§ 10.21 p.m.
§ The Parliamentary Secretary to the Board of Trade (Mrs. Gwyneth Dunwoody)
I beg to move,That the Banking Companies (Accounts) Regulations 1970, a draft of which was laid before this House on 27th January, be approved.The Eighth Schedule to the Companies Act, 1948, sets out the matters on which companies are required to give information in their accounts. Paragraph 23 of that Schedule exempts from many of the requirements of the Schedule any company which satisfies the Board of Trade that it ought to be treated for the purposes of the Schedule as a banking company. A bank so exempted is entitled to draw up its annual accounts in a way which does not disclose the full amount of its reserves and does not show its true profit or loss for the year with which the accounts deal.
The purpose of these regulations is to repeal paragraph 23 of the Eighth Schedule in relation to two classes of banks: the London clearing banks, and those Scottish banks which carry on a business similar to that of the London clearing banks. The Scottish banks are defined in the regulations as those which are represented on the Committee of Scottish Bank General Managers. The effect of the repeal will be that any bank in one of these two classes will be subject to the provisions of the Eighth Schedule which apply to companies in general. It will be required to prepare its accounts in a way which gives a true and fair view of the state of its affairs and of its profit or loss for the year.
Most hon. Members will be aware that, in September of last year, the London clearing banks and the Scottish banks concerned announced that, after discussion with the authorities, they had decided that, in future, they would prepare their annual accounts in accordance with the provisions of the Companies Act, 1948, which apply to the generality of companies, and cease to take any advantage of the exemptions available to them under paragraph 23 of the Eighth Schedule.
360 It is because the banks came to that decision that the accounts to be published in the near future, such as accounts for 1969 of banks with years ending on 31st December, will be full accounts. But it seems right, in a matter of this importance, that the law should require full accounts, and that will be the position in relation to accounts prepared and published after 1st April, if these regulations are approved.
§ 10.24 p.m.
§ Mr. J. Bruce-Gardyne (South Angus)
We should not allow the regulations to go through on the nod, because many questions need asking, particularly by those hon. Members—I am glad to see the hon. Member for Norwood (Mr. John Fraser) here—who were on the Committee on the Companies Bill which discussed these matters back in 1967.
The first question is: why has it taken so long to produce the regulations? I would draw the hon. Lady's attention to the statement made by her right hon. Friend the Member for Sheffield, Hillsborough (Mr. Darling) on 21st March, 1967, in that Standing Committee. When I asked how long it would take for the discussions with the banks to be completed so that an instrument such as this could be introduced, he replied:Not very much longer now. We cannot take any action until the Bill is on the Statute Book, and this will be early in the summer"—that was 1967—I do not think that the hon. Member will be disappointed about the time-lag between the passing of the Bill and the bringing in of the regulations."—[OFFICIAL REPORT, Standing Committee E, 21st March, 1967; c. 380.]I am disappointed. I do not know what the hon. Lady would regard as not very long, but I regard two-and-a-half years as being a very long time indeed.
I am far from happy about the scope of the order. The Jenkins Committee was divided on the subject of disclosure by banks. The minority report, which was not insubstantial, was signed by Professor Gower, Mr. Lawson, Mr. Mackinnon, Mrs. Naylor and Mr. Ron Smith. It recommended that in the case of all but one of the categories of banking and discount houses enumerated in the body of the report, the exemptions 361 should be totally withdrawn, the various categories being the London clearing banks and the Scottish banks, to which this Order applies, the accepting houses, the British overseas banks, the discount houses and a miscellaneous group.
It was recommended in the minority report that the exemption might continue to apply to the overseas banks, and I would not argue about that. We need to know why the order does not extend to the accepting houses, the discount houses and the miscellaneous group, and why——
§ Mr. Speaker
Order. The hon. Gentleman will appreciate that the Order cannot be amended. It applies to particular banks, and it cannot be amended to apply to some other banks in which the hon. Gentleman may be interested.
§ Mr. Bruce-Gardyne
I was not suggesting that it should be amended, Mr. Speaker, but asking why this group of banks had been excluded, and, in particular, why this attitude had been taken to the foreign banks when the Jenkins Committee stated in the main report that——
§ Mr. Speaker
Order. That would require a separate Order. We are discussing an instrument which destroys an exemption for certain banks as specified in the Order. The hon. Gentleman can approve or disapprove of this, but he cannot amend the Order.
§ Mr. Bruce-Gardyne
I accept your Ruling, Mr. Speaker, and I am merely seeking an explanation why the hon. Lady has overridden the Jenkins recommendation that the same rules should apply not only to the banks included in the order but to foreign banks operating in this country with which they are in direct competition. This was specifically recommended in paragraph 406 of the Jenkins Report, and we should be told why the hon. Lady is making a distinction which Jenkins said should not be made.
