Clause 6

HC Deb 26 June 1968 vol 767 cc679-727

RESTRICTION ON ORDINARY DIVIDENDS, AND RELATED RESTRICTIONS

Mr. Speaker

We come now to the group of Amendments which I have changed, as the House will remember. We are debating Amendment No. 55, and with it we are taking Amendments Nos. 60, 73, 141. 142 and 143.

Mr. Tom Boardman

I beg to move Amendment No. 55. in page 4, line 41, leave out from ' order ' to ' prohibit' in line 42.

The object of this Amendment, and the series of Amendments being discussed with it, is to delete the power of the Treasury to make directions affecting the distribution of dividends by companies. This appears in Clause 6(1), which provides that Subject to the provisions of this section, the Treasury may by order applying to any description of companies specified in the directions, prohibit the companies … We object to the Treasury being given power by direction to effect that form of prohibition, and ask why there should be this distinction in the powers given by order and by direction. What is the reason for giving the power to direct, which is subject to no Parliamentary control, in a matter of this importance?

In Committee, we pressed the Undersecretary on this point to find out the reason for it, and his reply, in column 914, was interesting. He first said: That means that directions, and directions alone, can be made limiting the distribution of single companies which are named in the Order. If the Government seek to do more— At that point he was interrupted, but he went on: Single companies named in the direction can be covered in this way and, in a sense, the problem of definition does not exist. The problems of definition arise when one seeks to make an Order covering a group of companies …". He later continued: Then the Order procedure is obligatory, and the problems of definition become acute. There is the distinction. Single companies— directions; more than one company—Orders. That is the clear result of what is provided in Clause 6(1). The Under-Secretary was pressed further on that, and in column 915 he said: An Order may include an individual company, and can be allowed to do so, but it can also cover a great deal more. A direction can cover only an individual company, and cannot cover any more. I cannot follow that distinction between an Order applying to a group of companies, and a direction applying to a single company, in the Clause. The Clause says: the Treasury may by order applying to any description of companies specified in the order, or by directions applying to any companies specified in the directions …".—[OFFICIAL REPORT, Standing Committee F, 17th June, 1968, c. 914–15.] 4.0 a.m.

Orders and directions both apply to companies. There is no distinction justifying the assertion that directions apply to a single company and Orders to groups of companies. There is a great difference in the procedure that applies. The procedure for Orders are defined in Clause 7(4), which provides that Any order or regulations of the Treasury …shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of either House of Parliament. That is the Parliamentary protection which is offered in the case of an order. That is the minimum safeguard we consider acceptable in legislation giving such power to the Government, whereas in the case of directions, which are referred to in subsection (5), there is merely the requirement to publiish them in the London, Edinburgh and Belfast Gazettes.

A direction is purely a Ministerial executive function. There is no Parliamentary control over it. We attach some importance to this because the consequences of Orders or directions can be grave. They can affect the whole dividend pattern of companies for a long period. The Minister is put in a position completely to freeze the ability of companies to raise new capital. This, and various restrictions which are contained in later Clauses, can be dealt with by directions—by the exercise of the ministerial executive function—with no parliamentary control.

The Government have never displayed great affection for the City, or its institutions, or for industrial management or capital, but I cannot believe their lack of affection is such that they feel that the dominating control of those functions should be removed from any Parliamentary supervision. Much of our economy depends on the delicate balance of finance and it can be thrown out of balance by decisions made by a Ministerial executive act over which Parliament has no control.

It may be asked why we are raising the question of directions as opposed to Orders purely in respect of dividends. It will be noted that Amendments were tabled to prevent the direction procedure being used in the case of wage awards and settlements and also in the case of prices. Those Amendments were discussed in Committee and voted on, and they were not selected for debate on Report. Nevertheless, we showed then and we show now the same concern for the control of Parliament over the preference for Orders as opposed to directions in respect of wage awards and settlements as we show in the case of dividends.

The Amendment places a rigid control on dividends, and Parliament should not surrender its right to consider any Orders which are made. The Amendment is reasonable and fair, and I hope that the Minister will accept it.

Mr. Hattersley

It is important to remember at the outset of these groups of Amendments on dividend restraint that the degree of co-operation which the Government have already received from industry makes it unlikely that Orders and directions will be made under these provisions. I say that not as an alibi for what hon. Gentlemen opposite may regard as shortcomings in the Bill, but because it is important to acknowledge the amount of co-operation and assistance which the Government have received. That must influence our thinking on the Amendment.

To answer the two points made by the hon. Member for Leicester, South-West (Mr. Tom Boardman), there is, first, no doubt that the distinction between Orders and directions is a distinction between groups of companies, defined in a variety of ways, and individual companies. The second to fourth lines of the provision make that clear. The Government have asked for power to make directions in individual cases for no sinister reason. They want this power because there will be times when we need to make directions with speed on a company which may, by a variety of devices, declare some sort of interim dividend which will, in itself or in conjunction with other interim dividends, breach the ceiling. We would want, to preserve the policy, to make the limitation apply with all the speed that a direction would make possible.

One can justify that type of action in the special terms which cover dividend restraint. In asking for dividend restraint, I described in Committee the arithmetical calculation which determines whether or not dividend restraint is within the policy, and we are making a precise statement of our intention. Other forms of limitation —in price, earnings and even in rents— are subject to subjective conclusions and a variety of analyses, investigations and descriptions which are appropriate when the judgment is made for continuous Parliamentary debate. In this sector, however, we are announcing a simple formula for what our dividend restraint policy should be; and once we have asked for and obtained parliamentary approval for that, it is reasonable for us to apply it in individual cases, which is all that the directions enable us to do.

Sir J. Foster

The hon. Gentleman does not answer our objection by saying that he wants speed. In any event, he could obtain almost equal speed by an Order in Council, which is subject to the annulment procedure and which, once issued, is valid. If it were decided at 10 a.m. to put a stop on a company, a meeting of the Privy Council could be arranged quickly and an Order in Council obtained. This would be just as speedy as the proposed direction, bearing in mind the undesirable constitutional point that a direction is not subject to the annulment procedure of the House and is, therefore, a power which should be used sparingly.

It seems a breach of the constitutional niceties for the Government to be able to specify in directions a number of companies, grouping them together. The Government must not put a description to them, although they can specify companies A to Z in the directions. However, if they refer to companies engaged in, say, the footwear industry, they must proceed by way of an Order in Council. There are exceptions and qualifications to the dividend policy, and it is not always just an arithmetical calculation.

If the hon. Gentleman is giving the assurance that a direction will be applied only in a case where a company breaks the arithmetical calculation—there are no other considerations and the company has not put up a case—that would make it a little better, but it would not get rid of our main objection that it is very undesirable to give a Government power to legislate by decree. The Labour Party, throughout its history, has objected to this, except, perhaps, for Sir Stafford Cripps, who was in favour of legislation for the whole of government by decree.

The Government could issue a decree, pick on a company and say that it had broken the dividends limitation. An Order, which would be the alternative procedure, would apply to a description of companies. The argument appears to be, why bother to put it in an Order? Just slam it on the footwear industry. For these reasons we think that the Government should accept this Amendment on good constitutional grounds.

Amendment negatived.

Mr. Ridley

I beg to move Amendment No. 56, in page 4, line 42, leave out 'declaring' and insert 'paying'.

This Amendment would have the effect of making the act which is illegal not the declaration of a dividend which is too great, but the paying of it. There are very good reasons why this should be done, although I concede at once that the point is not one of enormous significance.

First, I draw a comparison between increases in wages or pay and increases in dividends. The 1966 Prices and Incomes Act makes clear that the offence in relation to incomes is to implement the award. If one says, "I have made an agreement with my men to pay them 10 per cent. more", even though it may be a legally binding agreement, the implementation is an offence, not the declaration that one has made the agreement.

Later in the 1966 Act there is a reference to dividends, but it is in no sense such a rigorous control as is proposed for dividends where the operative part of the precise powers put into Section 12, the decision to recommend a dividend. It goes on to say: where the directors decide to recommend a dividend to be declared by the company in general meeting that decision, and not the declaration of the dividend in general meeting, shall be a decision for the purposes of this section. The question is: at what moment is the company committed and at what moment should the control be applied when a company is definitely contemplating a dividend increase which offends against the Treasury's whims, or arithmetic as the hon. Gentleman called it? Of course, this is a pure whim because for most companies, whether it is 3½ per cent. more or less is not a matter of arithmetic, but one of enormous commercial importance. To relate it to the arbitrary figure of 3½ per cent. is wrong.

4.15 a.m.

In Committee, the Under-Secretary argued that the correct moment for deciding whether a dividend was wrong should be the declaration. He said that there were three steps: the taking of the decision, declaration, and, finally, payment. He said that the most clear-cut of those three steps was the declaration. That is a change from the 1966 Act, which makes it clear that the decision, and not the declaration, was the offence. We therefore have a shift from the earlier legislation. We seek to make the distribution the culpable act.

By far the most precise act is the payment of the dividend. There are all sorts of companies—close companies, private companies or one-man companies—which may not make, or may not need to make, a declaration. I am no expert on company law, but clearly the most easily identifiable and concise act in all this is the payment of the money, just as was a wage increase the concise and obvious point in the whole process is when the money is paid in increased wages. It therefore seems to me to be essential that the discipline should be exercised at that point.

The Under-Secretary advanced the argument at an earlier stage that it would be wrong to allow a company to get into a situation that it was liable to the policy although it was legally bound to pay the higher dividend which it had declared. That is not a watertight argument, because any board of directors which got into that jam could justifiably be fined under the Bill—and good luck, too, because it would be stupid of a director to get himself into that position. Indeed, any director who gets himself into a position where he has committed fraud or any other offence is liable to be prosecuted. That is proper. The right remedy is for the shareholders to change the directors if that is how they behave. Therefore, the Under-Secretary's argument falls.

