Commons Sitting of 27 February 1980

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
MESSAGE FROM THE QUEEN

  DOUBLE TAXATION RELIEF (UNITED STATES OF AMERICA)
  The Vice-Chamberlain of the Household (Mr. Anthony Berry)The Vice-Chamberlain of the Household (Mr. Anthony Berry) reported Her Majesty's Answer to the Address, as follows:
  I have received your Address praying that on the ratification by the Government of the United States of America of the convention and protocols set out in the schedule to the draft order entitled the Double Taxation Relief (Taxes on Income) (The United States of America) Order 1980, which draft was laid before your House, an order be made in the form of that draft.
  I will comply with your request.

ORAL ANSWERS TO QUESTIONS
  ENVIRONMENT

    Nursery Education (Urban Aid)
    Mr. Chris Pattenasked the Secretary of State for the Environment when he expects to announce his decision on the Avon county council's application for urban aid for nursery education in that county.
    The Minister for Local Government and Environmental Services (Mr. Tom King): I hope to do so in March.
    Mr. Patten: In reaching his decision, will my right hon. Friend recognise that my constituency has suffered for many years from a totally inadequate number of nursery schools? Will he also bear in mind that the establishment of a nursery class at Twerton—part of Avon's plan —would meet a genuine educational and social need?
    Mr. King: I am aware of my hon. Friend's concern. That is one of the factors that we shall bear in mind when considering the various projects that have been put forward.

    Rate Support Grant
    Mr. Rentonasked the Secretary of State for the Environment whether he will make public the criteria by which he will judge the efficiency of individual local authorities when deciding the allocation of rate support grant under the unitary method.
    Mr. King: Under block grant, an authority spending significantly above its assessed standard expenditure will receive a declining rate of grant. The method of assessing standard expenditure will be developed in full consultation with the local authority associations.
    Mr. Renton: Under the unitary system, will ratepayers be able to judge, in due course, whether their local authority is efficient? If so, will the system be explained in a manner that is comprehensible to ratepayers? Is my right hon. Friend aware that multiple regression analysis does not receive instant understanding from readers of the Mid Sussex Times—or from their Member of Parliament?
    Mr. King: The principle of block grant and the standard rate poundage is principally a method for the distribution of the public funds involved in the rate support grant. Various anomalies will arise under the standard rate poundage. My hon. Friend's worthy concern for his ratepayers will be best met by the publication of comparable information about the performance of different authorities under the various categories. That is an important ingredient of the Local Government, Planning and Land (No. 2) Bill. I hope that it will help all ratepayers.
    Mr. Dubs: In looking at the type of information that will be published on a comparative basis, will the Minister consider such an important yardstick as the number of council houses that stand empty, awaiting sale? Is he aware that in the borough of Wandsworth there are 700 such council houses? Is that not a typical example of gross inefficiency? Is it not the consequence of policies that

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    have been foisted upon local authorities by the Government?
    Mr. King: If we are to look at this issue objectively, we must consider the number of empty houses in other boroughs—for example, in the borough of Lambeth, I believe that there are five times as many houses standing empty as a result of its policy of municipalisation. People are being deprived of any possibility of occupancy.
    Mr. Squire: When my right hon. Friend considers the rate support grant, will he also look carefully at the submissions of the joint authority associations that he has recently received? They go some way to meet the Government's proposals for control of expenditure. Is he aware that, in addition, they remove some of the more objectionable features of the present system?
    Mr. King: I can confirm that we are now considering their submissions carefully. We hope to meet the associations very shortly.
    Mr. Oakes: As the Government still do not have the slightest idea how to operate part VI of the Bill and no chance of getting agreement with local authority associations on that, will they drop the provision at least from the present Bill and negotiate further with local authorities until an acceptable scheme is produced?
    Mr. King: The right hon. Gentleman would be the first to criticise us if we did not have meaningful consultations with local authority associations on the details of how the block grant scheme will work. That is precisely what we are committed to, and that work is under way.

    Urban Development Corporations
    Mr. Parrisasked the Secretary of State for the Environment how long he expects urban development corporations to be in existence; and how he plans to review their performance.
    The Secretary of State for the Environment (Mr. Michael Heseltine): The UDCs will remain in being long enough to enable them to do their job of regenerating their areas. Their reports and accounts will be laid before the House, and their performance discussed as their
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    programmes and applications for Exchequer moneys are examined.
    Mr. Parris: I thank my right hon. Friend for that answer. Will he ensure that a balance is maintained between provision of new housing and provision of industrial infrastructure so that these projects become self-financing and do not constitute a drain on the county areas?
    Mr. Heseltine: I am anxious that as much work as possible within UDC areas is self-financing and attracts additional private sector support. I believe that the precise balance of policies must await the establishment of the UDCs and their first policy decisions.
    Mr. Steen: Although the House realises that urban development corporations are in their very early stages, will my right hon. Friend say what other plans he has to help regenerate ailing older cities?
    Mr. Heseltine: The repeal of the Community Land Act and the establishment of land registers will be important features of our attempt to bring into use land currently lying derelict in urban areas.

    Rent (Agriculture) Act 1976
    Mr. Delwyn Williamsasked the Secretary of State for the Environment how many households have been rehoused under the provisions of the Housing (Agriculture Provisions) Act 1976.
    The Minister for Housing and Construction (Mr. John Stanley): My hon. Friend is no doubt referring to the Rent (Agriculture) Act 1976. The figures obtained by the Department show that by the end of 1978, 1480 households were rehoused under the Act, as a result of applications to local authorities.
    Mr. Williams: Does my hon. Friend agree that the pre-emption clause introduced into the Housing Bill in Committee will, in practice ensure that local authorities are fully able to discharge their responsibilities under the Rent (Agriculture) Act?
    Mr. Stanley: I am grateful to my hon. Friend. That change in the Bill has been widely welcomed.
    Mr. Newens: What action does the hon. Gentleman propose to take over authorities that are not implementing the Act? What action will be taken if local authorities find themselves completely without council houses at their disposal to enable them to offer alternative accommodation?
    Mr. Stanley: The Act is monitored by the Department of the Environment and the Department of Agriculture. Fisheries and Food. Our view is that the Act is operating satisfactorily. We believe that the changes that we are making to revive the privately rented sector, and particularly the introduction of shorthold, will be material in meeting the problem to which the hon. Gentleman refers.

    Local Government Expenditure (Wages and Salaries)
    Mr. Majorasked the Secretary of State for the Environment what percentage of local government revenue expenditure was accounted for by staff wages and salaries as at (a) the financial year 1973–74 and (b) the latest date for which information is available.
    Mr. Heseltine: In 1973–74 wage and salary costs accounted for just over 50 per cent. of gross local government revenue expenditure of 71 per cent. of gross current expenditure. In 1978–79, the figures were 51 per cent. and 69 per cent. respectively.
    Mr. Major: I am grateful to my right hon. Friend for that reply. Does he agree that it indicates an imperative need to continue to restrain staff levels and levels of wage settlements in local government? Will he urge on local authorities, wherever possible, a policy of retrenchment in staffing levels to ensure that the money available is used for services rather than excessive staffing?
    Mr. Heseltine: I am grateful to my hon. Friend for drawing these important points to the attention of the House. I have asked local authorities to constrain manpower recruitment wherever possible. I am absolutely sure that, in the present climate of public expenditure, the more that the available resources can be used to provide services rather than increase the number of employees the better.
    Mr. Ian Lloyd: May I endorse the plea made by my hon. Friend the Member for Huntingdonshire (Mr. Major)? Is my right hon. Friend aware that in my local authority the increase in the wage and salary component last year was 39 per cent.? If that is 39 per cent. of 70 per cent., how can it possibly be said that local councillors are effectively in control of finances in their authority?
    Mr. Heseltine: The present levels of rate fixing indicate that there are considerable numbers of Conservative authorities that are very much in control and therefore able to effect considerable constraint in the rate levels. It must be a matter for the individual judgment and accountability of the local authority and its councillors in each area.

    Planning Control
    Mr. Heddleasked the Secretary of State for the Environment if he is satisfied with the operation and effectiveness of article 4 directions in planning control.
    The Under-Secretary of State for the Environment (Mr. Marcus Fox): In general, yes, but we are prepared to consider any particular difficulties.
    Mr. Heddle: May I thank my hon. Friend for that answer and invite him to consider whether there might be firms of speculators developing these leisure plots, particularly in the Home Counties, and leading prospective purchasers to believe that they might have planning potential? Does my hon. Friend agree that article 4 directions are negative, do not help the planning process and certainly do not protect the purchaser? Further does he agree that the answer is to redefine the words "agricultural use" in the town and country planning Acts?
    Mr. Fox: I also deprecate the practice of selling these small leisure plots. The purchaser often suffers the full effect of the law and the vendor escapes. I am aware of the weakness in article 4 directions. However, I must point out that they are concerned with the use of land and not ownership. I shall carefully watch the County of Kent Bill, which is in the other place.
    Mr. Steen: Does the Minister agree that a great deal could be done by reducing the powers of the planning department, particularly in urban regeneration?

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    Has he considered setting up enterprise zones, free of planning controls, to help small firms?
    Mr. Fox: I sympathise with much of what my hon. Friend says, but that is not a matter for me.

    Building Societies Association
    Mr. Richard Wainwrightasked the Secretary of State for the Environment when he expects to meet the chairman of the Building Societies Association.
    Mr. Heseltine: I have no immediate plans to meet the chairman of the Building Societies Association. We last met on 18 January, and will meet again as appropriate. My Department has close and frequent contacts with BSA representatives.
    Mr. Wainwright: When the right hon. Gentleman's Department is next in contact with the BSA, will he ensure that building societies are urged to compete more vigorously with each other so that potential house purchasers have a wider choice of terms and conditions and, in some cases, less exacting ones?
    Mr. Heseltine: The hon. Gentleman will know that there are a number of reports, and I have conducted my own investigations into the wide issues that form the background to his question. It would be wrong for me to anticipate the conclusions that I shall draw from those reports. It is worth making the point that any step of the sort that the hon. Gentleman has in mind might easily lead to higher mortgage rates.
    Mr. McCrindle: When the Secretary of State next meets the BSA, will he tell the association that it is no part of the Government's policy to adopt the recommendation in a report published in the past week which could lead to a tax on owner-occupation not dissimilar to schedule A, which some of us spent a decade urging the previous Conservative Government to abolish?
    Mr. Heseltine: I am most grateful to my hon. Friend for raising the question of schedule A, which I understand is the subject of a bitter defeat of myself in the processes of Government, because I failed to get it re-introduced. As the words have never crossed my lips since the return of
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    this Government, it is unlikely that that is a true story.
    Mr. Ioan Evans: As the Prime Minister is meeting the guru Milton Friedman today, will the right hon. Gentleman pass a message through the right hon. Lady to ask whether his philosophies are working with regard to housing. Does the right hon. Gentleman agree that when MLR was 70 per cent. mortgages reached a record height and yet the banks were making hundreds of millions of pounds in extra profits?
    Mr. Heseltine: The hon. Gentleman will, therefore, want to support the Government in our efforts to reduce public expenditure, which is the root cause of the problem to which he draws our attention.

    Domestic Property (Rating)
    Mr. Greville Jannerasked the Secretary of State for the Environment whether he will take steps to end the present arrangement whereby householders who save energy through the installation of insulation or by the installation of solar heating incur additional liability for rates.
    Mr. Neil Thorneasked the Secretary of State for the Environment whether, between rate revaluations, he would consider exempting from rating all improvements to domestic property within the curtilage of the building or any third schedule addition, in order to encourage the continuous improvement of the national housing stock.
    Mr. King: Most new small improvements to domestic property, including energy-saving measures, are already exempt from rating between general revaluations under section 21 of the Local Government Act 1974.
    Mr. Janner: Does the right hon. Gentleman agree that many such changes, which are subject to rates, are extremely desirable at a time when we wish to preserve energy? Is the right hon. Gentleman aware that in the United States householders who install such devices and arrangments save tax, yet here they are taxed more? Will the Government do something about that?
    Mr. King: The hon. and learned Gentleman will be aware that, provided

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    the improvement does not add more than £30 to the rental assessment—and the majority of energy-saving methods do not—it will not normally be caught under the rating provision.
    Mr. Thorne: Does not my right hon. Friend consider that it is a waste of effort by the district valuers, who have to value every single improvement to establish whether it is more, or less, than £30? In view of the Government's commitment to the improvement, not only of owner-occupied homes but also council dwellings, should not the Government take another look at the matter?
    Mr. King: The point that my hon. Friend makes is perfectly fair. This is a difficult issue. Resentment is felt by existing ratepayers who have been assessed when others are not assessed under this provision. At the same time, as my hon. Friend rightly says, it is Government policy to encourage improvement whenever possible. There is much feeling that this extra niggle for ratepayers, who are rated on improvements that they make, is a discouragement to such improvement.
    Mr. Alton: Has the Minister received today representations from the British Association of Insulation Manufacturers? What is his response to its allegation that there will be over-capacity among its firms as a result of the reduction of the 21 per cent. in the amount of money available for insulation in his announcement last week together with the 50 per cent. reduction in the overall amount available for insulation?
    Secondly, what assistance will the right hon. Gentleman give [HON. MEMBERS: "One question".]
    Mr. Speaker: Order. Hon. Members are quite right, provided they apply the same rule of one question to everyone.
    Mr. Alton rose—
    Mr. Speaker: The hon. Gentleman has asked his question.
    Mr. King: The question relates primarily to rating. Some comments in the press today about insulation grants are highly misleading. It is suggested that insulation for council houses is no longer available. This is now covered under a single block. It is open to local autho-
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    rities, if they so choose, to engage in the largest insulation programme in their history.
    Mr. Michael Morris: While my right hon. Friend is to be congratulated on reviewing insulation, is there not a strong case for a total review of rate surcharge and rate poundage? If we believe in an energy-saving policy, should not the Government be taking a lead?
    Mr. King: My hon. Friend will know that this is a further example of the problems of the rating system. It is receiving active consideration.

    Housing Investment Programme
    Mr. Strawasked the Secretary of State for the Environment what are the housing investment programme allocations for 1980–81 for (a) England, (b) the North-West and (c) Blackburn; and what the corresponding allocations were for 1979–80, expressed on the same price basis as for 1980–81.
    Mr. Edwin Wainwrightasked the Secretary of State for the Environment if he will now give the date when he will be announcing the housing investment programme allocation for 1980–81.
    Mr. Stanley: Housing investment programme allocations for 1980–81 were announced on 21 February. Such comparisons are usually made at public expenditure survey prices. At 1979 survey prices, the 1980–81 figures sought are for England, £1,601 million; for the North-West region, £226 million; and for Blackburn, £6 million.
    The corresponding allocations, at 1979 survey prices, for 1979–80 were for England, £2,351 million; for the North-West region, £308 million, and for Blackburn, £8·7 million.
    Mr. Straw: Will the Minister explain why a detailed written question was required from my right hon. Friend, the Member for Manchester, Ardwick (Mr. Kaufman) to force out from the Secretary of State an admission that next year's housing investment programme allocations involve a massive 33·4 per cent. cut—£955 million—and not the £540 million, which the Secretary of State put forward in his statement? Is the Minister aware that many opposition Members feel misled

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    and deceived by the Secretary of State's statement last Thursday?
    Mr. Stanley: If the hon. Gentleman consults the January 1979 White Paper, produced by the previous Government, he will know that the comparisons made are between out-turn in one year and future provisions in a subsequent year. That was precisely the basis on which my right hon. Friend made his announcement. In no way was he misleading the House.
    Mr. Wainwright: Does the Minister realise that the Government's housing policy means that many new houses that should be built will not be built this year and that modernisation of houses will not take place in the numbers required? This will greatly affect the whole country and especially the South Yorkshire area where I live. Will he confirm that £2·10 is to go on each council house rent? Furthermore—
    Hon. Members: "One Question".
    Mr. Speaker: Order. So far as I can understand, it is one complicated question.
    Mr. Wainwright: Has the Minister taken note of the Tory-controlled local councils that are objecting to the Government's policy on this issue?
    Mr. Stanley: The allocations made for this year reflect the fundamental determination to bring the public expenditure that this country can afford into line with what the nation is producing. That is the essential background to the allocations that we have made.
    Mr. Heddle: Will not my hon. Friend agree that by pursuing the Government's policy of selling council houses, he is re-cycling money at present locked up in bricks and mortar, to provide homes for those in need?
    Mr. Stanley: I agree entirely with my hon. Friend. It is strange that Opposition Members are at one moment complaining that they have not sufficient money and the next refusing to sell council houses which they know perfectly well add to their allocation.
    Mr. Douglas-Mann: Will the Minister say what changes in assumptions have been made about the extent of housing
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    need in the public sector since the housing policy review was published? This assessed housing need in that sector as 290,000 households requiring houses per year with 170,000 houses becoming available for re-lets, leaving 120,000 needed? Is it correct, according to the figures published last week, that the shortfall will be at least 85,000 families without housing?
    Mr. Stanley: The basic change in the assumption made since the previous Government's Green Paper was published is that we believe the private, as well as the public, sector can make a contribution towards rented accommodation.
    Mr. Michael Morris: Is it not a fact that the production of public sector housing has been declining steadily over the last three years? Is that not a legacy from the previous Labour Government?
    Mr. Stanley: My hon. Friend is entirely right. Opposition Members will want to recall that over the last five years they succeeded in halving capital expenditure on housing in real terms.
    Mr. Kaufman: Will not the Minister and his entire Front Bench abandon the deliberate, disreputable policy of fiddling the figures of housing expenditure? Why did they pretend, last week, that it was a cut of 21 per cent. when the Minister admits in his answer to me that the cut is £967 million in local authority housing allocation? That is a 33·4 per cent. cut.
    Mr. Stanley: The right hon. Gentleman knows perfectly well that, on the basis of the comparison that he makes, he is taking into account the allocations made by the previous Administration. Those allocations would have been underspent by hundreds of millions of pounds.

    Local Authority Services
    Mr. Flanneryasked the Secretary of State for the Environment what representations he has received regarding cuts in local authority services.
    Mr. King: Many members of the public, local authorities and other bodies have written to me about this. I am impressed by the widespread recognition of the need for economies.
    Mr. Flannery: When will the Minister realise that the doctrinaire, monetarist

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    policies pursued by his Government—that are splitting his own party wide open, according to The Times editorial yesterday—are bearing down so heavily on the most vulnerable sections of the public that some action will have to be taken if local councils are to avoid imposing 50 per cent. rate rises? As long as this policy continues, local council can no longer service the people. What do the Government intend to do?
    Mr. King: If there were the slightest nuances of difference of view among my right hon. and hon. Friends, the rubbish put forward by the hon. Gentleman would have solidified our view. In a situation when we have called for a 1½ per cent. cut next year, it is possible for per cent. next year, it is possible for efficient and prudent authorities to make those economies without enormously damaging cuts such as some authorities seem to be choosing to make for the maximum political capital.
    Mr. Robert Atkins: If my right hon. Friend receives any representations about cutting the cost of services, will he point them to the borough of Preston, Tory-controlled for the past four years, which has reduced its rates over that time from 32p in the pound to 8p in the pound and is maintaining that figure this year by cutting its costs carefully?
    Mr. King: In local authorities, as in companies and other walks of life, there are some well-run authorities and others that have failed to match the same standards. What my hon. Friend says about the record of Preston is most interesting. I look forward to going there on Friday and seeing at first hand how these economies have been made. I am sure that for concerned authorities there are lessons to be learnt from the better run authorities.
    Mr. Jay: Is the Minister aware that, whatever may happen in Preston, in the borough of Wandsworth the Government's policies have produced the worst housing situation since the war?
    Mr. King: I am obviously not here to discuss every individual authority, but it is worth comparing the future rates performance of relavent adjacent authorities. I believe that the rate will rise in Wandsworth over two years by some
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    18 per cent. In an adjoining authority it will rise no less than 90 per cent. during that period. The effect on small businesses and the commercial economy of the area, and the general well-being of the residents of that area will clearly be far better in the hands of the first authority than in the hands of the second.
    Mr. John Townend: Does my right hon. Friend agree that if the majority of local authorities had not acted responsibly and had not made reductions in expenditure, as advised by the Government, and had not cut waste, rates increases this year would have been intolerably high?
    Mr. King: I can confirm that the first assessments that I made when we came into office indicated that if economies were not made at that time the rate increases that were inevitable and in the pipeline, stemming from all actions of the previous Government, would have been substantially higher than the rate increases now being advised.
    Mr. Allan Roberts: Does the Minister agree that one of the most essential local authority services is the provision of housing? Will he ask the Secretary of State for the Environment to visit the Southend, East by-election and explain why his announced 21 per cent. cut in housing expenditure for local authorities is 40 per cent. in Southend? Will the Minister allow me to help the Secretary of State in explaining away that 40 per cent. cut by showing that the right hon. Gentleman is politically unbiased because he has cut local authority housing capital expenditure in the Prime Minister's constituency by 25 per cent?
    Mr. King: I wonder whether the hon. Gentleman deliberately chose to put to me a question on housing since he knows that I do not have responsibility for that subject. I wonder, too, whether he was somewhat afraid of the straight answer that he would have got from my right hon. Friend the Secretary of State or my hon. Friend the Minister for Housing and Construction.
    Mr. McCrindle: Will my right hon. Friend note the new-found solicitude on the Labour Benches for the affairs of Essex? Is there a reason, which appears to be escaping me at the moment, as to why the home help service, instead of being

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    cut back as it is in some areas, should not be passed on to some form of organisation combining the voluntary and the private sectors?
    Mr. William Hamilton: The girl guides?
    Mr. King: I am impressed by the widespread recognition throughout the country —much more widespread than is apparent to Labour Members—of the need for economies and for an intelligent approach to the difficulties we face. Many councils are finding alternative ways, such as joint funding and voluntary help, to provide services in the interests of all those who genuinely need help and whom we should now all be concerned to help.
    Mr. Hattersley: If the Minister of State does not want to comment on individual authorities, will he agree, as a statistical fact, that the inner cities in general and inner London in particular will suffer most from the Government's cut-back in local authority expenditure?
    Mr. King: In looking at the record of problems and the need for economies I do not single out individual parts of the country. There are problems right across the country in many areas. It is interesting to note the degree of resolution and intelligence being employed by different councils in facing those problems.

