the American type of system of the Federal investigator who is a kind of cross between Marshall Hall and James Bond, a high-powered lawyer but with the mental and physical ingenuity of the private investigator. That might be a better method of delving into these intricate problems.
The hon. Lady the Member for Blackburn (Mrs. Castle) always entertains the House with her speeches Whether she convinces anyone by them I am never quite sure. I always enjoy her speeches, although I can never be certain whether she is a second-class orator or a first-class demagogue. There is no doubt that she is truly stamped as a feminine equivalent of the late Huey Long of Louisiana. She spoke at great length about the evils of the capitalist system and free enterprise and it struck me, while she was speaking, what a great pity it is that people who speak either for or against a free enterprise system should not take the trouble to learn something about its workings.
I could not help thinking that her speech was an historical reminiscence of capitalism in Lancashire in the late days of the nineteenth century. One of the most revealing parts of her remarks concerned an interruption by one of my hon. Friends who made an interesting comment about a scheme whereby steel workers in his constituency were buying shares in different companies in the form of an investment or unit trust. Her immediate reaction to the intervention of my hon. Friend was to throw up her hands and declare, "I do not care who is a shareholder." These were revealing words. They emphasise clearly that she is not really interested in who are the new shareholders in our society.
1741 The hon. Lady is not interested that the trade unions are building an investment trust—she is not interested in the fact that many trade unions already hold shares in public companies. Nor is she interested in the tremendous shareholdings throughout our public companies by investment trusts, insurance companies, the Church of England and all those who supply the great bulk of the risk capital which keeps our industries going.
Do not let us forget that about 80 per cent. of the people employed in British industry are employed as a direct result of risk capital supplied by investors—insurance companies and the individual savers. Nor should we forget that if those industries were taken over en bloc by the State and were as successful as the other industries taken over by the State, the country would before long be utterly bankrupt.
I can only recommend to the hon. Member for Blackburn—and I regret that she is not in her place at the moment—the words of Mort Sah1 in his latest gramophone record, where, having been left five shares in General Motors by his great uncle, he comments "Gee, it really makes me feel different."
§ Mr. George Jeger (Goole)
I do not wish to come between the hon. Gentleman and the hon. Lady the Member for Blackburn (Mrs. Castle), who is not here at the moment, in any gramophone sessions he may wish to have with her in the future. Will the hon. Gentleman explain, regarding shareholdings, how he really justifies his statement that it matters a great deal who holds the shares? Surely, it would not matter to a company who holds the shares as a result of the subsequent sale of shares? A company has its original share capital, which is unaffected by the sale of shares between one speculator and another.
§ Mr. Stratton Mills
The hon. Gentleman may well find that he already has the answer to his own question. How could a public company obtain capital, either on a new issue or on rights, if the people subscribing the money felt 1742 that they could never sell their securities? I think the hon. Gentleman will find that he has answered his question. Without marketability at any time of a shareholder's portion of risk capital, no one will ever invest. One must be in a position fully to resell securities.
Another interesting point was mentioned by my hon. Friend the Member for Rugby (Mr. Wise), followed by the hon. Member for Twickenham (Mr. Gresham Cooke). They suggested that perhaps some 50 per cent. of the amount offered should be put up in cash on a take-over bid. This is an interesting idea, but one with which I am not in full agreement. It occurs to me that there is a substantial disadvantage in that this will maintain the status quo and act as a special built-in protective, which will prevent certain of the large inefficient companies being taken over. Furthermore, it seems to me that there is a practical disadvantage, in that large firms such as I.C.I. will always be able to get cash on a short-term basis from the banks and merchant banks, and then within a few months of taking over the other firm they would have a rights issue so that the cash would be repaid to the bank or merchant bank. I do not think the suggestion will solve the problem, although the idea behind it is interesting.
I could not help thinking that my hon. Friend the Member for Rugby seemed to dislike—I hope I am not putting it too strongly—the ethics and ideals behind the take-over bid. I think he is a little wide in his objection, because I should have thought that the failure of a company fully to use assets, or the failure of a sleepy board of directors to engage in sufficient research or to improve the marketability of their products, all add up to good reasons why such a company should be taken over.
However, as we are anxious to get on to the next debate——
§ Mr. Stratton Mills
—and none more so than my hon. Friend the Member for Exeter (Mr. Dudley Williams), I declare that my attitude to this debate is certainly not one of positive neutralism. There is, nevertheless—and I think this has become clear in the course of the debate—a challenge to free enterprise 1743 both in how to deal with monopolies and how to deal with take-over bids. These must be met by our free enterprise system.
§ 2.44 p.m.
§ Mr. William Shepherd (Cheadle)
I do not want to repeat the performance of my hon. Friend the Parliamentary Secretary to the Board of Trade and wind up the debate again. I merely wish to add one or two comments arising from the interesting speech made by the Parliamentary Secretary.
The Restrictive Practices Court and the Monopolies Commission are reviewing restrictive practices legislation, and when this review is complete I hope that the possibility of including services within the purview of this legislation will be borne in mind.
I was on the committee on whose work the original Measure of 1948 was based, and we discussed this issue. The objection that then obtained to including services was that it was difficult to do so without dealing with the question of wages. I hope that it is technically possible to overcome that difficulty, because there is no reason why those who are engaged in manufacturing should be subject to these restrictions and inquiries, while those who are engaged in the provision of services should be excluded.
As we get a more material society the proportion between services and goods tends to increase, and services become an increasing part of our total activities. When this review is undertaken, I hope that the possibility of including services as well as goods will be carefully examined.
I now wish to say a word about information agreements. I think that I was the first to raise this question. Indeed, I wrote to the Registrar in the early part of last year expressing my concern about the extent to which information agreements were growing and asking what could be done about this. I think that at that time the Registrar was less impressed with the danger than he has subsequently been.