Why have the Government settled on control at the declaration stage? Why have we abandoned both the first Act's stage of decision-taking and the standard stage of payment in the whole of the incomes legislation? I can only assume that that is the point when the apparent control of dividends exercises the maximum impact on the public. The moment when the so-called furious worker waxes wrath at that announcement of a bumper dividend by a company is when it is declared. I suppose that the Government want to be able to assure people that all dividends which are declared are within the scope of the policy.

On later Amendments there will be ample opportunity to expose the nonsense that this all is, but is that the reason why the Under-Secretary has chosen the moment of declaration? This clearly has its difficulties. In some senses, it makes it easier to circumvent the control. The explanation must present reasons, because the time, if any, when a worker takes cognisance of an increased dividend is the moment of declaration. At that stage, the Government want to link the control policy to the declaration. Whatever it is, it is not a convincing reason. It would be far wiser to retain payment of the dividend as the determining factor.

Mr. John Smith (Cities of London and Westminster)

I do not enjoy speaking about any part of the Bill. I disapprove of it in toto. My party has said that it will repeal it. Therefore, one would imagine that 4.20 in the morning is a poor time to start speaking about it. Nor have I any wish to improve the Bill. I would much sooner that it remained bad and failed. However, in this case what is proposed will damage the economy as well as the Government's reputation. For that reason, I want to say a few words.

What the Government are after here is to prevent the payment of dividends above a certain amount. I can well understand that to link the control to declaration is much better public relations from the Government's point of view. They then shift the odium on to the company. They conceal from the public the amount of dividend which the company might have paid. There then does not appear to be any Government interference with individual decisions of companies. What is declared is paid.

There are two points here. It is unsafe to link this restriction to the declaration of dividends. As the Financial Secretary to the Treasury knows, there are many steps between the declaration of a dividend and its payment. Its pay- ment is a final visible act. Either it has taken place or not. It is not outside the bounds of possibility that ways will be found of paying dividends without declaring them.

The second point is that this policy of dividend restraint is bound to introduce a distortion into the capital market. It is bound to mean that companies which need money and which can make the best use of it are placed in no better position for raising it than companies which do not particularly need it and which cannot make the best use of it. If this policy is to continue—I understand that, as we shall hear on a subsequent Amendment, it conceivably could affect dividends for four or five years—it will affect the ability of the right companies to raise money. Unless what I shall suggest is introduced, cash will pile up in companies which cannot use it at all, let alone profitably, as happened after the last war, leading to the growth of takeover bids.

It would be much better to let companies indicate their prosperity and success, their growth, and their future, by declaring the dividend which they would wish to pay, and then limiting by orders the amount which they can pay. In that way the market would have an indication, during this gloomy period, of how companies were doing and it would be able to assess their prospects, and those companies which were doing well would, as we all desire, be able to raise money more cheaply than those which were not doing well.

For these two reasons, I think that it would be sensible to alter the amount on which the control is applied from the declaration of the dividend to the paying of the dividend.

Mr. Hattersley

The hon. Member for the Cities of London and Westminster (Mr. John Smith) made a point on which I cannot resist comment even at this hour. He said that perhaps the Government chose this point at which to exercise the restraint because it was the sensible one from the point of view of public relations. If it is right, as his hon. Friends told us constantly in Committee and may well repeat before this sitting is over, that the only object of a dividend restraint policy is to give some sort of encouragement to some of my hon. Friends below the Gangway and to people who will be subject to wage restraint, I can think of no better way of achieving that end than allowing companies to declare what their dividend might be and then insisting that it be reduced, thus drawing a distinction between what companies would like to do and what they are allowed to do by the Government.

In fact, our intention is much less sinister and more practical than that. We have chosen this point as the one at which restraint on dividends should fall for this reason. Declaration is the point at which a company creates a debt to its shareholders. It would be manifestly wrong were we to allow a company first to enter into a legal obligation by declaring a dividend, thus putting itself under a compulsion to pay, and then insert on top of that a second legal compulsion operating in the other direction. Hon. Gentlemen shake their heads, but I am assured that, once a declaration has been made, either for an interim dividend or for a final dividend, confirmed by the company meeting, the obligation exists.

Mr. J. Bruce-Gardyne (South Angus)rose —

Mr. Hattersley

I am assured only that hon. Gentlemen are wrong when they say that some companies can avoid declaration before payment of dividend. If a final payment were made without a declaration, it would be an illegal payment.

Mr. John Smith

It is clear both from his reply now and from what he said in the Standing Committee that the hon. Gentleman is somewhat confused on this question. The legal obligation starts at the annual general meeting. That meeting can reduce a dividend. Directors may declare a final dividend, they put it to the annual meeting, and the shareholders can reduce it. How, therefore, can a company incur a legal obligation when that obligation can be altered at a subsequent meeting?

Mr. Hattersley

The hon. Gentleman does not contradict my statement that the point of declaration and the legal obligation can come about in two ways. One comes when a recommendation from the board is confirmed by the general meeting as a final dividend. That is the point of declaration. The second comes when an interim dividend is declared; it does not need the confirmation of the company meeting, but it still becomes legally binding when declared. I do not think that there is any dispute between us. The declaration point arises in two different forms for two different forms of dividend, and on each occasion, once the declaration is made, it becomes a legal obligation on the company.

Mr. Emery

Let me pursue the question of declaration of an interim or final dividend a little further. If it is the first and not the final dividend, how will the Government act if it is very slightly above the line because, for one reason or another, the company wishes to pay all its dividend as an interim payment, with nothing at the end? That happens occasionally, though not often, I admit. If the interim dividend is larger than that which would be allowed if it were a total final dividend, how does the Clause apply? Is there any relevance to the control of the interim dividend?

Mr. Hattersley

Certainly, it is relevant. It is dangerous to talk in simple percentages on these occasions, but, for the sake of exposition, let us do so. If a company wanted to make a first interim dividend, and that dividend was 3½ per cent. greater than the previous year, it would have filled its entitlement for that year. If it wanted to make a first dividend which was 1 per cent. greater, a similar calculation would be made for a possible second and final dividend. Our policy is that it should be limited to 3½ per cent. over the previous year, and how that 3½ per cent. is divided between a variety of dividends is immaterial.

Mr. Bruce-Gardyne rose—

Mr. Hattersley

No; I must carry on with my argument. Throughout this afternoon and this evening, and all yesterday, I have been not ungenerous in giving way.

The two other advantages of applying the control at the point of declaration are, first, that that is the point when an effective decision is taken, and, second, it is when the decision becomes generally known. This is certainly so in the case of quoted companies. It becomes immediately and readily observable, because the rules of the Stock Exchange require (a) immediate publication when the board recommends a final dividend and (b) immediate notification of an interim dividend.

It is only right that at that point, when it is likely to become public, the restraint should fall, not least because we know that the market responds to the first public indication of what the dividend is likely to be. It would be manifestly wrong were the market to respond to a public indication later vitiated by State intervention. Therefore, I ask the House to confirm that as the point at which the restraint should be imposed, and that the position should remain as it is in the Bill.

4.30 a.m.

Sir J. Foster

If I understood the Minister correctly, he said that the board declared the interim dividend, that for the purposes of the Bill the final dividend was declared at the annual general meeting, and that, therefore, the Bill applied to the declaration there. He is wrong about that, because subsection (6) defines "declaration" as the decision. The decision comes before the annual meeting, and therefore the Act applies to the decision on a final dividend and not to its declaration at the meeting. In both cases it is the board's decision that counts.

We now come to the points of principle, with which it is difficult to deal at 4.30 in the morning. I think that I understood the hon. Gentleman correctly, and, if so, I agree with him, that if the interim dividend is not greater than the whole dividend of the previous year there is no harm in its being bigger than the interim of the previous year. If the total for the previous year was 10 per cent., divided into 4 and 6 per cent., there would be no objection to the company's announcing a 5 per cent. interim dividend.

Mr. Hattersley

indicated assent.

Sir J. Foster

Therefore, the only objection to an interim dividend would be if it were more than the total for the year before. One is not allowed to pay an increase of 3½ per cent. more without obtaining the Treasury's consent. That is where our argument is strong. If 3½ per cent. is usually accepted by the Treasury, subject to its being able to take another year for comparison, it would be a better practice, if a company is announcing a dividend of 3½ per cent. more than that of the previous year, to declare it and for the Treasury to intervene only if it is sought to pay it without Treasury consent.

In other words, the company should be free to declare a dividend of 3½ per cent. more. The Government are saying that it must obtain Treasury consent before declaring it, because the Clause says that it cannot pay a dividend greater than that paid in the previous year. Even if it is 3½ per cent. more it is forbidden, though that is the ordinary norm.

As the hon. Gentleman argued that this is a purely mathematical exercise, it would be more satisfactory and easier for the companies to be able to declare a dividend of up to 3½ per cent. without having to obtain the Treasury's consent. If the Treasury then wanted to take another year, because it thought that the year chosen for comparison—was not a typically characteristic year, to use the hon. Gentleman's words in Committee, it would say"No ". I do not think that his argument is convincing. A company which wants to pay even within 3½ per cent. more must go to the Treasury and say, "We want to pay 3½ per cent. more. May we do so?" If the Treasury says "Yes", we then go back to the board.

The company could get round it very simply in this way. It will declare whatever dividend it wants, subject to Treasury consent. That will not be a declaration of dividend. The company may say, "We are declaring a dividend of 20 per cent., having declared 15 per cent. last year, subject to Treasury consent". It can then put the Treasury on the spot and say, "It is 3½ per cent. for the following reasons", or it can declare a dividend 3½ per cent. more subject to Treasury consent. Perhaps we are fighting a shadow fight, because the way round it—[Interruption.] It may be a legal way round it.