    Land Registers
    Mr. Peter Lloydasked the Secretary of State for the Environment when he expects to announce those names of the local authorities which will be required to publish land registers.
    Mr. Heseltine: I am now considering this matter and will make a statement as soon as possible.
    Mr. Lloyd: When the information is published will my right hon. Friend be taking steps to make it clear that the local authorities in whose areas land is being left idle can be identified? Will any pressure, other than that springing naturally and spontaneously from local public opinion, be brought to bear upon them?
    Mr. Heseltine: I am grateful to my hon. Friend for his interest in this matter. I hope shortly to indicate where these
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    registers are to be established in the first instance. I very much hope to establish a co-operative attitude with local government and to have consultations on the matter. However, at this moment I should be grateful if the House would bear with me since I am not yet in a position to publish details of the specific areas.

    Water Rates
    Mr. Parryasked the Secretary of State for the Environment if he will seek to take powers to control proposed increases in water rates.
    Mr. Fox: No, Sir.
    Mr. Parry: Is the Minister aware that on Merseyside the proposed increases in water rates include 28 per cent. for Ellesmere Port, 25 per cent. for the Wirral, and 25 per cent. for Liverpool? These increases, with increases in the general rate of more than 50 per cent., and coupled with large increases in rents and gas and electricity charges, are knocking the consumer and the householder punch drunk. Do the Government have any genuine intention of trying to control inflation?
    Mr. Fox: I shall restrict my observations to water charges. Of course, my right hon. Friend the Secretary of State is concerned about the increases and is to see one chairman of a water authority to discuss the high increases. However, much of what the water authorities have had to do relates to what happened before 3 May and to the unrealistic assumptions that they took last year. An example was the assumption that wage costs would be about 5 per cent., when the industry eventually had to settle for 16 per cent. That factor had a considerable bearing on the situation.
    Mr. Chapman: Will my hon. Friend spell out most clearly that the main reason for the vast increases in water rates this year is to counter the deficit caused by the calculation last year based on wages rising by the 5 per cent. norm of the previous Government?
    Mr. Fox: I thought that my hon. Friend would have realised that that was exactly what I was trying to say. It is apparent that in future I shall have to give longer rather than shorter answers. Of course, my hon. Friend is entirely right.
    Mr. Straw: Is the Minister aware that in the North-West employers face massive increases in water charges for equipment which is connected with sprinklers and other fire-fighting equipment? Is the Minister willing to take this matter up with the chairman of the North-West water authority, because the increases represent a penalty on good employers?
    Mr. Fox: The hon. Gentleman is a little late in the day. Some 40 other hon. Members have already corresponded with me about this. I am happy to say that already the authority has reduced the expected charge by some 50 per cent., and I hope that it is reconsidering even that.
    Mr. Costain: Is my hon. Friend aware that the practice of the water companies of engaging in direct billing is rubbing salt in the wound and is causing great financial embarrassment to consumers? Cannot he do something to reduce the level of the charge?
    Mr. Fox: Direct billing was well under way under the previous Administration, and it would have been wrong for us to prevent it when we came into office. The water authorities claim financial advantages for the system. My hon. Friend is clearly as concerned as we are about the matter. I can assure him that we are looking carefully at all the costs that the authorities are passing on to their consumers.
    Mr. Denis Howell: Since the Conservatives did not support the Labour Government, either in the wages policy they were trying to pursue or in the 16 per cent. settlement for the water industry, why have they agreed to a settlement of 22 per cent., which most people regard as reasonable in comparison with awards to gas and electricity workers? As the Prime Minister said last week from the Dispatch Box that water bills are too high, what are the Government to do about them?
    Mr. Fox: The right hon. Gentleman can hardly claim success when, under his Government, a 5 per cent. wage increase ended up as 16 per cent. The difference between our policy and that of the Labour Government is that we believe that wage increases are a matter for the employer —the National Water Council.

    Wildlife and Countryside Bill
    Mr. Wallerasked the Secretary of State for the Environment what proposals he has to have fresh consultations on the Wildlife and Countryside Bill.
    The Under-Secretary of State for the Environment (Mr. Hector Monro): My right hon. Friend is continuing discussions with interested parties and we intend to publish a paper in the spring describing the revised proposals in detail.
    Mr. Waller: Is my hon. Friend aware that hon. Members on both sides of the House are anxious to see this legislation for the protection of vulnerable species enacted as soon as possible? Will my hon. Friend assure the House that he will not allow discussions to be so protracted as to prevent this legislation from being brought forward as early as possible in the new Session?
    Mr. Monro: I entirely agree that this is an important matter. There will be no delay once we have dealt with the discussions and consultations that we are now engaged in.
    Dr. David Clark: In view of the recommendations of the Royal Commission on common land in 1958, and the recommendations made two years ago by the working party from the hon. Gentleman's Department that the general public should have access to all common land, will the hon. Gentleman give us an assurance that he will consider including a clause in this Bill to deal with this problem?
    Mr. Monro: We are certainly considering all these matters and I assure the hon. Gentleman that that issue will be considered. We shall see how the hon. Gentleman's Ten-Minute Bill gets on today.
    Mr. McQuarrie: When the Minister consults the representatives of the Country Landowners Association on this matter will he take into consideration the considerable number of people who are employed in rural areas and on the moors? This is an important issue in relation to employment in rural areas.
    Mr. Monro: I agree with my hon. Friend that we want harmony in the countryside. We appreciate the traditional pursuits of those who live there. Those

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    people have every right to continue those pursuits.
    Mr. Marks: In view of the delay in bringing in this Bill—I presume that that is because of lack of parliamentary time, not because the Government do not like the Bill—will the Government assist the Nature Conservancy Council in taking over any land threatened as a result of the delay?
    Mr. Monro: The hon. Gentleman is right. The delay in the introduction of the Bill is purely due to lack of parliamentary time. We are in the closest touch with the Nature Conservancy Council and we listen to its views with great care.

    Cheshire County Council
    Mr. John Evansasked the Secretary of State for the Environment if he will meet the leader of Cheshire county council.
    Mr. Heseltine: I hope to meet him on Friday 14 March.
    Mr. Evans: I thank the Secretary of State for that answer. Will he discuss with the chairman of the Tory-controlled Cheshire county council his objections to the dictatorial powers that the right hon. Gentleman arrogates to himself in his Local Government, Planning and Land (No. 2) Bill? Will the Secretary of State ascertain from councillor Richardson that the clauses in the Bill that are objectionable to Labour councillors are equally objectionable to Tory councillors?
    Mr. Heseltine: First I would have to identify any dictatorial powers. I do not think I would be able to do that.

    Property Services Agency
    Mr. Michael Brownasked the Secretary of State for the Environment what steps he is taking to reduce the level of staffing in the Property Services Agency.
    Mr. Heseltine: Since 1 April 1979, the staff of the agency has been reduced by 7 per cent. As part of my review of the work of the Department, I intend to look at the functions of the agency with the object of establishing the scope for further reductions. Meantime, I am confining recruitment to the filling of the most essential vacancies.
    Mr. Brown: In the light of that reply can my right hon. Friend indicate what aspects of the Property Services Agency's work might be contracted out to private enterprise?
    Mr. Heseltine: Any area where I feel that the private sector could do the job more effectively.
    Mr. Guy Barnett: Is the right hon. Gentleman aware that the work of the PSA is likely to increase in one respect and will therefore not allow for reductions in staff? Is he aware that I refer to the increasing number of unemployment benefit offices which will be required as a result of the Government's economic and industrial policy?
    Mr. Heseltine: I am sure that the hon. Gentleman will have taken into account that when unemployment rose under the Government of whom he was a member the number of people who were employed in the PSA was reduced.
    Mr. Stokes: Is my right hon Friend aware that the PSA is one of the most unpopular bodies associated with central Government? Is he further aware that there is grave disquiet about the excessive staff and that many of my hon. Friends feel that much of the work of the PSA could be better carried out by private enterprise?
    Mr. Heseltine: I believe that there is scope for reducing the size of the PSA and that there is work within the PSA that could be better done by the private sector. However, I have to say that there would still remain a viable job for the PSA that could be done only by a public sector body. I shall do my best to ensure that what remains of the PSA is run as effectively as possible.
    Mr. Freeson: Would the Secretary of State care to publish to the House comparative figures showing whether there has been a saving as a result of contracting out professional work already from the PSA to private consultants or whether those jobs are costing more?
    Mr. Heseltine: I think that this would be an excellent subject for investigation by the Select Committee that monitors my Department.

    Birmingham (Water Supply)
    Mr. Cadburyasked the Secretary of State for the Environment if, in view of the effect on Birmingham's water supply, he will institute a review of the decision to allow the diversion of additional water from the Elan reservoirs to the River Wye.
    Mr. Fox: This decision was taken jointly with my right hon. Friend the Secretary of State for Wales. We have been looking at the timing of implementing the variation to the Elan Valley reservoirs abstraction licence and we shall be writing to the Severn-Trent water authority about this.
    Mr. Cadbury: Is my hon. Friend aware that the decision to divert water from the Elan reservoir to the River Wye significantly reduces the reliable supply of water to Birmingham? Can my hon. Friend give an assurance that in the event of a very dry summer Birmingham will not be allowed to run out of water?
    Mr. Fox: My hon. Friend will remember that this decision came about because of the drought and its effect in southeast Wales. I can give him the assurance that Birmingham's water will be protected. The decision letter stated that the Secretaries of State were confident that the Welsh Water Authority would have due regard to the Severn-Trent water authority's needs respecting the Birmingham supply.
    Mr. Sever: Will the Minister, having regard to what will be the phenomenal growth in demand for water in Birmingham over the next 20 years, inform the House of the progress in the provision of new reservoirs in Wales?
    Mr. Fox: I have to say to the hon. Gentleman that the acceptance of the need for an increase in water consumption year after year is a matter of deep concern. Perhaps the House should occasionally think about water conservation rather than regularly discussing the creation of more reservoirs. If the hon. Gentleman cares to write to me shall be happy to give him an answer.

    Council House Sales
    Mr. Moateasked the Secretary of State for the Environment if he is yet
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    able to announce his proposals for reducing delays in processing applications for council house sales.
    Mr. Stanley: The changes in the general consents referred to in my right hon. Friend's answer of 1 February to my hon. Friend the Member for Reading, North (Mr. Durant) will help to avoid such delays.
    Mr. Moate: Does my hon. Friend agree that, because of the immense demand by people to buy their own home, there have been considerable delays in processing applications and making valuations? Will the Minister confirm that local authorities can, to avoid such delays, contract some of the work out to private enterprise estate agents and solicitors, thus ensuring that delays do not occur?
    Mr. Stanley: My hon. Friend is entirely right. They can most certainly do so and we would encourage local authorities to do that where they think that it is right.
    Mr. Winnick: Instead of worrrying about council house sales should not the Minister be far more concerned with the devastating blow inflicted and the misery caused by the decision last week, when the House was deliberately misled?
    Mr. Stanley: I am also concerned about realising the aspirations to home ownership of council tenants.
    Mr. Allan Roberts: Does not the Minister agree that the Government-imposed cuts in public expenditure by local authorities have meant reductions in staff and that that in turn has meant a delay in the processing of council house sales? Is he aware that local authorities are justified in not diverting staff needed for other essential housing matters to this particular activity?
    Mr. Stanley: The hon. Member should take note of what happened in Leeds when the Conservatives took control of the council and started to sell council houses. There was a reduction in council staff at the same time.

    Amble North Pier Breakwater
    Mr. Beithasked the Secretary or State for the Environment when he expects to receive the proposals of the Alnwick district council for the repair of the Amble North Pier breakwater.
    Mr. Fox: It is a matter for the Council to formulate proposals and to decide when to submit them. I can assure the hon. Member that any proposals submitted will be carefully considered on their merits.
    Mr. Beith: Does the Minister realise the impossible position in which the council was left when the Ministry of Defence, having caused years of delay to the project—and having promised a massive contribution to it—withdrew from it less than a year ago? Will the hon. Gentleman involve the Ministry of Defence fully in the negotiations that take place and ensure that that Department makes some contribution to the cost, if the council is not to be involved in capital costs and, consequently, rate increases of which his right hon. Friend would most certainly disapprove?
    Mr. Fox: The hon. Gentleman is right in that the Ministry of Defence is involved in this in the sense that the council has made certain proposals to that Ministry. However, I am sure that, on reflection, the hon. Gentleman will realise that this is a matter for the Secretary of State for Defence. All I can promise is that when the council makes application to us we shall give that application the fullest consideration.

    Council House Sales (New Forest)
    Mr Adleyasked the Secretary of State for the Environment what discussions he has had with the New Forest district council concerning the sale of local authority houses to tenants.
    Mr. Stanley: I have had no discussions with the council on this subject but I am sending my hon. Friend copies of the correspondence my hon. Friend has had with it.
    Mr. Adley: Is my hon. Friend aware that many of my constituents in Lymington, Pennington and New Milton who live in local authority houses are angry that their desire to buy their houses is being thwarted by the obstinacy of the supposedly Conservative council? In order to enable me to redeem my pledges to my constituents at the last election will my hon. Friend make it clear beyond peradventure that the Government will maintain their firm promise to ensue: that those people will have the
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    chance to buy the homes, in which many of them have lived all their lives?
    Mr. Stanley: I assure my hon. Friend that there will be no wavering from the provisions of the right to buy and I am confident that his powers of persuasion will, sooner or later, persuade the Tory authority in the New Forest to give the right to buy to its tenants. In case Labour Members draw an incorrect conclusion from what my hon. Friend has said, I should point out that the information available to me indicates that of the 195 Conservative-controlled local authorities, 194 are selling.

    Olympic Games
    Mr. Dalyellasked the Secretary of State for the Environment if he will make a statement on his discussions with the British Olympic Committee on the siting of the Olympic Games.
    Mr. Monro: I have had several informal discussions in recent weeks with the office bearers and the general secretary of the British Olympic Association. The siting of the Olympic Games was included in the subjects covered. I am fully aware of their approach to the subject and they are in no doubt of the strength of the Government's views.
    Mr. Dalyell: What is the justification for allowing the Moscow branch of the Chase Manhatten Bank to continue its commercial operations, allowing the EEC to sell butter to the Russians and keeping an ambassador in Moscow while saying to the athletes "You cannot go"? Since President Carter has got what he wants in New Hampshire, is it not time to end this humbugging nonsense?
    Mr. Monro: The hon. Gentleman is totally misguided as to the reasons why we have taken such strong action and are advising our team not to go to the Olympics. It is intolerable that we should go there while the invasion of Afghanistan continues.
    Mr. Dalyell: Humbug!
    Mr. Gummer: Will my hon. Friend make sure that the British Olympic Committee is told that it is unacceptable for it to say that the Government's proposal is bringing politics into the Olympics

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    when the committee connived at the exclusion from the Olympics of Taiwan, Rhodesia and South Africa? These were political decisions.
    Mr. Monro: I should make clear that it was the International Olympic Committee rather than the British Olympic Committee which took those decisions, but it is a statement of fact that South Africa was banned from the Olympic Games, and that was a political act.
    Mr. Denis Howell: Was South Africa not excluded by the International Olympic Committee and not by any Government? Is not my hon. Friend the Member for West Lothian (Mr. Dalyell) correct in saying that it is intolerable to expect Sebastian Coe and other distinguished athletes to confront the Russian military might when ICI has just announced the opening of a new office in Moscow and a Minister has made clear that export guarantees for trade with Russia will continue? Is it not disgraceful to discriminate against sport in this way?
    Mr. Monro: The right hon. Gentleman is getting steamed up. He does not seem to accept the basic reason for the Government's attitude, which is the Russian invasion of Afghanistan. That is an extremely serious situation and that is why we have taken many steps against the Soviet Union in trade and technology.
    Mr. Dalyell: On a point of order, Mr. Speaker in view of the unsatisfactory nature of that reply, I beg to give notice that I shall seek, for the third time, to raise the matter on the Adjournment.

    Urban Development Corporations
    Mr. Thompsonasked the Secretary of State for the Environment how much money will be allocated to urban development corporations in their first year of operation; and on what terms.
    Mr. Heseltine: The amount of money to be allocated to UDCs in their first year will depend upon the scale of their proposed programmes, and the extent to which these can be accommodated within the Government's public expenditure plans. Loan finance will be made available for commercial-type projects, and grant for non-commercial type projects. I intend to table an amendment in Committee delineating those types of
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    expenditure which would be eligible for grant.
    Mr. Thompson: Is my right hon. Friend aware that many of his hon. Friends have visited docklands and seen the vast dereliction there and that we sympathise with and understand the problems? However, does he also realise that, in an era of finite resources, many other urban areas are looking carefully at the financing of the UDCs?
    Mr. Heseltine: I understand my hon. Friend's concern. He will be aware that other urban programmes are administered through my Department and are of help to the areas where the worst problems of urban dereliction exist outside docklands. However, the Government's view is that the two areas where UDCs are to be set up, London and Merseyside, are examples of such extreme dereliction that urgent action is necessary.
    Mr. Chapman: Does my right hon. Friend agree that equally as important are the executive powers given to the corporations to get on with the job and their ability to acquire surplus lands from local authorities and statutory undertakings with the minimum of bureaucracy?
    Mr. Heseltine: My hon. Friend understands the problems clearly. It will he for hon. Members to decide what powers to give to the UDCs when we put the order before Parliament. I shall certainly bear in mind what my hon. Friend has said.
    Mr. Alton: If the corporations are to be successful—and a figure of £200 million was mentioned at one stage—is it not reasonable that they should be told soon how much money will be made available to them?
    Mr. Heseltine: It would be helpful if we knew what they wanted to do with the money before we answer that question.
    Mr. Steen: The establishment of the corporations and the injection of public money will not, of themselves, regenerate ailing urban areas. What is needed is an injection of private funds and private investment. How will the UDCs achieve that?
    Mr. Heseltine: I know that my hon. Friend understands the problems well.

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    The purpose of the money that we shall make available to the corporations will be to clear the areas to encourage private sector investment, which, alone, will lead to the success that we want to see.
    Mr. Parry: Will the right hon. Gentleman make a personal visit to Liverpool docklands before deciding on the allocation of money to the area?
    Mr. Heseltine: I have visited the area many times and I shall certainly go there again.

    Development Commission
    Mr. Hicksasked the Secretary of State for the Environment when he will be in a position to make a statement about the future of the Development Commission and its associated organisation, the Council for Small Industries in Rural Areas.
    Mr. Monro: I expect to receive the report of the review group this week. After studying it I shall be consulting my colleagues about the findings.
    Mr. Hicks: Is my hon. Friend aware of the substantial contribution that the Development Commission and its associated body COSIRA make in promoting economic activity in rural areas in the English countryside? Does he agree that the long delay that has occurred in determining the future of the commission has caused great anxiety in those areas?
    Mr. Monro: I appreciate what my hon. Friend says and how right he is to emphasise the good work done by the commission and COSIRA in the rural countryside in developing employment and industry. It is important that we get it right and that is why we are looking carefully at the situation. We shall make decisions as quickly as possible so that the countryside does not lack help in development.
    Mr. Beith: Is the hon. Gentleman aware that COSIRA is moving to new offices in Salisbury in a few weeks time? Will he guarantee that, before it packs its bags, it will know that it will be able to continue its excellent work?
    Mr. Monro: I shall be surprised if there is any problem over the offices in Salisbury.
    Mr. Cockeram: Does my hon. Friend accept that this quango, like others, tends to grow like Topsy and that while a number of factories are needed in rural areas, there is a limit? Is he aware that in my constituency moving a factory from one village to another is not progress and that taxpayers' money has been used to build factories that are standing empty while there are plans to build still more?
    Mr. Monro: That is why my right hon. Friend set up the inquiry into the future of the Development Commission and COSIRA. It would be foolish to anticipate the report as we have not yet seen it, but once we have studied it we shall come to decisions.
    Mr. Newens: Is the hon. Gentleman aware that in places such as west Essex the principal difficulty facing small businessmen wishing to set up in rural areas is frequently finding a site? Will he ask local authorities to provide more industrial estates, which will help to give small business men an opportunity and assist in preserving the green belt?
    Mr. Monro: I have indicated previously that I recognise the importance of the Development Commission and the work that it has done in the countryside, but I do not want to anticipate the report, which we shall receive this week.

