COMPENSATION ORDERS (Hansard, 22 October 1975)

§ Mr. Varley
I beg to move, That this House doth disagree with the Lords in the said amendment.

§ Mr. Deputy Speaker (Sir Myer Galpern)
The question of privilege is involved in this amendment.

§ Mr. Varley
The Government have made it clear that we are pledged to "prompt and fair compensation" for any compulsory acquisition. We said this in the White Paper, and in the House we made a series of amendments to place beyond any doubt that individuals affected by a vesting order would have rights to compensation. I believe, therefore, that we have demonstrated that we are determined to honour our commitment to prompt and fair compensation.
The point at issue raised by the amendment is a narrower one. The amendment would require that in no circumstances should compensation be paid by the issue of Government stock, but in all cases must be paid in cash. The Bill as it left this House allows for either means of payment, and does not prescribe one or the other. The amendment would restrict the Government, so that only cash payments could be made. This would exclude what has been the normal, although not the sole, means of paying compensation for major nationalisation measures, for which compensation has normally been paid through the issue of Government stock, or through a combination of cash and stock payments. Equally, it might on occasions be to the disadvantage of recipients of compensation to receive payment in cash, since they would then become liable for capital 635 gains tax. On both these counts, the amendment is unacceptable.
Whatever the means, compensation must be fair; there is no question of the Government attempting to pay any less compensation through the issue of Government stock. The amount of stock paid will be determined by the market value of the stock on the day of payment of compensation, and thus allows, in so far as it is possible to do so, for the recipient of stock, to seek an equivalent cash value, since the two will be inter-convertible. What would not be reasonable is to attempt to restrict the payment of compensation to payment in cash: it would restrict the Government without any benefit in increased guarantee of fair treatment for the recipient of compensation.

§ Mr. Nelson
I was relieved to hear the right hon. Gentleman say that the Government are committed to prompt and fair compensation and that that intention is set out in the White Paper. There is nothing in the relevant provisions of the Bill to say that the compensation shall be fair. But my main fear is about compensation paid in the form of Government stock whose nominal value may reflect fair compensation for the shares subject to a vesting order, but whose interest coupon or redemption date makes the real value of the gilt-edged security or Government-owned stock substantially less than its face value.
To take an obvious example, £100 of stock at nominal value today with a redemption date of the year 2000 and an interest rate of 10 per cent. is worth precisely £68. There is nothing in the Bill which sets out the protection for the shareholder who may have his shares compulsorily acquired under a vesting order and which makes sure that he gets not just the nominal value of Government securities but the fair value as well.
Those people who received compensation in the past in the form of 2½ per cent. Consolidated Fund Debt find themselves with stock to the princely value today of £17 per £100. There comes a time when one must question the unfettered ability of Government through legislation consistently to issue vast amounts of Government debt. The pub- 636 lic sector borrowing requirement is already being pushed up, with estimates every month, and the unfettered power here, solely at the discretion of the Secretary of State and not of the shareholders to issue Government stock as opposed to cash is unacceptable.
Second, although a compensation order has to be laid before Parliament, under Clause 14(1) it is required to specify only the manner in which compensation is to be paid and not the value of that compensation. Although disputes arising in connection with a compensation order can be referred to a tribunal constituted as set out under Schedule 3, no terms of reference in that schedule oblige the tribunal to insist on real, as opposed to nominal, compensation.
Furthermore, if there is a relevant period as defined in Clause 14(3)(e), that is to say, a delay between the vesting of the shares and the payment of compensation, what happens to the shareholder who is compensated in Government stock, the market value of which may decline substantially in a day, let alone a week or a period of months? On Monday of this week, the value of Government stock fell by up to £1.50 for every £100. So even a delay of a day could substantially prejudice a shareholder whose shares are compulsorily acquired under a vesting order.
If the Government contend, as did the Secretary of State, that Government stock is synonymous with cash compensation, what is the objection to realising the cash value of that Government stock by issuing it on the market, presumably through the Government broker, and paying the proceeds in fair compensation and in real value to the shareholders on the day when the shares are vested?
I believe that the fair solution would be to give the option to receive either shares or Government stock not solely at the discretion of the Secretary of State but at that of the shareholder. I recognise that, under the existing capital gains tax regime, in certain cases, shareholders who receive cash as opposed to stock may be prejudiced in that they have an immediate capital gains tax liability and would have such a liability if they sold the Government stock within a year of it being acquired.
637 11.0 p.m.
I happen to feel that there are grave problems with the capital transfer tax system and that is not sufficiently recognised under the present system, but if, as it is, it is fair to give proportionate compensation to shareholders, they should be able to receive cash or Government stock.
At the very least we should be able to come up with a scheme to enable the Government to issue stock on the market or to underwrite it in a more orderly fashion. There should be no risk of substantially depressing the value of other Government loan at issue, of which we know, there is a vast amount. This would give the shareholder a far better position than under the terms of the Bill. If compensation is, as the Secretary of State says, synonymous with cash, there should be no political objection from either side to what I suggest. It goes across party lines, but—and this is a political point—when we have in the next five years something like 25 per cent. of the public sector stock coming up for renewal and presumably new stock being issued, it is fair for hon. Members to raise objections to the unfettered powers of the Secretary of State to issue more loan stock, to enter into a paper chase and pay compensation for hard-earned company stock on a never-never system of issuing more debt.
That is a point which we should seriously consider before rejecting this Lords amendment.

