§ 11.7 a.m.
§ Mr. Marcus Kimball (Gainsborough)
I beg to move Amendment No. 3, in page 1, line 21, leave out paragraph (b).
The object of the Amendment is to leave out the powers given to local authority trust funds to invest in the management of land in the United Kingdom. It is an anomaly that local authorities, who complain about the high price of land and the way that it is forced up by private developers, should be allowed to use the ratepayers' money, which, after all, is what is put into the mutual investment trusts, to develop and force up the price of the very land which 774 they might want to buy for an entirely different purpose. This is a mistake.
Also, I am very suspicious of the fact that only land in the United Kingdom is concerned. If one is allowed to invest in land, the only part of the world where one could make a substantial return on it is in other parts of the Commonwealth. If the Bill allows investment in the Commonwealth, why not investments in land in the Commonwealth? Because of the activities of the Land Commission and other penal legislation introduced by hon. Gentlemen opposite, it is not possible to make a profit on the risks involved in investment in land in the United Kingdom. Surely, the proper thing would be to buy agricultural land on the outskirts of a large and thriving city in Australia. After all, the Australians have now adopted a much more realistic attitude to capital investment, particularly for land development. I would therefore ask the lion. Member for Lancaster (Mr. Henig), the promoter of the Bill, why is only land in the United Kingdom involved?
There is a very disturbing factor in local authorities investing their trust funds in land which they regard as a good investment in the United Kingdom. The price of development land in the United Kingdom is often governed by the activities of local authorities. It is not beyond the realm of possibility for some Socialist councils of the type we have known in the past to refuse planning permission for the development of a certain area on the outskirts of a town, buy the land cheaply as an investment and then, in line with one of these wonderful theories they have, say that the county planning officer has changed his mind, that the whole scheme for the development of the area has been altered and that development is to be allowed. In such a case, the local authority, by its own decision based on information available only to itself can make a very handsome profit by what I would regard as a very dubious activity.
I have tabled the Amendment because I and some of my hon. Friends are profoundly unhappy about the power contained in the Clause. I hope that the hon. Member for Lancaster will be able to justify the need for par-graph (c). Otherwise, I hope that he will agree that it would be better if local 775 authorities were to leave land in the United Kingdom alone because it is they themselves who can decide the value of that land.
§ Mr. Stanley Henig (Lancaster)
It might be for the convenience of the House, Mr. Speaker, if I were at once to reply to the hon. Member for Gains-borough (Mr. Kimball). The hon. Gentleman will not expect me to accept an Amendment the effect of which would be to deprive the Local Authorities' Mutual Investment Trust of the power to invest in property, which is one of the chief features of the Bill.
As the Standing Committee was informed, the Trust has been unable to acquire a direct holding in property such as the Marks and Spencer type of shops, modern office buildings and multipurpose factories. A large number of companies have been acquiring investments in this kind of property, and have benefited, not only by extra yields but by capital appreciation. As the trust is administered by persons of considerable experience, there seems no reason why it should not be given similar powers.
Moreover, Parliament has conferred similar powers on some local authorities, as, for example, on the Manchester Corporation in the Manchester Corporation Act, 1937, and on the Greater London Council in the Greater London Council (General Powers) Act, 1967. Section 9(1) of the latter Measure states:Subject to the provisions of this section, the powers exercisable by the Council or a borough council under the Act of 1961 to invest any property belonging to the wider-range part of the fund shall include power to invest such property in such manner as they think fit (and whether alone or in association with any other person) in the acquisition, development or management of land situated in the United Kingdom and used or to be used for residential, commercial or industrial purposes but Part IV of the First Schedule to the Act of 1961 shall not apply to any investment made under this subsectionIf the House has already conferred this power on individual local authorities it seems inappropriate to refuse it to a trust which is investing funds on behalf of some 350 local authorities.
In his final remarks, the hon. Member implied, in effect, a certain amount of corruption which I find a little distasteful 776 when applied to local authorities. Such an implication might have some weight if an individual local authority were itself investing and itself making a profit from the investment but in this case there are many safeguards resulting from the collective nature of the activity.
I cannot see the hon. Gentleman's purpose in suggesting, on the one hand, that the trust ought to have the power to invest in property overseas and yet, on the other hand, that it should not have power to invest in property in this country. The Bill does not empower the trust to invest in property overseas simply because the trust itself does not want such power. Already, as I say, similar powers have been granted to individual local authorities and similar bodies. Further, though I am not a great investor myself, I should have thought that it was very much easier to invest in property in this country or in securities overseas rather than in property overseas.