    Local Authority Manpower
    Mr. Greenwayasked the Secretary of State for the Environment what is his estimate of the effect on local authority manpower of the abolition of Parker Morris standards and the housing cost yardstick.
    Mr. Butcherasked the Secretary of State for the Environment what effect he expects the abolition of Parker Morris standards and the housing cost yardstick will have on local government manpower.
    Mr. Stanley: It will be for each local authority to judge what savings it is able to make, but our proposals to reduce substantially the Department's detailed intervention in individual housing schemes should assist local authorities to make manpower savings.
    Mr. Greenway: Does my hon. Friend consider that the abolition of Parker

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    Morris standards and the housing cost yardstick will help to bring down housing costs in the public sector?
    Mr. Stanley: It will materially help local authorities to tailor standards to what they see as appropriate for those on their waiting lists, and for those who want rented accommodation. In so far as it helps local authorities to make economies, it should have a beneficial effect on house prices.
    Mr. Butcher: What effect does my hon. Friend consider the abolition of the housing cost yardstick for Parker Morris standards will have on the quality of new building in the public sector?
    Mr. Stanley: It is right that local authorities, with the considerable reservoirs of experience which they have at both officer and member level, should make judgments as to what is the best value for money for their capital investment programme.
    Mr. Allen McKay: Was the Parker Morris standard not introduced to stop councils from building future slums? What will the Minister do about that when the Parker Morris standards have been abolished?
    Mr. Stanley: We are perfectly confident that local authorities, spending their allocations, will take care to ensure that they receive value for money.
    A number of authorities, of both political persuasions, have approached the Government in recent months asking for the relaxation of Parker Morris standards in individual schemes. We have been treating those applications sympathetically.

EUROPEAN COMMUNITY (COUNCIL OF MINISTERS' MEETINGS)
The Lord Privy Seal (Sir Ian Gilmour): With your permission, Mr. Speaker, I will make a statement about the main business to be taken by Ministers of the European Community during March. The usual written forecast of business was deposited in the House yesterday. Heads of State and Government will meet in the European Council in Brussels on 31 March and 1 April. At present four meetings of the Council of Ministers are scheduled for March.
The Agriculture Council is expected to meet on 3 and 4 March, and again on 26 and 27 March, to continue discussion of the Commission's proposals on CAP prices for 1980–81; the proposed economies in the CAP to help balance the markets; and to streamline expenditure and proposals on policy regarding agricultural structures. Ministers are also expected to discuss the common organisation of the market in sheepmeat and French import controls; the extension of the application of the European currency unit in the CAP; and proposals to extend current arrangements for the distillation of wine.
The Finance Council is expected to meet on 17 March to resume discussion of the Commission's latest paper on convergence and budgetary questions. The Council is also likely to consider the report on the European monetary fund; the Commission's first quarterly review of the economic situation in the Community; and the proposal for a second tranche of loans under the Ortoli loan facility. Ministers will also continue their consideration of the financial effects of Commission proposals for CAP economies and the annual agricultural price-fixing.
The Foreign Affairs Council will meet on 17 and 18 March and is expected to discuss preparations for the next European Council, at which our main concern will be to find an adequate and lasting solution to the budget problem. Foreign Ministers may also discuss Community reaction to the Soviet invasion of Afghanistan; the Community attitude to the global negotiations on international development issues, which are to be launched by the special session of the

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United Nations General Assembly late this year; safeguard action on synthetic textiles; the Community's external steel policy; a report on Community relations with the Gulf States; the conclusion of the European Community-Yugoslavia cooperation agreement; a follow-up to the meeting of the European Community-Turkey Association Council on 5 February; and a review of progress in negotiations on adaptation protocols for Greek accession.
The Council will also examine the short list of developers' projects selected by the Belgian Government for the construction of a new building to meet the Council's accommodation needs following enlargement.
Mrs. Dunwoody: As it is now painfully obvious that in spite of the aristocratic swanning around the capitals of Europe by the right hon. Gentleman there is not to be an early meeting, what contingency plans has his Cabinet produced for dealing with the budgetary question, if we are not even to receive the same sort of offer as was made at earlier meetings?
What does the Cabinet intend to do? Does it intend not to pay over our proportion of the VAT? If not, how long does it expect to continue paying for many of the absurdities of the existing Community policies?
When the discussion of the sheepmeat regime takes place will it be made clear that the sort of action taken by the French at the present time, which removes one ban and replaces it with a totally unacceptable import levy, will not in any way contribute to any Community understanding?
Will the Lord Privy Seal tell us that it is his intention and that of his right hon. Friends to resist any attempt to push forward an ethyl alcohol scheme that would have a great effect on jobs and on the relevant industries in Britain?
Will the right hon. Gentleman ensure that when the cane sugar arrangements are discussed the interests of African, Caribbean and Pacific countries will be borne in mind, as well as those in the sugar industry in this country who are directly involved?
Does it really seem sensible, when there is already an outpouring of moneys that the Community can hardly afford, to con-
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sider developers' plans for yet another building to meet the Council's accommodation needs?
Sir I. Gilmour: To take the hon. Lady's last question first, as the present building would not be large enough following the enlargement of the Community, I should have thought it highly necessary to have a new building.
On the question of sugar, of course the points raised by the hon. Lady will be taken into account. I agree that the latest French measures are no less illegal than their previous measures.
The hon. Lady's first question, as she must realise, is entirely hypothetical. We hope to make progress in the normal process of negotiations, which is now taking place. We shall seek every possible means to achieve a solution.
Mr. Cormack: At which of the many meetings to which my right hon. Friend referred will butter be discussed? When it is, will he make it abundantly clear—or will my right hon. and noble Friend the Secretary of State for Foreign and Commonwealth Affairs make it clear—that in no circumstances will the British Government agree to sell subsidised butter to the Russians so that they have more money for guns?
Sir I. Gilmour: The matter will be discussed at more than one meeting. It will probably be discussed by the Foreign Affairs Council as well as the Agriculture Council. As my hon. Friend knows well, it is our view that such exports of subsidised butter to Russia are wrong and should cease. He will remember that there was a Council decision on 15 January that traditional patterns of trade should continue. We are monitoring the position carefully and will take account of his remarks. He will be aware that other countries take a slightly different attitude.
Mr. Cryer: Will the Lord Privy Seal explain what he intends to do about the £1 billion contribution to the budget, 80 per cent. of which goes to the CAP? Will he confirm that unless there is unanimity of agreement, the position of the CAP will not be changed one jot, and that we shall continue our pathetic stance of accepting all the rules of the EEC, making no move to get out and paying through the nose for it?
Sir I. Gilmour: The figure is nearer 70 per cent., but I agree that it is far too high. I do not think that there is anything pathetic about our stance. We have not the remotest intention of getting out of the EEC.
As I said earlier in answer to a question from the hon. Member for Crewe (Mrs. Dunwoody), our intention is to continue negotiating and to reach an agreement. On the tour to which the hon. Lady referred, in childish terms, at least I can say that everybody agreed that it was in the interests not only of Britain but of the Community to get the issue out of the way.
Mr. Kenneth Lewis: Accepting what my right hon. Friend said about the continuous discussions on budgetary policy since it was last discussed by the Council of Ministers, will he tell me at which meeting it will be discussed again in the next few weeks?
Sir I. Gilmour: I made it clear in my statement that it will be discussed at the Council of Ministers' meeting on 17 and 18 March. Above all, it will be discussed at the summit on 31 March and 1 April.
Mr. Jay: What has become of the special summit meeting on the British budget contribution, which was pressed for by the Prime Minister in February?
Sir I. Gilmour: The last time that we discussed the matter I told the right hon. Gentleman that it was decided at Dublin that it would be a matter for the presidency, namely, Senor Cossiga, to decide whether there was a sufficient prospect of agreement to make such an early summit worth while. He decided that that condition precedent was not in existence.
Mr. Nelson: My right hon. Friend said that monetary matters may be considered. Does not he agree that the relative stability of European currency exchange rates since the introduction of the European monetary system has provided a welcome degree of confidence, on which businesses can make decisions? Will he consider ensuring that Britain becomes a full member of the scheme?
Sir I. Gilmour: I entirely agree with my hon. Friend that the EMS has obviously benefited Europe. However,
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he and our partners are aware of the particular difficulties that we face because of our currency being a petrocurrency. Therefore, we must consider the matter even more carefully than we would otherwise have to do.
Mr. Benn: Has the right hon. Gentleman considered the growing pressure for some import controls over subsidised steel and, indeed, car imports into this country from the Community? Have the Government raised this matter with the Council of Ministers, or with Ministers? Can he explain why we should have to pay more for our food than we would have to pay on world markets, whereas in a crucial industrial area we are being badly hammered by subsidised imports?
Sir I. Gilmour: There has been no pressure on us to ban imports of steel or cars. As to the right hon. Gentleman's general question, as he was a member of a Government who twice applied to join the Community, and as he remained a member of the Government, after the referendum, he knows the answer to that question perfectly well.
Mr. Dykes: Can my right hon. Friend confirm robustly that there is every prospect of the British budget deficit problem being satisfactorily solved and negotiated during the next few months and that that will not be a problem with proper European co-operation and good will between the member States? In contrast to the hysteria from Labour Members, surely we must continually remind ourselves that the figure of £1 billion is only the inflation increase on the original White Paper figures when we joined.
Sir I. Gilmour: I agree with my hon. Friend that it is important, not only to us but to the Community, that we should reach an agreement on this matter. There is no doubt that we have an unanswerable case. We shall continue to put it, and the negotiations are continuing.
Mr. Spriggs: Will the right hon. Gentleman explain what he intends to do about the policy of the French Government to carry out what are termed "illegal practices", first, by banning imports of British mutton and, secondly, by opening their doors to mutton and putting a levy on it? What steps is he

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about to take to stop these illegal practices by the French Government?
Sir I. Gilmour: The hon. Gentleman is quite right. As I said earlier, those practices are illegal. As the hon. Gentleman will know, we have pressed the Commission to take interim measures in the courts. As he also knows, the Commission is the guardian of the Treaty and it is for it to act, not for us. We can only ensure that our views are made very clear, and that is what we have done.
Sir Anthony Meyer: Does my right hon. Friend recall that those who are now pressing for import controls are those who urged that in our relations with the EEC we should have industrial free trade as a better solution than membership of the Community? Will he remind them that membership of the EEC is something conceived not as a solution to Britain's short-term problems but as a framework within which, over generations, this country can better secure its future?
Sir I. Gilmour: My hon. Friend is perfectly right. There has been a most distressing pattern of events by the Labour Party, of which it will be well aware. Basically, when it is in government it is in favour of the European Community and when it is in opposition it is opposed to it. That is not a proper way for a responsible party to behave.
Mr. Stoddart: In the light of the statement made by a Conservative Member of Parliament that the Cabinet is openly split on EEC matters, can the right hon. Gentleman confirm that it is still the Government's policy to get rid of our net contribution to the EEC? Can he also say how he will be successful in the negotiations about that unless he is prepared to take action to back up his words?
Sir I. Gilmour: I do not accept the hon. Gentleman's original premise, and I do not know where he got it from. As I have told the House frequently, we are seeking a genuine compromise. However, our partners are well aware that our margin for manoeuvre is small, and that remains the position.
Mr. Costain: In view of the special problems of the fishing industry, at which
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of the meetings will that matter be discussed?
Sir I. Gilmour: I think that the Council responsible for fishing has been postponed until April.
Mr. Dalyell: I should like to ask the right hon. Gentleman a question, notice of which I gave his office this morning and which was raised by my hon. Friend the Member for Crewe (Mrs. Dunwoody). It relates to ethyl alcohol. Can that subject be put on the agenda for 3 or 4 March? A £50 million investment is at stake at Grangemouth, and BP Chemicals must know one way or the other which way the proverbial cat will jump?
Sir I. Gilmour: I am grateful to the hon. Gentleman for giving my office notice of that question. We share his view of the importance of the matter. He will appreciate that we cannot dictate the agenda. I shall certainly bring the matter to the notice of my right hon. Friend. The hon. Gentleman will realise that the discussion of an alcohol regime properly takes place in the Agriculture Council, and my right hon. Friend the Minister of Agriculture, Fisheries and Food is fully aware of the wider industrial implications about which the hon. Gentleman talked—in particular, the important investment problem at Grangemouth.
Mr. Dalyell rose—
Mr. Speaker: Order.
Mr. Gummer: Does not my right hon. Friend agree that it would be much easier to organise and deal with transgressions of the Treaty if we concentrated upon those and did not constantly use the EEC as the excuse for Britain's failure and under-production?
Sir I. Gilmour: I agree with my how Friend. Our problems, which date over a number of years, are very deep-seated, and it is entirely wrong to use the European Community as a scapegoat for them. Nevertheless, as I am sure the whole House will agree, there is a fundamental problem with regard to the budget, which needs to be solved.
Several Hon. Members rose—
Mr. Speaker: Order. I do not propose to call any hon. Member twice. I propose

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to call those hon. Members who have been rising, if they will co-operate with me.
Mr. English: I did not hear the right hon. Gentleman mention the proposals that the President of the Commission at the Savoy yesterday said would be put to the Council before the end of March. Is he aware that there is a proposal for a common energy policy, about which the President said that the only way to save energy was to increase its price, if necessary by a levy?
Sir I. Gilmour: I am sorry, but I am not aware of what went on at the Savoy yesterday. The Commission is certainly considering proposals for a common energy policy, and when it comes forward with proposals we shall give them serious consideration.
Mr. Squire: Will my right hon. Friend confirm that in any discussions on the possible accession of Turkey he will reiterate the Government's view that there can be no accession without a firm and just final solution to the problem of Cyprus?
Sir I. Gilmour: With respect, I think that my hon. Friend is jumping two fences at once and has gone rather further than we are at the moment. Turkey has not yet applied to join the Community. It may do so, but that is some way ahead. While, like him, I am anxious to see the problem of Cyprus solved, I do not think that it should be linked to Turkey's accession to the European Community.
Mr. Spriggs: On a point of order, Mr. Speaker. You have just announced to the House that you would not call an hon. Member twice. Is the right hon. Gentleman aware that precedent has it that many hon. Members have been called twice in the years before he took the Chair? Will he reconsider his reply to my hon. Friend—
Mr. Speaker: The hon. Gentleman does not address me as "the right hon. Gentleman".
Mr. Spriggs: I apologise, Mr. Speaker.
Mr. Speaker: I remind the House that it is true that from time to time hon. Members are called twice. There is an exception this afternoon. I understand that the hon. Member for Crewe (Mrs.
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Dunwoody) wishes to be called again at the end of questions. I indicated that in this series of questions I do not propose to call any Back Bencher twice. It is not fair to the House. We have other business to conduct.
Mr. Straw: The Lord Privy Seal spoke of an adequate and lasting solution. Will he confirm that by adequacy he meant not less than £1,000 million? As there was insufficient agreement to call a meeting of Heads of State in February, what evidence does the Lord Privy Seal have that a meeting called in March will produce agreement?
Sir I. Gilmour: As to the amount of money, as I have already said, we are seeking a genuine compromise. My right hon. Friend the Prime Minister has said that since 3 December, and I hope that the Shadow Minister of Agriculture will shortly catch up with events. That remains our position.
The hon. Gentleman is labouring under a misconception. The Council meeting on 31 March and 1 April is not a special Council. It is a meeting that is taking place in the ordinary course of events.
Mr. Hill: In view of the serious decline of the United Kingdom merchant shipbuilding industry, can the Lord Privy Seal give the House any news of progress of the Council of Ministers on the scrap and build scheme that the Commissioners raised recently? I hope that that matter will come before the Council of Ministers before too long.
Sir I. Gilmour: I shall certainly take advice on that. As far as I know, there are no plans for it to be raised next month. I shall make inquiries, and I shall write to my hon. Friend.
Mr. Donald Stewart: Is the Lord Privy Seal aware that we shall never have a negotiating stance of any muscle as long as his right hon. Friend the Prime Minister continues to repeat that we shall never withdraw from the Common Market under any circumstances?
Sir I. Gilmour: I do not agree. My right hon. Friend the Prime Minister's negotiating stance has been extremely strong throughout. It is worth bearing in mind that she and the Government have achieved a good deal more than our predecessors.
Mr. Marlow: According to a parliamentary answer given yesterday, Holland, which is one-fifth the size of Britain, receives £200 million more each year from the EEC. Denmark, which is only one-tenth the size of Britain, receives as much through the CAP as Britain receives. Since we receive less than 20 per cent. of our gross contributions in income from the CAP and Ireland receives nearly 280 per cent. of its contributions, will my right hon. Friend tell the House what action Britain and the Government will be forced to take if we do not achieve an equitable solution? Will he further accept that whether or not he believes that we will never leave the Common Market, if things do not go right there will be an overwhelming movement within the country to take Britain out, which I should not like to see?
Sir I. Gilmour: My hon. Friend has merely rehearsed at some length and in detail what we already know. Our net contribution is unreasonably high. Because we are by far the biggest net contributor to the European Community budget it follows that most of our partners are net recipients. I agree with my hon. Friend.
Mr. Spearing: Since the cost of disposing of food surpluses by the EEC is now about £8,000 million a year, to which the United Kingdom contributes heavily, will the Minister of Agriculture suggest that there should be no further disposal of additional surpluses, that quotas should be applied, and that over a further period the surpluses should be successively reduced? Would that not be an equitable solution to the surplus problem?
Sir I. Gilmour: That would certainly be one solution, but whether it would be agreed is another matter. In general, I entirely agree with the hon. Gentleman that the costs of disposals and the creation of disposals impose a grotesque burden upon the agricultural budgets of the entire Community. One of our main efforts should be to get rid of the surpluses and to ensure that they do not continue.
Mr. John Townend: Does my right hon. Friend agree that the recent proposals of the Commission in respect of the co-responsibility levy for milk and the
1368
quota for sugar show distinct anti-British bias? What steps do the Government intend to take to reverse that bias?
Sir I. Gilmour: I am not sure that they show a distinct anti-British bias, but there are some aspects of them which are unsatisfactory. My right hon. Friend the Minister of Agriculture, Fisheries and Food has drawn the attention of the Commissioner and of the Agriculture Council to those matters. As I said earlier in my statement, we shall be discussing them twice more this month.
Mr. Ioan Evans: In the television programme "Weekend World" in January the Prime Minister said that she hoped to make a £2 billion cut in public expenditure, and that £1 billion of that would be the cut in our contribution to the EEC budget. Is it not important that the House should know the understanding between the Government and the EEC before we discuss the Budget, or are we to anticipate a £2 billion cut in the Budget on the social services because the Government have failed to cut the EEC contribution?
Sir I. Gilmour: I do not think that the hon. Gentleman has quoted my right hon. Friend the Prime Minister correctly. He knows when the Budget will be announced, and in the nature of matters the budget will precede the European Council. It cannot be altered.
Mr. Winnick: As the next Cabinet Minister to be publicly rebuked by the Prime Minister, will the Lord Privy Seal be a little more forthright and explain to the House what will happen if agreement cannot be reached with our partners over Britain's disgracefully high net contribution? Is he saying that regardless of a lack of agreement no further action, such as the possibility of withdrawal, will be undertaken by the Government?
Sir I. Gilmour: As the hon. Gentleman will be aware, in answer to questions by Mr. Robin Day on "Panorama" on Monday evening my right hon. Friend the Prime Minister repeated what she said on 3 December last year, namely, that there were two possibilities—obstruction and withholding. She said that those were two options that we considered, but that we should be loth to carry them out because we were aiming for a solution.
Mr. Parry: Will the Lord Privy Seal confirm that at their meeting on 3 and 4 March, the Agriculture Ministers will discuss the proposals of the Commission for the reduction of sugar beet quotas? Will his right hon. Friend the Minister of Agriculture support those proposals?
Sir I. Gilmour: As the hon. Gentleman knows, my right hon. Friend has certain reservations about the proposals on the sugar quotas, but they will certainly be discussed at the Agriculture Council.
Mrs. Dunwoody: Will the Lord Privy Seal please tell hon. Members why suddenly his vocabulary has changed in relation to our contribution to the budget? The right hon. Lady the Prime Minister originally asked for a broad balance. We are told that she is now asking for an equitable solution. If no offer that produces a broad balance is forthcoming, what do the Government intend to do to stop the bleeding away of finance from Britain into schemes that cannot be supported?
Sir I. Gilmour: The hon. Lady has a very odd idea of what is sudden. We have been talking about a genuine compromise since 3 December—for three months. As to what we shall do, I have already given the answer, and I have nothing further to add. Plainly, we shall have to reconsider our position. We are making progress. Our objective—I think that the Shadow Minister of Agriculture will agree—is to aim for a solution and not to utter threats.