I want to make clear that in considering this Order I am concerned with the position of owners of these banks. Owners of banks which are included in the order should have been entitled long before to receive the full information which comes from full disclosure of loss of accounting exemptions in the Order so that they 362 could properly judge the affairs of their companies. I do not think it good enough to present this Order without any explanation why it has taken so long for the exemption to be withdrawn.
We had many discussions in Committee on the Companies Bill about this and we were given every indication that this matter was regarded by the Board of Trade as one of urgency. I wish to make clear that I am not making any criticism of the right hon. Member for Sheffield, Hillsborough, who was extremely helpful and considerate throughout proceedings on the Bill. I believe that if he had still been in his former position we would have had this order long ago. Unfortunately, since his departure from that office company affairs have not been treated with the expedition or seriousness which they deserve within the Department. I very much regret his departure for that reason. It is high time that owners of banks not included in the Order—accepting houses, discount houses and the miscellaneous group—had the information which they would be entitled to if the order were extended to them.
It is worth recalling that the totality of the Jenkins Committee recommended unanimously that the exemption enjoyed by the shipping companies should he withdrawn. The Government have made no move whatever on that recommendation. When we were discussing all these things in Committee on the Companies Bill in 1967 the right hon. Member for Sheffield, Hillsborough, promised that they would all come in a new Companies Bill. Some of us felt it necessary to express some scepticism about the likelihood of a new Companies Bill coming forward. Apparently the Government have abandoned any intention of producing such a Bill.
We bear in mind that we introduced a number of Amendments to eliminate these exemptions for banking and discount companies, the miscellaneous group and shipping companies and withdrew them on the understanding that the Government, following examination of the matter, would be expeditious and comprehensive.
§ 10.33 p.m.
§ Mr. John Fraser (Norwood)
I shall try to be brief because I do not want to keep the House sitting nor to keep my hon. Friend from her husband.
363 This Order deals with banks. Perhaps the definition of a banker is too long to give now. Mark Twain gave it as the definition of a man who lends an umbrella when the sun is shining and takes it back when it is raining. This Order is discriminatory between one set of banks and another. The clearing houses to which it applies act fairly honourably. That is no reason for not taking them into public ownership, but I shall not deal with that in discussing the Order.
There are banks which are not dealt with on disclosure of accounts which have a pretty shabby record—what one might call back-street bankers. In times of credit squeeze there is almost a black market in money. The sort of practices adopted by those banks were disclosed in the Consumer Council magazine Focus. They enjoy the protection of bankers and banking companies by virtue of the Board of Trade's certificate and do not have to comply with the Moneylenders Acts, yet they get away with charging extraordinarily hot rates of interest, arrangements for redemption which are grossly inequitable compared with other clearing banks and discount houses, and sums to cover legal fees and surveyors' fees, inspection and registration fees, particularly when lending money on first and second mortgages on houses.
I denounce the order—to remain in order—to ask why the Board of Trade does not do something about those banks, the back-street boys. Why can they shelter behind my hon. Friend's slender figure? When will she do something to make them disclose what goes on behind their doors as well as dealing with the clearing banks?
§ 10.35 p.m.
§ Mr. Michael Shaw (Scarborough and Whitby)
I welcome the Order, but I think that the hon. Lady has to a certain extent missed a sense of occasion in its presentation. To anyone who has taken an interest in company law, particularly the changing attitudes towards the presentation of accounts, to anyone, indeed, who has followed the changing attitude towards banks and bankers and the changing pattern of banking, the regulations are a small but important milestone.
364 To welcome the changes that the regulations will confirm—it is a confirmation, because the banks have already indicated that they are prepared to bring about the changes voluntarily—is not to criticise the past. The reputation and standard of our banks, particularly our clearing banks, are reflected in the sayingAs safe as the Bank of England.Today it is unthinkable that the famous British banks should default on any of their obligations. But this was not always so. Out of a harsh experience these great banks have built their business and their reputation. In an unsophisticated age, with the air of mystery and permanence that grew around them and due to the skilful way in which they carried out their job, confidence was built, confidence for the benefit of their customers and confidence for the trading communities throughout the world.
It must be emphasised that the secrecy with which the banks have been allowed to cloak their affairs has not been misused. So it may well be questioned why we should now seek to change what has seemed pretty satisfactory. The answer lies in the changing pattern and requirements of our commercial life. Today, with communications on a scale far greater than before, and the size and complexity of commerce growing almost daily, the well-being of our commercial life depends more and more on accurate, detailed and up-to-date information and on the considerable body of informed criticism to which it is subjected.