I am immensely disappointed with British industry over its conduct in respect of information agreements. One would have thought that if this House had decided that a certain course should 1744 be taken and a quasi-judicial process was established to decide a certain issue, those processes having been undertaken, industry would, without rancour or regret, have accepted the determination of this House and the courts. It is to the utmost discredit of British industry that it is indulging in these devious practices to evade the decision of this House and of the courts. It is disreputable in the extreme. I would not have imagined that this sort of intolerable conduct would have been practised by British industry to the extent that it has been.
If my hon. Friend were in the building trade, as I am in some respects, he would know that instead of having a ring of prices established by an association, we now have an arrangement whereby at an address in Croydon a list is published giving prices. This is for information only, but we all know how restrictive this is in getting real competition flourishing. I do not propose to tell the House what can be done in legal terms to correct this gross abuse of the intention of this House and of the jurisdiction of the Restrictive Practices Court. All I would say is that we ought to pursue OUT efforts against this sort of practice with the utmost vigour.
Now for a word about competition in the United Kingdom. For one reason or another, British industry has had to work in the most stultifying conditions in the last twenty years of any major industrial country in the world. If we want to criticise industry in this country, as sometimes we must, we ought to boar in mind how much against the real prospects of competition have been conditions in those years.
We have had the war, with its system of allocations. We had in the years after the war easy export markets. We have had Imperial Preference given to us, with a certain amount of natural desire to purchase from England—a great advantage in a substantial part of the world markets. We have had an uncommonly high tariff barrier in this country—far too high for efficiency. Superimposed on all this we have had the worst possible form of monopoly and restrictive trade practice which keeps in existence the inefficient, slows down the best of industry and gives us a loss of edge which is very serious and will continue to be a serious factor in our industrial efforts.
1745 Against this background, we cannot expect those who have been relying upon their crutches for twenty years to throw them away and start running overnight. I am convinced, however, that we must have a much more competitive spirit going. What can we do about it? I did not agree with my hon. Friend the Member for Belfast, North (Mr. Stratton Mills) when he said that it is possible at this stage—I mean in the course of the current investigation—to pronounce upon the further steps which ought to be taken before we change our legislation relating to monopoly. I say that for two reasons.
First, the damaging effect of restrictive practices has been to retain in this country too many individual firms and too many inefficient firms. I do not want to see any attempt made to restrict unduly the abolition of the inefficient or the merging of firms where that is necessary. My more important reason is this. It is impossible to fix our legislative ideas until we know whether or not we are going into the Common Market.
A size which would be competitive within the size of the Common Market and consistent with the absence of tariff barriers would be wholly inexcusable if we were to retain our existing situation in terms of tariff barriers and size. Therefore, before we proceed to any substantial amendment of our monopoly legislation, we must have regard to whether we are going into the Common Market and make our determination therefrom.
Nevertheless, we should always hold the balance in favour of competition and, perhaps, not be too impressed by arguments about the economies of scale and the advantages which they bring. It is true that they do bring advantages. From reading the report of the British investigation into productivity in the United States steel industry, for instance, one appreciates at once that the scale of American size, where the Bethlehem Corporation produces more than the whole of British industry, does have measureable effects upon efficiency.
What matters in this country more than absolute scale is inspiration and diversity. These are factors which are all too often forgotten when we consider the pattern and structure of our industry. Unlike the Americans, we sell to the rest of the world a small part of 1746 our total production. The world can take it or leave it. In this country we sell to, probably, 70 countries overseas and, because of our dependence upon our exports, we have to provide each individual country with the kind, shape, style, colour and size of article it wants.
This is a natural handicap in mechanising and rationalising our production processes. It might be very damaging if, in the pursuit of larger-scale production, we cut out the flexibility which at present enables us to supply a large variety of goods to a large variety of markets. We might lose export trade as a result of such a change.
Therefore, when we think of what the pattern should be we must be very careful to bear in mind that our situation, where we have to produce this large variety of shapes, sizes, colours and kinds for a world market, will, on the whole, make our scale rather smaller than the American.
I am a firm believer in private enterprise. I practise it every day of the week, including Sundays, not infrequently, I am sorry to say. I accept the free enterprise system as the best way, and certainly the easiest way, of securing efficient use of material resources. Equally, I accept the view that I, as one who happens to own an industrial process or organisation, am only a trustee of it. I must be governed by the broad interests of the community. Naturally, in the use of my property, I want to have a reasonable amount of freedom and—I say this to hon. Members opposite—a very substantial amount of security. But I accept, and I hope that people in this country will increasingly accept, that trusteeship is an inherent part of ownership of an industrial organisation.
I criticise owners for not being sufficiently public-minded. I say again that I think the failure of the British industrialist to give sufficient leadership within his own business and to play a sufficiently large part in the broader life of the community is one of the reasons for the less satisfactory state of affairs in this country today.
Ownership is not so important as the efficient utilisation of assets. I should not care if every motor car were owned by the State. It would not interest me. 1747 I should not really care if every house were owned by the State. What interests me is that our instruments of production shall be owned or managed by those who can do it most efficiently. I believe that this is where the value of private enterprise lies. Where there is a deficiency is in the extent to which we have, in the past twenty years or more, refused, as a private enterprise community, to accept competition or have persuaded ourselves that there was something other than price competition.
The story that one can have competition for service is really nonsense. The only competition which matters is price competition, and every other form of competition which people postulate is really an illusory form of competition.
It seems to me that labour in this country today is talking in some respect in the language of the 1930s and, on the other side, many employers are talking in the language of the 1930s. There is security for labour, in the main, and there is security for employers, though not security to remain in the same business selling the same line day after day. If the Government maintain a high and stable level of demand, those in industry ought to accept free competition within that framework. If they had the conditions of the 1930s again, they might be justified, I do not doubt, in trying to get back to restrictive practices; but if the Government maintain a high and stable level of demand, then, within that high and stable level of demand, there ought to be free price competition.