QUESTIONS TO MINISTERS
Mr. Dubs: I wish to raise a point of order, Mr. Speaker, about the refusal by the Table Office to accept a parliamentary question that I endeavoured to table last week. May I hasten to add that I am in no way criticising the Clerks in the Table Office. I have found them unfailingly helpful, and they have continually given me advice since I became a Member. I am sure that that is the view of all other hon. Members.
However, last week I endeavoured to table a parliamentary question concerning a publication called the Sherlock report. That is the nickname for it. It is entitled "Report of the Committee on Education in Inner London". It is a
1370
report about which there were references in the newspapers. When I tried to table the parliamentary question it was, as I said, refused. What happened, apparently, was that the Clerks in the Table Office, as they sometimes quite properly do, checked on the details with civil servants at the Department of Education and Science. My understanding is that the civil servants said that the subject was not a proper one for a parliamentary question, and that accordingly the Clerks refused to allow me to table it.
At that point, I had seen only press comments on the report, but they seemed to indicate that the report had been prepared for, and at the request of, the Secretary of State for Education and Science. Today I received from the House of Commons Library a copy of the report. As was made clear in the press last week, the terms of reference of the report show that the Secretary of State set up this committee of London Conservatives, and so on.
I have been told today that it would be in order for me to table the parliamentary question, as the report is in the Library. It is fairly obvious that had I been allowed to table my parliamentary question the answer given by the Secretary of State would have been politically significant—even if the Secretary of State had said that it was an unofficial document that had no particular standing. That fact itself would have been useful in relation to the political controversy that the issue is arousing in London, and particularly in Wandsworth.
My point of order, Mr. Speaker, relates to my feeling that the influence of civil servants in this process is unduly large, in that they appear to be able to veto the right of a Member of Parliament to table a parliamentary question. Civil servants have an interest in protecting the Ministers in the Department for which they work. I am not suggesting that civil servants were doing that in this case. I am certain that it was a genuine error. But I ask you, Mr. Speaker, to give some guidance to the House as to how hon. Members can get out of this dilemma, because it seems to me to be an improper state of affairs.
Mr. Speaker: The hon. Member for Battersea, South (Mr. Dubs) has raised a very important question. I listened

1371
with care to the points that he made. Before dealing with his point of order, I say in passing that it is always open to hon. Members to appeal to me when a question is rejected, although I in no way seek to encourage that. The hon. Member perhaps was not aware of that fact.
It has been customary over many years for there to be a relationship between the Table Office and the Departments. This is in the interests of the House itself. It has happened under every Administration for many years, and under every Speaker for many years. Government Departments have a major obligation to make sure that the advice that they tender is accurate. I am happy to say that that major obligation is carried out, but there is bound to be human error from time to time.
As I understand the position, the document to which the hon. Gentleman referred was placed in the Library not by the Minister but by an hon. Member who wanted to put it in the Library. It appears to me, at first glance, to be an internal party political exercise, but I have taken note of what the hon. Gentleman has said, and I assure him that the Table Office and myself are very jealous of the rights of hon. Members to be able to question the Administration, because this House is the only check there is on the Administration of the day.
Mr. Foot: Further to the point of order, Mr. Speaker. I am sure that the whole House will be most grateful to you for your ruling. But in such a case, is it not for the Minister concerned to look into it, and, if wrong advice has been tendered from his Department, should he not come to the House and make a statement about it? If the document were one of a party nature, that would not, as I understand the position, absolve the Minister in any sense. I repeat that we are all grateful to you, Mr. Speaker, for your ruling, especially as you underlined the importance of the subject, but I express the hope, through you, that the Minister concerned will come to the House and tell us the position.
Mr. Jay: Further to the point of order, Mr. Speaker. In your view, does the original reluctance of the Minister to answer a question on the subject mean
1372
that he regards the report as not worth the paper that it is written on?
Mr. Spearing: Further to the point of order, Mr. Speaker. In endorsing the view of the Table Office expressed by my hon. Friend the Member for Battersea, South (Mr. Dubs), may I seek your concurrence with the principle that anything that is the responsibility of a Minister of the Crown is, unless otherwise blocked by a previous question, open to question in this House? Surely the point at issue is whether the Secretary of State for Education and Science requested and received a particular report, or whether a right hon. Gentleman, a Member of this House, did so in another capacity.
Mr. Speaker: I shall answer that point of order at once so that it will not get mixed up with others. Under every Administration since I have been in this House, various Ministers have within their own parties set up committees to advise them, and it has not been thought that a Minister was answerable to this House for dealings within his own party.
The observations made by the right hon. Member for Ebbw Vale (Mr. Foot) will have been heard by others as well as by me.

LAMBETH, SOUTHWARK AND LEWISHAM AREA HEALTH AUTHORITY
Mr. English: You will recollect, Mr. Speaker, that yesterday, on the Floor of the House, I suggested to you that if there was not a further statement from the Secretary of State for Social Services, there could perhaps be the opportunity for a debate under Standing Order No. 9. People who were employed at hospitals that are now closed do not know whether they ought to return to work, since the instructions that the hospitals should be closed are invalid and illegal. I shall not argue the case now, but I think you would agree, Mr. Speaker, that it is a matter of urgent public importance that what should happen in respect of actions taken during the period of illegality should be discussed on the Floor of this House.
Mr. Speaker: I allowed the hon. Member for Nottingham, West (Mr. English) to make his point of order. He will realise that he should have notified me before

1373
12 o'clock today if he intended to make an application under Standing Order No. 9. But the hon. Gentleman has got on the record the point of view that he wished to advance.
Mr. English: If you will look at the Official Report, Mr. Speaker, you will find that I specifically referred to the possibility of a Standing Order No. 9 debate today, as well as to the desirability of a statement to the Secretary of State. I should not, of course, have raised the matter under Standing Order No. 9 had there been a statement by the Secretary of State. You will find it, Mr. Speaker, in the Official Report.
Mr. Speaker: I know that quite well. But I do not take notice, across the Floor of the House, of applications under Standing Order No. 9, except when the matter arises out of the business of the day. It is quite easy for hon. Members to write to me before 12 o'clock, and then I have a chance to consider the matter. With his usual courtesy, I know that the hon. Gentleman would have done so had he really wished to pursue the matter—
Mr. English: No.
Mr. Speaker: —had the hon. Gentleman wished to pursue the matter this afternoon.
Mr. English: I hope that you will give me credit, Mr. Speaker, for believing that I may have been mistaken, to use Cromwell's words, rather than that I intended not to raise the matter this afternoon. You imputed to me something that was not correct. I genuinely believe that the matter ought to be discussed as soon as possible.
Mr. Speaker: I had no desire to impute anything to the hon. Gentleman, except that he had failed to observe our general custom.

ACCESS TO COMMONS AND OPEN COUNTRY
4.9 pm
Dr. David Clark: I beg to move,
That leave be given to bring in a Bill to amend sections 193 and 194 of the Law of Property Act 1925; to clarify the meaning of the Commons Registration Act 1965; to grant a right of public access to open country (as defined in the National Parks and Access to the Countryside Act 1949 as amended by the Countryside Act 1968); and for connected purposes.
The aim of the Bill would, in essence, be threefold. First, it would allow legal access to all commons. Secondly, it would amend, in a minor fashion, the Commons Registration Act 1965. Thirdly, it would grant right of access for air and exercise to all open land.
In asking for leave to introduce this Bill I am aware that it is only one of many that have been introduced over the years. Indeed, if we go back to 1888, we find that James Bryce introduced a Bill of this nature into the House. Since then a number of similar Bills have been introduced. It is interesting to note that the majority of such moves were made by Members of Parliament who represented constituencies in the industrial North-East of England. Charles Trevelyan of Newcastle, Ellen Wilkinson of Jarrow, Hugh Dalton of Bishop Auckland, Chuter Ede and Arthur Blenkinsop both of my own constituency of South Shields, were among those who sponsored or introduced such Bills. There is a long tradition of introducing such Bills.
I am often asked why this is so, and I believe that the explanation is simple. After spending weeks down the mines, in the shipyards, in the workshops on Tyneside or in the towns of Durham, Manchester, Sheffield or Workington, in West Cumberland, men had only to lift their eyes and in the distance they could see the beckoning Pennines. Naturally, because of their limited freedom, they yearned to walk among those hills. But alas, it was not to be, and that is often so today.
Those workmen only wanted the same rights as their Lordships' grouse to wander on the moors, except that they did not want to be shot at. We should now consider freer access to such areas, especially

1375
as there is increasing demand for leisure activities and every Government report points in that direction.
My Bill would correct the anomaly that arises out of the case of the Central Electricity Generating Board v. Clwyd county council 1976, and also the Box parish council v. Lacey in 1978. I believe that it is a minor technicality, which the House should put right.
Secondly, I seek to allow the public access to all commons. The paradox is that by their definition the commons belong to people yet the traditional rights of many people have been limited over the past 100 years. There is a rhyme that is associated with the Commons, Open Spaces and Footpath Preservation Society, of which I am chairman. It is an 18th century rhyme, but is well worth remembering. It runs:
"The law doth punish man and woman, That steals a goose from off the common, But lets the greater felon loose,
That steals a common off the goose."
That is precisely what has happened. Over the centuries people have had their land stolen from them. This is not just the view of a rabid Socialist; it was also the view of the Royal Commission in 1958. I understand that it is the view of the Department of Environment working party.
It is time that the problem of access to commons was sorted out once and for all. We are lucky that under the Law of Property Act 1925 commons in urban areas are accessible to the public as of right. This means, especially in the Lake District, that there are large areas where we are free to wander and obtain great enjoyment.
The third part of my Bill would allow pedestrian access to all other non-cultivated open land. That would bring this country in line with the more advanced countries in Europe. The National Parks and Access to the Countryside Act 1949 went some way towards this, but I believe that the time is now opportune for us to go all the way and to grant this concession and, indeed, this right.
I concede that there will sometimes be difficulties. I concede that there are often public footpaths in these areas. But public footpaths and legal rights of way are no guarantee. I have been told to get off moors even though I have been on a
1376
statutorily registered public footpath. That has been said to me at gunpoint on two occasions by people who have told me that they do not recognise the law as applied to the Queen's highways. Therefore, we must go a stage further when talking about open areas and make them available to everyone.
I fully accept that there would be problems with a minority who are vandals and there would have to be punitive measures involved in any legislation. I fully concede that, but what I am arguing has been put forward by responsible committees such as the Dower committee of 1945 and the Hobhouse committee of 1947.
All evidence—we must all welcome it—points to an increase in leisure time. On a Friday evening we have only to look at the exodus from industrial cities such as Newcastle, London, Birmingham, Sheffield and Manchester to realise the demands that are put upon the countryside.
The countryside is not a museum. I fully accept that. It is a workshop. But it is more than that. It is part of our natural and national heritage, just as much as Hadrian's Wall or Westminster Abbey. The time has come when we should give this right back—I emphasise the word "back "—to our people and allow them to wander freely over open moorland and other non-cultivated land.
Question put and agreed to.
Bill ordered to be brought in by Dr. David Clark, Mr. Andrew F. Bennett, Mr. D. N. Campbell-Savours, Mr. Sydney Chapman, Mr. Patrick Cormack, Mr. Alfred Dubs, Mr. Frank Hooley, Mr. John Parker, Mr. Geoffrey Rippon, Mr. Leslie Spriggs, and Mr. Frederick Willey.

ACCESS TO COMMONS AND OPEN COUNTRY
  ACCESS TO COMMONS AND OPEN COUNTRY
  Dr. David Clark accordingly presented a Bill to clarify the meaning of the Commons Registration Act 1965; to grant a right of public access to open country (as defined in the National Parks and Access to the Countryside Act 1949 as amended by the Countryside Act 1968); and for connected purposes: And the same was read the First Time; and ordered to be read a Second Time upon Friday 14 March and to be printed. [Bill 153.]

SEA FISHERIES
Motion made, and Question put forthwith pursuant to Standing Order No. 73A (Standing Committee on Statutory Instruments, &c.),
That the draft Sea Fish Industry Act 1970 (Increase in Rate of Levy) Order 1980, which was laid before this House on 28th January, be approved.—[Mr Brooke.]
The House divided: Ayes 166, Noes 140.

Division No. 198]

AYES

[4.20 pm

Aitken, Jonathan

Gower, Sir Raymond

Needham, Richard

Alexander, Richard

Gray, Hamish

Nelson, Anthony

Ancram, Michael

Grieve, Percy

Neubert, Michael

Aspinwall, Jack

Griffiths, Peter (Portsmouth N)

Newton, Tony

Atkins, Robert (Preston North)

Grist, Ian

Nott, Rt Hon John

Baker, Kenneth (St. Marylebone)

Gummer, John Selwyn

Page, Rt Hon Sir R. Graham

Baker, Nicholas (North Dorset)

Hamilton, Michael (Salisbury)

Page, Richard (SW Hertfordshire)

Bell, Sir Ronald

Hampson, Dr Keith

Parkinson, Cecil

Berry, Hon Anthony

Hannam, John

Parris, Matthew

Best, Keith

Haselhurst, Alan

Patten, Christopher (Bath)

Bevan, David Gilroy

Hayhoe, Barney

Patten, John (Oxford)

Bitten, Rt Hon John

Heddle, John

Pattie, Geoffrey

Biggs-Davison, John

Henderson, Barry

Pollock, Alexander

Blackburn, John

Hill, James

Proctor, K. Harvey

Boscawen, Hon Robert

Hogg, Hon Douglas (Grantham)

Rathbone, Tim

Braine, Sir Bernard

Holland, Philip (Carlton)

Rees-Davies, W. R.

Brinton, Tim

Hooson, Tom

Renton, Tim

Brocklebank-Fowler, Christopher

Howell, Ralph (North Norfolk)

Rhodes James, Robert

Brotherton, Michael

Hunt, David (Wirral)

Royle, Sir Anthony

Brown, Michael (Brigg & Sc'thorpe)

Hunt, John (Ravensbourne)

Sainsbury, Hon Timothy

Browne, John (Winchester)

Jessel, Toby

Skeet, T. H. H.

Buchanan-Smith, Hon Alick

Jopling, Rt Hon Michael

Speed, Keith

Buck, Antony

Kellett-Bowman, Mrs Elaine

Speller, Tony

Budgen, Nick

Kershaw, Anthony

Spence, John

Burden, F. A.

Kitson, Sir Timothy

Stevens, Martin

Butcher, John

Knox, David

Stewart, Ian (Hitchin)

Cadbury, Jocelyn

Lang,Ian

Stewart, John (East Renfrewshire)

Carlisle, John (Luton West)

Latham, Michael

Stradling Thomas, J.

Chapman, Sydney

Lawrence, Ivan

Tapsell, Peter

Churchill, W. S.

Lee, John

Tebbit, Norman

Clark, Hon Alan (Plymouth, Sutton)

Le Marchant, Spencer

Thompson, Donald

Clark, Sir William (Croydon South)

Lester, Jim (Beeston)

Thorne, Neil (Ilford South)

Clegg, Sir Walter

Lewis, Kenneth (Rutland)

Thornton, Malcolm

Cockeram, Eric

Lloyd, Ian (Havant & Waterloo)

Townend, John (Bridlington)

Cope, John

Lloyd, Peter (Fareham)

Townsend, Cyril D. (Bexleyheath)

Cormack, Patrick

Loveridge, John

Trippier, David

Corrie, John

MacGregor, John

Waddington, David

Costain, A. P.

McGuire, Michael (Ince)

Waldegrave, Hon William

Cranborne, Viscount

MacKay, John (Argyll)

Walker, Rt Hon Harold (Doncaster)

Dickens, Geoffrey

McNair-Wilson, Michael, (Newbury)

Walker, Rt Hon Peter (Worcester)

Dorrell, Stephen

McQuarrie, Albert

Waller, Gary

Douglas-Hamilton, Lord James

Marland, Paul

Ward, John

Dunn, Robert (Dartford)

Marlow, Tony

Warren, Kenneth

Dykes, Hugh

Mates, Michael

Watson, John

Eggar, Timothy

Mather, Carol

Wells, John (Maidstone)

Elliott, Sir William

Mawby, Ray

Wells, Bowen (Hert'rd & Stev'nage)

Faith, Mrs Sheila

Mawhinney, Dr Brian

Wheeler, John

Fisher, Sir Nigel

Miller, Hal (Bromsgrove & Redditch)

Wickenden, Keith

Fletcher, Alexander (Edinburgh N)

Mills, Iain (Meriden)

Wiggin, Jerry

Fletcher-Cooke, Charles

Mills, Peter (West Devon)

Williams, Delwyn (Montgomery)

Forman, Nigel

Moate, Roger

Winterton, Nicholas

Fox, Marcus

Morgan, Geraint

Wolfson, Mark

Fraser, Peter (South Angus)

Morris, Michael (Northampton, Sth)

Galbraith, Hon T. G. D.

Morrison, Hon Peter (City of Chester)

TELLERS FOR THE AYES:

Garel-Jones, Tristan

Murphy, Christopher

Mr. John Wakeman and

Goodlad, Alastair

Myles, David

Mr. Peter Brooke.

Gorst, John

Neale, Gerrard

NOES

Alton, David

Coleman, Donald

Dixon, Donald

Anderson, Donald

Cormack, Patrick

Dormand, Jack

Archer, Rt Hon Peter

Cox, Tom (Wandsworth, Tooting)

Douglas, Dick

Armstrong, Rt Hon Ernest

Craigen, J. M. (Glasgow, Maryhill)

Douglas-Mann, Bruce

Ashton, Joe

Crowther, J. S.

Dubs, Alfred

Booth, Rt Hon Albert

Cryer, Bob

Duffy, A. E. P.

Boothroyd, Miss Betty

Cunliffe, Lawrence

Dunn, James A. (Liverpool, Kirkdale)

Bottomley, Rt Hon Arthur (M'brough)

Cunningham, Dr John (Whitehaven)

Dunwoody, Mrs Gwyneth

Brown, Hugh D. (Provan)

Dalyell, Tarn

Eadie, Alex

Callaghan, Jim (Middleton & P)

Davis, Clinton (Hackney Central)

Eastham, Ken

Campbell-Savours, Dale

Davis, Terry (B'rm'ham, Stechford)

Edwards, Robert (Wolv SE)

Clark, Dr David (South Shields)

Dean, Joseph (Leeds West)

Ellis, Raymond (NE Derbyshire)

Cocks, Rt Hon Michael (Bristol S)

Dempsey, James

English, Michael

Evans, John (Newton)

McGuire, Michael (Ince)

Smith, Rt Hon J. (North Lanarkshire)

Field, Frank

McKay, Allen (Penistone)

Soley, Clive

Fitch, Alan

McKelvey, William

Spearing, Nigel

Flannery, Martin

Maclennan, Robert

Spriggs, Leslie

Fletcher, Ted (Darlington)

McNally, Thomas

Stallard, A. W.

Foot, Rt Hon Michael

McNamara, Kevin

Steel, Rt Hon David

Forrester, John

Marks, Kenneth

Stewart, Rt Hon Donald (W Isles)

Foulkes, George

Marshall, David (Gl'sgow.Shettles'n)

Stoddart, David

Freud, Clement

Marshall, Dr Edmund (Goole)

Stott, Roger

Garrett, John (Norwich S)

Mason, Rt Hon Roy

Strang, Gavin

Garrett, W. E. (Wallsend)

Maxton, John

Taylor, Mrs Ann (Bolton West)

Graham, Ted

Maynard, Miss Joan

Thomas, Dafydd (Merioneth)

Grant, John (Islington C)

Miller, Dr M. S. (East Kilbride)

Thomas, Jeffrey (Abertillery)

Grimond, Rt Hon J.

Mitchell, R. C. (Soton, Itchen)

Thomas, Mike (Newcastle East)

Hamilton, James (Bothwell)

Morris, Rt Hon Alfred (Wythenshawe)

Thomas, Dr Roger (Carmarthen)

Hamilton, W. W. (Central Fife)

Morris, Rt Hon Charles (Openshaw)

Thorne, Stan (Preston South)

Harrison, Rt Hon Walter

Morris, Rt Hon John (Aberavon)

Tinn, James

Haynes, Frank

Morton, George

Torney, Tom

Healey, Rt Hon Denis

Newens, Stanley

Wainwright, Richard (Coine Valley)

Holland, Stuart (L'beth, Vauxhall)

Oakes, Rt Hon Gordon

Walker, Rt Hon Harold (Doncaster)

Home Robertson, John

O'Halloran, Michael

Watkins, David

Hooley, Frank

Orme, Rt Hon Stanley

Welsh, Michael

Howells, Geraint

Palmer, Arthur

White, Frank R. (Bury & Radcliffe)

Hughes, Robert (Aberdeen North)

Parry, Robert

Whitehead, Phillip

Jay, Rt Hon Douglas

Powell, Raymond (Ogmore)

Willey, Rt Hon Frederick

John, Brynmor

Prescott, John

Williams, Sir Thomas (Warrington)

Jones, Barry (East Flint)

Price, Christopher (Lewisham West)

Winnick, David

Kerr, Russell

Radice, Giles

Woodail, Alec

Kershaw, Anthony

Roberts, Albert (Normanton)

Woolmer, Kenneth

Lamond, James

Roberts, Ernest (Hackney North)

Wrigglesworth, Ian

Leadbitter, Ted

Robertson, George

Young, David (Bolton East)

Lewis, Ron (Carlisle)

Rooker, J. W.

Lofthouse, Geoffrey

Sandelson, Neville

TELLERS FOR THE NOES

McDonald, Dr Oonagh

Sheerman, Barry

Mr A. J. Beith and

McElhone, Frank

Silverman, Julius

Mr Stephen Ross.