It is not what the Government want, because the Treasury will have to say, "We do not agree even with 3½ per cent. because it is not a characteristic year". It will be easier from the share loan point of view, because the company will telephone the Stock Exchange and say, "We are declaring a dividend of X per cent. subject to Treasury consent". If it is done in the way that the Government want, it has to go to the Treasury first. It makes it very awkward for the decision at the board meeting. It must find out from the Treasury what it will allow and then come to a decision.

Mr. Hattersley

The hon. and learned Member for Northwich (Sir J. Foster) used the terrifying phrase "get round it". We are very sensitive about that phrase on any aspect of the prices and incomes policy. I should like him to confirm that when he uses it he does not mean to get round the policy, but the point at which the incidence applies. Getting round that is very special use of the language. If the company genuinely makes a declaration, then the policy applies. If it merely says, "We would make a declaration of X per cent. were it not for the Government", that is not the legally binding declaration to which I referred and does not produce the conflict in law which the Government seek to avoid.

I agree that there might well be times when it would be said, "This is what we would do were it not for the Treasury". I have no objection to that. Indeed, I can see very great advantage in it. I wish to ensure that people who read HANSARD do not think that the phrase "get round it", as used by the hon. and learned Gentleman, does not carry the implication which it usually carries.

Mr. Ridley

With leave, I wish to make a brief point.

What happens if a company goes to the annual general meeting and it is decided, not to frank, but to double the dividend approved by the Treasury and recommended by the directors? If 72,000 shareholders throw out the directors' recommendation and decide to double the dividend, the whole of this form of control is wrecked.

The Bill provides that the Treasury may … prohibit the companies from declaring …". But the company is not just a few directors; it is the shareholders. If the company takes this extreme and, I admit, rather, unlikely action, presumably each of the 72,000 shareholders would be liable for prosecution and fines of an unlimited amount. This shows the difficulty which a glib decision to control dividends can land one in if one took action of that sort at the annual general meeting. I may be wrong.

The Financial Secretary to the Treasury (Mr. Harold Lever)

The hon. Gentleman is wrong.

Mr. Ridley

If I am, I will admit it. If directors cannot be overruled in this sense, I would not press the point further but I am disappointed that the Government have not taken the point.

Mr. R. Carr

I hope that Ministers busy shaking their heads will answer the point just put by my hon. Friend. I attended an annual general meeting earlier today when the directors put a motion that a certain dividend should be paid. I am no expert in tax law, but I would have thought that it was in the hands of those present to vote it or not.

Mr. Hattersley

They could have accepted or vetoed it, but could not have done what the hon. Member for Ciren-cester and Tewkesbury (Mr. Ridley) sug-gets. It could not be doubled or increased. The problem does not arise, because such a decision would not be within the powers of the meeting.

Amendment negatived.

Mr. Rafton Founder (Belfast, South)

I beg to move Amendment No. 57, in page 4, line 43, after 'Treasury' insert: ' which will notify its decision within seven days of application'. This Amendment has arisen from a comment in Committee by the Undersecretary of State. In essence, it seeks merely to codify his statement of intention and hope. It is directly and solely motivated by the desire to express in unmistakeable terms the maximum period which may elapse between the company appealing to the Treasury for guidance on its dividend policy and its subsequent receipt of that advice.

One of the recurring aspects of the Bill is that so much is to be left to Departmental or Ministerial discretion. To legislate, as the Bill would, in broad discretionary terms is to legislate on the softest of shifting sands, and the result would inevitably be bad law. The most effective way of limiting discretion in this context and of letting companies know precisely where they stand would be to accept this Amendment.

I have a deep-rooted hostility to the granting of discretionary powers in legislation and my Amendment reflects a clear desire to inject some element of preciseness. While in no way supporting the basic principle of the Clause, we are seeking to remove at any rate that uncertainty so far as the timetable for a reply from the Treasury is concerned.

A frequent feature of the Order Paper in recent weeks has been Questions to the Treasury on the dividend practices of many companies and the Government's views thereon. Efforts to ascertain a clear dividend criterion have been of little avail, as instanced by the Chief Secretary's reply on 28th May. He said that it would be … a matter for consideration in the light of the full circumstances in each individual case"—[OFFICIAL REPORT, 23rd May, 1968; Vol. 765, c. 132.] If that is the clearest guidance on dividend criteria which can be gleaned, it is most important that a clear timetable should be established. At present, there is nothing in the Bill to stipulate the length of time which the Treasury may take to determine its decisions on companies seeking dividend guidance. Any company in doubt will turn to the Treasury for guidance and it is important that the official answer should be given as expeditiously as possible.

4.45 a.m.

For instance, what happens if a company is contemplating going to the capital market on a new issue? It would not wish to be delayed for an unspecified time after applying for a Treasury ruling before publicising its dividend position and policy. There is a strong probability that a great many companies, perhaps numbering thousands, will make applications for guidance. This will certainly be so, to judge from paragraph 56 of Cmnd. 3590, which states that all quoted companies are asked to notify the Treasury whenever an intended distribution would involve any increase above total declarations in respect of the preceding company accounts year. The flood of queries which will arise will not be evened out over the year as a whole. Many, perhaps the bulk, will come shortly after the end of the calendar year, when so many company account years end, but, likewise, there will be a number coming after March and September.

I draw attention to the Under-Secretary's words during the sixth sitting of the Standing Committee, when he said: How long do companies have to wait for an answer? The answer at the moment is 72 hours, three working days. We intend that that time span should be the time space for the entire policy. There may be exceptions … Our intention is that we should stick to the 72-hour rule as a service to industry, because I accept the implication that it would be intolerable were people kept waiting an appreciable time to hear the Government's view."—[OFFICIAL REPORT, Standing Committee F, 13th June, 1968; c. 831.] That is a clear and perfectly reasonable statement of intention.

In that case, why does the Amendment seek to insert seven days as the answer period instead of 72 hours, the time mentioned by the Under-Secretary? Quite simply it is because my hon. Friends seek to be reasonable, or, as we have doubled the period of 72 hours, we could be said to be doubly reasonable. Cynics may well say that it should not take the Treasury 72 hours or seven days to say no; that may be. But, to sum up, the principle underlying the Amendment is crystal clear. Companies are entitled to know where they stand and the maximum period which they should be required to wait in suspense before receiving an answer from the Treasury to any dividend application which they may have made. I hope that the Government will agree to this time scale being written into the Bill.

Mr. Speaker

I remind the House that with this Amendment we are taking Amendment No. 153, in page 5, line 2. at end insert: If the consent of the Treasury is delayed beyond a period of seven days a Company shall be entitled to exceed the time limits within which it must hold its Annual General Meeting as laid down by the Companies Act 1948 by the period of time exceeding the said seven days when consent (or otherwise) is given.

Mr. Hattersley

Grateful as I am to the hon. Gentleman for his conciliatory tone, I am unable to accept the Amendment. Certainly, it is our intention, as I said in Committee, that as often as possible, and most often it will be possible, information should be given to industry within a very short period. The hon. Gentleman will know that when, in Committee, I said that it was our intention to operate the 72-hour rule, I was accused by some hon. Members of undue haste which was said to prove my desire to discriminate in favour of industry and against trade unions. It is our intention to make sure that an answer is given as quickly as possible and with maximum despatch, because, I repeat, it would be intolerable for industry to be kept waiting for this information.

However, there will be cases when more detailed examination is necessary. I have already said that the arithmetical application of the 3½ per cent. rule will determine whether permission can be given but there will be times when rather more than that has to be done, most often because industry itself will have asked for some special consideration to be taken into account and when something more than the arithmetical principle should be applied. It would be wrong to promise that when that happened, the necessary examination could always be done within seven days.

I ask the House to accept that it is our intention to do this work as speedily as possible, but that there may be times when to make sure that an individual company is receiving the concessions and benefits which it should receive, within what the policy allows, and we may then need extra time to examine and justify the claims. The Amendment would impose far too arbitrary a limit on our proceedings.

Amendment negatived.

Mr. Ridley

I beg to move Amendment No. 59, in page 5, line 2, at end insert: (2) The Treasury, in making orders under this section, shall have regard to the considerations set out in Schedule (General Considerations Relating to Dividends) to this Act.

Mr. Speaker

With this Amendment we can discuss Amendments No. 53, in page 4, line 39, after ' section ' insert: ' and of Schedule (General considerations relating to dividends)'. and No. 103, the new Schedule:

GENERAL CONSIDERATIONS RELATING TO DIVIDENDS

Statement on Dividend Restraint by H.M. Treasury

1. The 3½ per cent. ceiling will apply to dividends. Companies will be required to limit any essential increase to not more than 3½ per cent. of the dividend for the preceding account year, and are asked to make no increase at all without good reason. No company how- ever will be required by the operation of this standard to distribute lower dividends than it did two years ago, or possibly earlier in some cases. Statutory powers will be sought to back up this ceiling and prevent breaches of the policy. This scheme for dividend restraint will be more fully described in the White Paper and in a Treasury announcement. It is intended that the scheme should apply to any recommendation for a quoted company's ordinary dividend made after 19th March 1968. In the case of such dividends companies are asked to notify the Treasury in good time before they commit themselves wherever their intentions would be to increase dividends above the total for the last company year.

2. The following supplementary guidance is given to assist companies in observing the Chancellor's request.

Companies affected

3. This appeal for dividend restraint is addressed to all companies incorporated in the United Kingdom, with the following exceptions—

1. (i) unit trusts and investment trusts;
2. (ii) those close companies which increase distributions to meet the requirements of the Finance Act 1965;
3. (iii) companies wholly in the beneficial ownership of other companies where ordinary dividend payments are exclusively intercompany transactions.

Dividends affected

4. All distributions in respect of paid-up ordinary share capital which are recommended after today will be covered by this scheme.