What we want to try to obtain in this country is a new outlook. We have had far too much cosseting of British industry. There have been far too many features which have tended to make industrialists believe that theirs was a comfortable existence which could be carved out and that they could run their enterprises without fear of serious change. If we are to meet the challenge of Europe, we must alter our outlook entirely, otherwise in ten years' time or even less Germany will have a national income per head much higher than ours, and even France may have a national income higher than ours, and we shall be unable to fulfil the rather wider function which we have to sustain in the world. Unless there is a radical change 1748 in the outlook of people engaged in industry in this country, both employers and employees, we shall not in ten years' time be able to sustain in the world the position in which history has placed us.
Therefore, we must try to encourage a spirit of enterprise and competition, price competition, throughout the whole of British industry. If we do not do that, we shall certainly fail to produce the national wealth which will keep our position in the world.
§ 3.0 p.m.
§ Mr. Dudley Williams (Exeter)
I found some of the remarks of my hon. Friend the Member for Cheadle (Mr. Shepherd) a little confusing. As I understand, he is a semi-Marxist. He said that he would not mind if all the houses in the country were owned by the State and followed that up by saying that he would not mind if all the motor cars were owned by the State. But he objects to the means of production being owned by the State. I agree with him on that point.
I hope that no hon. Gentleman will think that I am opposed completely to large mergers and amalgamations. I think that in many cases they are beneficial and desirable. In many large industries in this country, the power and influence exercised by the boards of directors are beneficial to the community. I would cite as an example the oil distribution companies which, I believe, do a first-class job. I think that the standards which they apply to their employees are very high indeed.
My hon. Friend the Parliamentary Secretary to the Board of Trade—I was accused once before of calling him by a wrong title, and I apologise for it—referred to three matters which must be considered in discussing the question of mergers, namely, the position of the consumers, the public interest and the position of the employers. I shall devote most of my remarks to the unfortunate merger which has been proposed between I.C.I. and Courtaulds. There is another body which has been very roughly handled in this proposed merger and to which my hon. Friend the Parliamentary Secretary did not refer, the shareholders. The shareholders in I.C.I. have been very badly treated indeed.
I am not conversant with the current authorised share capital position of 1749 I.C.I. but I understand that, if this deal goes through, and if I.C.I. acquires the shareholding of Courtaulds, it will be necessary to hold a meeting of the shareholders to authorise the increased capital needed to acquire the Courtaulds shares. I hope that this is right. If by any chance I am wrong, and already the authorised share capital is available for the directors of I.C.I., there is an even greater reflection upon this organisation for not having seen fit to consult its shareholders before going through with a deal of this magnitude.
The other day my right hon. Friend the President of the Board of Trade described I.C.I. as a first-class employer of labour. That is not my information. My information is that its employees are outraged at this proposal, sincerely hope that it will not go through, and have little or no confidence in the present board of their company. Certainly, if I.C.I. is an ideal employer of labour, it is not being very considerate towards the employees of Courtaulds.
I have a Courtaulds factory in my constituency. I have received a letter from someone representing the work-people in that factory in which is set out very clearly their devotion to their own company, the confidence that they have in their own management and board of directors, and the worry and anxiety that they have about the threat to their employment by this proposed take-over.
It is quite outrageous that someone like Mr. Chambers should be allowed to bring so much misery and distress to hard-working people. He should be thoroughly ashamed of himself. I do not think that he is a suitable person to be in charge of a concern as important to this country as I.C.I. I hope that his colleagues on the board will take steps in due course to get rid of him.
There have been repeated statements by members of the public and, I believe, Members of this House about the high standard with which I.C.I. conducts its business. I will give an instance of how this is done. Some friends of mine set up a company in Ghana to develop an industry there. Anybody who sets up a new business in that country is entitled to pioneer status and for ten years is allowed to draw back the import duty 1750 on anything which is imported to further the interests of the business.
My friends wrote to Imperial Chemical Industries and asked to be supplied with chemicals. The reply was that the chemicals could be supplied only through I.C.I. (Ghana) Limited. When that concern was approached, it was found that it had already had the drawback. Not until my friends said, "If we do not get it from the United Kingdom, we shall get it from Germany" was there a change of heart on the part of Imperial Chemical Industries. I hope, therefore, that the House will not be misled by stories about the high standard of business morality of this concern.
My hon. Friend the Member for Twickenham (Mr. Gresham Cooke) raised the question of takeovers generally. I believe that in 90 per cent. of take-overs there is nothing wrong. One thing for which, I hope, legislation will be introduced shortly is to ensure that no non-speculative profit is made by people indulging in take-overs. I do not mind a speculation—one loses more times than one gains—but what I consider to be wrong is to back an absolute certainty, whether in horse racing or in business.
If a person knows that a company is to offer £1 per share and over the preceding eighteen months he buys up half a million shares at 10s. each, he is not speculating—against which I have no moral feelings; I do not think there is wrong in it—but he is backing an absolute certainty. He cannot lose. He knows that on a certain day the offer will go out at £1 per share. If a higher offer is made by a competitor, even more money could be made. Such a person cannot lose. If the offer goes through, he doubles his money. If somebody like Mr. Chambers arrives on the scene, he trebles it, unless Mr. Chambers oversteps the mark, as he has done on this occasion. That is immoral and it should be stopped.
I hope that the Jenkins Committee is considering this aspect and that legislation will be introduced at an early date to stop the practice. It has been done many times in the City since the war and it has brought huge fortunes to certain individuals. It is time that 1751 this sort of take-over was stopped, or, at least, made subject to tax. I am not against mergers—in many cases, they bring benefits to the country in general—but there is a strong case for legislation to ensure that they are carried on in a proper manner.
