- (1) The Treasury may by order make such amendments in paragraph 10 of Part II of Schedule 1 to the Trustee Investments Act 1961 (under which a trustee's power to invest in certain securities depends on the amount of dividends paid) and in any enactment or instrument modifying that paragraph as appear to them required in consequence of the repeal by the Finance Act 1972 of the provisions relating to the deduction of income tax from distributions made by companies.
- (2) An order under this section may be varied or revoked by a subsequent order under this section, and any such order shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of either House of Parliament.—[Mr. Patrick Jenkin.]
§ Brought up, and read the First time.1302
§ The Chief Secretary to the Treasury (Mr. Patrick Jenkin)
I beg to move, That the clause be read a Second time.
I hope that I can introduce this clause fairly briefly despite its technicality. I outlined its purpose in the debate on the procedure resolution. Its purpose is to preserve the trustee status of certain securties issued by the statutory water companies. The need for the clause arises because of the reform of the corporation tax and in particular the ending of the system of deduction of income tax from distributions made by companies.
In paragraph 10 of Part II of the First Schedule to the Trustee Investments Act 1961, certain securities of statutory water companies, that is to say, debentures, guaranteed or preference stock, qualified as "narrower-range investments" for the purposes of the Trustee Investments Act 1961 provided—and this is the point of the clause—that these undertakings have for ten years paid a dividend of not less than 5 per cent., or in some cases 4 per cent., on their ordinary shares.
Of course, under the old system of corporation tax a dividend of 4 or 5 per cent. meant before the deduction of income tax—the gross dividend—but under the new system there is no deduction of income tax and a dividend is the actual cash amount going to the shareholder. It follows, therefore, that if a water company is to maintain the existing relativity in the distribution of profits between its various classes of shareholders it cannot in future meet the minimum requirements of 4 or 5 per cent on its ordinary share capital. Indeed, it would probably be quite inappropriate that it should try to do so.
What we have to do, therefore, is to find the most appropriate equivalent in the new system of corporation tax of a 4 or 5 per cent. gross dividend under the old system. This is a complex matter and for that reason the clause gives the Treasury power by order to amend paragraph 10 of Part II of the First Schedule to the Trustee Investments Act 1961 so as to reflect the reform of the corporation tax. Any such order will be subject to the negative procedure of this House.
I hope that I have made the position clear, and I shall be happy to answer any questions.
§ 5.30 p.m.
§ Mr. Joel Barnett
I assume that Paragraph 10 of Part II of the First Schedule to the Trustee Investments Act 1961 to which the right hon. Gentleman referred covers also the Mersey Docks and Harbour Board. I understand from a letter sent by the Under-Secretary of State, Department of the Environment, to my hon. Friend the Member for Flint, East (Mr. Barry Jones) that the phrase "narrower-range investments" requiring advice also applies to the Mersey Docks and Harbour Board.
Those narrower-range investments requiring advice apparently include 3½ per cent. War Loan and many other Government stocks. In the letter to which I referred the Minister says:The fact of the matter is that the Government cannot accept responsibility for protecting the interests of investors at public expense.I do not know about that. Only recently the Chancellor of the Exchequer found a great deal of money to pay to the liquidator of Rolls-Royce to ensure that investors in that company were paid possibly 30p per share, or perhaps more. It is not true to say that at no time is the Chancellor prepared to look after the interests of investors at public expense. Nevertheless, he has not been prepared to look after the interests of the investors in the Mersey Docks and Harbour Board. Those investors have suffered a great deal. Many hon. Members must have received representations from elderly people who, through the Government's action, have lost almost all the savings they had invested for the purpose of supplementing their pensions.
In the light of that, the Trustee Investments Act 1961 needs to be reconsidered. I have no doubt that those who gave advice to invest in the Mersey Docks and Harbour Board did so with the best intentions, yet the investors lost a great deal of money through the Government's failure to act.
I ask the Chancellor to think again about the Mersey Docks and Harbour Board, the Trustee Investments Act 1961, the securities covered by it and the danger of others losing money in the same way as those who invested in the harbour board.
§ Mr. Patrick Jenkin
I congratulate the hon. Member for Heywood and Royton (Mr. Joel Barnett) on having dragged into a discussion of a rather narrow and technical clause matters which have nothing to do with this provision at all. This concerns 31 statutory water companies and paragraph 10 of Part II of the First Schedule of the 1961 Act refers only to statutory water companies.
However, the failure of the Mersey Docks and Harbour Board was not a failure of the Government but a failure of the board of the company. As for Rolls-Royce, there is no question of bailing out the shareholders. The matter involved paying a fair value for the assets of the company. The negotiations were long and difficult, but the Government are satisfied that a fair value has now been paid to the liquidator. I am very fond of the hon. Gentleman, but I must say that his remarks were wholly inapposite and bore no relation to the provision which we are discussing. Having said that, I welcome his acceptance of the clause.
§ Mr. Joel Barnett
I apologise to the Chief Secretary, though I hate to think that the Chair was out of order in allowing me to speak as I did. However, I take the hon. Gentleman's point and I hope that he will consider looking at the point which I made.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.