The hon. Gentleman seemed to suggest that there is something wrong in local authorities perhaps making profits out of the rise in the value of land. I would agree with him if he suggested that there was something unfortunate about the fact that land prices tend to rise and that profits consequently tend to be made but, rightly or wrongly, there has been some consensus in this country that we should have a mixed economy. As it is, therefore, possible for private individuals to make profits out of property and other things, it seems only reasonable, and a matter of common sense, that local authorities, too, should be able to make profits out of these things.
I would go further, and say that if a local authority makes a profit out of such an investment, it is not the town clerk of the place who benefits, or the people who manage the fund. Indirectly, it is the ratepayers who benefit. I believe that this type of fund is an extremely good thing, and I should like to see a state of affairs in which profits made out of property in all cases accrued to public authorities. That is obviously a highly laudable aim, and perhaps not all hon. Members opposite—
§ Mr. Reginald Eyre (Birmingham, Hall Green)
I oppose the Amendment, and support the hon. Member for Lancaster (Mr. Henig) in his assertion that the Bill be of great benefit to local authorities and, therefore, ultimately to the ratepayers. But I do not follow the hon. Gentleman when he says that the benefits should be confined to public authorities: it is not unreasonable that such benefits should also apply to private individuals.
It would be very harmful to the Bill to exclude the paragraph, because it is very important that the trust should be able to invest in this kind of holding, and especially in land. I believe that the value of land will increase greatly in the near future because of the operation of the Land Commission. There is no doubt that the imposition of the 40 per cent. levy will have the same effect on the price of land as has the imposition of the Purchase Tax on the price of goods. There will be a substantial and continuing rise in the price of land. It would be quite wrong to exclude a trust of this kind, whose object is to acquire some part of the ultimate benefit of rising values on behalf of local authorities, from the benefit of investing in land.
There is already evidence of the great increase in the price of land in, for instance, the West Midlands, where prices have increased by 30 per cent. or 40 per cent. since the institution of the Land Commission. There is a difference of opinion as to whether it is only an initial rise or one that will carry on through the years, but I believe that, because of the competition for land resulting from the increased prosperity that we hope will in due course be resumed, this will be a continuing process. I strongly support the view that the benefit of all this activity should certainly attach to the trust.
§ The Financial Secretary to the Treasury (Mr. Harold Lever)
I support what was said by the hon. Member for Birmingham, Hall Green (Mr. Eyre) and in turn I support what was said by the promoter of the Bill, my hon. Friend the Member 778 for Lancaster (Mr. Henig). It is difficult to see any logic in the excluding from the trust powers powers to buy real property which are already enjoyed by several local authorities.
I must apologise to the hon. Member for Gainsborough (Mr. Kimball) that, owing to duties in another part of the building and the unexpected suddenness with which the Report stage of this Bill came on, I missed the opening bars of his overture when he moved the Amendment. I ask him not to press the Amendment because what is sauce for the private investing goose must be sauce for the public trust gander. I cannot see why we should penalise some local authorities in comparison with others which have this power. Although some authorities may not have the power because they did not desire it, the House has seen nothing wrong in principle in granting it to those which do desire it.
I therefore ask the hon. Member to allow those authorities to have this power and to withdraw his Amendment.
§ Mr. Charles Doughty (Surrey, East)
I couple my apologies with those of the Financial Secretary for being absent at the beginning of the discussion on this Amendment.
I support the Amendment. I do not suggest for a moment that this power would lead to fraud or to backstairs deals. However, it is not what is done but what is often wrongly thought to have been done which leads to criticism and to remarks being passed which are unjustified and unpleasant.
§ Mr. Harold Lever
Since individual authorities have the right to buy real property in land which has been granted to them by Parliament and such local authorities in the purchase are the exclusive beneficiary, surely that would be more open to the objection the hon. and learned Member has in mind than where an insignificant advantage results to a particular local authority dealing with the matter.
§ Mr. Doughty
Very often local authorities acquire land. They do so publicly All the local ratepayers know that they have done it and know that it is for good reasons. It may be to establish a new fire station or to build a council housing estate. But this proposal is not 779 one concerning one local authority. It is an authority which may represent a large number of local authorities buying land in a particular place. That increases the value of the land enormously and the authority has received planning permission to do so where planning permission was not previously enjoyed. Often, rightly or wrongly, when planning permission on a piece of land is given it annoys other people in the neighbourhood. It is thought that the local authority has gained planning permission and then people may say that it is unjustifiable and there has been a backstairs deal.
We should be careful to be certain that we are not laying anyone who will benefit open to this form of criticism. Is it right that a trust of this kind should have the onus or difficulty sometimes of developing land and perhaps expending large sums of money to develop in this way and then be open to such criticism? While giving the Bill my general blessing, I thing we should be careful not to lay authorities open to this possible, although perhaps unjustified, criticism.