Business confidence today rests on accurate disclosure rather than discreet hiding of the facts. In voluntarily agreeing, as the banks are doing this year, to waive their exemption from their obligation as to disclosure in their accounts, the banks are accepting that they are a part of, and not distinct and different from, our general flow of commercial life. Accordingly, it is right that they should properly conform to the changing requirements of the law. The old concept that it was dangerous to upset the public by showing all the fluctuations of trading, that it was better to juggle in secret with reserves and the value of assets, so as to present a consistent and confidence-making picture, went out many years ago for the generality of companies.
365 It was finally ended by what was in my view in many ways the tragic, although probably inevitable, case of Kylsant. As a result of the Cohen Committee's Report there were set out in considerable detail in Schedule 8 of the 1948 Act matters that must be disclosed, and the manner in which they must be disclosed, in the profit and loss accounts and the balance sheets. The 1967 Act, on which many hon. Members spent a great deal of time, not least my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne), tightened still further these disclosures.
The Jenkins Committee by a majority vote upheld the Cohen view that exemptions from these requirements should be continued for banking and discount companies. That it did so, there is little doubt, arose from its belief that nothing should be done in any way to undermine the confidence and stability of the banks.
§ Mr. Bruce-Gardyne
Would my hon. Friend not agree that in practice the Jenkins Committee's Report suggests that the recommendation was curiously at variance with the consideration that it advanced in detail before making the recommendation?
§ Mr. Shaw
There is much in that. It was advancing towards the conclusion of disclosure but felt that the importance of confidence and stability in the banks was such that unless it was asbolutely sure it would not be right to recommend complete disclosure. I felt that the majority view was that it could not at that stage be certain that it was right so to recommend. This was because it felt that confidence and stability in the banks was a national assets of first importance.
Jenkins reported in June, 1962, and even then there was only a majority decision that exemption should be continued for these companies. The strong minority view was that this exemption, at any rate for banks whose main business was in the United Kingdom, was no longer necessary and should be ended. The minority report went on to argue in a most telling manner and concluded that the exemption should be withdrawn and a wider reserve power should be given to the Board of Trade in cases where the national interest might be involved.
366 It must be clear when discussing these regulations that the exemptions granted to the banks were great. They related to undisclosed transfers to and from reserves, doing away with the need to show the charge for tax on the year's profits, and there was no need to discriminate between reserve provisions and liabilities in their balance sheets, no need to show the market value of their investments, no need to show the method of valuation for fixed assets or depreciation, and so on. What it means is that banks had no need to show their true profits in any year. Profits in any year could be more or less than those stated to the public. The figures in their balance sheets could, again, in theory at least, include a greater or lesser discrepancy than that included in the corresponding figures for the previous year.
This matter, always important, is even more important today because there is a movement in the banks towards mergers and wider fields of activity in which they are becoming more and more engaged. By the time the 1967 Act was passed, things had moved further in favour of removal of the exemption. It was made clear in Committee on that Act, by the right hon. Member for Sheffield, Hillsborough (Mr. Darling) that discussions were taking place with the banks on whether or not the exemption should be discontinued and that these discussions had reached an advanced stage. He indicated that conclusions would not long be delayed and that appropriate orders would be placed before the House. I do not consider that the period since then is a short one, although the right hon. Gentleman suggested that it would be.
In considering the Order, since no explanation has been given, we are bound to question how satisfactory it is. The London clearing banks and the Scottish banks are one of six different classes itemised in the Jenkins Report, and not one reason has been given by the hon. Lady why the other five categories have not been included in the order. I understand that discussions have been going on with the banks concerned. Why has it been agreed among the London clearing banks and the Scottish banks that they should make full disclosure but that others should continue to be allowed 367 their exemption? Without an explanation, the Order is incomplete and unsatisfactory.
§ Mr. Deputy Speaker (Mr. Sydney Irving)
Order. The hon. Gentleman is going wide of the Order. He can discuss only the banks mentioned in it and not those which are not mentioned.
§ Mr. Shaw
I hope that at any rate I have made our feelings clear on the matter, and I bow to your Ruling, Mr. Deputy Speaker.
Limited though it may be in scope, we welcome the Order. I have criticised the time scale between the Committee stage of the 1967 Act and now in comparison with that envisaged by the right hon. Member for Hillsborough. But at least we have an Order, which is more than can be said about the new and wide ranging companies legislation which we were also promised in 1967. It is certain that we shall not see such legislation in the lifetime of this Parliament. It makes things difficult when we have to discuss such orders as this against the background of promised future legislation. However, this Order is part of the promises made on that earlier occasion.
§ Mr. Deputy Speaker
Order. The hon. Gentleman is going into a wider debate than is admissible on the Order.
§ Mr. Shaw
None the less, limited though the regulations are, we welcome them. They will be of benefit to our commercial life. Whilst the history of disclosure and its implementation in the case of banks is a long and slow one, there is no cause for criticism on that count. Public confidence has been the over-riding consideration. Right though the regulations now are, they are also irrevocable, except by a new Act of Parliament.