Limits on dividend increases

5. Total ordinary dividends in respect of a company account year should be limited to—

1. (i) not more than 3½ per cent. above the amount of ordinary dividends declared in respect of the preceding account year; or
2. (ii) not more than the amount in respect of the account year before that; or
3. (iii) where dividends in each of the last two account years were abnormally low, and subject to examination and approval by the Treasury, not more than the amount in respect of an earlier account year.

Calculation of dividends

6. The maximum amount of distributions for this purpose should be adjusted pro rata to take account of any differences in the length of company account years; increases in share capital reflecting new cash subscribed or the value of other real considerations received; and repayments of share capital.

Bonus issues

7. Scrip issues and stock options are a source of misunderstanding to many people, and their issue during the next crucial phase of incomes policy could become an impediment to full co-operation in the policy. The Government ask companies to defer any such proposals for the time being. If however entirely new scrip issues and stock options are introduced, heir value will have to be counted as though it were an ordinary dividend distribution for the purposes of this scheme of restraint.

Notification of dividend increases

8. The Chancellor's appeal for restraint is addressed to all companies, and in order to achieve its objectives the Treasury will need to have prior notification of dividend proposals in the main company sector. All quoted companies are therefore requested to notify the Treasury whenever an intended distribution would involve any increase at all above the total of the preceding account year. And companies are further requested not to take irrevocable action upon such intentions without the Treasury's consent.

9. If in the company's view there are likely to be imperative reasons for exceptional consideration, such as remitting higher dividends from abroad in the interests of the balance of payments, the Treasury should be informed in good time for effective consultations to take place before dividends are recommended.

Notification and consent

10. Company representatives are encouraged to consult the Treasury in advance of the Board meeting at which dividend recommendations would be agreed for immediate publication. This could be particularly valuable where companies may experience difficulties or seek exceptional consideration. Exchanges can take place in confidence, and on a hypothetical basis, without conflicting with the responsibilities of Boards of Directors. The Treasury will however in most cases be able to regard such consultations as notification for purposes of the dividend restraint scheme, and to give fully effective clearance to proposals in advance of public announcements.

11. If companies prefer to notify the Treasry of proposals after the relevant Board decision, published recommendations of increased distributions will have to be regarded as open to amendment until Treasury consent has been obtained. Treasury clearance should normally be obtainable within a matter of days.

Moreover it can be assumed that consent would not be withheld in respect of any recommendation which complied with published Treasury guidance.

In either event, increased dividends should not be declared at company meetings unless specific Treasury consent has been given.

Interim dividends may often not call for notification, since they would rarely bring distributions for a year above the total amount declared for the previous year. But where an intended interim declaration would do so, the intention must be notified and Treasury consent obtained before any irrevocable action is taken by a Board of Directors.

Prospectus commitments

Some companies entered into commitments before Budget Day by giving firm dividend proposals in prospectuses or comparable formal documents, for example in connection with capital issues, new company flotations and takeover and merger arrangements.

Where such commitments had been entered into before 19th March companies may pay dividends in line with, but not exceeding, those set ut in the relevant document. At or before the time of recommending a dividend based on a prior commitment, companies should notify the Treasury, sending a copy of the prospectus or comparable document, in order to minimise misunderstanding.

Companies wishing to enter into commitments after 19th March should confine public dividend proposals within the limits set out in published Treasury guidance, or should consult the Treasury in good time if they consider that there might be exceptional circumstances.

Mr. Ridley

As the Amendment is mainly a paving amendment for the new Schedule I will address my remarks mainly to the Schedule. We come to the crassly stupid part of this policy, the desire to impose control on dividends at all. On this side, we utterly reject the idea that this should be done. The sentiments in the Treasury's guidance are utter anathema to us. Nevertheless, it is essential, if this extraordinary control is to be brought into legislative effect, that the persons affected should know what they are supposed to do and what crimes they might commit, and should have a vague idea of the rules of the game which are to be operated against them from now.

This is no less than the right hon. Member for Belper (Mr. George Brown) tried to do when he wrote his White Paper on prices and incomes into the 1966 Bill as a Schedule. The precedent which he set then may well cost the Government dear in paper when more Schedules are put down to Bills of a heterogenous nature going through this House. At this point, I wish to pay tribute to my hon. Friend the Member for Honiton (Mr. Emery) for the "Emery Schedule" which appears on the Notice Paper, but is not selected. It breaks new ground in Parliament.

The proposed Schedule contains guidance and criteria for those who have a problem with their dividends on which the Treasury will decide. We hate the power that the Treasury is given to make decisions at all about dividends, but if it is to have that power we should at least explore the powers and criteria of this Schedule. It writes into the Bill what the Government believe are their own intentions. The Schedule is as clear as mud. It says that companies will be required to limit any essential increase. What is an essential increase? It says that all companies are asked not to increase dividends "without good reason", but what is good reason? It says that companies should notify the Treasury "in good time". All these are vague expressions, and do not enable any company to know whether it is doing the right thing or not. It would be a service if the Schedule could be amended to bring it up to date on this point of difficulty.

Paragraph 7, on bonus issues, says that under the voluntary system of control which is the appointed instrument of cooperation between industry and the Government. It is said that the Government and industry are hand in hand in their desire to work this splendid new policy. We have been told that scrip issues and stock options are a source of misunderstanding to many people and could become an impediment to full co-operation in the policy. The Government ask companies to defer any such proposal for the time being says the proposed Schedule. Some companies were actually stupid enough to do that. The Financial Secretary knows full well that scrip issue or stock option has nothing to do with increases in distribution. No money changes hands. It is a pure piece of window dressing to put this in. It was insufferable to put it in. But then to use this voluntary control to stop stock options and scrip issues and for the Bill, when published, to contain no powers to control them, is the height of muddle-dee-dee and ridiculous nonsense.

I asked the Chancellor a Question about this matter. The right hon. Gentleman said that the stock option and scrip issue control had lapsed and was not necessary. So companies are being put to all this trouble without any legislation, authority or power by the Treasury mandarins, led by the Chancellor, stopping all scrip issues, "going to town" over the matter, and upsetting the balance of the market for a short time and then not even perpetuating the power in legislation.

What is the economic justification for this policy? All economic policy needs justifying and the control of dividends, as set out in the Schedule, is a new major economic departure. The effect, so far as it is successful in stopping dividends rising, will be to inflate the values of companies and send up their equity quotations on the Stock Exchange. [HON. MEMBERS: "NO."] One effect of the policy could be that companies keep much more money within them and become more valuable.

As has been pointed out by my hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith), this accretion of cash in companies which do not need it and which are not intending to invest it will have the effect of making them more vulnerable to take over, and, what is more, wasting resources by storing up this surplus cash which should be put to better use by investment. In many instances it will have the effect of pushing up share prices, whatever my hon. Friends say.

Is this what the Government want? Is the point of this Schedule, this dividend control, to increase stock market values? Will this encourage the workers to tighten their belts? Is this the means by which the lower-paid workers, whom we discussed earlier, are to be encouraged to accept further sacrifice, seeing Stock Exchange values go up? This is the policy upon which the Government have embarked. The price is very high. The effect of all this nonsense, if applied rigorously and over a period, will be to wreck the capital market, which is one of the great assets of the country.

Mr. Harold Lever

As I am to reply, and as it is rather late in the morning, I would be greatly helped if the hon. Gentleman could tell me whether he is arguing against his Amendment or in favour of it, because the Amendment embodies in statutory form Treasury guidance which has been issued. Since the hon. Gentleman's Amendment has the effect of embodying in statutory form Treasury guidance, how can he possibly say that he is arguing in favour of his Amendment when he suggests that this guidance should not be given, still less in statutory form, and should not be implemented?

Mr. Ridley

I welcome the Financial Secretary to our debate. The hon. Gentleman is a latecomer, but he is very welcome, because his great knowledge of the stock market and dividends will be of benefit to the House.

Mr. Emery

Successful application in the stock market.

Mr. Ridley

Yes. I am against control of dividends. If there is to be control of dividends I am in favour of there being guidance on how that control may be exercised and what the criteria are to be.

Having tentatively put forward some criteria, I am emboldened to make a few remarks about the criteria in the Schedule to illustrate some respects in which they might be slightly improved. If I had the perspicacity and energy of my hon. Friend the Member for Honiton (Mr. Emery) I would have written my own criteria, but I have been extremely busy. I apologise to the Financial Secretary that the Amendment to the Schedule which I have put down is not so perfect in its phraseology as the one that my hon. Friend has achieved on prices and incomes. That is my error, but I hope I have made my position clear and that the Financial Secretary sees no further inconsistency in what I am saying.

5.0 a.m.

We have this extraordinary dividend control which is brought in in the name of social justice or fairness, but for which there is no economic reason. There is no economic justification for the Treasury's guidance. The Treasury simply says, "It is to be done". Over and over again we have been told that the justification for this is that it will encourage workers to accept a clobbering of their wages. If that is social justice, perhaps I might remind the House of some of the events which followed similar controls.

In 1965, we were told that the imposition of Capital Gains Tax would induce the workers to accept wage restraint, but there was a record increase in wages in that year. They went up by 8.4 per cent., and they went up by the same amount again in 1966. The increases may have been justified, but they were not moderated by the existence of Capital Gains Tax, and these massive increases in taxation have not had that effect either. It is difficult to see how the application of the Schedule and the control of dividends will have the effect of encouraging workers voluntarily to do with less than they might otherwise get.

The disadvantages are enormous, and the drawbacks far greater than hon. Gentlemen seem to realise. This policy will have the effect of wrecking the British capital market if it is applied rigorously and for a long time. It will have the effect of making much misinvestment, and much mal-distribution of capital resources. It will have the effect of wrecking the balance between supply and demand for capital in the private sector.