§ Mr. Charles Fletcher-Cooke (Darwen)
I share the worries of some of my hon. Friends and their suspicions about the extension of the power to own equities by governments, whether local or central governments, because I think there are occasions when they abuse their powers. That is to say, they use powers granted for one purpose for the benefit of advantaging their investments in a way which is not open to the ordinary investor. Therefore, I reject the rather wide claims which the promoter of the Bill started to mention when he was stopped by you, Mr. Speaker. I do not wish to incur the same displeasure.
Nevertheless, partly because the Financial Secretary was very persuasive, partly because I thought my hon. Friend the Member for Birmingham, Hall Green (Mr. Eyre) was perhaps even more persuasive and partly because I find my name on the back of the Bill, I suggest to my other hon. Friends that their fears are perhaps here unfounded. The hon. Member for Lancaster (Mr. Henig) mentioned that individual local authorities have power to invest in land. So they do and I am sorry that they do, but, having got that power, the camel having 780 been swallowed, it is now a little late to strain at the gnat.
There are over 300 local authorities which I understand are members of this company. It is, therefore, unrealistic and fanciful to suppose that any one of them will be able to operate its powers as a local government authority to advantage the investments of this company. I should have thought that this was far less objectionable, therefore, than the powers that have been already granted to Manchester and London. For that reason I support the hon. Member for Lancaster and not, I fear, my hon. Friend the Member for Gainsborough (Mr. Kimball).
§ Mr. Kimball
In view of the very detailed and learned reply by my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) and the persuasiveness of the Financial Secretary supported by my hon. Friend the Member for Birmingham, Hall Green (Mr. Eyre), I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Mr. Kimball
I beg to move Amendment No. 5, in page 2, line 1, leave out from beginning to end of line 5.
The object of the Amendment is to raise the question with the hon. Member for Lancaster (Mr. Henig) about a "recognised stock exchange". This matter was dealt with rather briefly in Committee. Those of us who have studied the Committee stage of the Bill are very perturbed about what we now discover are the ways under which recognised stock exchanges are said to be recognised. The Financial Secretary as we have already discovered this morning, is most persuasive. In Committee he said that a recognised stock exchange comes about where people are gathered together to create a market. Because they buy and sell and deal they create:an unmistakable stamp of… coming together to form a market that has simplified the problem, and we have never had need to define more precisely in law what is a recognisd stock exchange"—[OFFICIAL REPORT, Standing Committee C, 13th March, 1968; c. 10–11.]This is a rather disturbing element in the Bill. Ratepayers' money will be invested over a wide range of securities and the only safeguard they will have is that the securities must have over a certain amount of money in them and must be quoted on a recognised stock exchange 781 within the meaning of the Prevention of Fraud (Investments) Act, 1958. The question of recognition appears to be extremely lax. Owing to the modern economic trends that we are bound to see over the next few years I should have thought we should get a substantial reduction in the number of stock exchanges.
What always amazes me about provincial stock exchanges is how easy it is for a share to cease to be quoted. Many solicitors and trustees in Lincolnshire are perpetually bothered by trustee holdings in old navigation companies. These navigation companies were got together—they would certainly have more than £1 million invested in them—and the shares were held in the last century by the great families and were exchanged regularly, being regarded as a trustee investment. Had there been a business centre in Lincolnshire, there is no doubt that the Fosdyke Navigation Company's shares would have been quoted on the Lincoln Stock Exchange and would have been freely dealt in by individuals, as they still are but only through the media of local solicitors' offices. No doubt if the local authorities felt that the Fos-dyke Navigation Company was of importance to the ratepayers, they would have been urged to invest in it. But the centre of business moved away because no stock exchange has ever been created there, and it is impossible to get a quotation for these shares. If the hon. Member for Lancaster will cast his mind back to the great day and age of the building of canals and waterways across our countryside, he will no doubt agree that the local authorities would have been asked at public meetings to support such enterprises, which would be of such immense benefit to the ratepayers.
The same situation may well happen today. There are enormous amalgamations going on within the London Stock Exchange. If one sells a share today, one can hardly see how the transaction has beer. conducted, because, instead of having four or five partners on the top left hand side of a duplicate contract note, there are now up to 25. Firms in London are amalgamating at a fantastic rate. Does the House believe that during the next few years all the provincial stock exchanges will survive? It is only in the provincial stock exchanges that 782 many of these smaller and worthy enterprises are quoted.
Many of us go to Scotland and read the Scottish newspapers. After wading through the fish landings at Aberdeen, when one tries to discover how the market is doing all one finds is Scotch whisky shares and other Scottish shares. The Scottish newspapers seem to concentrate entirely on the local, native Scottish stocks. Therefore, we ought to write into the Bill some sort of safeguard for the Trust's investing its funds in admirable local credit-worthy activities.