§ Mr. Ridley
I can answer one of the points made by my hon. Friend the Member for Chichester (Mr. Nelson). I must apologise for not hearing the Secretary of State. Run though I did, it was a short speech and I did not get here in time to hear it. [Interruption.] It would be unwise for hon. Gentlemen to engage in ribald remarks from a seated position in case I were to turn on them.
I can tell my hon. Friend why it is not expedient for the Government to issue cash, as opposed to Government stock, in compensation. The reason is that cash issues would have to be included in Estimates and would appear on the public expenditure totals, whereas the issue of stock, in some extraordinary way, is deemed to be some financial transaction not under the scrutiny of the House at Budget time. That is the real reason. 638 So, although we have £9,000 million borrowing, which may turn out to be £12,000 million or £15,000 million—we did not quite understand what the Chancellor was telling us when he made his speech to the bankers last Thursday—he can increase the borrowing without increasing the figures by issuing more stock although that stock can easily be sold and turned into cash.
One danger of the situation is that the Government may start paying the teachers with stock. It would not appear in expenditure but they would cash the stock and Government expenditure would be augmented without the House being presented with the true figures. That would be totally in accord with the Government way of conducting their financial business, and the Lords have a good point here, which should be supported.
Turning to the economic effects of the two alternatives—

§ Mr. Dennis Canavan (West Stirlingshire)
Does the hon. Member not understand that the distinction is that teachers work for a living, whereas shareholders often do no work at all, and others work for them?

§ Mr. Ridley
The hon. Gentleman is living in a strange antediluvian world.

§ Mr. Canavan
Where teachers work.

§ Mr. Ridley
The hon. Gentleman misunderstands my argument which is first, whether it be work or not work, payment is payment and it is possible to pay in stock or cash, stock being easily convertible into cash.

§ Mr. Tom King
Will my hon. Friend give way?

§ Mr. Ridley
I will give way to my hon. Friend when I have dealt with this intervention.
Secondly, it is time that the House considered the idea that those who draw wages work whereas the rest of the population do not. That is totally fallacious. This country is short of savers who produce capital. If they are to be classed as unearned income earners, as parasites, or as people who do not work, if they are to be singled out for the singularly effective invective of the hon. Gentleman such that they quiver in their shoes, and if they are to be taxed to ribbons by 639 the Chancellor, they might stop saving. After all, the savings of ordinary working people are keeping this Government afloat. If the Government are unable to borrow, they will be in even more serious difficulty than they are now. It is time that they stopped attacking savers, because savers are still keeping this Government going.

§ Mr. Fairbairn
Will my hon. Friend give way?

§ Mr. Ridley
I promised to give way to my hon. Friend the Member for Bridgwater (Mr. King).

§ Mr. Tom King
My hon. Friend dealt with the point made by the hon. Member for West Stirlingshire (Mr. Canavan) more effectively than I could have done. I was conscious, when the hon. Gentleman intervened, of the case of two teachers in my constituency whose savings from earnings in work, of which I assume he would approve and I trust would approve of their savings as well, are affected because they put them into shares and have been most unfairly compensated. The hon. Gentleman might occasionally look at that side of the coin as well.