That is what the Financial Secretary's brainchild is going to achieve. It is a sorry day when, as a sort of placebo, we see ridiculous policies of this sort, not properly thought out, not properly legislated, and not enforceable. This is the climax of social folly. I hope that the Schedule is accepted, in which case we shall have many Amendments to make to it, even if that has to be done in another place.

Mr. Emery

At this late—or early— hour I shall attempt to be fairly brief, which is not always my wont when we are kept up so late.

I, too, welcome the Financial Secretary to our discussion. He knows quite a lot about prices and incomes policies, having been in the Chair in Committee on another Prices and Incomes Bill. The only thing that I can say to the hon. Gentleman is that since he was in the Chair the rules have been changed so that we are now able to debate certain matters which it was not possible to debate before. If the hon. Gentleman studies the Schedule and the Amendment he will realise that they enable us to discuss certain matters which we would have been precluded from discussing had my hon. Friend the Member for Ciren-cester and Tewkesbury (Mr. Ridley) not had the perspicacity to table this Schedule.

The Schedule represents what was operative at one time, albeit without any legal power of enforcement. When my hon. Friend was talking about scrip issue he used the word "muddle-dee-dee". I thought that he was being much too kind. I thought that it was pure arrogance in the manner of government by edict being followed by some juniors of the master of this—the Prime Minister himself, a decision without any power, a decision which could have had major effects on some companies. But, of course, to the Treasury this is not of any major concern.

I want to know this. If we have criteria for prices and incomes, why should we not have criteria for dividends put into the Bill as a Schedule? While I do not agree with all the aspects of the new Schedule, that is not the point. The point is that we should try to ensure that the Government accept some criteria. If they do not, what guarantee have we that at some other point of time the Government will not do exactly what it has done before and decide that scrip issues shall again by directive be taken into calculation within dividend?

Mr. Bmce-Gardyne

On this point, I think that it is worth bearing in mind that Sir Halford Reddish, of Rugby Portland Cement, had the temerity to disregard the Government's order by paying an extra interim dividend in conjunction with his final dividend of the previous year, and the Chief Secretary said"Well, if the company is to behave like this we shall have to consider what we shall do about it". They are still considering it, and considering rules they have not yet laid down.

Mr. Emery

I thank my hon. Friend, because this is exemplary of the point I am trying to make. The whole basis of my speech is that what we are trying to do is to stop government by edict by asking that the criteria be spelt out. There is no way we can stop that unless we have some criteria laid down.

I congratulate Sir Halford Reddish for saying, "Damn Governments—if they have not laid down rules then I shall go my own way." I wish that there were more industrialists who would take the same line, because it is the only way to expose the double-dealing.

I leave the Under-Secretary out of that description. It is the general double-dealing of the Government, not his individual position, to which I am referring. I am sure he understands that I meant no reference to him. But it is a double-dealing aspect of the policy of the Government.

I regret that we should be discussing this matter at this late hour, and that we cannot get more publicity for it, because it is absolutely wrong that on any aspect of the Bill, particularly concerning dividends and companies, the manner in which the Government will be able to behave if there are no criteria is entirely in their own choosing and that this House at no time will be able to do anything about it except by exchanges across the Floor at Question Time, which is inadequate.

If the Government would only say, "Fair enough—we do not want to behave in the manner you are suggesting. We accept that there ought to be some guidelines, that these guidelines ought to have legislative force, and though we do not like the new Schedule we accept that we should put in guidelines in another place." If that was so, I am certain that my hon. Friend would be willing to withdraw his Schedule. This would be the best line the Government could take so as to appear reasonable to anyone in the City or in law or company management.

Mr. John Smith

The Clause needs a Schedule. It is extremely vague and needs amplifying. I have no wish to improve this part of the Bill; in my opinion this form of dividend restraint will waste resources and money will be needlessly retained within companies, thus producing the opposite of productivity. A profit increase in a company is more often than not the sign of an increase in productivity.

Further, the effect abroad of limiting dividend increases to 3½ per cent—which is an important aspect for consideration —would be far outweighed by the promises we have been given today about equal pay for women, which will cost the economy far more than any dividend retained by companies under the Clause. I hope that that is another promise which will evolve before the gnomes of Zurich react.

Mr. Emery

I wonder whether the Treasury approved that.

Mr. Smith

It will have to be evolved before the Chancellor hears about it. The Clause without a Schedule allows the Treasury to prohibit the payment of dividends. at a rate greater than that paid for the preceding financial year. That is a far from effective phrase. The Clause then defines an increase in rate as an increase in the amount of ordinary dividend. The words "rate" and "amount" have two entirely different meanings.

Mr. Ridley

Does my hon. Friend remember that the Under-Secretary argued the difference between wage rates. and earnings; here is an even more glaring difference.

Mr. Smith

Yes; rates and amounts are quite different things. There is no allowance for a number of things which must be allowed for—such as conversion of convertible loan stocks, or rights issues. Rights issues are not covered sufficiently even in the Schedule—which is a copy of the Treasury guidance. The Clause does not allow for specified increases; it either permits an increase or allows no increase.

It has been said that the White Paper on this subject is a Schedule to the original Act. The White Paper does not deal in detail with dividend restraint. If the White Paper is a Schedule to the parent Act why cannot the Treasury guidance be a Schedule? Why cannot we have an "Emery Schedule", setting out the criteria as a whole? I do not suggest that the Treasury guidance should be incorporated un-amended as a Schedule because, like the Clause, it contains extraordinary impre-cisions—extraordinary for the Treasury, at any rate. The part dealing with bonus issues will do as well as any other as an example.

I had hoped that the Financial Secretary, instead of subscribing to a lot of claptrap about bonus issues would do his best to introduce shares of no par value. In any case, if a company is not permitted to make bonus issues it makes no odds to the company; it can subdivide its shares. But if we are to have paragraphs of this sort they should be precisely worded. It is not the responsibility of the Financial Secretary to explain the Schedule, since it is ours—

Mr. Emery

But their words.

Mr. Smith

The Schedule says: If, however, entirely new scrip issues and stock options are introduced … ". What does the phrase "entirely new" mean, and what does "introduced" mean? The normal meaning of the introduction of shares is the introduction of shares already issued on the Stock Exchange, and this does not mean that. Later the Schedule grasps the nettle which the Under-Secretary grasped, but instead of talking about declarations of dividend, it refers, correctly in this case, to recommendations of dividend to the annual general meeting. One of the good results of adopting this Treasury statement would mean that it would have to be redrafted in more precise terms.

5.15 a.m.

Mr. Bruce-Gardyne

I commend the industry of my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) and join my hon. Friends in supporting the Amendment. If we are to play monkey in the way the Government suggest, we must know the rules of the game. In so far as the Schedule is designed to say what the Treasury considers to be the rules, it serves a useful purpose. It also enables us to examine, though briefly at this hour, the philosophy of dividend restraint which the Government are trying to apply.

Mr. Harold Lever

On a point of order. Are we entitled, in discussing this Amendment, to have a general discussion of the philosophy of dividend restraint?

Sir J. Foster

Further to that point of order. Is not the philosophy contained in the Schedule?

Mr. Deputy Speaker (Mr. Sydney Irving)

The best advice I can give to hon. Members is that their remarks must relate to the Schedule.

Mr. Bruce-Gardyne

I accept the logic of the argument that if one intends to throw trade unionists in prison because they refuse to play one's silly game, one must apply the same rules to companies in their dividend distribution. I do not accept the logic of the position because I do not accept the basis of the Bill. My criticism of dividend restraint in this context is that because the logic requires one to include restraint on dividends in the overall policy to make it seem to be fair, one's objection to dividend restraint reinforces one's other objections to the Bill. The economic objections to dividend restraint have been pointed out—

Mr. Deputy Speaker

Order. The hon. Member is getting into a wide discussion of the matter. The purpose of the Schedule is to spell out the policy. The hon. Member must, therefore, relate his remarks to the Schedule, which he is not doing at the moment.

Mr. Bruce-Gardyne

I was seeking to consider the philosophy which presumably lies behind the Schedule, in view of its origins in the mind of the Treasury.

Mr. Harold Lever

On a point of order. The Amendment seeks to fetter the powers of the Minister in a particular way, by incorporating the Schedule. Although we can discuss whether the Minister should be fettered in this way, would you agree, Mr. Deputy Speaker, that we cannot begin a Second Reading debate on all the powers contained in the Bill?

Mr. Emery

Further to that point of order. The Schedule sets out a number of specific aspects. It sets out the manner in which the dividend restraint affects companies, it sets out how the limitation shall be carried out, how the bonus issues shall be carried out and how the notification shall be carried out. This is what the Schedule is about. I submit that so long as any discussion refers to any of those items it must refer to the Schedule.

Mr. Lever

Further to that point of order. The question we are considering, surely, is whether the Minister's power for exercising dividend restraint should be limited in the way suggested in the Schedule. It is only on that point that we are able to discuss—[HON. MEMBERS: "No."] Hon. Members would do better and would have your Ruling, Mr. Deputy Speaker, if they allowed me to finish my sentence. The Amendment proposes that the Government's powers should be restricted in a particular manner in the Schedule. That, surely, is the only question we are allowed to discuss.

Mr. Bruce-Gardyne

Further to that point of order—

Mr. Deputy Speaker

Will the hon. Member allow me to deal with the point of order as it has been made so far? Both hon. Members are perfectly correct. The question is whether the hon. Member who has the Floor is in order. He should not spell it out in detail; that is the purpose of the Amendment.

Mr. 'Bruce-Gardyne

I do not want to pursue that point further.

Mr. Ridley

Further to that point of order. We are discussing with Amendment Mo. 59, Amendments Nos. 52 and 103. If the Question were put on the Schedule, it would be, That the new Schedule be added to the Bill. On that Question surely it is in order to discuss the principle and all matters relating to the Schedule as well as the detail. I submit that there can be no bounds of order in discussing the matters contained in the Schedule.