§ Mr. Speaker
I would remind the hon. Member that in his Amendment he is not proposing to write something in. He is proposing to take something out.
§ Mr. Kimball
I am proposing to take out, as far as I understand it, that local authorities can invest in a stock exchange which is created by friends—perhaps the Financial Secretary and others—coming together to create a market in which there is no safeguard for the investment.
§ Mr. Henig
The hon. Member for Gainsborough (Mr. Kimball) has argued his case persuasively, but, once again, I cannot agree to the Amendment that he has put forward. The subsection which he wishes to delete has been inserted in the Bill to meet a point raised by the Treasury. He could hardly expect me, as a loyal supporter of the Treasury Bench who has agreed to meet the point, now to turn round and, as it were, change my allegiance. If the Amendment were made and the subsection were deleted the result would be an extension of the scope of the Bill. This would mean that we should be contravening Standing Orders relating to Private Business because the Bill has been ruled to be a Hybrid Bill. The implication would be that the Bill would not be allowed to proceed unless each House decided to dispense with the Standing Orders which relate to the provision. The hon. Gentleman can well see why at this stage of our proceedings I should not like to start again with some of the things that have already been done.
Concerning the point about a recognised stock exchange, I feel, from all counts of common parlance, that my right hon. Friend in Standing Committee gave an excellent definition when he said that a recognised stock exchange was a place 783 that people recognised to be a stock exchange. I had always thought this, perhaps because I am not a great investing man.
To get the legal definition right, I refer the House to the Prevention of Fraud (Investments) Act, 1958, Section 26, which says,'recognised stock exchange' means the Stock Exchange, London, or a body of persons declared by an order of the Board of Trade for the time being in force to be a recognised stock exchange for the purposes of this Act.That is clear. The Board of Trade has to take the initiative and make the decision. There were some complaints in Standing Committee from one hon. Gentleman who claimed to have telephoned the Board of Trade on a number of occasions but could never get a list of those bodies to which the Board of Trade had given such recognition. I am not responsible for that. I have every confidence that the Board of Trade will recognise as stock exchanges those bodies which ought to be so recognised.
Some suspicions have been cast upon what this investment trust might do by way of investment. One minimum safeguard that probably should be in the Bill is that it ought not to have the right to invest in unquoted securities. For this final reason, I urge the House to reject the Amendment.
§ Mr. Fletcher-Cooke
Not having had the benefit of attendance at the Standing Committee, I should like to ask the Minister about the word "recognised". Recognised by whom? If it is by the people it is not necessary to have it in. It would be a stock exchange, being a place where two or more people come together to exchange stock. At least that is what I suppose. If it means "recognised by the Board of Trade" it has some purpose. Is that what it means in this context? If not, why not? That seems to me to make sense of a word which otherwise I should have thought entirely otiose.
§ Mr. Doughty
On this occasion I cannot support the Amendment moved by my hon. Friend the Member for Gains-borough (Mr. Kimball). I agree with the other side of the House, but not because of the terrible fate that might befall the Bill if the Amendment were carried. I 784 have not studied the Standing Orders concerning a Hybrid Bill, if this be one, so it is not for that reason.
I am in favour of this investment trust being able to invest in stocks and shares. I am sorry that the hon. Member for Lancaster (Mr. Henig) does not feel the same about investing. I am sure he would find it an interesting and sometimes not unprofitable pastime, and I am sure he would get good advice for the purpose if he sought it. When investment trusts, trustees or individuals invest, they should do so through a recognised firm of stockbrokers, and a recognised firm of stockbrokers is one attached to a particular stock exchange.
I am sorry to disagree with my hon. Friend the Member for Gainsborough, but I do not believe that a stock exchange is where two people meet and swop stocks. It may be that the Board of Trade can give a definition under the Act, but I am certain it would only act upon the advice of the Council of the Stock Exchange, which has very strict control over its members, where its members practise and how they practise. I have complete confidence in the Board of Trade.
I must declare an interest. As a professional man, I know that professional bodies have their own committees and councils which control the behaviour or, I regret to say, occasionally the misbehaviour of their members. They know what professional conduct and professional misconduct is, and they sometimes act with great severity—justifiably so. I do not doubt that the Stock Exchange Council is completely in that class. We now see what "recognised stock exchange "means, and I have not the slightest doubt that the trust's funds will always go to recognised stock exchanges within the meaning of the Act—those with the blessing of the Stock Exchange Council. I therefore hope that my hon. Friend, having heard what has been said, and what will no doubt be said by the Financial Secretary, will see fit to withdraw the Amendment.