§ 3.9 p.m.
§ Mr. John Diamond (Gloucester)
I agree, and I think the whole House will agree, that many of the speeches today have contained elements of agreement with one another. I certainly agree with what the hon. Member for Exeter (Mr. Dudley Williams) has just said about the lack of consultation with employees. This has been a most obvious matter which has been overlooked by both firms. So far as I know, in the recent negotiations proper consultation has not taken place. The hon. Member used some very strong words about the chairman of the company in that respect, and I hope to come back to that matter a little later on.
As for the speech by the hon. Member for Cheadle (Mr. Shepherd), I understood what he meant, and I share his views precisely about trusteeship. This is the only responsible attitude for the owner of assets which are put at his disposal to use for the benefit of the community, and in respect of using them he should naturally be adequately remunerated.
There has been much agreement underlying a good deal of what has been said. This is a Private Member's Motion, and we are all very grateful to the hon. Member for Cleveland (Mr. Proudfoot) for having introduced it, in moderate, stimulating and interesting terms. This is a Friday, and this is a back benchers' day and Motion, so that there is no reason that I can see for anybody to make a party speech on this issue. I should like to collect together a good many of the comments common to the speeches which have been made in this discussion today and in Wednesday's discussion and, on the basis of those thoughts, suggest, as we were asked to do by the President of the Board of Trade, ways in which the problem might be met.
I would preface my remarks by saying only that, anxious as I am, as the 1752 hon. Member for Belfast, North (Mr. Stratton Mills) is, that we should as soon as possible get on to the matter of positive neutralism, it would seem to me, with the greatest possible deference, that this matter was fully discussed on Wednesday, when the President of the Board of Trade got up and said for half an hour that that was precisely the attitude of the Government. So I do not think there can be any complaint if we do not have as long a discussion on this other topic as otherwise might have been expected. I hope the House will forgive me. I waited before making a speech until I was satisfied that everybody else who wanted to make a contribution had already done so.
I do not think we need any longer delay in making the case for competition. This has been made virtually by every hon. Member who has spoken. I should just like to add that I see nothing inconsistent in having competition and the kind of mixed economy which we have. Competition is helpful to private enterprise, competition is helpful to public enterprise. There is nothing inconsistent whatsoever between public enterprise and competition. There is competition, as the Parliamentary Secretary made perfectly clear, between gas and electricity; there is competition for the airlines, and for the nationalised airlines the most violent international competition for their trans-Atlantic and other fares.
There is competition of all kinds the whole time, and we want to promote it, and, as the hon. Member for Cheadle said, we want to promote it in a very marked and dramatic way, and to bring to the attention of everybody that the present situation is very far from satisfactory. Far too many people are resting on their laurels, resting on the advantages which this country has enjoyed for many years. Far too many are completely unaware of the speed at which our competitors abroad are growing, and unless we take the advice given in the most royal and ducal and digital fashion we shall not succeed in increasing or maintaining our standard of living, and in holding our own, as the hon. Member for Cheadle said that we should not.
Indeed, in this very Chamber we have the Opposition here—precisely for this function of stimulating the Government 1753 and providing competition, and providing an alternative Government. If there were no competition between the two sides the government of the country would not be as well run as it is.
§ Mr. Diamond
You will have observed, Mr. Speaker, that practically all the policies of the Labour Party are gradually being taken over one by one by the benches opposite, and we are about to discuss planning in due course. Indeed, if it were not for the distinguished back benchers who have debated and discussed so ably today perhaps the Front Benchers would not be quite as able as they may be—if they were not aware of the fact that among those back benchers, admiring them and listening to them, there are many ready, if necessary, and if compelled to do so, to step into the breach.
I do not think we need spend longer on making the case for competition. There is, however, one further thing which strikes me as being extremely serious. It is a fact, as the hon. Member for Cheadle said, that we are far too uncompetitive in our natural attitude. It is a fact that over the last ten years there has been a great increase in the number of mergers and concentrations of firms. It is a fact—and whether this is a consequential fact or not I do not know—that over the last ten years our rate of economic growth has been about one half of the rate of economic growth of our natural Continental competitors. Whether the fact that we are doing half as well as they are has anything to do with the fact that we are inadequately competitive is perhaps worth looking at.
I want to look, as the Motion does, at the question of mergers. Are they good, are they bad or are they, as I suggest, some of them good, some of them bad, and do they need separately looking at? The general argument for a merger is economy of scale. As has already been pointed out, this can be overdone. I full see the argument for giving a large plant all the work it can do, and, if one can get an even larger plant to tackle the job, giving that larger plant all the work it can do. But we often overlook the fact that not only have we to measure the size of the physical plant but we have to try to 1754 measure the capacity of the human personality involved.
My experience is always the same, that a successful business is successful in being of the right size in that it is appropriate to the impact that the personality of the owner of the business can make, and the size of that personality is not easy to put in terms of cubic centimetres. I have no hesitation in saying that this is where the truth lies. There are certain processes into which the human element does not enter very considerably and in those circumstances one can have an extensive plant which can run quite happily. But there is the plant where team-work and a concentration of the spirit of the team and of the father-figure come into it considerably, and one cannot have a larger unit than can be encompassed satisfactorily by the personality of the person who is in charge of the unit.
There are limits and they will vary considerably according to the different kinds of activity being undertaken. The simple concept that the bigger one gets the more efficient one gets does not always hold good. Of course, one wants to be more efficient. This is good for everybody. This is what increases everybody's standard of life. The fact that some may be thrown out of work at a particular plant does not necessarily mean that they will be damaged. It may mean that the whole of industry will be benefited. It may also mean that those individuals will need separate care and separate training at 90 per cent. wages, a standard which we shall all enjoy when we are in the Common Market.