§ Mr. Bruce-Gardyne
On a point of order. I seek guidance, Mr. Deputy Speaker, on your Ruling about what it is in order to discuss on the regulations. We are possibly in a slight difficulty. 368 You have ruled that we cannot discuss the discounting and banking houses which are not in the regulations. Would it be in order for the Minister in replying to deal with the reasons for singling out the two types of bank which are in the regulations?
§ Mr. Deputy Speaker
Yes; it would be in order for the Minister to say why those are in the regulations; as long as she does not go wider than that, it would be perfectly in order.
§ 10.51 p.m.
§ Mrs. Gwyneth Dunwoody
With the leave of the House, I speak again. The hon. Member for Scarborough and Whitby (Mr. Michael Shaw) said that I have rather missed a sense of occasion. I am happy that the hon. Gentleman chose to welcome the regulations. If I wished to be unkind, which I can never bring myself to be to the hon. Gentleman, I would point out that it would appear that my hon. Friends have more of a sense of occasion than his hon. Friends. Perhaps for it to be otherwise would cause great difficulties at this hour of night.
The hon. Gentleman and the hon. Member for South Angus (Mr. BruceGardyne) made a great deal of the recommendations of the Jenkins Committee—rightly so, as they were obviously the basis on which much has depended. The hon. Member for South Angus said that I have over-ridden the findings of the Jenkins Committee, conveniently forgetting that what he was talking about was the minority report and that, although the Committee was divided, the majority recommended that the exemptions should continue.
The Companies Act, 1967, left the exemptions untouched but ensured that the Board of Trade's power to amend Schedule 8 was adequate to make whatever changes in the exemptions might seem desirable in the future.
The hon. Member for South Angus took me to task. I was glad to hear him pay tribute to my right hon. Friend the former Minister of State—the hon. Member for Sheffield, Hillsborough (Mr. Darling)—because my right hon. Friend did such an enormous amount of work in company reform that it is only right for the House to pay a sincere tribute to the brilliant way in which he handled 369 that Bill. It crossed my mind when the hon. Gentleman was speaking that possibly my right hon. Friend did not receive as much assistance from the hon. Gentleman as he might have done, but I am glad that the hon. Gentleman has at this late date seen the light.
I must be careful not to go outside your Ruling, Mr. Deputy Speaker. The regulations do not include the other banks because the Government are not yet convinced that the exemptions can safely be withdrawn from the other banks. The Government will review the position when they have the full accounts from those banks over a longer period than at present. Although much has been made of the period of three years, the dangers of doing anything too rapidly are considerable. It is only right that we should have a number of years in which to consider full accounts before we take further decisions.
The Government do not agree with the Jenkins Committee on the question of shipping companies. The Companies Act, 1967, provides for the exemption of shipping companies but on a smaller scale than was the case under the 1948 Act.
My hon. Friend the Member for Norwood (Mr. John Fraser) expresed concern about a slightly different point. I have some sympathy with the views he expressed. The banks and companies to which my hon. Friend referred are not recognised for the purposes of Schedule 8. They have not the exemptions with which the regulations are concerned. There is, therefore, nothing in these regulations which will perform the task that my hon. Friend was asking about in relation to these companies. If there is any particular instance that he has in mind where he feels that the Board of Trade should be exercising its power in this matter, I shall be only too happy to examine any evidence that he sends me.
§ Mr. Bruce-Gardyne
The hon. Lady has not dealt with the different treatment of foreign banks resident in this country. She has based herself on the majority recommendation of the Jenkins Committee, against the minority, but it was the general recommendation of the Jenkins Committee that foreign banks should be treated on the same basis as United Kingdom banks. Why are they 370 not being treated on that basis in these regulations?
§ Mrs. Dunwoody
The regulations have been restricted in this way because the London clearing banks and the Scottish banks have themselves come to an agreement with the authorities on the basis of discussions over this period of three years. The hon. Gentleman must not assume that because these regulations are before the House there is not a constant movement in this matter. We are well aware of the difficulties that arise in relation to the different classes of bank, and I hope that the hon. Gentleman will accept my assurance that although we are tonight talking about a restricted part of the Schedule, it is one which will carry forward the whole movement of company reform.
There is no doubt that the whole matter of company reform is one which still offers great scope for considerable activity. Perhaps hon. Gentlemen opposite would like to join me in hoping that when the next Labour Government is returned one of their first tasks will be to undertake yet another Companies Bill, and I shall be only too delighted to pilot it through the House.
§ Question put and agreed to.
That the Banking Companies (Accounts) Regulations 1970, a draft of which was laid before this House on 27th January, be approved.