§ Mr. Harold Lever
I should clear up the point about the Committee. What I was asked to define in Committee was the meaning of "recognised stock exchange", and I said that, not having had notice of the question, my definition would not necessarily be authoritative or erudite. If 785 that were endorsed this morning, I should not resent it. I defined the expression briefly as meaning…a stock exchange which is recognised by ordinary persons as constituting a market generally in use by people who deal in stocks and securities."—[OFFICIAL REPORT, Standing Committee C, 13th March, 1968; c. 10.]—not the one or two people referred to by the hon. Gentleman.
I was not asked to define a recognised stock exchange for the purpose of the Bill. Different considerations apply, because that must be a recognised stock exchange as defined for the purposes of the Prevention of Fraud (Investments) Act. As my hon. Friend the Member for Lancaster (Mr. Henig) made clear, that is simply a question of a Board of Trade definition. If one man constitutes himself a stock exchange and the Board of Trade chooses to declare him to be a recognised stock exchange, he will be one. As the hon. and learned Member for Surrey, East (Mr. Doughty) indicated, that is an unlikely eventuality, and the Board would normally act in consultation with the appropriate and well-recognised stock exchanges, such as the London Stock Exchange.
The effect of the Amendment would be not to mitigate the evil of which the hon. Member for Gainsborough (Mr. Kimball) spoke but to aggravate it. It would simply allow investment in any stocks whatsoever, whereas the Clause, at the Treasury's request, makes it necessary to buy stocks quoted on a stock exchange approved and recognised by the Board of Trade. When the hon. Gentleman has that point firmly in mind I think he will feel that the Amendment should be withdrawn as defeating his own very reasonable purposes, which he will be happy to know are strictly in line with those of the Treasury.
§ Amendment, by leave, withdrawn.
§ Amendments made: No. 6, in line 13 leave out 'interests' and insert 'interest'.
§ No. 7, in line 15 leave out 'interests' and insert interest'.—[Mr. Henig.]
§ Question proposed, That the Bill be now read the Third time.786
§ 11.45 a.m.
§ Mr. Kimball
I apologise for putting down the Motion, "That the Question be not put forthwith". I think that this is the first time that this has been done for initiating a Third Reading debate under the new procedure. It may be asked why we did not do this on the Maintenance Orders Bill and the Domestic and Appellate Proceedings (Restriction of Publicity) Bill, the first and second Bills on the Order Paper. I feel that I should give an explanation to the hon. Member for Lancaster (Mr. Henig), who has been so courteous in dealing with the Report stage and taken so much trouble over his replies.
The first Bill had a Second Reading debate. The second is a highly technical legal Bill affecting the freedom of the Press, and after the unfortunate experience I once had in introducing a Private Member's Bill restricting the reporting by the Press of wills I was confident that if there were any really important points in it a Third Reading debate would certainly have been initiated.
§ Mr. Speaker
Order. In the Third Reading debate we can discuss only what is in the Bill now before us.
§ Mr. Kimball
I am sorry, Mr. Speaker. I was just making a few opening remarks justifying my conduct in putting down the Motion. The object is to give the hon. Member for Lancaster a chance to explain such an important Bill in detail in the House. Those who bothered to follow the Committee stage could find quite a number of the reasons for the Bill in the rather wide-ranging debate which the Chairman allowed on Clause 1.
As I understand it, the Bill simply seeks to extend the range of equity and other investments that the trust's funds can be put into. Many of us on this side of the House would like to know a little more about the trust. I always regard such activities with some suspicion. I cannot help noticing that the large number of voluntary societies which seem to run their affairs rather like an investment trust are those which no longer do any good. There is an immense temptation for bodies like local authorities and so on to collect large sums of money, either because they have a good cause or because they have power to raise money from the rates, and then 787 to sit back and do nothing, letting inflationary investment take care of their worries. That is perhaps an extreme case, but I feel that this kind of investment trust may give the slight scent of an easy life to some local authorities which, like some individuals, have perhaps reached a happy state of affairs where they hope to be able to live on their investments.
It is very significant that the hon. Member for Lancaster should have realised that inflation is now rampant in this country and that therefore it is necessary to have a very wide range of equity investments in anybody's holding. Such a Bill coming from the hon. Gentleman, with his political convictions, is somewhat perplexing. Perhaps his short period in the House has convinced him of the merits of the capitalist system and the good that comes from it.
What amazes me is that after the 1965 General Election Socialist-controlled local authorities and trade unions made a great patriotic point that their funds must be invested in gilt-edged securities. Local authorities thought that surpluses should buy other local authorities' individual bonds. Resolutions to that effect were passed by many of them and by trade union meetings. Union treasurers were very worried. Some unions had to sell their equity holdings when the Government first came to power, and backed the Government by investing in gilt-edged.