There is the argument of size, but it cannot be the sole determining factor. Indeed, if size were the only factor, how would I dare to stand and make any suggestions contrary to those put forward by the President of the Board of Trade? This is one of the aspects we have to look at. Another aspect of mergers and the other main argument which is being continually introduced is the argument of the vertical or horizontal monopoly, or both, and there is the argument of the captive market. This is a philosophy which I am sure has not satisfied everybody in the House. It is an argument which has something in its favour and which, in appropriate cases, 1755 might be right. But it cannot be right in every single case.
As was pointed out in a debate earlier this week, one can carry this process of a big firm taking over a smaller firm almost indefinitely. This argument, which has been put forward by I.C.I. in its desire to take over Courtaulds, could similarly be put forward by Shell in its desire to take over I.C.I. In fact, as I learnt when I was a very small boy,Small boards have big boards to go over their heads and bite 'em;Big boards have bigger boards and so on ad infinitum".That second argument for mergers and amalgamations will not hold water in every case. We cannot lay down a rule, or generalise in this matter, and say that in all cases a merger is right or that in all cases it is wrong. Each case must be considered separately. What we do know—and it may not have been absent from the case that we were discussing on Wednesday—is that in certain mergers the satisfaction of individual power lust is one of the elements concerned; an individual's scheme to increase his empire, and his desire to satisfy himself about his ability to command, and so on. This element is not necessarily for the good, and it must be borne in mind. In my opinion, it would tend to work against the approval of a merger.
So far, I have been deliberately referring to mergers and the arguments generally used in connection with them, and I have tried to show that they should not be accepted wholesale. I now turn to the special kind of merger which is known as a take-over bid. I want to make absolutely clear what I mean: I am referring to an offer to buy shares in a case where the directors of the company concerned do not recommend their shareholders to accept the offer so made. I am referring to the opposed offer, which is frequently called a take-over bid.
Take-over bids form one method by which mergers are undertaken. In addition to the arguments which may be used for and against general mergers, separate arguments arise in the case of take-over bids. Many of the arguments go against such take-overs; at least, they must be taken into account. The argument that I put first is the destruc- 1756 tion of the mutual good will between the staffs of the two firms which will have to work together. A merger between two firms may have been satisfactorily negotiated and conducted by the boards concerned—and I shall have some more to say about that in more detail shortly—with an intention that there should be a spirit of happy cooperation between the staffs concerned, from the boards' senior executives to the junior executives, right down the ladder of responsibility, in order that the firm shall be successful. But it will not be successful unless there is complete cooperation. It will certainly fail unless there is complete co-operation in the board room. Here I am referring not to a complete identity of ideas but to co-operation and good will.
In the case of a take-over bid which is opposed by the directors of the company proposed to be taken over, but is enforced by the purchasing company because it has the resources to do it, we destroy that good will, and that is enormously damaging to the future prospects of the amalgamated or merged company.
It is not without humour and irony that the right hon. Member for Birmingham, Hall Green (Mr. Aubrey Jones), who, from the Dispatch Box, supported the mergers in the aircraft industry, is now seeing the other end of the barrel in his capacity as a director of Courtaulds. I am not satisfied that in the case of opposition to a take-over bid, mergers of the I.C.I.-Courtauld kind can result in satisfactory cooperation between the two staffs involved.
Another factor which arises out of activities of this kind is the prejudice caused to the names of the firms concerned, to the City of London and the whole country, which depends largely upon the status attached to large firms of this kind and to the City in which they function.
These two firms are what are called "blue chips", that is to say, companies in which one can invest one's money, if one has any, and forget about it, because one knows that they are well conducted and well managed. But here they are calling each other names in public. One of them must be wrong. Perhaps the management ought not to have been 1757 accepted as being as good as it seemed. One knows that in the heat of the moment things are said which are, perhaps, not intended and which would not be said in other circumstances. In any event, it is an unhappy spectacle and cannot do other than damage to both companies and to our financial institutions, which, again I say, I regard as important, especially in view of the possibilities which may be extended when we join the Common Market.
I have a particular constituency interest in regretting this conflict, because British Nylon Spinners has built a very large and expanding factory in my constituency. That company, as everyone knows, is owned as to 50 per cent. by I.C.I. and 50 per cent. by Courtaulds. I am bound to say that my experience is that when father and mother fall out it is pretty tough on the family. I do not know what effect these public recriminations will have on the satisfactory working on British Nylon Spinners. I must say that I would much have preferred that negotiations should have gone on in a different way.
I am trying not to take sides at all, but I would much have preferred that as I.C.I. and Courtaulds have thought fit to work together and to combine in certain circumstances, they might have chosen the nylon pattern as a suitable precedent to be followed in this case. If they can work together so happily in nylons—and it is a very happy arrangement, because it is expanding enormously—might they not have used this same arrangement of a fifty-fifty combination in working together for limited purposes on other products?
At all events, these are the reasons why I have come to the conclusion that mergers may be good or may be bad. There are certainly great difficulties involved when the merger takes the form of a take-over bid not recommended by the board, and one has to look at it in that light. We certainly cannot be dogmatic about this. I certainly disagree with those who say that all monopolies are good or that all are bad or that all mergers are good or all are bad. I can give many examples of monopolies and mergers both ways.
Westland has been mentioned today many times. Westland, of course, is a monopoly which was virtually set up by 1758 the Government. The Government's plan for the aircraft industry, as we all know, was five major firms, two in the airframe industry, two in the aeroplane engine industry and one for helicopters. Westland is the only one in helicopters. As I say, the Government set up this monopoly and they must, presumably, have thought it right to do so. Strangely, however, the Government have not added any kind of accountability, but it is well understood that the Government exercise considerable control over the pursestrings in the case of Westland.