Question accordingly agreed to.

Resolved,

That the draft Sea Fish Industry Act 1970 (Increase in Rate of Levy) Order 1980, which was laid before this House on 28th January, be approved.

ORDERS OF THE DAY
  COMPANIES BILL [Lords]
  As amended (in the Standing Committee), further considered.
  COMPANIES BILL [Lords]
    New Clause 16

      AMENDMENT OF SECTION 52 OF COMPANIES ACT 1948
      'In section 52 of the Act of 1948 (return as to allotments) for the words "one month" wherever they occur, there shall be substituted the words "fourteen days."'.—[Mr. Clinton Davis.]
      Brought up, and read the First time.
      4.30 pm
      Mr. Clinton Davis: I beg to move, That the clause be read a Second time.
      Mr. Deputy Speaker (Mr. Richard Crawshaw): With this we may take the following:
      New clause 17—Amendment of s.33 of Companies Act 1967:
      'In section 33 of the Act of 1967 the word "person" shall be defined as any person whether acting alone or in concert with any other person'.
      New clause 18—Amendment to Componies Act 1976 (No. 1):
      'After section 27 of the Companies Act 1976 there shall be inserted the following section—
      "27A.—(1) If a person fails to comply with a notice under the foregoing section the company may by order direct that the shares in respect of which the notice was served shall, until that person complies with the notice or further order, be subject to the restrictions imposed by this section.
      (2) So long as any shares are directed to be subject to the restrictions imposed by this section—

      (a) Any transfer of those shares, or in the case of unissued shares any transfer of the right to be issued therewith and any issue thereof, shall be void;

      (b) No voting right shall he exercisable in respect of those shares;

      (c) No further shares shall be issued in right of those shares or in pursuance of any offer made to the holder thereof;

      (d) Except in a liquidation, no payment shall be made of any sum due from the company on those shares, whether in respect of capital or otherwise.

      (3) Where a company makes an order directing that shares shall be subject to the said restrictions, the company shall forthwith give notice in writing thereof to the person whose
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      failure to comply with a notice under the foregoing section led to the making of the order such notice shall be deemed to be duly given by being sent by prepaid first class post to the last known address of that person.
      (4) Where a company makes an order directing that shares shall be subject to the said restrictions, or refuses to make an order directing shares shall cease to be subject thereto, any pawn aggrieved thereby may apply to the Court and the Court may, if it sees fit, direct that the shares shall cease to be subject to all or any of the said restrictions in whole or in part on such terms as the Court thinks fit.
      (5) Whenever an order is made in respect of: shares comprised in relevant share capital of the company under this secton or under section 174 of the Act of 1948 (power of the Secretary of State to impose restrictions on shares or debentures) the company shall be under an obligation to inscribe against the name of the member in whose name those shares are registered in a separate part of the register kept by it under section 34 of the Act of 1967 (Register of Interests in Voting Shares) the fact that the restrictions were imposed, the date on which they were imposed and, where appropriate, the date on which they were lifted.
      (6) Subsections (2) to (9) of the said section 34 (which relates to the manner in which the register is to be made up and provide for public inspection of the register) shall apply in relation to the part of the register referred to in subsection (5) above as they apply in relation to the remainder of the register, and as if reference to subsection (1) of that section included references to subsection (5) above.
      (7) In this section 'relevant share capital' has the same meaning as in section 33 of the Act of 1967 and 'the court' means any court having jurisdiction to wind up the company.".'.
      New clause 19—Amendment to Companies Act 1976 (No. 2):
      'After section 27 of the Companies Act 1976 there shall be inserted the following sections:—
      "27(B.—(1) Where, on the application of the Secretary of State it appears to the High Court—

      (a) that a person has failed to comply with a notice under section 27 of this Act: or

      (b) that in connection with an investigation under either section 172 (appointment and powers of inspectors to investigate ownership of a company) or section 173 (power to require information as to persons interested in shares or debentures) that there is difficulty in finding out the relevant facts about any shares (whether issued or to be issued), and that the difficulty is due wholly or mainly to the unwillingness of the persons concerned or any of them to assist the investigation as required by the Act of 1948;

      and that it is in the interests of the company that an order be made under this section, the court may make an order that the shares

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      or debentures be forfeited and cancelled on such terms as the court thinks fit.
      (2) A person whose shares have been forfeited under this section shall cease to be a member in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay the company all monies which, at the date of forfeiture, were payable by him to the company in respect of the shares, but his liability shall cease if and when the company shall have received payment in full of all such monies in respect of the shares.
      (3) The Secretary of State shall give not less than 10 days' notice of his intention to apply for an order under this section to the person who has failed to comply with the notice under section 27 or to those persons who appear to him to be unwilling to assist in an investigation under section 172 or 173 of the Act of 1948 and to the company, and on the hearing of the application that person or those persons and the company may appear and may give evidence or call witnesses.
      (4) On the hearing of any application for an order under this section or on any application made by a person aggrieved by such order to rescind or vary the same, the Secretary of State shall appear and call the attention of the court to any matters which seem to him to be relevant and may himself give evidence or call witnesses.
      (5) In this section 'the court' means any court having jurisdiction to wind up the company.".'.
      Amendment No. 36, in clause 33, page 41, line 19, leave out 'one month' and insert 'fourteen days'.
      Amendment No. 37, in page 41, line 29, leave out 'one month' and insert 'fourteen days'.
      Amendment No. 38, in page 41, line 37, leave out 'one month' and insert 'fourteen days'.
      Mr. Davis: This group of new clauses and amendments enables us to debate and to try to find a way of dealing with the serious issues for British companies that have been raised in the recent Consolidated Gold Fields case. New clauses 16 and 17 represent a more general approach as distinct from the more specific proposals that we adumbrate in new clauses 18 and 19, which provide detailed and quite Draconian powers which are designed to render section 27 of the Companies Act 1976 far more effective.
      We feel that a serious issue has been raised. Important problems and serious threats are posed to the ownership of United Kingdom quoted companies. Bearing in mind that about 25 per cent. of the top 1,000 companies cited by The Times are already controlled by
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      foreign shareholders, we must recognise the importance of dealing with the issue effectively.
      Surely it was the Government's ditty to seize the opportunity to announce proposals and to take effective action. However, once again, when it comes to taking effective remedial action to deal with an abuse, the Government adopt their characteristic posture of masterly inactivity. That is an attitude that no doubt will be much praised by all those who pose a major threat to many of our largest companies. No doubt the Minister will seek to camouflage his sluggishness, as he did yesterday, with an attack on the drafting of our proposals. I think that he will refuse to deal with the issues of principle. That will be a totally unacceptable role for him to fulfil. I hope that my pessimism about his conduct will not come to pass.
      The Department of Trade appointed inspectors under section 172 of the Companies Act 1948 to investigate and report on the membership of Consolidated Gold Fields Ltd. That action was taken rather late in the day. Everybody appears to know the present membership of the company. We should be addressing our minds to strengthening the provisions of the 1967 Act by providing companies and the Secretary of State with some effective sanctions. There can be no doubt that it is an important matter. A danger to British companies has arisen as a result of the abolition of exchange control regulations, which the Consolidated Gold Fields case has illustrated vividly.
      The Secretary of State for Trade (Mr. John Nott): For about four years the hon. Gentleman, as Under-Secretary of State for Trade, was responsible for company affairs. Will he illustrate the occasions during those years when the Department of Trade persuaded the Treasury to use the exchange control legislation to block a foreign bid? Will the hon Gentleman tell us when that legislation was used to stop a bid when he was a member of the Labour Government?
      Mr. Davis: I cannot recall that now. However, a danger has been posed by a specific case. If the Department of Trade was not alerted to the position before, as clearly it was not, it is right that we should now learn from the lesson. I hope

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      that on that ground the right hon. Gentleman will be with me. I recognise only too well that there are matters that arise from inspectors' reports to which the Department is not alerted and to which Ministers ought to be alerted. Those matters have been missed by Ministers and by those advising them. The value of inspectors' reports and the value of any scandal is to learn lessons from them. Surely the Government should have said "There is a clear lacuna in the law which needs to be remedied." Evidently that is not the attitude that the Government plan to take.
      The Minister for Trade (Mr. Cecil Parkinson): Will the hon. Gentleman tell us on how many occasions when he was in charge of these affairs he introduced legislation to deal with problems that had arisen within two or three weeks of appointing inspectors to investigate and report, and long before they had reported?
      Mr. Davis: Is the Minister arguing that this is a serious matter that warrants some action? Surely he cannot equate it with everything else that has arisen. The Government's attention was drawn to the matter in the Ashbourne report. It is not as though the Government were not alerted to these events before they happened. I shall quote paragraph 1257 of the Ashbourne report, which was delivered on 30 April 1979. It was published by the Government. It has been in the Secretary of State's possession for a considerable period. The inspectors stated:
      "Finally, we express concern at the inadequacy of the present legal machinery to enable the identification of the true owner, or owners of shares of a British registered company, where those shares are held by a nominee resident abroad."
      That view is also stated by Professor Gower, who is the head of the panel of advisers appointed by the Government. In his book on modern company law he deals with piercing the veil of nominee shareholdings. He states:
      "The weakness, of course, is that a pyramid of nominees may make it impossible to ascertain the identity of the ultimate beneficial owners. Severe penalties can be imposed for failure to give information or for giving false information, but these are ineffective as regards people outside the jurisdiction."
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      That is the important feature. Professor Gower continues:
      "In such a case resort to the appointment of an inspector under section 172, or investigation by the Department of Trade under section 173 of the 1948 Act, is likely to be equally ineffective."
      If the Government's case is that the Labour Government were neglectful because they did not address their minds to the issue, that is no excuse for not doing something now. The Government claim that they are entitled to rectify Labour legislation and Labour Government omissions in other respects. Why do they choose not to do so in this instance when their attention was alerted by the Ashbourne report while the Bill was being prepared? They cannot escape from that.
      Mr. Nott rose—
      Mr. Davis: I shall give way in a moment—[Interruption.] If the right hon. Gentleman wishes to intervene, he might listen to what I have to say.
      Mr. John Smith: Hear, hear. Behave yourself.
      Mr. Davis: The Government should say "We have not dealt with this matter so far, but we undertake during the remaining stages of the Bill in another place to ensure that some legislative action is proposed."
      Mr. Nott: The Government have had about 10 months to consider these matters. The hon. Gentleman had four years to consider them. What did he introduce for piercing the veil, as he puts it, to deal with those who were hiding behind foreign companies or foreign situations in his proposals for insider dealing? What were the Labour Government's proposals to deal with matters handled from outside our jurisdiction? I do not recall what he thought should be done to pierce the veil in those instances.
      Mr. Davis: This is not essentially an instance of insider dealing. The right hon. Gentleman should address himself to the relevant aspects. Insider dealing is only a peripheral issue. The Labour Government introduced as a first attempt—the then Opposition played a substantial part—the nominee provisions in the 1976 Act. That measure was designed

      1387
      to build on the 1967 Act. It was a refinement of Jenkins; it was an advance. However, we did not pick up the issue with which we are now dealing at that time. I have conceded that. I am arguing that the right hon. Gentleman has had his attention specifically drawn to the issue now before us. He cannot escape from that, bearing in mind the Ashbourne report of April 1979.
      The right hon. Gentleman has a Bill that has been in the course of drafting for some time. I suspect that the Government have not picked up the issue because of the mess that they have made of the proposals in the first place. It may be that they intended to introduce a Bill to deal only with the proposals relating to the second directive. They made a hash of that and then changed their mind on the brink of Second Reading in this House, after the legislation had passed through another place.
      That is why the Government have introduced all these complicated matters dealing with insider dealing, conflicts of interest, loans to directors and so on in a haphazard way during the Committee stage. That is a most unsatisfactory way to deal with legislation, and the Minister knows that. Indeed, if it had not been for the Minister of. State, we would not have had the legislation. The Secretary of State had set his mind against it, as he indicated on Second Reading of our Bill. I understand that a great deal of internal bickering went on in the Department, but the Secretary of State was defeated by his Minister of State—which was a good thing.
      In addition to averting their eyes from the Ashbourne report, the Government have ignored the consequences of the abolition of exchange control in this respect. It is now much easier for overseas investors to accumulate secretly large stakes in United Kingdom companies and bid for them outright. Foreign companies and individuals who are not subject to United Kingdom law are no longer bound to obtain Bank of England consent for the acquisition of 10 per cent. or more of a British company. British and foreign companies are subject to different rules, until a stake reaches the 30 per cent. mark, when it has to be declared to the take-over panel.
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      Therefore, it is relevant to ask the Secretary of State, as he is here, whether the consequence of the abolition of exchange controls was contemplated by him or the Chancellor of the Exchequer when the proposals were introduced in October. What thought did the Secretary of State give to that? What advice, if any, did he tender to the Chancellor of the Exchequer? Or did he not alert himself or the Chancellor to the dangers?
      Mr. Nott: As the previous Government never used the Exchange Control Act in these circumstances, I do not think that it is an important point.
      Mr. Davis: Is the right hon. Gentleman saying that Bank of England consent to the acquisition of 10 per cent. or more of a company was never used?
      Mr. Nott: Yes; it was never used to block a bid.
      Mr. Davis: I cannot accept the right hon. Gentleman's assertion. I believe that he is wrong. I do not have the details here, nor does he. It is simply a bare assertion.
      Let us turn to the Consolidated Gold Fields case and the issues concerned there. [Interruption.] Does the Secretary of State wish to intervene again?
      Mr. Nott: No.
      Mr. Davis: Good. I am glad that he is enjoying my speech.
      The Consolidated Gold Fields case has cast an enormous question mark over the ability of the City to regulate its own affairs. The take-over panel and the Department of Trade proved powerless to deal with the breach of the gentlemanly understandings that apply in the City. The system and spirit of the law were flouted by those who made the bids and who are not amenable to those criteria because they are not within United Kingdom jurisdiction and do not wish to make themselves so amenable. Therefore, I believe that the case calls for a serious review of the law and the rules of the take-over panel and the Stock Exchange.
      4.45 pm
      It is fair to say that the Stock Exchange, like the Department of Trade, is holding an inquiry. However, let us examine what happened in this case. I contend that it was a case of significant

      1389
      importance which was virtually unprecedented. I am glad that I carry the Secretary of State with me on that point. De Beers bought 11 per cent. of Consolidated Gold Fields and added to that furtive acquisition over the previous four months, making a 25 per cent. interest in all in the company. It would not appear on the face of it that De Beers offended any United Kingdom company law. It does not appear that the company was caught by section 28 of the 1967 Act. I shall not rehearse the provisions of that Act, but it appears that that was the case. Certainly many financial and legal commentators in the press took that view.
      Therefore, there are many unsatisfactory features about the case. First, there is the covert way in which De Beers built up the initial shareholding. Its own shareholding and that of the unnamed parties for which it had options to purchase shares were just below the 5 per cent. mark. On the face of it, it would seem that the company was not required to make disclosure under the Companies Act. Secondly, I believe that it was a thoroughly discreditable way of behaving, particularly in the case of a company with the international reputation which De Beers used to enjoy.
      I am not alone in that opinion. The case drove the chairman of the Stock Exchange, Mr. Nicholas Goodison, to Say:
      "It looks as if the intention of company law, which is that a company should be able to discover the beneficial owners of its capital, was being at least temporarily frustrated."
      It was only when the Secretary of State announced the section 172 investigation that De Beers revealed anything at all.
      Mr. Donald Anderson: Does my hon. Friend recognise a further worrying factor? Given the nature of the shareholding in Consolidated Gold Fields, where no particular shareholder has more than 5 per cent. of the holding, a less than 30 per cent. holding, in effect, may give the foreign purchaser effective control of the company.
      Mr. Davis: My hon. Friend has anticipated my next point. I need not rehearse it again; I entirely endorse his remarks.
      In the course of the operation, the fourth unsatisfactory feature was that De
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      Beers, having entered into the covert acquisition of shares, went on to mount a share raid on 12 February in a very questionable way. Indeed, it was reported in the Financial Times of 16 February:
      "The jobbers were given full details of the buying plan by brokers Rowe and Pitman at 8.30 am, and by 10 am it was all over. Between them they had bought 16·5m shares at 616p compared with a closing price of 525p on Monday and 510p last night. Clients were scaled down to around 75 per cent, but could still feel very pleased with the outcome."
      The effect of that was to exclude the vast majority of Consolidated Gold Field shareholders from the buying spree in aid of the Oppenheimer benefit fund After the completion of the order, the shares fell back considerably.
      The institutions seemed to do all right out of it. Again, I quote the Financial Times:
      "De Beers bought its shares on a first come first served basis, which inevitably meant that the institutions got the lion's share of the action. Rowe and Pitman told the four jobbers in the stock what was happening at 8.30 am. but it was not until nearly an hour later that many leading brokers heard what was goinq, on.
      For an hour and a half, the City's telephones were humming with specific, privileged, price sensitive information. It would he challenging to explain to anyone not wise in the ways of the Square Mile why this does not count as insider trading."
      Could it be said, in any circumstances, that the spirit of the take-over code, the gentlemanly arrangement for conduct, was honoured in this case? Did shareholders have sufficient evidence, facts and opinions on which to make an adequate judgment? Did they have sufficient time in which to do so? The answer must be in the negative. Anglo-American appears to have its own shady interpretation. However, I shall not enlarge upon that.
      The case illustrates yet again the need to make insider dealing a criminal offence. There is no doubt that on that Tuesday morning much specific price sensitive information was exchanged among, as the Financial Times said, "the favoured few", in pursuance of swift and certain gain.
      Mr. Tim Renton (Mid-Sussex): I have listened to the hon. Gentleman's argument with great interest. I have sympathy with many of his points. However, surely he is wrong to refer to this as "insider

      1391
      dealing", or as "price sensitive information in relation to insider dealing. I agree that, according to the available information, there was a large buyer in the market at a price well above the previous night's closing price. That is not insider dealing. It did not relate to specific developments within the company or to price sensitive information about developments within Consolidated Gold Fields.
      Mr. Davis: This issue can be dealt with the Stock Exchange. That is why I said that it was peripheral to the main issue. It is alleged that some people made use of certain specific information that was not publicly available. They did so in a way that would constitute insider dealing. I do not wish to cross swords with the hon. Gentleman. I do not think that that is a particularly important point.
      The important question is whether we can learn any lesson from the main issue involved in the case of Consolidated Gold Fields. We must decide whether it requires legislative action. As a result of, at best, somewhat dubious conduct, £100 million changed hands in about 90 minutes. The whole affair might never have been detected had Consolidated Gold Fields not kept—fortuitously perhaps—a tally of unregistered shares. That was the great safeguard. I am sure that it has helped the Secretary of State in his inquiry.
      A large part of one of our biggest companies was acquired in a piecemeal and furtive fashion. It was not unmasked until the whole deal had virtually been accomplished. The value of investigations at this stage is limited. The facts appear to be known. We need to change the law in order to ensure that it cannot be bypassed in a similar way in future.
      The law should compel parties acting together in concert to declare their position if they together hold more than 5 per cent. of a company's capital. Sir Peter Parker has pointed out that that would prevent an undesirable "mergerous intent". It is needed in the interests of a diminishing band of small investors who have been strongly encouraged by the Government. It is needed in the interest of the fair operation of the market. It is required in order to reinforce the desirability of adequate disclosure. It is
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      needed also to stop faceless parties abusing the spirit of the law. We are entitled to a positive response from the Government.
      I shall now consider the new clauses in detail. New clauses 18 and 19 propose to amend section 27 of the 1976 Act. That, of course, is restricted to companies on a recognised stock exchange. Therefore, no objection can be raised to the effect that this will encompass private companies. The precedent used in drafting the new clauses is found in section 174 of the 1948 Act. That section may be exercised only by the Secretary of State. Precedent is also established in subsection (2), which reproduces section 174(2). Subsection (4) is based on subsection (3) of the main Act. Subsection (5) reproduces section 27(5) of the 1976 Act. I hope that all hon. Members will therefore agree that the new clauses have an impeccable pedigree.
      Subsection (1) provides for failure to comply with a notice under section 27 of the 1976 Act. It entitles a company to impose the restrictions that are set out in the new clause so long as non-compliance persists. Subsection (2) deals with disqualifications relating to shares. They will apply as long as they are subject to the restrictions. Subsection (3) provides for notice of the restrictions to be sent to the person failing to comply. Subsection (4) provides for an aggrieved person to seek remedy through the courts. The court is able to make such order as it thinks fit. Subsection (5) provides for registration of the restriction, and of its lifting. Subsection (6) provides for certain consequential amendments of section 34 of the 1967 Act. Subsection (7) requires no further comment.
      New clause 19 provides severe powers with the ultimate sanction of confiscation. Again, that is based on section 174 of the 1948 Act. Subsection (1) provides that, when the Secretary of State makes an application under section 174 of the 1948 Act, the court has power—in circumstances prescribed in subsections (1)(a) and (b) and when it is also in the interests of the company that an order shall be made—to make an order to forfeit and cancel shares and debentures on such terms as it thinks fit.
      Subsection (2) provides consequential safeguards for the person whose shares