Can the hon. Gentleman say that the local authorities are not borrowing money at 7 per cent. to invest in equity shares? That is a standard form of pratice which many people believe to be totally insecure. Many hon. Members probably used to go to their bank, when the banks were allowed to do normal business, to borrow money to invest in equity shares and hope in the end to pay off their overdraft. I do not imagine that many hon. Members would commend that as a good practice, and I very much hope that we shall not see local authorities doing it.
I am not sure why the Bill or the Trust is necessary. At no point have we been told what the objects of the trust are. Is it just to bolster the pension funds of local authorities, or is the 788 idea to give some safeguard to ratepayers? Is it the hope that, in a few years, rates will not have to go up, not because of investment and improvement in the amenities of the local area so that rateable value has gone up but because the local authorities have sat back, doing nothing for the ratepayers though succeeding in building up their investment income? The latter would not be to the advantage of the area. I think immediately of my own County of Lindsey where the local authority has invested on the Humber bank to such an extent that our rateable value has risen and, as a result, our rates are held. This is how the ratepayers benefit. Ratepayers will not benefit from a large amount of investment activity through this fund by local authorities which ought to be investing in roads, schools, and other facilities in their area, not entering the investment market.
Will the hon. Gentleman tell us why the fund has to be divided into two sections? As I understand it, the narrow range part of the fund is worth about £5½ million and the wider range part is worth about £87 million. What were the starting figures for these investments, what is the rate of capital appreciation, and what is the success of the management of the fund?
I may have misread the Bill, but I see no explanation of the safeguards regarding investment management and advice. What security is there for the ratepayers' money? Further, now that an Amendment has been accepted in Committee, putting in a provision which was not there on Second Reading, extending the range of investment within the Commonwealth, what will be the position here? Apparently, it would be possible for funds of the trust to be invested in Southern Rhodesia bonds. Before hon. Members opposite destroyed the financial relationship between this country and Southern Rhodesia, this used to be an extremely good trustee investment. Now that the investment Clause has been extended to cover Commonwealth securities, what will be the position as regards investment in Southern Rhodesia?
§ Mr. Kimball
With respect, Mr. Speaker, it is covered in a very technical way by an Amendment which was moved in Committee. Half way down column 5 of the OFFICIAL REPORT of the proceedings in the Standing Committee, it is explained—
§ Mr. Kimball
The wordsterritories which on the 30th day of November 1967 were scheduled territories"—that is, on the Treasury list—allow the fund to make investments in Commonwealth securities.
§ Mr. Kimball
Accepting that Commonwealth securities are covered, Mr. Speaker, I hope that the hon. Gentleman will deal with the point regarding Southern Rhodesia and touch also on the question that the Treasury list, as I understand it, would cover South Africa as well. In passing, I point out that investors have been deprived of investment in Japan, although Japan today has one of the most expanding economies in the world.
There is power under the Bill to invest in France and to invest in Canada. I doubt that we should use this Bill so as to invest ratepayers' money in a country which is at present deliberately taking a swipe at our own economy.
§ Mr. Kimball
I abide by your Ruling, Mr. Speaker, but, as Clause 1 provides that one may invest in Canada and France, I hope that you will allow me, on Third Reading, to express the hope that the hon. Gentleman will respond to the feelings which many people have about investment which would boost the economy of a country which is at present conducting an economic battle with us. Equally, many people will look with some doubt at the Canadian economy. Why does the hon. Gentleman feel that it is necessary to embark on investment with ratepayers' money in the Canadian economy? This Bill will not give the most certain way of making money. Investment today, particularly in countries like 790 Canada and France, will be a tricky business, and I hope that the hon. Gentleman will justify these provisions when he replies.
I am sure that, if my hon. Friends and I have satisfactory answers to our questions, we shall be only too delighted to speed the Bill on its way. But, having been deprived of a Second Reading debate, we look forward to hearing from the hon. Gentleman a full and thorough examination of the Bill on Third Reading.
§ 11.56 a.m.
§ Mr. Doughty
I, too, wish to put some questions on Third Reading, as we did not have a Second Reading debate. I am sure that I shall be able to give the Bill my blessing after hearing the answers, but I endorse what was said by my hon. Friend the Member for Gainsborough (Mr. Kimball) about the need for further explanations.
What are the sums which will be invested under what is defined as the wider range trust fund? Second, whence do those funds come? Third, what are the powers of withdrawal? Presumably, if one has money in the trust fund and one requires it from time to time, it must be possible to withdraw it.