§ Mr. Ridley
My hon. Friend's reminiscence reminds me that a great city across the Atlantic has apparently been rescued from financial bankruptcy by the savings of the teachers. Hon. Gentlemen opposite continue to laugh. I suppose that is out of embarrassment either from total confusion or from a failure to understand the mechanism of savings in an economy. If they can cut short their insularity, their xenophobia, their hatred of things foreign and multi-national and events outside their right little, tight little Socialist Britain in which they seek to live, let them think of New York where the savings of the teachers have rescued the municipality, albeit for only a month or two. However, a month or two in politics is a very long time according to the Prime Minister. What would New York have done without the teachers' savings? What would the Labour Party do without the savings of the people? The Government are borrowing heavily not only abroad, but at home. Therefore, hon. Members opposite should not denigrate those who lend to them, because they can bring them up short.

§ Mr. Fairbairn
Does my hon. Friend appreciate that there are two types of teachers: teachers who are earners—

§ Mr. Deputy Speaker (Sir Myer Galpern)
Order.

§ Mr. Ridley
I have given way again, Mr. Deputy Speaker.

§ Mr. Deputy Speaker
I am sorry.

§ Mr. Fairbairn
Does my hon. Friend appreciate that in the "newspeak" of the hon. Member for West Stirlingshire (Mr. Canavan) teachers who do not save are workers and teachers who do save are merely shareholders and therefore do not do any work?

§ Mr. Ridley
rose—

§ Mr. Ronald Atkins (Preston, North)
rose—

§ Mr. Deputy Speaker
Order. It is getting towards midnight. I know the feelings of hon. Members. It is a bewitching hour. Mr. Ridley will reply to the intervention and then I will call Mr. Atkins.

§ Mr. Ridley
I have had two or three interventions and, as always, I have tried to give way. When I do not intend to continue I will, if I may, resume my seat. I do not know whether the hon. Member for Preston, North (Mr. Atkins) was trying to intervene or to take up the debate.

§ Mr. Ronald Atkins
rose—

§ Mr. Ridley
I should like to conclude so that the hon. Gentleman may intervene in the debate properly.
There is one economic effect of giving stock rather than cash. People who receive stock in compensation are almost bound to sell it because it is not the best investment for them to hold and they are likely to spend some of it.
The effect of receiving an investment which has been held in shares, in terms of gilt-edged, is that one is inclined to buy a new car, decorate the drawing-room, or otherwise cause extra spending. It is easy for the Treasury to argue that swapping equity shares for Government stock is a non-inflationary transaction, but that is only true in theory.
A person who holds a substantial proportion of shares in a company is likely to hold on to them as a valuable asset which he would not want to dilute. But 641 Government stock has no significance in terms of industrial power or control and he could easily sell part of it to realise cherished ambitions. The effect of this would be to increase consumption within the economy at a time when we are already consuming much more than we should.
The course suggested by the Government will falsify the public accounts and will be inflationary. If the Government's first priority is to control inflation, they should accept the Lords amendment. It was suggested by hon. Members opposite that their Lordships had no right to interfere in this Bill, but they have been very shrewd. The hon. Member for West Stirlingshire (Mr. Canavan) is clearly an honourable, honest, hardworking man, but he has a certain amount to learn about the role of savings in the economy and about how his Government are financed. I am sure he would like to pay tribute to another place. The Lords have tried to help the Labour Party, which is notoriously weak on these matters, as the interventions in this debate have demonstrated. Hon. Members opposite should all vote for the Lords amendment. It will help them run the economy properly and encourage sound financial practice instead of the profligate way they are following.

§ Mr. Ronald Atkins
As the hon. Member for Cirencester and Tewkesbury (Mr Ridley) raised the question of hardworking teachers, perhaps I can give him the benefit of my experience. I was a teacher and, seeking security for my hard-earned savings, I invested in Rolls-Royce. I thought this would be a secure investment, because I could not imagine that any Government would allow a company with such skills in aero-engines to go bust. But a Conservative Government were in power and I lost my investment.

§ Mr. Canavan
Shame. Disgrace.

§ Mr. Atkins
I know that a Labour Government would not have allowed the company to go bust.
Being a hard-working teacher and not a skilled investor, I took another risk and invested in British Leyland.

§ Mr. Deputy Speaker
I hope that the hon. Member does not end up by inviting 642 Members of Parliament to contribute to remedy his insolvency.