Mr. S. C. Silkin (Dulwich)

Further to that point of order—

Mr. Deputy Speaker

Order. We can discuss only points in the Schedule and I hope that hon. Members will not pursue these points of order indefinitely.

Mr. Bruce-Gardyne

I do not want to hold up the progress of our discussions. I leave the point I was making.

Philosophical objections to dividend restraint as such have been expressed by my hon. Friends and I go along with them entirely. I want to consider in brief detail one or two aspects of the wording of the Schedule. On an earlier Amendment the Under-Secretary told us that the great thing about dividend restraint was that it was a purely arithmetical calculation. I have been pursuing this matter with a certain amount of care in recent weeks and I find it far from a purely arithmetical calculation. The second line of the Schedule says: Companies will be required to limit any essential increase to not more than 3½ per cent. of the dividend for the preceding account year. That depends, because, first, one might get what at my small son's school is called a gold star for good performance.

The Chief Secretary told me on one occasion that if a company had a large income abroad and sought to repatriate that income, the maximisation of repatriation was more important than the 3½ per cent. limit and, therefore, the 3½ per cent. limit would be by-passed.

Another example is where the Treasury simply gets its sums wrong, as it did in the case of, I think, Airborne Industries, when it apparently slipped—

Mr. Lever

On a point of order. What can the question of the Treasury's tendency or lack of tendency to get its sums wrong have to do with the question of whether the Treasury's powers should be restricted by incorporating the proposals in the Schedule? Is it in order to pursue that, Mr. Deputy Speaker?

Mr. Deputy Speaker

The hon. Gentleman must allow me to listen to the debate and intervene when necessary.

Mr. Bruce-Gardyne

The Financial Secretary cannot have appreciated that we are discussing not only Amendment No. 59, but Amendments Nos. 53 and 103. I am devoting my remarks to the latter. The hon. Gentleman cannot have realised that we are taking the three Amendments together.

Mr. Ridley

He is not taking it seriously.

Mr. Deputy Speaker

Order. I hope that the hon. Member will proceed with his speech.

Mr. Bruce-Gardyne

Yes, Mr. Deputy Speaker. I certainly will.

Line 7 states that dividends have to be related to the payment of the previous year or, possibly, earlier in some cases. I have been utterly unable to find from the Treasury how far back it goes. In one case it has gone back three years, but at no time is the Treasury prepared to say how far back it goes. This is another point on which we want further enlightenment.

Line 19 of the new Schedule refers to the United Kingdom. This is a sign of modesty, and a highly significant one. The great queen, unlike some other members of the Government, seems to recognise that her writ does not extend to Rhodesia at least. The possible consequences of this are interesting.

Only on Tuesday, the Chancellor complained about the large increase in portfolio investment in Australasia. Some of us suggested that there might be good reasons for that increase. The Bill, and the point made in the new Schedule that dividend restraint is limited to the United Kingdom, may have a significant part to play in the troubles which the Chancellor is having with the big upsurge in portfolio investment in other parts of the sterling area.

In paragraph 6, the new Schedule deals with the calculation of dividends and states that The maximum amount of distribution … should be adjusted pro rata to take account of any differences in the length of company account years ". I have discovered that that is not by any means the only way in which the maxi- mum amount of dividends has to be adjusted. There is also the question of capital issues which has been brought out in the case of certain companies which have been allowed to exceed the 3½ per cent. ceiling. I think, in particular, of the case of Burmah Oil.

5.30 a.m.

The plum is undoubtedly paragraph 7, which refers to bonus issues. This should be locked up in a box and put in the foundations of some building as a memorial to the Government. As my hon. Friend the Member for Cirencester and Tewkesbury said, the Government have announced that this ludicrous attempt to control scrip issues, but not share splits, has been abandoned, but what happens to companies which were denied the opportunity to make scrip issues when they wished to during the period when this form of control was being applied?

Paragraphs 10 and 11 deal with notification and consent. We have this glorious vision of long nights of tea and buns in the Treasury while the nation's fate hangs in the balance and the Treasury tries to chop £600 off the total distribution of Grattan Warehouses, or even £87 off the total distribution of Crosby Spring Interiors; eventually in the early hours of the morning—at about this time of the morning, I suppose—the consultations are completed, the reduction is made, and the nation and the gnomes breathe again. What a pity it is that the same amount of attention as is paid to the total distribution of Grattan Warehouses is not paid to some other economic commitments that concerns us.

Finally, there is the question of prospectus commitments. Here the most obvious example of contradiction is the case we have already discussed on the Floor of the House concerning Lex Garages. The Government sought to make some bogus distinction between what they liked to call near contractual obligations and other undertakings. It has been made absolutely clear to the Government that this distinction cannot stand up. Such anomalies are bound to arise when an attempt is made to apply the vague and almost meaningless rules which the Treasury has attempted to apply in this instance.

Little as one can admire the Schedule, at least it is to be preferred to a billet-doux from the Financial Secretary to the Business News section of The Times, which is the only public guidance that we have had on how dividend restraint is supposed to work out. Therefore, little as I admire the Schedule—I certainly exonerate my hon. Friend the Member for Cirencester and Tewkesbury from any responsibility for its drafting— at least it is better than nothing and gives companies some idea of the rules which they are expected to observe in this ridiculous game the Government want them to play.

Sir J. Foster

I know that the Financial Secretary has not been attending very closely, but I want to ask him to follow some of the Clause and the Schedule. The passage in the Schedule dealing with limits on dividend increases is necessary to control the Clause, otherwise there is a breach of faith on the part of the Government. We know that the real position is that the Schedule represents the Government's views. I agree that it is our Amendment as a matter of procedure and that it might, therefore, be suggested that I should ask my hon. Friends what it means. It is not a question of what it means. It is a question of looking at the real position.

The Schedule is a statement by the Treasury. The limits on dividend increase set out in the Schedule are those which should apply rather than the wider limits which are inherent in the Clause. There are three criteria for dividend increases set out in the new Schedule: not more than 3½ per cent. above the dividend in the previous year, not more than 3½ per cent½ above the previous account year, or, if the two years were abnormally low, not more than in an earlier account year.

Under the Bill as it stands, the Treasury is allowed to choose any year, not just the two account years. That is a breach of faith, because the directions given by the Treasury are limited to the two years. It was said in Committee that, if the Treasury considers two account years not characteristic, it make take any year. The Government ought not to have power to act contrary to the criteria. That is the point.

There can be no object in allowing the Treasury to go to any previous year, not just the two preceding account years, save to restrict a company from paying a dividend within the 3½ per cent. If a company wants to pay a dividend within the 3½ per cent., it may make representations and seek the Treasury's consent. Only if the Treasury wants to prevent the payment of a legitimate dividend will the Clause have any purpose. The purpose is to deprive the company of the 3½ per cent.

After a statement of criteria by the Treasury, it is wrong to provide that the Government may go to any account year, not just the two previous account years. This is the reason for our proposal. The criteria in the new Schedule would shame the Government, one imagines, if they attempted to take another account year. The Under-Secretary assured us that they would pay attention to and be guided by the criteria. If they are guided to limit themselves to the two previous account years, then at least morally, and perhaps legally, they must not go to another account year.

Mr. Harold Lever

Hon. Gentlemen are entitled to rove as widely as the Chair, quite rightly, permits, and to probe the Government's intentions. But I do not have to roam as widely as the hon. Gentleman or to answer questions about the details of the Schedule, because I shall recommend the House to reject the Amendment on the ground that the whole concept of the Schedule is unsuitable. Were its merits never so great, and its prose style never so attractive, I should still urge as a vital objection to its inclusion that it is nothing more or less than an attempt to give statutory form to the Press statements of the Treasury.

Much as I value them and hope that the business community value them, they are not intended to be given statutory form. They are not suited to that. I readily accept all the arguments on this point from hon. Members opposite, including my own Member, the hon. Member for Cities of London and Westminster (Mr. John Smith), who made it clear that it would be almost impossible to interpret in a statutory manner what was never intended for incorporation in a statute.

Therefore, we need not trouble to examine whether these Press statements set out wise principles. It is enough to say that we feel that they are sensible guidance. The only difference between me and hon. Members opposite is that I want these Press statements to act as guidance in the form in which they were intended to be given, as informal, non-statutory guidance to companies, and they want them to be statutory guidance obligatory on the Government.

I object to this. In spite of the encyclopaedic erudition about dividends, scrip issues and the like, the only issue between those who support the Amendment and me is that although we both want the guidance to be effective I want it to be effective in the form in which it was issued—the Press guidance form— and they want it to be statutory.

Mr. Emery

How, then, do we stop the hon. Gentleman from altering the guidance and the rules at any time he wishes? Is that the power he wants?

Mr. Lever

Certainly. The only point of difference is that the hon. Gentleman wants to freeze in statutory form what were intended as Press statements. One objection to that is that they were not drafted in proper language for a statute, but in the informal language most convenient for clearing up these matters in a Press statement. Second, we want to make the policy flexible and helpful to industry. [HON. MEMBERS: "HOW?"] On scrip issues, for example.

Hon. Gentlemen opposite, far from complimenting us on our flexibility, seemed to try to score what I thought were meritricious party points simply because the Government were responsive to the needs of industry. I can see that from their political point of view it is undesirable that the Government should be flexible and understanding of industry's needs. Perhaps that is why they seek to pin down the Government in this rigid way, and would not allow them the helpful flexibility already in evidence and recognised by the City in the operation of the policy.

They oppose a dividend restraint policy and say that they think that it will be a great disaster, but they tell us how to operate it rigidly rather than flexibly. I hope that they will forgive the Government for not thinking that it is immediately obvious that those who hate the dividend restraint policy—who, indeed, seem opposed to any policy of restraint on dividends or any other incomes— are hardly qualified to guide us, however well intentioned they are, in the successful operation of dividend policy.