Will the hon. Gentleman tell us why the investments are limied toany securities issued by or guaranteed by any government or public authority in or issued by any body corporate incorporated in any of the territories…"?Does that mean that only shares which are guaranteed by a public or local authority may be the object of investment by this fund? If so, I submit that the investment Clause is too narrow. What professional advice is the fund taking about what would be correct investments?
I presume that, when shares are sold either to obtain a better stock or for the purpose of meeting any demand made upon the fund, Capital Gains Tax will have to be paid if a capital gain is made. This will certainly affect the fund. We must have clarification on the limits and restrictions and what the investment powers will be under the Bill. They are not very clearly stated.
I make no apology for raising these questions. In the circumstances, it is right that they should be put on Third Reading.
791 One surprising aspect, particularly since it has no relevance to the drafting of the Bill, is the Schedule, headed:Names of local authority associations which submitted the scheme to the Treasury".There then follows a long list of them. We know that usually a Bill has on it the names of hon. Members who support it, but is this in terrorem so that, when hon. Members see the list of important bodies, they will not dare oppose the Bill? What relevance has the Schedule to the Bill? Is it merely for us to know that certain associations are in favour of it?
It is certainly right and proper for an hon. Member to explain to us that his Bill has the support of a large number of people and associations or that it has the support of very many hon. Members. But that is not usually included in the drafting of the Bill. Yet here we have a schedule listing the associations which we are told, submitted the scheme to the Treasury. This is wholly irrelevant to the drafting and I am surprised to see it here. Since I was not a member of the Standing Committee, I do not know whether or not it was inserted there. I hope that we shall have a full answer from the Financial Secretary and from the hon. Member for Lancaster (Mr. Henig).
§ 12.3 p.m.
§ Mr. Harold Lever
This is a Third Reading debate, so all I can say must be of general concern because we are not in a position any longer in this House to make detailed Amendments to the Bill. The point of the Bill is that the investment powers applicable to the Local Authorities' Mutual Investment Trust's wider range trust fund should be loosened a little because they are somewhat restricted by the Trustee Investments Act, 1961, which does not permit investment in real property or any other overseas stocks except fixed interest securities issued by the Government of the Commonwealth country concerned or by a public authority in such a country.
Thus, the trust has this power already, so that some of the comment made today is beside the point. The Bill does not enlarge the trust's powers so far as fixed interest securities are concerned, issued by public or local authorities in 792 Commonwealth countries or by the Governments of the Commonwealth countries. The purpose is to widen the powers to invest in property and certain equities overseas. This is not mandatory upon the trust but a widening of its options, and basically I would support the widening that is taking place.
Of course one could conjure up within these powers foolish investments that might be made. One could think of investments on the London Stock Exchange which prudent investors with the experience of the hon. and learned Gentleman the Member for Surrey, East (Mr. Doughty) would advise against. But the fact that there are notional investments which the trust could make under the Bill and which would be hopeless and stupid is beside the point. We are being asked to open up options for the trust which are reasonable and sensible, such as the property investment we have discussed.
I do not believe that we should attempt to supervise the trust like a nanny in what it is going to do with the options it is proposed the House should give it. We should give these powers without tormenting ourselves as to hypothetical misuse or folly. The simple principle to be decided is whether we should widen these powers of the trust in the knowledge that this is a very well run trust in charge of very responsible people and that these powers are unlikely to be misused.
§ 12.6 p.m.
§ Mr. Henig
Although I have said that I am not a great one for investments—for obvious pecuniary reasons—I am not totally unaware of the mechanism of the Stock Exchange. The first thing to be made clear is that we are not just talking about a friendly society fund set up by two or three people in ignorance of the working of monetary institutions in order to have a little flutter. We are, talking about a trust which operates funds on behalf of about 350 local authorities, for the good reason that many of them are small bodies which, on their own, could not obtain the necessary advice on investments.
Thus, the local authorities pooled their resources to make investments. There is a degree of hedging. It is clear that they will not get rich as quickly as they might do operating on their own but there 793 is no real danger of their losing their investments. This is why the Trust was set up. The money comes from about 350 local authorities and amounts to about £90 million, of which £86 million is already in the wider range fund. Why are there two funds? It is laid down in the Trustee Investments Act 1961. There have to be two funds. But the point has clearly been demonstrated that local authorities prefer now that their money should go into the wider ranging fund because this gives the possibility of extra appreciation.
I was asked for appreciation figures and about the value of the fund now compared with 1961, when it began. I will take the value of a £1 unit as it would have been right at the beginning. If it were in the wider ranging fund it would be worth now 25s. 5d., which indicates that those who hold the shares have (lone well, and that the company has to some extent been prudent in the way it has invested. We would not want it to be other than that. The narrow range fund has not done so well and stands at slightly below par—19s. 8d. for a £1 unit share.