Another example, as I have already mentioned, is B.O.A.C. There is a State monopoly which faces the hardest possible competition. It is a good monopoly. It is just not possible to say that all monopolies are good or that all are bad. What I do say—this is the essence of my case—is that, where the public interest is involved, there must be some kind of accountability. Where there is a monopoly, the public interest is involved. Where there is a merger, whether voluntary or as the result of a take-over bid, which reaches a certain size, an element of monopoly may be involved, and if that be so, again the public interest is involved.
I suggest to the House that there are certain things which must be done wherever the public interest is involved. I will divide the matter into two. There are those things which we must do for all mergers and there are those things which we must do for what I call big mergers, or mergers resulting in large firms. We need not spend too much time deciding where to draw the line. It may be drawn easily and I shall suggest later where it should be drawn.
First, for all mergers, the Government must ensure that wherever mergers take place the employees and their representatives are consulted. This is the most glaring defect in our philosophy at present, that there should be firms both of whom—as is at present the case—have enormous capital resources and very able men at the head of affairs and which have been acclaimed as good employers and yet it has not occurred to either firm—it is not their fault, it never occurs to anyone involved in a merger—to consult its employees before engaging in something which is of vital interest to its employees.
§ Mr. Walker
I sympathise with the principle which the hon. Member is advocating, but to put it into practice is very difficult. To take as an example the question of I.C.I.-Courtaulds, there is nothing about which Courtaulds could consult its employees. Is the firm to meet the employees and say, "Do we resist this bid or not?" The people who should be consulted by I.C.I. are really the employees of Courtaulds and not I.C.I., because they are the most affected by the take-over. When the hon. Member for Gloucester (Mr. Diamond) says, "consult", does he mean inform the employees or take a Gallup poll of their opinion and formulate a decision on that?
§ Dr. Horace King (Southampton Itchen)
Before answering that question, will my hon. Friend the Member for Gloucester recall that not only have the Courtaulds employees not been consulted but they have gone on record in the public Press as being 90 per cent. opposed to the merger?
§ Mr. Walker
I am completely in sympathy with the employees who are opposed to this and I am sure that the board of Courtaulds has taken into account and been grateful for the support of the employees; but I should like the hon. Member for Gloucester to suggest what form of consultation he means and what effect it should have on the bid.
§ Mr. Diamond
I am glad that this suggestion has raised interest. I repeat that I regard it as a major lacuna in the thinking of those engaged in take-over bids on whichever side. The case for it is that the employees will be more affected than anybody, their livelihood is involved in a take-over, the purpose of which is to rationalise. To put it in a more outrageous form, the purpose is to give a number of workpeople the sack—let us be clear about it. Rationalising means saving certain overheads, saving certain processes and putting certain people out of work. I have already said that this may be in the national interest in the long run and that there should be special protection for the people involved. But if it means that, surely those are the people who should be consulted.
1760 The hon. Member for Worcester (Mr. Walker) asks what do I mean by "consult"? I thought very carefully before I used this word. I do not mean taking a ballot. I do not mean being controlled by a decision of the general workpeople. Everyone has a right to make a contribution to the decision—management and men. I mean consultation as we in the House mean consultation, putting forward the problem and taking the decision into account. One may not be governed by the decision, but one must take account of it. One must go through the process of consultation even if only to keep good will and to show that one is a man of honour, a manager who wants to consult with, and pays regard to the welfare of, his workpeople.
I say that in every case there should be consultation. If I am told that there is no machinery for consultation, I say that that is a criticism of the firm. There should be consultation—if necessary, confidential consultation. I agree that in many cases it should be confidential. I should risk being thrown out of my party by saying that I do not necessarily think that a public examination would be right rather than a private examination. I agree that there are matters of a confidential nature involved. I think that consultation is a first essential, but this has been omitted. How much better it would have been for Courtaulds if, instead of getting the support of their workpeople by a side wind, they could have got it by telling them what was involved.
If they were entering into a voluntary merger how much more necessary it would be to say, "We are proposing to amalgamate with I.C.I. on certain terms. This will have certain effects. This will make this or that department close in due course. Don't worry about it; we are going to put these men there, and these other men we shall train. We have discussed it with the union representative and there is nothing to worry about." When working men are worried they do not work so well nor so productively as when they are consulted. There is everything to be said for the contention that in every case, without exception, there should be consultation with the employees and their representatives. I now turn to the shareholders——
§ Mr. Jeger
Before my hon. Friend turns to the shareholders and away from employees, would he agree that in the case of trained managements, technologists and technicians, there is an element of uncertainty which mergers of this kind must bring to their lives which might cause them to seek positions elsewhere? They might emigrate and we might lose their services in this country.
§ Mr. Diamond
I am not sure whether my hon. Friend is arguing that we should or should not consult them.
§ Mr. Jeger
We should consult them. I was referring not merely to workers on the lower levels of technology in the factories, but to the highly-skilled scientists, technicians and research workers who might fear that they would be made redundant by a merger. Certainly they ought to be consulted and they certainly could easily be consulted because they would not be a great number.
§ Mr. Diamond
I am grateful to my hon. Friend. If I used a word which excluded any employee I did not intend to do so. In my notes I have the word "employee" and I referred to every employee in every category, from the most senior to the most junior, from the most capable to the most lowly paid.
I now turn to the shareholders and say that they are not being adequately consulted in these mergers. Shareholders should have much more information. I have no hesitation in saying that the information should be of the prospectus type prepared with all the care and responsibility which goes into the issuing of a prospectus. I have not had the actual papers, because I am not a shareholder of either of these two companies, but we have seen advertisements in the newspapers which I know must have been prepared hurriedly and as much for propaganda purposes as for giving precise information. I doubt very much whether those statements would all have appeared if they had been on the basis of a prospectus asking the public to put up the money to buy shares.