The narrow point between us is whether we should incorporate it in rigid statutory form or leave it in flexible Press guidance form. I prefer the latter course, and advise the House to reject the Amendment. I am sure that hon. Members opposite are acting with the best motives in the world and do not seek to wreck the policy, but want to help us and want the policy to be a great success even though they do not like it. However, I must reject the Amendment.

5.45 a.m.

Mr. Tom Boardman

One of the differences between the two sides of the House probably concerns our interpretation of "flexible". As defined by the Financial Secretary, it means confusing, uncertain and baffling. As one who has on occasion to advise on these matters, I can tell the hon. Gentleman of the enormous amount of confusion and unnecessary work and concern caused by putting out something, then chopping and changing it, and putting it in a vague way so that one can back the horse either way. This sort of thing makes things extremely difficult for those in industry. The Financial Secretary wondered why we did not praise him for withdrawing the business about scrip issues. To make the announcement about scrip issues was such absolute nonsense that surely he does not expect us to praise him when he withdraws it.

I wish to raise three points on the new Schedule. First, the "flexible" Press statement referred to the exclusion of unit trusts from the dividends scheme. The Bill makes no reference to the exclusion of unit trusts. The Schedule does exclude unit trusts. The Press statement also referred to investment trusts, close companies and subsidiary companies. The Bill excludes investment trusts. There is a later Amendment concerning close companies. Why is there no reference in the Bill to the exclusion of unit trusts and wholly-owned subsidiary companies?

In Committee, I believe that the Minister gave an undertaking that authorised unit trusts, as defined under the Prevention of Fraud (Investments) Act, 1958, would not be subject to any limitation on the distribution of income. Would the Financial Secretary confirm that? Secondly, will he confirm that there will be no necessity to apply for consent to the distribution of the income of a wholly-owned subsidiary company to its parent company? Surely there can be no argument against excluding from the requirement to get consent the distribution of wholly-owned subsidiary companies which were excluded in the Press statement.

Thirdly, the Schedule makes only vague reference to a major omission from the Bill, the lack of provision for making a greater distribution when share capital is increased by share issue, rights issue or conversion. The question of whether dividend can be raised in this context is to be left to the discretion of the Minister. The City of London cannot operate in such an atmosphere of uncertainty as to whether, when a company wishes to raise new capital, it can do so only with the right hon. Lady's consent and as to whether she will or will not agree to a greater distribution. In the interest of commercial certainty and to get away from inflexibility and confusion, the criteria should be spelt out.

Mr. R. Carr

We have come to expect humour and courtesy from the Financial Secretary, but he was not running true to form—indeed, was unusually snappetty —when trying to persuade you, Mr. Speaker, to limit the scope of the debate. He has not had to take part much in our debates on the Bill—certainly not as much as other hon. Members opposite or we.

On so many occasions on the Bill we have exposed the fact that the Government either cannot draft their intentions or are trying to draft the undraftable. Now we have another instance where they have rushed in with a new form of control without having thought out fully in advance the sort of rules companies are expected to conform to, let alone the rules themselves.

We still do not know where we are. For example, the Under-Secretary made no attempt to answer the point made by my hon. and learned Friend the Member for Northwich (Sir J. Foster), who pointed out that the Press statement by the Treasury referred to two previous years whereas the Bill, in Clause 6(4)(b), gives it power to take any previous year. Here is a conflict. It underlines the basic need for the Amendment, which would write in proper and firm rules which companies could see as the law by which they are supposed to abide. We believe that this a wrong attempt, but if the Government insist on making it they should try to do so justly and to give some certainty to companies throughout the country.

The Financial Secretary recommended the rejection of the Amendment because he thought that the whole concept was wrong. I thought for a moment that he was about to argue that it was wrong in concept that there should be the sort of certainty which we have normally come to expect in the law, but he did not go as deep as that; he merely said that he thought that the concept was wrong. He said that the Treasury Press statement was loosely and flexibly worded and not suitable for statutory form.

But neither are the other criteria in the famous White Paper, Cmnd. 3590, and yet that White Paper has been imported by the Government into the Prices and Incomes (General Considerations) Order of which paragraph 1(2) says, in specific words: The Interpretation Act 1889(d) shall apply for the interpretation of this Order as it applies for the interpretation of an Act of Parliament and as if for the purposes of Section 38 of that Act this Order were an Act of Parliament. This slickety slackety wording, which the Financial Secretary says is not suitable for statutory form, is suitable when it suits the Government.

Mr. Harold Lever

The quality of the drafting of the White Paper is a matter of opinion, but it was drafted with the intention that it would be incorporated into the Statute. The Press statement was not drafted with the intention that it should be incorporated into a Statute and, consequently, the language used is not suitable for incorporation in a Statute.

Mr. Carr

Opinions may differ about how slickety slackety one bit of language is compared with another, but those of us who have had to live with the White Paper and study it, have found it in many respects as ambiguous as the Treasury Press statement and in some respects even more ambiguous. But that does not go to the heart of the matter. The hon. Member who sits for one of the Harrow constituencies—I must not upset my hon. Friend the Member for Harrow, West (Mr. John Page) by giving the wrong constituency—disagrees. Perhaps the hon. Gentleman fails to realise the exceptional forbearance of the Opposition.

Mr. Roy Roebuck (Harrow, East)

Perhaps the right hon. Gentleman fails to observe the extraordinary forbearance of myself and my hon. Friends in listening to his pompous phrases coming slowly across the floor in the early hours of the morning. Will he for goodness' sake get to the point with some briskness, and get on with it?

Mr. Carr

I am not stopping the hon. Gentleman from leaving the Chamber. Perhaps many of my hon. Friends would be delighted if he did.

Mr. Roebuck

No doubt the right hon. Gentleman would be glad if I left the Chamber, but, unlike many of his hon. Friends whom we do not often see here, I am here to do my parliamentary business. The right hon. Gentleman is boring the House and not getting to the point, and I urge him to get to the point with some rapidity.

Mr. Deputy Speaker

Order. I hope that we can come to the Amendment.

Mr. Carr

It was not I who was getting away from the Amendment; it was the hon. Member for Harrow, East (Mr. Roebuck). He talks about doing his parliamentary duties; perhaps he will deliver an exemplary speech of shortness, sharpness and crispness, getting to the point, and so on, and supporting—and this has been one of the notable absences from the debates of the last few days— the Government Front Bench.

Mr. Deputy Speaker

Order. I think that honours are even now.

6.0 a.m.

Mr. Carr

The point which we are making is that the concept of the Amendment is that the Government should stop governing by edict. We ought to try to obtain from them, since this is to be the law, some precision by which companies can be guided. My hon. Friend quoted a number of examples by which he showed that there appeared to have been lack of uniformity and certainty in the way in which dividend control had already been operated. No doubt hon. Members noticed an article in The Times of 13th June headed, "Over the dividend barrier", which explains at some length why many companies have been allowed to exceed the new ceiling on dividend increases. Although many of these excesses were explainable by the fact that they were due to commitments entered into before Budget day, as the article shows, there were others where this is nothing like as certain, and in the penultimate paragraph the article says that it is hard to see why these cases fell on the right side and others on the wrong side.

If we are to have dividend control, there should be more definiteness and certainty so that companies can know where they stand and so that there can be more assurance of fairness in treatment as between one and another. But this is the concept, not the draft. If, as the Financial Secretary says, the Schedule is too loosely worded, it may be an argument for not accepting the Schedule, but not against the concept. We think that a suitable Schedule should be in the Bill and if the drafting is wrong, may we ask that the Treasury draftsmen as opposed to the Press officers, introduce a suitable Schedule?

Mr. Harold Lever

One disadvantage of accepting that request is that once it is enshrined in a Schedule, we would not be allowed to make any kind of concession favourable to companies.

Mr. Ridley

I should like to touch on the point about flexible operation. Dr. Castro and General Franco operate flexible constitutions not bound by the rule of law and put anyone they wish into prison without necessarily specifying crimes committed. Claiming flexibility as a great virtue without departing utterly from the rule of law is something which the hon. Gentleman will see is palpably thin.

Mr. John Fraser

On a point of order. Is it not right that the hon. Gentleman needs the leave of the House to speak again?

Mr. Deputy Speaker

Not on Report stage of a Bill that has been to a Standing Committee.

Mr. Ridley

The 1966 Act had the original Schedule embodying the Declaration of Intent on Productivity, Prices and Incomes and the Financial Secretary said that he found its drafting acceptable, but the drafting of my suggestion not acceptable. The draft of the original Schedule 2 of the 1966 Act read: The figure for the growth of the economy between 1964 and 1970, which is being assumed in the preparation of the Government's plan for economic development is 25 per cent. I wonder whether the hon. Gentleman still finds the drafting of that acceptable.

The Financial Secretary's brilliant argument, the cut and thrust of debate and the defence he has put up, has convinced me that the Treasury's guidance on this matter is absolutely useless. Therefore, I beg leave to withdraw the Schedule.

Hon. Members

No.

Mr. Deputy Speaker

Order. It is the Amendment which is before the House.

Amendment negatived.

Amendment made: No. 65, in page 6, line 21, at end insert: ( ) The Treasury shall not withhold their consent under this section to the doing of anything by a company, if it is made to appear to the Treasury—

1. (a) that the company is a close company for purposes of Part IV of the Finance Act 1965; and
2. (b) that the action proposed to be taken by the company does not go beyond that which is likely to be required if there is not to be, within the meaning of section 77 of that Act, a shortfall in the company's distributions for an accounting period (any operation of section 77(4) in relation to the restrictions imposed by this section being for this purpose disregarded).—[Mr. Hattersley.]