§ Mr. Ridley
In view of the hon. Gentleman's self-confessed record so far, may I suggest that he would make an excellent member of the National Enterprise Board.

§ Mr. Atkins
That investment did not prove to be sound. I bought the shares at about 14p. The price fell to 5p. Lo and behold, the Labour Government came to my rescue and paid me 10p per share. [HON. MEMBERS: "Too much."]
The Opposition want the best of both worlds. The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) wants cash in some circumstances, but not if it means that there will be a loss on capital gains tax.
The procedure suggested by the Government is in accord with what happened in the past. When the Opposition mention losses resulting from Stock Exchange dealings in Government stock, they ignore the losses to private shareholders. In the light of experience, Labour Governments have been more than generous in awarding compensation for firms taken over.

§ Mr. Varley
The hon. Member for Chichester (Mr. Nelson) raised some important points. I know that he gave this point a great deal of attention in Committee. I found some difficulty in following his meaning. He agreed that it was advantageous for a recipient of compensation to be paid in stock as well as cash. However, if he agreed with the other place in rejecting the payment of compensation by way of stock as well as cash he would lose that advantage. I did not quite understand his advice. However, on reflection I hope that he will consider supporting the Government in rejecting the amendment.

§ Mr. Nelson
I stated, perhaps not entirely clearly, that my first preference would be to retain the Lords amendment. However, the best course is not open to us. I refer to the choice of stock or cash which is open only to the Secretary of State but which should also be open to the shareholder.

§ Mr. Varley
The hon. Gentleman made his point clear. However, the facts contained in another of his examples were not correct. The basis of the issue of 643 Government stock as compensation is the value of the stock on the day of issue, not its nominal value. Therefore if £100-worth of stock by nominal value is worth £68 on the day of issue it would count as £68, not £100.

§ Mr. Nelson
The Minister said that compensation would be paid on the day when the shares were vested. Will the shareholder whose shares are subject to that vesting order be able to dispose of his shares freely, if he wishes, at any time up to that date without delay, or will there be a void period?

§ Mr. Varley
I am not certain about that point. When I have the information I shall contact the hon. Gentleman and we may arrange for the House to be informed about the matter. I cannot give an off the cuff answer now.
I am sorry to hear of the difficulties of my hon. Friend the Member for Preston, North (Mr. Atkins). He had a very unsatisfactory experience in his dealings with British industry. The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) suggested that my hon. Friend would qualify as a member of the NEB. I have given some thought to this. The hon. Member for Cirencester and Tewkesbury, who has great experience in these matters, was on my short list as a possible member of the NEB, but I remembered that a few years ago he said in a speech in the House that it would be much better for investors to invest in bowling alleys and bingo halls than in the steel industry. Perhaps he would not be a suitable member of the NEB.
The Bill says that there shall be compensation. The meaning of "compensation" is "something which compensates" and it must therefore be fair compensation. My legal advice is that to add "fair" to the Bill would make no difference. The compensation order which sets out the amount and basis of the compensation will have to be approved by the House and there will be parliamentary control.

§ Mr. Heseltine
Although this is a serious matter, I do not wish to detain the House. If we are to have any prospect of later debates we must move on. My hon. Friends will have been dismayed, as I am, by the lack of comprehension on the part of the Secretary of State. My 644 hon. Friend the Member for Chichester (Mr. Nelson) put to him a serious situation of hardship which in all equity should have appalled the right hon. Gentleman. As I doubt whether even now he has fully understood the position revealed by my hon. Friend, I will put it to him again.
The owners of shares in a significant national company—it might be quite small and it might operate in the field of higher technology—with a record of considerable growth have, before the vesting order is made, a prospect of capital improvement and a prospect of increased earnings on capital in the years ahead. When the vesting order is made they will swap compulsorily the equity in the company concerned for Government stock, without option.
If those share owners come to the conclusion that Government stock is likely to be a depreciating asset they might prudently wish to sell, but if they do so capital gains tax on the Government stock they have been forced to accept is payable. Not only are they deprived of a growth holding in a successful company, but they are expected to replace the income from it with a cash product from Government stock which they have had to sell to protect their future assets. They will be 30 per cent. worse off in cash terms the day they convert Government stock into cash base to produce equivalent income and protection in the future for what was equity in a growing and successful company. If the Secretary of State cannot understand the inequity of that situation he has not thought through the Bill as it stands.