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      have been forfeited. Subsection (3) states that the Secretary of State should give notice of his intention to comply with such an order. It also provides for the period within which such notice must be given. That would have smoked out De Beers much earlier. Subsection (4) sets out certain procedural matters at the hearing of the application.
      Those are draconian sanctions. However, it is a matter of life and death to many of our leading British companies which are vulnerable to that form of colonisation. We therefore feel that this form of treatment is required.
      Mr. Anthony Nelson: Can the hon. Gentleman confirm that the amendments and new clauses do not affect the problems involved in an early morning share raid on such companies? I recognise that they seek to rectify the problem of non-registration of shares.
      Mr. Davis: That is right. The hon. Gentleman will no doubt concede that it is extremely difficult for an Opposition who have not been helped by a parliament draftsman to get all these answers right. That is why I said that it was incumbent upon the Government to make these proposals. Our proposals are not unreasonable in the circumstances. I hope that they have been reasonably drafted. However, I cannot say that they are without imperfection. I often heard that remark being made when present Ministers were in opposition.
      I hope that the Government will not say that legislative action is not required, or that there is no precedent. We are the only major trading country where this can occur on such a scale. I understand that Japan makes a distinction between domestic and foreign registered shares. That enables the Bank of Japan to lift the veil on nominee holdings. No single foreign person can acquire more than 7 per cent. of an industrial company.
      In France, if a foreign holding is thought to have passed the 20 per cent. mark, banks or brokers can be obliged to disclose the identity of their clients. In Canada and Austrailia there are similar provisions. Of course, the Securities and Exchange Commission operates in the United States. It is inconceivable that it would not intervene at an early stage. If a holding of 5 per cent. is not
      1394
      disclosed, the SEC can seek an injunction and prohibit further deals, or require the purchaser to sell the holding.
      In conclusion, I submit that this is a serious matter which requires urgent attention. There is no need to wait for the determination of the section 172 report before the Government are able to make up their mind whether there is a lacuna in the law. It is a lacuna that has been exposed in a number of cases—in the Ashbourne report and in Professor Gower's learned work on company law. It has been exposed most particularly in this case.
      5 pm
      I hope that the Minister will say that the Government are working urgently on the matter and will be proposing in another place amendments to attempt to prevent that abuse from occurring again, or at least will use their best endeavours to effect that purpose. I cannot ask for more than that.
      Mr. Nelson: The Opposition have performed a singular service in presenting the new clauses and amendments. They give us a valuable opportunity to discuss an incident that is of concern to many hon. Members. It is right that the Government should be aware of our worries and have the opportunity to respond.
      When press reports indicated that shares were being acquired in Consolidated Gold Fields, I tabled a number of questions to my right hon. Friends the Secretaries of State for Trade and for Industry to see whether there was an indication that the existing law had been infringed and whether the beneficial ownership of the shareholdings built up was known and desirable.
      My concern was quite simply this. Consolidated Gold Fields is a company with major interests in North Sea oil exploration, gold and uranium mining, road construction and transport, which can be regarded as interests of strategic as well as economic importance. Is it desirable that, within a short time, by covert means, a shareholding, and possibly an effective controlling interest, can be built up in one of the 15 largest companies in the United Kingdom? It is because of concern felt about existing voluntary and statutory regulations that seek to prevent such a situation that I

      1395
      have been moved to contribute briefly to the debate.
      Amendments Nos. 36, 37 and 38 amend clause 3 in the same way as new clauses 16 and 17 seek to amend section 52 of the Companies Act 1948 and section 33 of the Companies Act 1967 by reducing the registration period from one month to 14 days. New clause 18 enables a company to place restrictions on rights attaching to shares if they are not registered within that time, such restrictions including those on transfer, votes, scrip issues and dividends. New clause 19 enables a court to order the forfeit of shares that are not registered in time. The purchaser of the shares remains liable under the new clause for moneys payable to the company.
      There appears to be a "Catch 22" situation as the covert and partial bid for Consolidated Gold Fields was not prevented by any existing controls. Under the Companies Acts, there is a requirement for purchasers to declare interests in a company of over 5 per cent. As has been rightly pointed out by the hon. Member for Hackney, Central (Mr. Davis), it does not cover concert party purchases. The take-over panel, which has some interest and influence in the area, is also powerless in this instance, as acting in concert is only of interest to it where there is a bid in progress, where the interest built up exceeds 30 per cent. and where a bid for the whole company has to be mounted.
      There is also the serious problem of the share raid mounted on that major British company within half an hour of the opening of trading on the Stock Exchange. It must be of concern to all of us who wish to see the London Stock Exchange exemplifying the best standards of fair practice that £100 million worth of shares can be acquired—some 16·5 million shares in that major company—within half an hour on the basis of an agreement between the stockbrokers, Rowe and Pitman, and the stock jobbers. While some institutional shareholders did extremely well and others managed only to sell 25 per cent. of their holdings, there were a substantial number of small shareholders who were given no opportunity and no public notification of the likelihood of a share price of some 100p in excess of the previous day's closing
      1396
      price and the possibility of disposing of their shares in that way. I have some experience of the City and I regard that as sharp practice. I hope that that will not be taken as a compliment by the brokers and jobbers involved.
      I am in favour of the substantial relaxation of exchange control regulations announced by the Chancellor of the Exchequer. However, we should recognise that the former rule that an overseas buyer had to secure Bank of England approval when buying more than 10 per cent. of a United Kingdom company has gone by the board. Some companies have used that new freedom as a means of building up share interests in British companies which formerly would have had to be disclosed.
      Some companies in other countries, and, indeed, in this country, have tried to get round the problem by including in their articles of association a provision limiting foreign nominee shareholdings in their company to, say, 5 per cent. Presumably it is within the realms of possibility for any British company that is concerned about the Consolidated Gold Fields incident being repeated to change its articles of association to protect itself.
      However that may not be wholly desirable. It is preferable that share ownership in companies is not restricted by their own provisions but rather by the law or the proper voluntary practice of City agencies, and is therefore made to apply to all companies and all shareholders rather than a few that decide to change their articles of association.
      My concern is principally about the size of that company and the nature of its industrial and mining interests. If it is possible to acquire within a short time an effective controlling management interest in the company, it is conceivable that similar interests could be built up in other major important British public companies.
      For that reason, I asked my right hon. Friend the Secretary of State for Industry whether the interests of Consolidated Gold Fields in areas such as North Sea oil exploration fell within section 11 of the Industry Act 1975 and whether a change of control could be prohibited or prevented under section 13. I do not have a high regard for the provisions of that Act, but it is the legislation that enables the Secretary of State to try

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      to prevent changes in control or undesirable shareholdings being built up in major British manufacturing undertakings. The definition of a manufacturing undertaking in the Act probably excludes Consolidated Gold Fields in that case. However, it is interesting that my hon. Friend the Under-Secretary of State, in his reply said:
      "Section 37 (3) provides that a number of non-manufacturing activities, including transport and mining and quarrying, shall be treated as manufacturing industry so far as they relate to products manufactured or to be manufactured by the undertaking. Detailed and comprehensive information about Consolidated Gold Fields' United Kingdom activities would therefore be needed to indicate to what extent the powers in section 13 might be applicable."—[Official Report, 22 February 1980; Vol. 979, c. 359.]
      My hon. Friend, in winding up the debate, may wish to refer to the existing industrial legislation as well as that which falls within his ministerial remit.
      I am pleased with the prompt response that I obtained from my right hon. Friend the Secretary of State for Trade to my expression of concern and call for an inspector to prepare a report on this matter. It would be most unwise for the Government to accept these amendments and new clauses before they had received the full report that is being undertaken and before they had obtained the more detailed advice of the stock exchange, which is undertaking its own inquiries, together with various other interested bodies in the City.
      It is important to get changes in legislation right before they are undertaken. I hope that, in replying to the debate, my hon. Friend will be in no doubt about the concern felt by hon. Members on both sides of the House about this particular incident and our strong anxiety that the law should be changed if necessary to prevent similar situations from arising in the future.
      Mr. Anderson: We have heard a remarkably helpful speech by the hon. Member for Chichester (Mr. Nelson). It was made in an entirely non-controversial and non-partisan way. Since he made his speech in such a non-partisan spirit, I shall refrain from pointing out, as I had intended to do, that Consolidated Gold Fields contributed £20,000 to Tory Party funds and £2,000 to the Economic League. I shall abandon that section of my speech
      1398
      as a result of the hon. Gentleman's contribution.
      The hon. Gentleman has a good record in seeking to lift the lid off these creeping acquisitions, known in the City for some time before Oppenheimer eventually put up his hands in relation to this transaction. The hon. Gentleman said that there was a sharp practice by the institutions in relation to the ganging-up at the time he mentioned and the consequent loss by a number of small investors. That is one, but not the most important, aspect.
      The most important, as the hon. Gentleman conceded, is the fact that a substantial British company was in danger of being taken over by stealth. This is one of the more vulnerable companies, as my hon. Friend for Hackney, Central (Mr. Davis) pointed out. There is such a scattering of small shareholdings in this country that a holding of 25 per cent. plus gives effective control to the company that has taken it over. This could have the adverse effects on United Kingdom security to which my hon. Friend referred.
      At least the hon. Member for Chicester recognised that a problem had been revealed. We have yet to hear the response of the Minister. The immediate response made to my hon. Friend the Member for Hackney, Central hardly bodes well for a positive response by the Government to the problem revealed. That problem essentially was that Anglo-American and De Beers Consolidated Mines had bought a 25 per cent. stake and probably effective control, given the difficulties of the other shareholders in concerting a position in Consolidated Gold Fields, one of the top 15 companies in Britain, for at least £150 million. This was done, whatever the importance in our national interest terms, without anyone knowing what was going on.
      There had been three months of speculation as this creeping acquisition was taking place. Some of the press comment stated a sense of relief that the company that eventually took over, Anglo-American, represented English South African interests rather than General Mining, the Afrikaaner interest, for what that is worth. I am not sure that this has any particular relevance. A foreign company or a foreign country, with a far more sinister background, may, by means of acquisition,

      1399
      have achieved a major stake, or a stake at least, in British North Sea oil exploration and other matters of considerable importance to this country.
      5.15 pm
      This has been facilitated by the abolition of exchange control by the Government. Since last October, foreign companies and individuals are not subject to United Kingdom company law and are no longer bound to obtain Bank of England consent for the acquisition of 10 per cent. or more of a British company. One wondered, as my hon. Friend for Hackney, Central declared, whether this side effect of the abolition of exchange control had been considered and whether a whole series of other side effects of that abolition, such as the undermining of much of our tax legislation, in terms of capital transfer tax, for example, and other aspects, had been seriously considered by the Government in the great bonfire of controls orgy in which they indulged last October.
      When this point was raised with the Secretary of State by my hon. Friend the Member for Hackney, Central, the only response he received was to have a question posed to him asking whether he could indicate when, in the last four years, the Treasury had blocked a bid from a foreign company seeking to acquire a substantial shareholding in excess of 10 per cent. in a British company. One can only comment on the complacency revealed by that question in the face of the revelations made in the Consolidated Gold Fields case.
      Secondly, it indicates perhaps that the Secretary of State is not concerned at the fact that a major British company can be surreptitiously taken over in this way, with all the implications that would follow. To indicate that, even if the Secretary of State is not concerned about this problem, there is concern among other major interests, one need only quote Mr. Nicholas Goodison, chairman of the London Stock Exchange, who, according to the Financial Times on 13 February said:
      "It looks as if the intention of company law, which is that a company should be able to discover the beneficial owners of its capital, was being at least temporarily frustrated".
      The writer of the Lex column says:
      "It seems extraordinary that a company of De Beers' stature should wait until Gold
      1400
      Fields had gone to the lengths of asking the Department of Trade to conduct an inquiry before it showed its hand.
      There is a case for considering a change in the law along United States lines, making it obligatory to disclose a purchase of more than 5 per cent. of a company by an individual or a group of individuals acting together".
      That is the concert party point made by the hon. Member for Chichester. In The Times of 13 February it was reported:
      "It could have been worse. Instead of the expected emergence of Afrikaaner business interests as the big buyer of Gold Fields' shares over the last two or three months, it was the Anglo-American Corporation of South Africa—the republic's biggest mining finance house—which finally admitted yesterday that through its De Beers diamond associate, it had built up a stake of almost a quarter in the United Kingdom-owned Gold Fields group".
      I am not sure about the relevance of the phrase "It could have been worse". At least, it shows that far more sinister interests could have acquired this interest in a sensitive part of United Kingdom industry without our being able to do anything about it.
      The commentator in The Times states in that same article of 13 February:
      "The most enduring lesson of the past few weeks may not be the fact that Anglo has taken a quarter stake in a major British industrial company but the weaknesses the episode has exposed in United Kingdom company law when it conies to overseas bidders."
      The article quotes Mr. Goodison, who stated:
      "'Adequate disclosure is essential for a fair market' he added, and that is something that has been palpably lacking in Gold Fields' shares for at least the last three months. The City's self-regulatory mechanism has once again been shown up to lack real force when one side refuses to play by the spirit of the law."
      Finally, the joint managing director of Consolidated Gold Fields, Mr. David Lloyd-Jacob, was critical of the way Anglo-American had built up its stake. He said:
      "'There are implications for United Kingdom law and the protection of shareholders,' he said."
      So at least, even if the Government have not accecpted the lessons of this takeover bid, some of the leading interests in the City and some of those immediately concerned in the company realise the lacunae in the law which have been exposed. If we conclude that it is necessary to amend our company legislation,

      1401
      what better time than now since we have before us a Bill which is being mightily transformed as it proceeds? The Government will have an opportunity, if not now, at least when the Bill reaches the other place, to state their response to the problems that have been exposed.
      My right hon. Friend the Member for Hackney, Central has already largely explained the detailed considerations which prompted us to draft the clauses, the first in relation to the time obligations. New clauses 18 and 19 are based upon impeccable precedents. They arise from the problem exposed by Consolidated Gold Fields. They build on section 27 of the 1976 Act, which is restricted to companies on a recognised stock exchange. There can therefore be no objection that private companies would in any way be caught. They are aimed at nominees resident abroad, against whom the criminal sanctions of the 1976 Act are useless.
      Therefore, if a company seeks to follow the chain of its purchasers it may come eventually to a nominee resident abroad. It may reach the "Gnömische Kreditvereinbank and if that is a Swiss company, not only will it refuse to disclose who the principal is but it will claim that the inquiry is impertinent and, worse, that it is contrary to Swiss company law for it to disclose upon whose behalf it is acting. That is the reality. The chain breaks when one comes to a nominee resident abroad. Therefore, that nominee being outside our jurisdiction, there is no means of our tackling the problem unless the Government adopt proposals such as we have made in new clauses 18 and 19, which are adapted from existing United Kingdom company legislation and which build on the 1967 Act.
      My hon. Friend the Member for Hackney, Central has given the precedents upon which we have drawn. In subsection (4) of new clause 18, which refers to the ability to
      "apply to the Court and the Court may…direct that the shares shall cease to be subject to all or any of the…restrictions',
      there is a precedent there in the case of Ashbourne Investments Ltd. That provision makes the legal position clear.
      The possibility of disfranchising shares is, as the hon. Member for Chichester said, not new. It can already be written into the articles of association of companies,
      1402
      and I understand that more and more companies are doing that in any event.
      Therefore, new clause 18 would freeze the benefit in the hands of a nominee resident abroad to force him to declare who he was. If that proved insufficient one could move on to the ultimate weapon, the more Draconian provision in new clause 19 which amounts to confiscation with all the safeguards which are contained there.
      Manifestly, as is accepted by the chairman of the London Stock Exchange, self-regulation is not enough, and until the appointment of the two Department of Trade inspectors under section 172 to examine the share ownership of Consolidated Gold Fields there was no possibility of the Oppenheimer bid being revealed. There were no legal means of forcing Oppenheimer to declare himself.
      We must ask the Government, if they accept that there is a problem, how, other than through the procedures we have set out in seeking honestly to assist the Government, they will deal with it. Do they believe that they can proceed other than by building on the 1967 Act and accepting the legislative possibilities of freezing or confiscation as set out in our new clauses?
      We look to the Government for a considered reaction. We have done our best to meet the problem, and we hope that no complacency will result as there certainly appears to be no complacency among those concerned in the City, those in the company itself or, one hopes among those responsible journalists who realise the threat which could be posed to many of our major companies—perhaps sensitive companies with a strategic importance to our economy—by a form of creeping acquisition on the lines of the Oppenheimer bid. We recognise that the problem exists; the City recognises that the problem exists. We have posed a means of dealing with it, and we look to the Government to give us their considered reaction.
      5.30 pm
      Mr. Renton: I declare two interests in this matter. First, although I am not a stockbroker, I am political consultant to a firm of stockbrokers. Secondly, I declare a former interest in that I am a former employee of the Consolidated Gold Fields group.

      1403
      I followed with interest the speech of the hon. Member for Swansea, West (Mr. Anderson), but I find it slightly ironic that the Labour Party should now be up in arms about a major South African group acquiring a 25 per cent. interest in Consolidated Gold Fields. Consolidated Gold Fields is Cecil Rhodes's old company. It is the company into which he put all his stakes in South African gold mines. We should remember that it was Cecil Rhodes, along with Beit and others—as Thomas Pakenham's book reminds us—who used his money to involve the British in the Boer War.
      In recent years Consolidated Gold Fields has developed successful companies in this country dealing principally in road-making materials. A notable example is ARC. It is, however, ludicrous to suggest—and I say this with respect to my hon. Friend the Member for Chichester (Mr. Nelson)—that Consolidated Gold Fields should be regarded as a company of vital strategic importance to this country.
      Mr. Anderson: There was no attempt on my part to say that there was something specifically wrong because this was an English or Afrikaaner company from South Africa. The money might just as well have come from Arab interests or, indeed, from Soviet interests. It is a precedent and a matter of general importance. That is our point. As for strategic importance, since Consolidated Gold Fields has interests in North Sea oil and stakes in other sectors in British industry, I hope that the hon. Member will accept that that is a matter of national interest.
      Mr. Renton: I am sorry that I gave way to the hon. Gentleman. He is merely repeating his point. Consolidated Gold Fields' interest in North Sea oil is minor. It has interests in construction companies in this country which are important to it and it owns Tennants, a well-known merchant company for which I used to work, but I cannot believe that it was because of that that De Beers was interested in the company. The reason for Harry Oppenheimer's interest in acquiring this important stake in Consolidated Gold Fields was that company's interest in South African gold mines. It was for no other reason. Harry Oppenheimer was anxious to see that that important stake
      1404
      —often a minority stake—did not fall into the hands of the Afrikaans-controlled groups, notably General Mining. In a sense, therefore, it was a defensive move on the part of Mr. Oppenheimer.
      That is not to excuse the deal, but it is important to put it on the record that that was the reason for the share acquisition. Although I do not approve of the way in which this purchase was handled, it should be said that Mr. Oppenheimer has done more than any other mining magnate in South Africa to advance the cause of black labour and native management within that country's industry. He has played a notable part in helping the South African mining groups to give more realistic jobs and more responsibility to coloured people. We should remember that.
      I listened with interest to the speech of the hon. Member for Hackney, Central (Mr. Davis), and I found myself in sympathy with many of the points that he made. It is important that the announcement of a 5 per cent. holding in a United Kingdom publicly quoted company should take place immediately, whether that holding has been acquired by a foreign company or by a number of related and associated companies. The fact that in this case the holding was just under 5 per cent. in each case and that it was disbursed among a number of associated companies, was, I think, a clear breach of the intentions of company law. I have no doubt that the Minister will tell us what steps he is taking—after carefully taking note of the report of the inspector—to ensure that this loophole is plugged.
      My hon. Friend the Member for Chichester asked whether the necessity to disclose 5 per cent. holdings had gone by the board as a result of the Government having, quite rightly, lifted foreign exchange controls. I do not believe that it has gone by the board, since it is possible that if a 5 per cent. holding acquired by a foreign company is not immediately notified to the offeree company once it has been registered the offeree company could then ask for de-registration or disenfranchisement of the shares acquired by the overseas company as a result of non-registration. It is possible that the loophole could be plugged in this way, and I imagine that this is one of the aspects which my hon. Friend the Minister will consider.