When a take-over bid takes place and shares are offered, certain shareholders are asked, "Will you please sell your shares to us for cash and at the same time use that cash to invest in shares in our company?" It is because that 1762 second process is involved when there is a share offered as well as cash that I say that we must ensure that the same kind of information as is put out in a prospectus is also given to the shareholders when a take-over bid is involved. I repeat that the employees as a whole must be fully consulted and that the shareholders must have much more information of a much more responsible nature.
Finally—and I know that I have mentioned the point before, but I hope that I shall be forgiven for repeating it—the dissenting shareholder must be protected. In a take-over a shareholder receives an offer and has to make up his mind whether he accepts it. If he accepts the offer, well and good; he makes the decision. But let us suppose that he does not accept the offer. His situation is then changed. If the offer goes through and he has not accepted it, his situation changes immediately. Instead of being one of a group of shareholders, he is one of a minorky—and the rights of a minority are very much less than the rights of a majority. When he finds himself perhaps one of 5 per cent. of dissenters, at the point at which the offer has been accepted, he should be given a further right to say, "Now that I see that I am one of only 5 per cent., I am prepared to sell my shares, and you must"—not "may"—"buy them on the terms on which you bought the other 95 per cent." It is vital to protect the dissenting shareholder, otherwise he cannot exercise his choice freely.
These are the three things which I suggest should be done. I am replying to the invitation extended by the President of the Board of Trade that we should make suggestions, and I think that we prefer to make our suggestions across the Floor of the House rather than behind closed doors.
§ Mr. John Harvey (Walthamstow, East)
I am not out of sympthay with same of the views which the hon. Member has expressed, but there is a difficulty. Surely when two managements begin to negotiate with one another on a possible merger or a take-over there is a duty upon them to preserve the confidentiality of what they are doing, so that they do not start all sorts of things happening in trading in the shares on 1763 the Stock Exchange. How would that confidentiality be preserved if there were, at the same time, an obligation to consult the employees? Would it not mean that information would leak out and that speculation might be generated?
§ Mr. Diamond
I am delighted that the hon. Member asked that question, and I will answer it frankly. I take the view that responsible trade union officers are just as capable of keeping their fingers off the Stock Exchange as are responsible directors. When a discussion is taking place in the board, all the directors have the good sense, wisdom and integrity to keep the matter completely confidential. It is not impossible in the preliminary stages to have a private and highly confidential discussion with the trade union officer representing, for example, the largest number of trade unionists employed in a factory, with the full knowledge that this will be treated in the same confidence.
§ Mr. J. Harvey
If the hon. Member is saying that there should be consultations with representatives of the employees as distinct from the employees as a whole, I follow the argument, but it places a great responsibility on the employees' representative concerned, who eventually might be saddled with the wrath of all of his colleagues if they did not approve of what he had done.
§ Mr. Diamond
Trade union officers run that risk from morning to night. They are continually at risk. I said "employees and their representatives", and I imagine that when these negotiations were in the preliminary stages it would not be necessary to do more than discuss them in a very confidential way with a trade union officer. At a later stage there might be a meeting of a committee of the employees or whatever is the appropriate body.
There is no argument of confidentiality or any other which is sufficiently strong to outweigh the need to consult employees. In the interests of good management, future prosperity and good relations between employer and employees, it all leads to the same answer.
I come to the suggestions I want to make about the big companies, the 1764 larger ventures, not those which I have referred to already, which apply to all mergers. If I am asked to draw the line to mark the difference between a big one and another one, I should say that it is not too difficult for the Government to decide this. I should say it would be the leading companies in the country. There are about 500 or 550 of them. What they do is of a sufficient size and on a sufficient scale to affect the public interest if they were to amalgamate, whereas amalgamations of much smaller companies would not.
When dealing with the very large companies to which I refer, there must first be a submission to the Monopolies Commission or whatever other machinery is right. This suggestion has been made already today. There must first be a reference to such a commission. It must report on what is involved in the proposed merger. I am saying clearly that no merger should be allowed to go through of a size which I have indicated without there first being a report.
The report could cover whatever relevant facts the Government need in order to make up their minds. I want to make clear that the function of the commission is to inquire and the function of the Government is to govern. The Government would reach their conclusion based on the information which had been obtained by the independent inquiry privately, without disclosing any of the secrets the preservation of which may be essential for the companies concerned. The inquiry would, if appropriate, have to include both companies. If there were a merger of two companies, with shares offered for shares, both companies would naturally have to be inquired into.
§ Mr. Reynolds
I am in full agreement with the suggestions my hon. Friend is making, but in last Wednesday's debate the Chief Secretary to the Treasury argued that it would be impossible to conduct such an inquiry as my hon. Friend suggests before a merger takes place. The right hon. Gentleman kept using the phrase, "We just cannot tell what is likely to happen until after the merger has taken place". Yet I have been looking at statements appearing in the Press emanating from these two companies. I should imagine that the newspapers are doing better than 1765 anyone else at the moment out of the possible merger of I.C.I. and Courtaulds. I see that Courtaulds are forecasting exactly what the return to their shareholders will be over the next two or three years if the merger does not take place. Will my hon. Friend give us the benefit of his view about the Chief Secretary's statement that it would not be possible to get the kind of information he suggests is necessary before a merger takes place? Does he think it is possible to get that information?
§ Mr. Diamond
I must differ from my hon. Friend. I did not hear the Chief Secretary use a single argument. I gather that the view of the President of the Board of Trade was that there should not be an independent inquiry of any kind, because it is impossible to forecast and one would not be inquiring into facts but into prognostications. He said this notwithstanding the fact that he was saying at the same time that shareholders are somehow much more able to make up their minds than the whole of the Government and Government Departments put together, because from the information given to them shareholders are able to make up their minds whether they ought to accept the offer. Unfortunately, the Government have not got the same ability. I do not accept this argument for one moment.