Mr. Tom Boardman

I beg to move Amendment No. 67, in page 6, line 28, at end insert: (8) This section shall not apply to ordinary dividends which shall be payable after the end of the year 1969.

Mr. Deputy Speaker

With this Amendment we are taking Amendment No. l18, in page 19, line 35, leave out paragraph 4.

Mr. Tom Boardman

There is a misprint in Amendment No. 67. It should read "page 6, line 31", not "line 28".

The purpose of the Amendment is to cut down the dividend freeze which, under the present provisions of Clause 6 and the provisions of Schedule 3, paragraph 4, can extend for a period of five years. I hope that the Financial Secretary to the Treasury will take note of these dates because they relate to an issue upon which there was some initial dispute in Committee. With great difficulty we eventually extracted the concession—or "confession" perhaps would be the right word—that in the circumsatnces I quoted there would be a dividend freeze operating for five years.

Mr. Hattersley

Might I correct the hon. Gentleman now, because we have been over this many times. The concession or agreement which the hon. Gentleman obtained in Committee was that if a company insisted on operating in such a way that it did not pay a dividend for a full year after the end of the statutory freeze then it could so contrive its affairs to make the freeze appear to operate for five years. That is not the same point which I know that he is about to make.

Mr. Boardman

Perhaps I might take the hon. Gentleman through the story, because it has been rather a sad one. I put forward a certain proposition in Committee in the early stages and I was told that it was incorrect. I was told that the advice obtained by the hon. Gentleman was different.

Mr. Roebuck

On a point of order. Is it in order for the hon. Member for Honiton (Mr. Emery) to be reading the Fulton Report on the Civil Service while we are debating these important matters?

Mr. Deputy Speaker

As long as the hon. Member is reading something that is relevant to the debate, it is in order.

Mr. Roebuck

Further to that point of order. May we know what relationship the Fulton Report on the Civil Service has to the matter we are now discussing? I am wondering, in my ignorance, what relevance the Fulton Report has to the Amendment we are discussing.

Mr. Deputy Speaker

The practice is only to rule out the reading of newspapers in the House.

Mr. Boardman

I will start with my original proposition because, with the Financial Secretary present with his great knowledge on these matters, we may get a speedy answer.

I took as my proposition a company whose year ended on 25 th December, and which declared and paid its dividend at the end of September and I asked whether the dividend would be frozen from September, 1967, until September, 1972. The Under-Secetary tried to preempt my bid by saying that perhaps the company could do something else and alter its dividend pattern. Of course it could, but I spelled out the normal position of a company paying one dividend a year on that date and asked whether its dividend would be frozen from September, 1967, to September, 1972, a period of five years.

When I first put that proposition to the hon. Gentleman he denied that that would be the position, and so that there shall be no doubt about it, perhaps I might quote what he said: The best advice which is available to me —and the Committee will understand what it means—also disagrees with his analysis of five years. It is clear from that that on the facts which I gave the hon. Gentleman and his advisers considered that my interpretation of the Clause and the Schedule was wrong.

Hon. Members: Hear, hear.

Mr. Boardman

Hon. Gentlemen should not get too excited, because later it was conceded that my interpretation was right. If that is not so now, I want to know what the position is. The hon. Gentleman said: If the hon. Gentleman wants a date for the company he hypothesised it would be for the year ending 26th December, 1970."—[OFFICIAL REPORT, Standing Committee F; 13th June, 1968, c. 804–5.] I returned to the matter at the eighth Sitting, having given the hon. Gentleman the facts in writing so that there could be no misunderstanding about the dates, and so that we could get a clear and frank confession that there would be a 5-year limitation on dividends. The hon. Gentleman said: I think that two substantial points emerge. The second one I will try to concede. The choice of 26th December was a peculiar choice, and it was a date chosen by mistake. I can only attribute it to my morbid preoccupation with my own birthday."—[OFFICIAL REPORT, Standing Committee F; 18th June, 1968, c. 1113.] That happened to be the date which I had chosen without the happy knowledge that it was the hon. Gentleman's birthday. I commiserate with the hon. Gentleman for having been born on Boxing Day. I make no complaint about the hon. Gentleman misunderstanding the position, but there was complete contusion on the part of the Government about the period of dividend freeze. There was a good deal of, if I say evasion I do not mean it in any dishonourable way, or perhaps I should say a good deal of ducking the issue during the exchanges at the end of the sitting.

6.15 a.m.

At one stage the hon. Gentleman did say this was a matter which perhaps he would expect to be brought up on Report. He said: I say in all genuine humility that it may well be that he is right and we are wrong. If that is the case, I am sure that he will want to return to it in much greater detail and with much greater force on Report. At the moment, I am unable to understand the logic which leads him to that conclusion ". That was the five-year freeze. The Undersecretary went on— I understand perfectly well what he means about the company whose financial year ends on 25th December, 1969, so that the company might be subject to an overlong postponement of increases— ".—[OFFICIAL REPORT, Standing Committee F, 13th June, 1968; c. 804.] That is the point I have been making, perhaps at more length that is necessary at this hour of the morning—that there is a period of dividend freeze in the case I have quoted which would last for five years. This is assuming that the company keeps to the same dividend pattern. It is, of course, possible that the dividend freeze could be advanced by a certain amount by the payment of interim dividends in the last year, but to pay an interim dividend in the last year, during the fifth year of the freeze, might distort the dividend policy of the company.

It is not always wise to pay an interim dividend in the case of a company which has established the practice of paying it at the end of the year. It may be that the cash flow is such that there is one time of the year when the dividend can appropriately be paid. So I stress again that we have this period of five years.

The Under-Secretary said in Committee that I had taken an exceptional example. Of course I did—that of a company whose year ended on 26th December and which paid its dividend the following September. But I also put to him the perfectly conventional pattern of a company whose year ends in September and which pays its dividend at the end of the following March. That is a pattern which I think: he will find applies to about 25 per cent. of companies in this country, and if one takes that company one gets exactly the same result of the five-year dividend freeze So it is not a matter of taking an extreme and absurd example in illustration.

The object of the Amendment is to shorten the period of freeze. It proposes that the dividend declaration made after the end of 1969 will be unrestricted. Of course it has been stated that although one ends dividend limitation at the end of 1969 the pattern of companies' payments of dividends are such that it would not mean that every company paid increased dividends on 1st January, 1970. It may be that companies who had stored up dividends up to the end of 1969 might pay higher dividends in 1970 than would otherwise be the case. I accept that this is an argument for not fixing a firm date and saying that all restriction ends at the end of December, 1969. I accept that it might result in a sudden flood of dividends in that period.

But there is somewhere between that risk and the long-term freeze going on until the end of 1972, in some cases, which would do justice to the needs of the incomes policy—if any justice should be done to it, and which would meet the point of companies wishing to make further distributions. Various Amendments were tabled on this point. The one selected is that which provides for payments to be made after the end of the year 1969. This will mean that in respect of companies whose year ends after 1969 and who pay their dividends in March, June, or any time during 1970 there will be a phasing-in or phasing-out of dividend restraint during 1970. That is acceptable.

The evil of dividend restraint is that the companies which have the cash to pay the higher dividend will store it up. It is the inefficient companies that will benefit—the companies that are accumu- lating money. The efficient companies, which are using all their money and wish to raise new capital, will suffer. Companies under dividend restraint will have great difficulty in raising new capital and carrying out the necessary expansion.

Mr. Hattersley

This has nothing to do with the Amendment.

Mr. Boardman

The Under-Secretary says that this has nothing to do with the Amendment. Of course it has, because the longer the period of restraint the more severe the problems caused by companies accumulating cash where it is not needed and the more difficult it is for the more efficient companies to raise the cash.

I hope that the Minister will accept the Amendment, which will cut down the period of restraint to the end of 1969.

Mr. Deputy Speaker

As the subsection that the hon. Member seeks to have inserted in the Bill is subsection (8), I take it that the line will be line 38 and not line 31, as he suggested.

Mr. Boardman

I apologise, Mr. Deputy Speaker. I intended to say line 38.

Mr. Hattersley

The hon. Member quoted copiously from things that I said on numerous occasions in Committee, including such verbal courtesies as "I put forward this point with all humility". If he holds such matters as that against me I shall have to begin speaking in a way that is almost as didactic as his. We have gone over and over again the question whether dividend restraint can be applied to an individual firm for five years. When he put the point to me in writing it allowed me to understand it. But I can say no more now than when he allowed me to intervene in his original speech.

The provisions of the Bill enable restraint to be applied for four years and one day. If he cites the example of a firm which is likely to pay its final dividend for the last year of restraint within a few days of the end of the fourth year and asks the House to hypothesise that such a firm exists and that having paid its dividend for the final year it discovers three days afterwards that it is not covered by the restraint but goes on for 362 days without paying a dividend for the year on which no restraint is imposed, the firm will have been suffering from some sort of restraint for five years. I say again that for 360 days or so out of that period of five years that restraint will be entirely voluntary. It will be exercised because the firm chooses to make no interim dividend and for the fifth of the five years that is a situation so artificial as to warrant discussion not for the seventh, eighth, or tenth time—or whatever it happens to be.

The third point was that the hon. Member asked that the period of restraint should come to a sudden end at the end of 1969. I hope that he realises that if that happened and if it were possible for dividends to be declared immediately after that for the effective calendar year of 1969, he is asking that there should be no effective dividend restraint for that year because dividends paid in the early months of 1970 would have their real effect in the previous year. When we have restraints applying to prices and incomes, how he can urge by this contrivance that restraint should not apply to dividends, I do not understand. Well, I do understand because he has said frankly on many occasions that he does not agree with the policy of dividend restraint, but anyone who does must accept that to reduce it in the way he suggests would take it out of line with the other parts of the policy. That is why I am sure that my hon. Friends will wish to reject the Amendment.

Amendment negatived.