      1405
      Having worked in the City before coming into politics, I am concerned that the reputation of the City should not be tarnished by this incident. I think that it is important that self-regulating mechanisms should be seen to work if we are to be content with those mechanisms. I am concerned particularly about this deal because I believe that the brokers and the jobbers involved knew for some time before February exactly what was up.
      They were aware that an overseas buyer was building up a stake well in excess of 5 per cent. and they knew who that buyer was. I feel that there was a duty on the jobbers and brokers concerned to reveal to the Stock Exchange who the overseas buyer was, and that they should have done that in discharge of their own duties as members of the Stock Exchange. I further believe that on the morning in February on which it acquired this large quantity of shares De Beers told the brokers which institutions they were to buy from. In this manner it was certainly not giving equal treatment to each shareholder in an individual class as is required by the condition laid down on page 84 of the Yellow Book issued by the Stock Exchange.
      What can we do in future? One of the provisions of the Yellow Book issued by the Stock Exchange, as stated on page 78, is that in the case of a partial offer every shareholder is to be treated pro rata. I believe that the acquisition of 25 per cent. by De Beers falls into the category of a partial offer for shares in Consolidated Gold fields. It would be much better in future—we have all adumbrated what went wrong in this instance—if we had a formula by which public tender was made for shares. This would follow the American and Canadian practice, under which it is possible to display a tender form in the press and invite shareholders to submit their shares to the offeror company. It frequently happens that offers are then scaled down. People submit their shares on tender and are finally told that because it is only a partial tender their offer has been accepted for only 30 or 40 per cent. of their shares. In that manner all shareholders of the same class are treated equally.
      Under that system we would not in future have a situation such as that in which De Beers not only indicated to its brokers the institutions from which it par-
      1406
      ticularly wanted to buy, but, conversely, the institutions which were told by the brokers that they were not the lucky ones might insist that some of their shares were taken at the favourable price or they would never do business with those brokers again. That is an example of the use of muscle by the big battalions in the City which no one in this House appreciates.
      It must be said that the period during which registration must take place-30 days—takes account of stock exchange accounting periods. It would be difficult to reduce that, as the Opposition suggest, from 30 to 14 days. The process of registration should certainly be tightened up. This is by no means the first time that a buyer has hidden his identity from the offeree company by not registering his transfers. I hope that my hon. Friend the Minister for Trade will outline a procedure for tightening up on registration within a suitable period of transfers, so that companies can know what is happening about the transfer of their shares.
      My hon. Friend the Minister for Trade has always given great attention to matters affecting the honour and reputation of the Stock Exchange, the take-over panel and the City in general, as I know from the years that I had the pleasure of working with him on, for example, the previous Companies Bill.
      Clearly the matter requires detailed consideration in order that the reputation of the Stock Exchange and the take-over panel should come out unscathed. I hope that my hon. Friend will tell us, with his customary scrupulousness, what steps he proposes to take to plug the loopholes that have been uncovered, though clearly he will have to await the inspector's report before taking action.
      Mr. Parkinson: May I say how much I preferred the approach of my hon. Friend the Member for Mid-Sussex (Mr. Renton) to this range of problems? He recognised that the Consolidated Gold Fields case had highlighted a number of problems, but he did so against the background of believing in the system and wanting to see it work better.
      The hon. Member for Hackney, Central (Mr. Davis) aired a few of his favourite prejudices—the City, foreigners and

      1407
      the colonisation of our companies. He aired his distrust of self-regulation, a distrust which was known throughout his time in Government but was not accepted by his right hon. Friend the then Secretary of State, who believed that a mixed system of regulation could be made to work. Pervading the hon. Gentleman's speech was a fundamental dislike of our system and not an anxiety to see the system improve, which is what my hon. Friend the Member for Mid-Sussex and I wish to see.
      The hon. Member for Hackney, Central was right to say that the Consolidated Gold Fields case has revealed that there may be gaps in our system of regulation and that we must look at the case carefully to see how we can eliminate some of those gaps.
      The Opposition's approach highlights the difficulties of taking precipitate action without fully thinking out the consequences. The effect of new clause 16 would be to reduce the period for delivering to the Registrar of Companies a return of allotments under section 52 of the Companies Act 1948 from one month to 14 days. The amendments to clause 33 of the Bill would similarly reduce the period for delivering to the registrar details of class rights attached to shares from one month to 14 days.
      The amendments are straightforward, but we had a little difficulty in understanding their relevance, although we had work out that they represented a peg on which the Opposition wanted to hang a debate on the Consolidated Gold Fields case. Section 52 is concerned with delivering to the registrar details of new shares alloted and has nothing to do with disclosures or transfers of shares already issued.
      5.45 pm
      There may or may not be a case for reducing the period to 14 days, but the new clause is irrelevant in the case of Consolidated Gold Fields. We want to see returns made promptly, but we do not want to impose on companies unreasonable duties to make returns. The period of one month has been in legislation, in one form or another, since section 7 of the Companies Act 1900.
      From time to time there have been suggestions about shortening the period
      1408
      and there was such a proposal in the 1973 Bill. When the previous Labour Government produced a White Paper in 1978 they specified 14 days, but when the Bill was produced in November that year the limit had been increased to one month. I do not know why that was done. Perhaps the hon. Member for Hackney, Central concluded that a month was fair after all.
      In the context of the debate on Consolidated Gold Fields the question of one month or 14 days does not matter, though perhaps the right hon. and learned Member for Warley, West (Mr. Archer) will explain when he intervenes why the Opposition have reverted to their White Paper proposals and not their Bill proposals.
      I accept that new clause 17 could be relevant to the problem that we are discussing, but it is defective and not just because of minor drafting errors. It provides that the word "person" includes a person acting alone or in concert with any other person. But that is the effect of section 33 of the 1967 Act as it stands. Of course a person comes within the section whether he is acting alone or in concert. The purpose of the new clause seems to be to aggregate the holdings of more than one person when acting in concert. We suggest that if that is the intention, it will require much more careful drafting. We recognise the effect that the hon. Member for Hackney, Central is after, but we do not think that the new clause would deal with the problem at which it is aimed.
      Leaving aside the technical defects, the purpose of the new clause is no doubt to apply section 33 to "concert parties". It seems that as concert parties are disappearing from the seaside they are reappearing in company law.
      Mr. Clinton Davis: Will they appear in the company law review that the hon. Gentleman is to undertake?
      Mr. Parkinson: It depends what sort of concert party the hon. Gentleman has in mind.
      We believe that in setting out to define a concert party the new clause is defective. A much more careful definition will have to be introduced into the law of when people are acting in concert. The words in new clause 17 are not

      1409
      sufficient. We recognise the valid objectives of the new clause and we thank the Opposition for their suggestion, but we do not believe that it would achieve the desired result.
      The Consolidated Gold Fields case has highlighted a problem. A substantial ultimate holding in a United Kingdom company has been acquired without the company being aware, or informed of, the share transactions that were taking place. It was unable to find out, until a very late stage, the identity of the new, substantial shareholder.
      A number of questions arise from that case. The first question—touched on by the hon. Member for Hackney, Central—is whether the law enables companies and the authorities adequately to identify concert parties. Can both the law and the provisions of the regulatory authorities be applied equally to United Kingdom persons and persons acting from overseas? Do new problems arise from the abolition of exchange controls? Would the existence of exchange controls have prevented the Consolidated Gold Fields case? We shall have to wait and see what facts emerge as a result of the investigation. It may be that the existence, or non-existence, of exchange controls would have been totally irrelevant in that case.
      Can there be equality of opportunity for shareholders—whether institutional or small shareholders—where a major buyer is out to make a quick, substantial purchase of shares? My hon. Friends the Members for Chichester (Mr. Nelson) and Mid-Sussex both made the problem a substantial feature of their speeches. I share entirely their view, and the view of the hon. Member for Hackney, Central. One of the most unsatisfactory features of the Consolidated Gold Fields case was the way in which the small shareholder was denied the opportunity to take part in the bid.
      As the hon. Member for Hackney, Central knows, I feel passionately that we must encourage the spread of shareholdings. I would seek to do that in every way possible. I was an enthusiastic supporter of the last Conservative Government's attempt to do that through the Finance Bills. If we are to encourage small shareholders it is absolutely vital that they have confidence in the market.
      1410
      That is probably one of the least attractive features of the Consolidated Gold Fields case.
      The final question is what action can be taken by a company, through suitable provisions in its articles, to ensure that creeping acquisition of control by unknown persons is made unattractive. Those are not new problems. The hon. Member for Hackney, Central knows that. For a while during the passage of the 1976 Act, he and I formed an unholy alliance. He was in Government and I was in Opposition, and we found ourselves in agreement on a number of matters. In that Act he reduced the level of shareholdings that needed to be reported from 10 per cent. to 5 per cent. As early as 1976 he sought to deal with some of Fields case has now highlighted, one being the problem of making sure that a company knows the identity of the person trying to acquire a substantial holding.
      The hon. Gentleman knows that both the Government and the self-regulatory authorities have the matter under permanent and continuing scrutiny. I wish to stress that, unlike the hon. Gentleman, I think that there is a substantial role for non-statutory regulation, as well as statutory regulation, in the area of securities. I use the words "non-statutory regulation" in deference to Mr. Goodison, the chairman of the Stock Exchange, who feels that that is a more accurate description than "self-regulation".
      There is a role for the Stock Exchange Council and for the Council for the Securities Industry to consider the affair from their point of view, and decide what steps they can take to improve their own arrangements. The Consolidated Gold Fields episode has raised a number of matters of legitimate concern. It is unfair of the hon. Member for Hackney, Central to say that the Department of Trade did nothing.
      Mr. Clinton Davis: I did not say that.
      Mr. ParkinsonThe hon. Gentleman did say that, but I am glad to know that he did not mean it. Within 48 hours inspectors were appointed. The Stock Exchange established an inquiry. It expressed dissatisfaction. The take-over panel is making its own investigation. There are three important bodies with a legitimate role in the affair establishing

      1411
      their own inquiries and deciding how to deal with their aspects of the problem.
      I do not understand how it can be regarded as sensible to rush into new measures which, in the time available, cannot be subjected to the consultation and scrutiny that this complex area demands. The Government, the Stock Exchange Council, and the CSI are all considering their own areas of responsibility. They will decide how they can adapt their own regulations and rules in the light of the position that has developed, and of which they are now aware as a result of the Consolidated Gold Fields case.
      The hon. Member for Hackney, Central suggested that action should be taken at this stage, and in another place. It would be unwise to do so, because we do not know the facts of the case. We may find that there was not strict compliance with the present law. That would be one position. There are sanctions available to deal with that. We may find that the law was observed, but the way in which it was observed, and the manner in which it was possible to get around the spirit of it, may give us a clue about the action that we need to take to Prevent that sort of activity in future. That is information which will become available when the inquiries have been made.
      The self-regulatory authorities will draw their conclusions. They will decide whether any changes are necessary in their arrangements. For the Government to charge in and make changes in their arrangements, in the middle of inquiries that are being treated as a matter of great urgency, would be rather foolish. We do not have a wholly statutory regulatory system. We need concerted action by the Government, the Stock Exchange Council and the CSI if we are to deal adequately with the problem. We recognise that when the results of the inquiries are known it may be necessary to take action.
      I have a long and detailed explanation of why we object to new clauses 18 and 19. There are substantial weaknesses in both clauses. The basic reason for our objection is that the matter arose three weeks ago. Urgent inquiries are taking place. The three bodies that will make changes are conducting their own inquiries. It would be foolish, at this stage, to introduce half thought out measures that
      1412
      have not been fully discussed, against a background of comparative ignorance of the facts.
      6 pm
      Mr. Clinton Davis rose—
      Mr. Parkinson: I shall give way in a moment. When the hon. Gentleman thinks about this matter I hope that he will come to the same conclusion. It is all very well to mention Ashbourne. That was a specific and small problem. As the hon. Gentleman knows, the money for the shares, the ownership of which could not be declared because of the rules of the Swiss bank, is still resting in Britain. It has never been paid over. Ashbourne made a glancing reference to this problem. Even though the Ashbourne report was available, we did not hear a word about the problem from the hon. Gentleman until the Consolidated Gold Fields case. That was what triggered off his interest.
      That is what has triggered off activity everywhere, and it is unfair of the hon. Gentleman to say "We were all aware of the problem that Ashbourne highlighted." Why did not he and his colleagues bring the matter to the Government's attention earlier? Why did not Ashbourne move him to deal with what he considers to be a major gap in our law?
      Mr. Clinton Davis: It so happens that I did make a speech about Ashbourne and Dowgate—I do not think that the hon. Gentleman was here at the time—in the early part of this Parliament. That was a somewhat irrelevant remark from him. Surely the Government do not require the Opposition to alert them to a problem. Presumably the report of the inspectors will not be available for a considerable time—months and possibly many months. In the meantime, is it not right that the precedent which has been established might be repeated and that no defensive mechanism is available in the interim? Therefore, would it not be perfectly possible for the Government to carry out their necessary consultations before the Bill reaches another place and before it completes its passage there? That is not an impossible task to fulfil. The Government have acted swiftly before in other respects. Why cannot they do so here?
      Mr. Parkinson: I do not want to repeat my speech. Obviously, the hon. Gentleman was not listening to it. By the way, I was present for his speech on Donate, and I thought that it was a disgrace. As I remember, it amounted to a personal attack on an hon. Member of this House. I would have thought that the hon. Gentleman would have been very glad to forget his performance on that occasion. The rest of us would prefer to do so.
      We believe that a thorough investigation is the right way to proceed. As I have said, three different bodies may have to change their rules and procedures to deal with the problem. We believe that considered action on the basis of knowledge, properly thought out and consulted on, is the right way to proceed, rather than to rush through half-thoughtout measures. I have already shown that in two cases the hon. Gentleman's attempt to deal with the problem is totally irrelevant. They are just examples of how ill-considered action can cause more problems than it solves.
      Mr. Anderson rose—
      Mr. Parkinson: I was just about to finish, but I shall give way.
      Mr. Anderson: The hon. Gentleman will know that we have made an honest stab at the problem in new clauses 18 and 19. Even if he cannot give a detailed reason for the rejection of the principles in those new clauses, cannot he at least do us the courtesy of showing the broad lines of the Government's unwillingness to accept them? Why does he find those two new clauses unacceptable, apart from the timing point of view?
      Mr. Parkinson: We feel that there are already substantial sanctions under section 27, and that just adding to the range of sanctions would not do very much to deal with the problem.
      Mr. Anderson: Why not?
      Mr. Parkinson: Perhaps I can remind the hon. Gentleman what those sanctions are. It is not the absence of sanctions that has caused this problem. The penalties for conviction on indictment are imprisonment for not less than two years, or a fine, or both. On summary conviction, the penalty is imprisonment for not more than six months, or a fine not exceeding £400, or both.
      Mr. Anderson rose—
      Mr. Parkinson: I am replying to the hon. Gentleman's question. The truth is that it is not the absence of sanctions which is not making section 27 work properly. Therefore, while the proposals would add to the range of sanctions, we do not believe that they would do so in a worthwhile way, because we do not believe that sanctions, or the absence of them, are the problem.
      Mr. Anderson: The Minister does not understand.
      Mr. Parkinson: I understand them perfectly, perhaps better than the hon. Gentleman, otherwise he would not have tabled the new clause in the form in which he did, or thought that in doing so he was helping to deal with the problem about which he spoke.
      Mr. Anderson rose—
      Mr. Parkinson: I shall not give way. I think that I have explained the Government's attitude. I believe that it is a reasonable attitude. I thank the Opposition for making suggestions about their approach. If I may say so, their proposals, are, not untypically, half-baked. We shall consider what has been said, and we shall deal with the problem in a satisfactory fashion.
      Mr. Peter Archer: This debate has been about the Consolidated Gold Fields case, which is what we all expected. For that reason, it is no answer for the Secretary of State to say—and in a quiet and muted way for the Minister to echo—"Well, you did nothing about it when you were in Government." From time to time events bring to light problems of which previously half the country was not aware and the other half did not believe that they constituted a serious matter. Of course, all of us knew previously that there were problems. Now, by a concrete example, we can actually see what they mean.
      Previously, we may wish to have written on the gate "Beware of the dog!", but when grandma actually gets eaten by the wolf we get round to testing the strength of the chain. Consolidated Gold Fields was a major trauma in the City, and company law can never be the same again. I think that the Opposition are entitled to say that if the Government are not impressed by the facts of Consolidated

      1415
      Gold Fields, we really do not know what will stir them into action, or what they require to instil a sense of urgency. If they are prepared to accept an indecent assault, what do they require to take action—mass rape and pillage on a Viking scale?
      It does not follow that, having been taken so completely by surprise by these facts, they had to go back to the beginning of their thinking and start again. What Consolidated Gold Fields did was to impress upon us all that the kind of matters that had been discussed in academic, administrative and City circles for quite a long time were now matters that required some action. There is a difference between saying "Now we know that action is required" and saying "Now we must go right back to the beginning of all our thinking and start again".
      This debate has been triggered by Consolidated Gold Fields, but we should not pretend that it is a totally new problem. A number of things were important about the Consolidated Gold Fields case. First, it was a take-over by De Beers, a company which already dominates the world's markets in an important commodity. It was that company which last autumn unilaterally increased the price of diamonds by about 30 per cent., and no one was in a position to intervene. Now, having swallowed diamonds, the octopus is reaching out its tentacles for gold. We all agree that this is not intended simply as an indictment of De Beers. The hon. Member for Mid-Sussex (Mr. Renton) pointed out that the company has some alleviating qualities. In many ways, it has helped to improve conditions for black labour in South Africa. I suppose that it is probably fond of good music and kind to animals. This is not an indictment of Mr. Oppenheimer. The point is that it is a lesson from which we can learn about the future. Next time it happens, it may be someone who is tone deaf and horrid to animals.
      Secondly, this happened to Consolidated Gold Fields. Again, I do not mean any disrespect to Cecil Rhodes or to the hon. Member for Mid-Sussex, but, as the hon. Member for Chichester (Mr. Nelson) pointed out, in what was a thoughtful and helpful speech—and as has been pointed out by my hon. Friends—this was one
      1416
      of the top 15 companies in the United Kingdom. That was the significant point about Consolidated Gold Fields. It was one of the top 15 companies in the United Kingdom, and the second largest gold mining company in the world. I accept the words of The Economist on 16 February:
      "After this week, can Rio Tinto-Zinc, GKN or M & S sleep sound?"
      We have heard much from Conservative Members over the last month or two about back-door nationalisation, particularly in relation to the National Enterprise Board. Metaphors about which doors we use are perhaps less important than what is visible through the window. Any measures that were taken by the National Enterprise Board were open. Everyone could see what was happening. It was explicit. The purpose behind what was done was made public, and everyone knew who was doing what, and why. Its measures were subject to challenge in the House, so there was some responsibility for what was happening. Further, when the NEB made a move, British capital took over on behalf of British people, and subject to British control, rather than foreign capital acting in its own interests. That is not chauvinist. That is not xenophobia.
      I claim to be as good an internationalist as the Minister of State. It may be that in his lifetime and mine we shall not have to talk in this manner, because the nation States of the world will have come together and seen where their interests lie. At present, nation States protect their own industries. Other nation States protect their industry, which is in competition with ours. They leave us no alternative. We cannot leave our industry unguarded. As my hon. Friend the Member for Hackney, Central (Mr. Davis) pointed out, the danger has become more insidious since the Government abolished exchange control.
      All sorts of people are at risk. It is a matter of some urgency. First, and obviously, shareholders are at risk because there is a major buyer in the market, about which they do not know. They are at risk because if a company about whose activities they have not heard acquires control of the company, decisions may be taken as to its future without regard to the interests of the existing shareholders.