A responsible company—we are dealing with two very responsible companies indeed—is able to publish information about the profits it is going to make. It has published this information in newspapers distributed over the whole country. We are now in the early part of 1962, but this company is already forecasting the profits it will make in 1964. As my hon. Friend implied, it is nonsense to say that there is no inquiry machinery which could examine this and see whether the basis of that prognostication is justified. These are responsible men, I repeat, and they make these prognostications on the basis of facts and trends they know. Those could be thoroughly examined——
§ Mr. Macpherson
Is the hon. Gentleman suggesting that that is all that is at issue here, or is it the profits to be made?
§ Mr. Diamond
No, it is certainly not all that is at issue, but I thought that 1766 it was one of the main matters at issue. The Government say that we cannot tell about the future, and that is the only thing at issue for the shareholders. The Government say they will adopt positive neutralism—as my hon. Friend the Member for Salford, East (Mr. Frank Allaun) would wish—and let the shareholders decide on the sort of information that appears in The Times and elsewhere——
§ Mr. F. A. Burden (Gillingham)
The hon. Member is a very able chartered accountant. When he uses that argument I really think he has his tongue in his cheek. He has had enough to do with companies and with trading to realise that it is a guess. It may be an inspired guess, but he knows that there are all sorts of imponderables—designs and plans can alter—which make it quite impossible for Courtaulds accurately to assess what its profits are likely to be in 1964.
§ Mr. Diamond
It is not said that one comes to the answer in an inquiry, but that an inquiry must come to the answer that all the information seems to be misleading. I do not say that. In my professional capacity, I am never called upon to give a certificate of what may happen in the future, and I certainly would not agree to do so even were I asked. Fortunately, nobody would ever ask me; I have the greatest difficulty, as it is, in certifying what has happened in the past.
The serious issue is that there are facts and there are tendencies—and there is, to use the term, the extension of those tendencies—which are relevant, and on which the shareholders have been asked to decide. It is nonsense—and I repeat it, without wishing to be too dogmatic about it—for the Government to say that there is no machinery of inquiry that could look into those facts and report to the Government on all the matters involved, what the effect of the amalgamation will be, not only on shareholders and employees, but on trade, and what is its purpose.
Without that information, the Government cannot move, so they must have that information, and they must then decide whether to admit or deny the amalgamation. If the Government admit it, have we got to the end of the road? I see that we have still six minutes left, 1767 so we have not yet got to the end of the road, and I hope, in the time left, briefly to say what the Government should do.
The essence of the thing, and the thing which, if I may say so with the greatest possible deference to hon. Members, has been omitted from the debate is the element of timing. The Government have said, "Gallaher has not so far acted against the interest of the State. Therefore, we shall not do anything." The Commission has said, "The firm might act against the interest of the State; therefore, you should do something." In none of these cases can one say that what is right today will be right in six months' or six years' time. One has to keep the matter under review.
I therefore suggest to the Government that what they need in all these cases where a big merger has taken place with their permission is a watching brief, and an enabling Measure to give them one. A watching brief gives one the right to see what is going on, to make whatever inquiries one wishes; to step in, if necessary, but to keep oneself informed. A watching brief would help in a number of ways where the public interest is involved.
The public interest is clearly involved in investment. The whole of growth depends on investment and with any N.E.D.C. coming along, and the planning of the economy as a whole, I do not see how we can succeed in that economic planning unless we have from those very large firms information about their investment plans. That is No. 1. That would be No. 1. Dividends would be No. 2. One cannot have an incomes policy without having knowledge of dividends and, therefore, the Government be informed on this since dividends directly affect the public interest.
Exports would be No. 3. This is the only subject on which the Board of Trade has said anything concerning this whole matter; that we need exports. Thus, the Board of Trade would have to receive the figures and proposals of the various companies regarding exports and this would add to the Government's watching brief. No. 4 would be a code of conduct which would cover 1768 social matters, relations with employees, labour relations generally and matters of that kind. I suggest that the Government should be closely informed about these four matters of public interest because when anything affects public interest the Government obviously have a right to step in.
§ Mr. Stratton Mills
I apologise for having missed the earlier part of the hon. Gentleman's speech, but can he explain what he means by "public interest" in this context?
§ Mr. Diamond
I am saying that it is wrong to say that all cases of big mergers and monopolies are bad and should be nationalised. It is equally wrong to say that they are all good and that we should exercise positive neutralism. Both are equally wrong, for it depends on the size and how the business is conducted in the future.
Consider I.C.I., for example. Many people ask whether I.C.I. would have made this offer over the heads of Courtaulds had I.C.I.'s past Chairman, Lord Fleck, been at the head of the company. This is a fair question, for a different personality might have a different attitude and thus a different conduct might flow. One might be regarded as acting closely in the national interest while another might be regarded as not doing so. As I say, one cannot tell what will happen in the future and if a watching brief is kept the Government will know how the public interest is involved in each case.
It represents a sort of half-way house, The purpose of nationalisation of a monopoly is to see that public accountability exists in all respects. Here, however, it is not necessary to watch public accountability in all respects but in certain of them. I have spoken of the main ones and this is where the Government would require an enabling Bill to give them a watching brief to require this sort of information and see that it ties up with the economic plan which we hope will be forthcoming from the N.E.D.C. If this is done instead of the Government ignoring their responsibilities, as they have been doing, a different set of circumstances might prevail.
§ Question, That the Question be now put, put and agreed to.
§ Question put accordingly and agreed to.
That this House, whilst welcoming the work of the Restrictive Practices Court and of the Monopolies Commission and the review of existing legislation concerning monopolies and mergers which is being carried out, calls on Her Majesty's Government to direct its policies towards ensuring keener competition throughout all sections of the economy.