This is a highly respectable body whose powers we are extending. Mention has been made of various Commonwealth countries, including Southern Rhodesia, and of France. This is a responsible company and if it is Treasury opinion that funds here should not be invested in certain countries, then the Trust w ill not invest in those countries. There is no doubt about that. It has been made clear before and can be made clear again. Indeed, while the present situation lasts, some of the extra powers being given may be more theoretical than real.
There were no Amendments in Committee on the lines indicated by the hon. Member for Gainsborough (Mr. Kimball). The Bill says that the company may invest abroad in scheduled territories as of 30th November, 1967, but if the Treasury subsequently decides that a territory should no longer be scheduled, the company will not have to remove its funds from that territory. If further territories are scheduled, it will have power to invest in them.
As far as Southern Rhodesia is concerned, there are offences in relation to the investment of money there. The company is not looking to breaking the law 794 by investing funds in Southern Rhodesia in order to do down the British Government. If the situation were to change and investment in Southern Rhodesia were encouraged, then the company, like others, might wish to do so, but that is hypothetical and has nothing to do with the Bill.
Japan is not included for the simple reason that the company does not want to invest in Japan. The good reason is that even by modern standards Japan is a long way away.
§ Mr. Speaker
Order. On Third Reading hon. Members cannot discuss anything which is not in the Bill.
§ Mr. Henig
In that case, Mr. Speaker, I shall say no more about that.
Capital Gains Tax has to be paid if the company makes gains, as is the case with anyone else. There is nothing wrong with that. The company has to run its affairs on a business basis, as does any other company.
We have left the days when, for doctrinaire or other reasons, it was thought to be bad for money to be made on stock exchanges and when some people said that stock exchanges must be abolished. Even if some people still hold that view, so long as there is a system of stock exchanges and a system for making investments, it would be wrong in principle to say that the possible gains should be limited to private companies.
If a public authority has money which it wants to invest on behalf of other public authorities, as the company will invest superannuation funds and reserves on behalf of local authorities, there is no reason why it should not do so. Local authorities do not raise this money by borrowing. They do not run their affairs by borrowing money and then investing it. The company will invest money to show appreciation and thereby a profit on the superannuation and reserve funds of those local authorities. In that case, the people owning the local authorities, the ratepayers, will benefit.
As the Bill now stands, it gives the company power to extend in different directions what it can now do. There is nothing new in this, because many individual local authorities have already been given this power. It is better to give this power to a collective body representing 795 all local authorities rather than to give it to individual local authorities, but since some already have this power, no new principle is involved. We are saying that the company may invest in property in this country or in equities abroad, thus widening its range of prospective investment. The company has already given an assurance, to which it will obviously adhere, that it will limit its investments, as is right and prudent from a business point of view, in those things covered by the new power. It is a highly reputable company holding public money on behalf of the public.
§ Mr. Doughty
I have a question about the drafting which seems to be extraordinary. Why does the Bill have the Schedule, which appears to be wholly irrelevant?
§ Mr. Henig
The Scheme is included because it was thought that it would be convenient and useful to show that every local authority association supported the scheme. This is not a matter of two or three associations saying that they are in favour. Every local authority association has said so and the Schedule makes it clear that every local authority association in the country supports the Bill.
§ Mr. Speaker
Order. The Financial Secretary has exhausted his right to speak, but he may intervene.
§ Mr. Lever
Perhaps I may have the leave to the House to intervene shortly. The Schedule is not meaningless. It is mentioned in Clause 2 which says:'the scheme' means the scheme relating to the powers of investment of the Company submitted to the Treasury pursuant to section 11 of the Act of 1961 by the associations of local authorities mentioned in the Schedule…The Schedule relates to Clause 2 which in turn relates to the use of the word "scheme" in Clause 1.
§ 12.15 p.m.
§ Mr. Fletcher-Cooke
I congratulate the hon. Member for Lancaster (Mr. Henig) on bringing forward a useful Bill. 796 It contains no new principle. The new principle came in 1961 when there was a strong, but not long, argument. This is a mere rounding off of the powers then given.
In a sense, both Measures are matters of sorrow, because both stem from the fact that, owing to the existence of inflation in our society, it is no longer possible for any organisation, trustee or otherwise, to invest solely in what used to be regarded as investments suitable for trusts. To that extent we are making a confession of failure every time we widen powers such as these. But that such a very modest confession should be made in the Bill is right and proper, and the hon. Gentleman is to be congratulated on his persistence in getting the Bill through in such a relatively short time.
§ Question put and agreed to.
§ Bill accordingly read the Third time, and passed.