      1417
      We are concerned with the small investor. I am sure that the Minister of State was not seeking to imply that only Conservative Members cared about the diffusion of property. We have been talking about it for years. I am even prepared to quote from the Communist manifesto, which said that the Commmunists had been accused of being against property. It said that they were so much in favour of it that they thought more people should own some.
      There is nothing between us on that. But we are not simply concerned with the interest of the small investor. We are also concerned about the institutional investors who carry the interests, and often the economic future, of many people who have never heard of the Stock Exchange and who have never opened the Financial Times. The practice is bad enough when it is carried out openly. It is more frightening when it is carried out by the intruder in the night. We may have differing views about concert parties, but the concert parties that I used to watch were always delighted to perform to packed houses and to be seen publicly. That is the difference in the matter with which we are now dealing.
      We are not only concerned with the shareholders. We are concerned also with the employees. Some hon. Members have had the frightening experience of talking to employees in their constituencies when something of that kind has happened. I have had two such experiences. The story builds up. There is the straw in the wind, the uneasy speculation, the vague rumour, the word of confirmation, the sudden fear, and then the panic. What is the purpose of the take-over? Will the work force be cut down? Will the new company bring in its own employees and sack the existing employees? Is it its intention to acquire the company's know-how and then to close it down and move the assembly to another place? What will become of the employees? They have a real interest.
      6.15 pm
      The hon. Member for Chichester pointed out that the reputation of the Stock Exchange is in jeopardy, and in turn, therefore, the reputation of the City of London. Invisible earnings are brought about by the reputation of the Stock
      1418
      Exchange, and hon. Members who know something about international arbitrations know how important that reputation is. It is, therefore, a matter in which the public have an interest, and in which the Government should have an interest.
      We need some controls to deal with such situations when they arise. But it goes further than that. Those situations are less likely to arise if controls exist. The existence of controls, even when they are not used, is likely to change the whole climate. They are not only weapons for use against people who behave in a certain manner. They will have a healthy deterrent effect. There may be no need to act upon the powers once they exist.
      It would be possible to exchange debating points with the Minister of State about new clauses 16 and 17. We could exchange views on draftmanship, and the legislative history of the matter. I am not sure that it would profit either of us, and I do not propose to enter into that debate. However, I am concerned about his views on new clauses 18 and 19.
      As my hon. Friend the Member for Swansea, East (Mr. Anderson) pointed out, we have gone to some trouble to face up to the problems, and to suggest solutions that we thought would hold together. All that the Minister of State has said so far is that we already have sanctions. But they are sanctions for the controls that already exist. The one essential difference between what we suggest and the controls that exist is that the existing controls necessarily bite on companies and people who are within the criminal jurisdiction of our courts. How are we to have controls with sanctions that will prevent the insidious creeping in of foreign capital? We accept that there may be genuine problems that are worth debating.
      We should like to have known the Government's proposals. In a nutshell, they are that we should wait until the result of the inquiry. After the inquiry the self-regulatory authorities may take their own action. That is a matter for them, but a combination of self-regulatory authorities and a self-satisfied Government will not begin to solve the problems. The Government's proposal is that we should then re-examine the matter and consult at some unspecified time. When the

      1419
      Lord President of the Council and the Leader of the House of Commons can slot in another Bill, we may have an opportunity to deal with it. Heaven knows when that will be.
      Mr. Parkinson rose—
      Mr. Archer: Before I give way, I should like to pose a question, so that the hon. Gentleman may have an opportunity of answering it. The hon. Gentleman is not listening, so there is no point in my posing the question.
      What is it about the problem with which we are confronted that the Government do not know? There may be facts about the Consolidated Gold Fields case which will emerge from the inquiry, but what is it about the problem that the Government do not know at present?
      Mr. Parkinson: I apologise to the right hon. and learned Gentleman. My hon. Friend made an interesting and slightly flattering comment about him, so I was distracted for a reason of which I think he would approve.
      We believe that there are strong sanctions available now. Under sections 172, 173 and 174, the Department of Trade has the right to make a range of orders dealing with shares. We feel that, as the right hon. and learned Gentleman says, Consolidated Gold Fields has introduced a new element into the whole debate. We want to concert our actions with the actions of the other two bodies that have a responsibility in this matter, and it will take a little time to do that. There is no reason for the right hon. and learned Gentleman's suggestion that it will be years and years away. As he knows, we shall be legislating fairly regularly on company law. That will include the next Session and, I am quite sure, the Session after that. There will be opportunities, therefore, and these problems will be dealt with.
      Mr. Archer: My feeling of déjà vu, which has emerged from time to time during these debates, has emerged again, I fear, for two reasons. The first is that the argument that the hon. Gentleman has just used is precisely the one that he used earlier. I suspect that we are going round in circles. Secondly, he is saying "We shall do it in the future and it will
      1420
      not be all that long." But we hear that said frequently, and those who advise us on company matters always come back and say "That is what we were promised last time."
      The new element in Consolidated Gold Fields is the one that I tried to identify—the insidious infiltration of foreign capital. That, it seems to me, is not dealt with by the existing controls and the existing sanctions.
      Suppose that the hon. Gentleman had said "The Bill has not completed all its stages yet. There will be discussions in another place. We shall be happy to discuss it with you and to see whether there is something that we could inject into the Bill at this stage, although it may not be the whole of your new clauses Nos. 18 and 19." Had he said something of that sort, we would have been responsive, but he has said nothing of the kind. He has told us that there is no hope of producing any kind of action in this Bill. In those circumstances, we have no alternative but to try to secure that action by dividing the House.
      I beg to ask leave to withdraw the motion.
      Motion and clause, by leave, withdrawn.

    New Clause 18

      AMENDMENT TO COMPANIES ACT 1976 (No. 1)
      'After section 27 of the Companies Act 1976 there shall be inserted the following section—
      "27A.—(1) If a person fails to comply with a notice under the foregoing section the company may by order direct that the shares in respect of which the notice was served shall, until that person complies with the notice or further order, be subject to the restrictions imposed by this section.
      (2) So long as any shares are directed to he subject to the restrictions imposed by this section—

      (a) Any transfer of those shares, or in the case of unissued shares any transfer of the right to be issued therewith and any issue thereof, shall be void;

      (b) No voting right shall be exercisable in respect of those shares;

      (c) No further shares shall be issued in right of those shares or in pursuance of any offer made to the holder thereof;

      (d) Except in a liquidaton, no payment shall be made of any sum due from the company on those shares, whether in respect of capital or otherwise.

      (3) Where a company makes an order directing that shares shall be subject to the said restrictions the company shall forthwith give notice in writing thereof to the person whose failure to comply with a notice under the foregoing section led to the making of the order; such notice shall be deemed to be duly given by being sent by prepaid first class post to the last known address of that person.
      (4) Where a company makes an order directing that shares shall be subject to the said restrictions, or refuses to make an order directing shares shall cease to be subject thereto, any person aggrieved thereby may apply to the Court and the Court may, if it sees fit, direct that the shares shall cease to be subject to all or any of the said restrictions in whole or in part on such terms as the Court thinks fit.
      (5) Whenever an order is made in respect of shares comprised in relevant share capital of the company under this section or under section 174 of the Act of 1948 (power of the Secretary of State to impose restrictions on shares or debentures) the company shall be under an obligation to inscribe against the name of the member in whose name those shares are registered in a separate part of the register kept by it under section 34 of the Act of 1967
      (Register of Interests in Voting Shares) the fact that the restrictions were imposed, the date on which they were imposed and, where appropriate, the date on which they were lifted.
      (6) Subsections (2) to (9) of the said section 34 (which relates to the manner in which the register is to be made up and provide for public inspection of the register) shall apply in relation to the part of the register referred to in subsection (5) above as they apply in relation to the remainder of the register, and as if reference to subsection (1) of that section included references to subsection (5) above.
      (7) In this section 'relevant share capital' has the same meaning as in section 33 of the Act of 1967 and 'the court' means any court having jurisdiction to wind up the company." '.—[Mr. Archer.]
      Brought up, and read the First time.
      Question put, That the clause be read a Second time:—
      The House divided: Ayes 150, Noes 193.

    New Clause 26

      CONDUCT OF DIRECTORS OF COMPANIES
      '(1) A director of a company shall observe the utmost good faith towards the company in any transaction with in or on its behalf and shall act honestly in the exercise of the powers and the discharge of the duties of his office.
      (2) A director of a company shall not make use of any money or other property of the company, or of any information acquired by him by virtue of his position as a director or other officer of the company, to gain directly or indirectly an improper advantage for himself at the expense of the company.
      (3) A director of a company who, by any breach of subsections (1) and (2) above, makes a profit or inflicts any damage on the company shall be liable to account to the company for the profit or to compensate it for the damage.
      (4) This section is without prejudice to any other provision of the Companies Acts and to any rule of law with respect to the duties or liabilities of directors.'.—[Mr. Archer.]
      Brought up, and read the First time.
      Mr. Archer: I beg to move, That the clause be read a Second time.
      This new clause is about the duties that directors owe to the company. It is not the first time during the passage of the Bill that we have discussed the subject. Lest it should be said "We discussed this in Committee and it was rejected" I shall give the House a little of the legislative history of the matter.
      It is true that in Committee we debated an Opposition new clause on this subject. It is also true that the Government opposed it. Perhaps predictably, when the Committee voted it voted for the view of the Government and rejected the view of the Opposition. We were not wholly shattered by that.
      What is at issue today is not what we discussed in Committee. In Committee we sought to codify the duties of directors to the company. That debate was largely about the merits of the codification as such.
      If I may be permitted to paraphrase their argument, the Government asked, since we cannot completely summarise the duties of directors and can never totally eliminate the necessity to refer to case law, why we should attempt to codify these duties. If one cannot replace case law, why not forget the whole exercise? The House will not be surprised to hear that there are a number of answers
      1426
      to that argument. We attempted to ventilate them in Committee, but I apprehend that I would probably be out of order if I attempted to do that now, because those arguments are not part of this debate.
      What happened in the course of debate in Committee was that I ventured to tease the Minister of State. I said that his party, when in Government in 1973, had introduced something similar in a Bill which never reached the statute book. He replied that that was different, that it was not an attempt at codification. He said:
      "we set out a statement of principles, which was different from the attempt in clause 44 actually to codify."—[Official Report, Standing Committee A, 11 December 1979; c. 651.]
      Therefore, according to the Minister, what the Conservatives did in 1973 was an attempt to summarise the existing law in principle, leaving those who wished to look up the law to refer to case law as well. We went back to the Bill of 1973 and our new clause—I make no apology for plagiarism—is simply a restatement, word for word, of the Conservatives' attempt.
      I hate to spring this on the Under-Secretary if he has not been forewarned, but if he intends to use the same arguments as the Minister used in Committee I must tell him that they will not apply, because, on the Minister's own argument, what we were trying to do in Committee was quite different. What we are trying to do now is to set out a statement of the principles.
      This is not an attempt to deal with the duties which a director may owe to a company in relation to reasonable skill and care. I cannot help feeling that that is a pity, although this clause represents my draftsmanship. In Committee we had a new clause on this subject. It became submerged in the debate about our other new clause relating to fiduciary obligation, but possibly that was my fault. Perhaps at some later time we shall return to the debate on the duty of care and skill and how it can be defined. I commend to the House an excellent article on this subject in the Law Society's Gazette of 9 January 1980. I give notice to the Under-Secretary that when we debate this matter at some future date I shall draw on that article.
      However, that is not the subject of the new clause. This clause relates not

      1427
      to care and skill and professional qualifications, but to honesty. In a recent article in The Times Miss Clare Watson drew a distinction between the duties of directors in relation to care and skill in management and fiduciary duties. She said:
      "It has long been felt that a statement of the basic principles underlying the relationship between a company and its directors would be useful both to members' company boards and others concerned with business management. Such general statements of principle appear in several Commonwealth and American Acts, and it was recommended by the Jenkins committee that such a formula be incorporated into English law."
      For the benefit of the Under-Secretary, that was properly pointed out to me in Committee by the Minister of State. When I drew on Jenkins, he said "But Jenkins did not argue for a code. Jenkins argued for a statement of principle". Tonight we are debating a statement of principle.
      The new clause deals with the fiduciary duties of trustees. It may be that I shall be held to blame if, at the outset, I use a number of technical terms. Lawyers are bound to do so in debates of this kind, particularly on company law. However, I hope that we shall not get bogged down, as we have done in some debates, purely on the vocabulary, although that is one of the snares.
      Professor Gower thinks that the description of directors as trustees is misleading, so I would not want to use the expression "trustees". In Committee on the Companies Bill 1978, Conservative Members objected to the word "fiduciary". They said that it was borrowed from insurance law; that it entailed a duty of complete disclosure; that when talking about the duties of a director to a company, questions arise about those to whom he has to make his disclosure and about what he has to disclose; and was it not therefore misleading to use the word "fiduciary"? We would not go to the stake on that. However, courts in the United States have not shrunk from the use of that word or concept. They have glossed the Securities Exchange Act 1934 and said that directors owe a ficudiary duty to their companies. That there is a duty of this kind is, I should think, generally agreed. I cannot believe that will be between us.
      1428
      We all know that the Jenkins committee objected to the narrowness of the duty. It underlined that it was owed to the company—cases such as Percival v Wright underline that again—not to the shareholders, and that shareholders and other individuals have no opportunity of enforcing it. That is a different matter, and it would be a pity if that were confused with the other issues in the debate.
      The Government have belatedly, but happily, made some inroads into that problem, because we have the insider provisions, which we shall debate in due course. The Jenkins committee said that, given that there is this duty of honesty and that it is owed to the company, it would be helpful if we could extract the basic principles from the case law and embody them in legislation.
      I turn to Profesor Gower's work on the subject. Any praise from me would be superfluous and perhaps an impertinence, because it is the work to which we almost all automatically turn. He said that in this area there were basically four duties which the courts had spelt out in the case law. First, there is the duty of good faith. Not only must there be no conscious dishonesty, but the director must not use his position to take some kind of advantage for himself, even if he does so without consciously turning his mind to any dishonest intention at the time. I shall return to that matter later.
      Secondly, the director must exercise his powers for the purpose for which they were conferred. We dealt with that in Committee. We have not attempted to set out that duty in the clause, and I shall not take up more time with it now. Thirdly, the director must ensure that there is no conflict between his duty and his interest. Fourthly, the director must exercise his discretion for the purpose for which it was conferred.
      For the purpose of the new clause we have concentrated only on the first of those duties—the duty to act bona fide. That duty seems to go wider than the duty not to act dishonestly. The case quoted by Professor Gower—I am sure the Under-Secretary will be familiar with it—is in re W & M Roith Ltd., reported in Weekly Law Reports 1967. That was a case where a director, in order to protect his widow after his death, entered into a service agreement with the company, an agreement which was somewhat

      1429
      advantageous to him and to those who would be left behind on his death. It was found as a fact that he did that without any conscious attempt to be dishonest, but the court said that he was in breach of his duty because he was using his position as a director to obtain a benefit for himself which, I suppose I could say, pace Professor Gower, is the kind of duty that a trustee owes to his beneficiaries.
      6.45 pm
      That is all that we are trying to spell out in the new clause. It is a modest proposal. It is an attempt to restate the existing law. If the Government take the view that it does not accurately restate the existing law, we are prepared to listen to them. But if it is an accurate restatement of the law, is it not helpful to find the essentials of the law—not all the details, not all the nuances, but the essential principles—in one place rather than in a multiplicity of precedents? Would not that be helpful to those who have to work with the law, to those who have to advise on the law and to company secretaries and others who have to operate the law?
      In the lectures on jurisprudence to which we listened as students—and which some of us inflicted on students at later stages in our careers—we asked how far the law should be flexible and how far it should be predictable. In so far as it is one, it cannot easily be the other. If it can adapt itself to particular problems as they arise, to that extent it is not predictable. We have had examples recently —I shall not name names—of judicial decisions which were somewhat unpredictable because the judges were attempting, as they saw it, to be flexible. I say no more than that. As long as these matters are enshrined in case law it is possible for some court at some stage, taking into account the facts of a particular case, to overrule the precedents. If it is enshrined in statute law, that cannot happen. We take the view that that degree of predictability in company law is a blessing and a help to all those who have to operate it.
      We believe, with Jenkins, that it is better for everyone if directors know what their obligations are, and if company secretaries, shareholders, creditors and all those who have to deal with directors know what they are entitled to expect
      1430
      from directors. We are comforted with the thought that the Government, in a previous incarnation, took that view, because it was incorporated in their 1978 Bill. If they have undergone a subsequent change of heart, may we at least be privy to their mental processes so that we know how that change of heart came about? If they were persuaded by it, perhaps we shall be persuaded, too.
      In Committee, in another context, I said that directors were essentially professional people. In other professions it is accepted that there are standards of care, skill and professional probity. I am not suggesting that company directors, as a group, are less careful, less skilful or less honest than other groups. But, if so, why not recognise it, so that those directors who practise these standards will be able to see that others do not fall short of them and that they are not taken for a ride? Those who deal with directors should have a simple, concise statement of principle on what they are entitled to expect. This is only the beginning, because it relates only to duties in one area. Essentially, that is what the clause is about.
      The Under-Secretary of State for Trade (Mr. Reginald Eyre): The feature that I find attractive about the right hon. and learned Member for Warley, West (Mr. Archer) is that he demonstrates a quality which I think is prevailent in the West Midlands. It is a quality that I like to think I share, although perhaps to a lesser degree—namely, a preparedness to learn from past mistakes. The right hon. and learned Gentleman set out rather strongly—perhaps a little proudly—the simple fact that he acknowledged the fault of striving for impossible success with codification. He was prepared to move on—perhaps a little too triumphantly—having produced a statement of basic principles.
      Mr. Archer: I thank the hon. Gentleman for his opening words. However, I must correct him in one respect. The Opposition are not acknowledging any fault on this occasion. We are merely recognising the realities of the vote.
      Mr. Eyre: I thought that intellectually the right hon. and learned Gentleman indicated a degree of reservation about the possibility of achieving codification in the full and intellectually satisfying sense.

      1431
      The right hon. and learned Gentleman was rather pleased that he had produced a statement of basic principles. There are severe difficulties and drawbacks in what he has proposed, which I shall seek to explain.
      The new clause appears to have the effect of setting duties on a director in terms of conflict of interest in a concise form. The formulation was first presented to the House in the previous Conservative Administration's Companies Bill, which came before the House in 1973. I do not dissent from the history that the right hon. and learned Gentleman described. As he said, the formulation flowed directly from the Jenkins report of 1962, which suggested that statute law should state what it saw to be two primary obligations on directors: that a company director should observe the utmost good faith towards the company in any transaction, and that he should not use company property or information gained by virtue of his office to gain an improper advantage for himself at the company's expense.
      The clause, which I have considered as favourably as possible, represents a change of tack on the Opposition's part. I hope that the right hon. and learned Gentleman will forgive me if I review his party's record in the same way as he reviewed the Conservative Party's record. When in power, and during the consideration of the Bill in Committee, the Opposition proposed the codification of directors' duties. Their proposal achieved neither a comprehensive statement nor clarification of the continuing role of case law. We are now being asked to consider a partial listing of duties. The clause appears to be intended as a general provision rather than an amendment of the existing law, but it seems to add something, because the two duties in subsections (1) and (2) are stated not to delegate from any existing duties.
      I address my observations to the right hon. and learned Gentleman and the hon. Member for Hackney, Central (Mr. Davis)—they are both lawyers—with great respect and great seriousness, because I know that they wish to act responsibly. We cannot be sure of the effect in law of the clause until it is tested in the courts. I
      1432
      cannot see any merit in creating uncertainty. It would not be sufficient for a director to abide by the terms of the new clause—I am sure that the right hon. and learned Gentleman will agree with this—as there are other common law duties that he might break. For example, the clause has nothing to say—the right hon. and learned Gentleman acknowledged this—about directors' duties of care and skill.
      Mr. John Smith: So what?
      Mr. Eyre: The right hon. Member for Lanarkshire, North (Mr. Smith) says "So what?". That is an important issue in approaching the concept of directors' duties.
      The right hon. and learned Gentleman made a fair debating point when he argued that the Government should find no difficulty in supporting what was originally a Conservative proposal. I am happy to say that I was not personally involved in the earlier debates. I have brought an uncommitted mind to bear upon the subject.
      On further examination, I find that the effect of the clause on directors' duties is doubtful. We take the view that it is unlikely to be possible, as the Law Society said last year, to find words that define in advance the circumstances in which the duties are to apply without a serious risk that they will be found to impose a duty when it should not be imposed, or to relax a duty when it should not be relaxed.
      When the Bill is enacted, the law on conflicts of interest in part IV and on insider dealing by directors in part V will have been tightened considerably. The clauses on those subjects leave little doubt about the high standards that are expected of directors in their dealings with their companies.
      Mr. Clinton Davis: The hon. Gentleman has said that the clause would have to be tested in the courts. I thought that he found that a useful argument to adduce when we debated clause 26 in Committee. He said:
      "We shall have to see how it works in practice and to see whether a case can then be established for the wider operation of the clause or, perhaps, for its improvement in some material respect."

      1433
      Does the hon. Gentleman recall the words of the right hon. Member for Crosby (Sir G. Page), who paraphrased his argument by saying:
      "What he is really saying is 'Let us legislate by litigation and not by Act of Parliament. Leave it to the litigants, prosecutors and directors to write the law for us in front of the judges'".—[Official Report, Standing Committee A, 15 November 1979; c. 215.]
      How does the hon. Gentleman equate the two postures he has adopted?
      Mr. Eyre: The hon. Gentleman has to set my argument in the context of the general principle advanced by the right hon. and learned Gentleman when introducing the clause. The right hon. and learned Gentleman said that he was trying to help directors—an agreeable aim—by setting out a simple statement of an aspect of their duties. I must emphasise that the clause does not do that. Indeed, it could end up by being misleading. In trying to make such a statement the right hon. and learned Gentleman will appreciate that there is a great deal of common law governing these matters that is not included. Therefore, there are many other factors that could apply that govern the duties of directors. Those factors are not included in this statement and, therefore, it would not be helpful in the way that is desired.
      I was referring to the very high standard that is expected of directors in their dealings with their companies, as exemplified by the changes that we are making in the law in the Bill.
      Mr. Clinton Davis: I did not ask the hon. Gentleman about that. He has answered a totally different question. I asked him how he justified the assertion that he made not long ago that there must be objection to the clause because it would have to be tested in the courts, when that is precisely what he was arguing should be done in relation to clause 26.
      Mr. Eyre: At various stages in legislation all law that is established may necessarily and eventually have to be tested in the courts. However, the purpose of the new clause is to obtain simplification and to assist directors by explaining them what their duties are. I emphasise that that purpose cannot be effected by the clause. I have tried to emphasise that, with the improvements brought about in the Bill, the Government prefer
      1434
      the approach of setting out specific rules in particular areas rather than floating vague general statements which may or may not be declaratory of the underlying provisions of the common law, which are already complete and operative.
      7 pm
      There are two particular defects in the new clause to which I should like to refer. They illustrate the strength of the practical reservations that I have expressed. First, subsection (3) does not go as far as the common law, because it restricts itself to the restitution of profits—I hope that the right hon. and learned Member for Warley, West will pay attention to that matter, as I should like to know how it helps to simplify the explanation that is to be given to directors, which is one of the virtues that he claimed for the clause—made or damages incurred at the expense of the company. The case of Phipps v. Boardman in 1966 showed that the company could lawfully claim the profits made by directors abusing their position, even if such profits could not have been made by the company. I hope that the right hon. and learned Gentleman will consider that matter.
      Therefore, the effect of the clause is unclear. It could be intended to reverse or qualify the ruling in Phipps v. Boardman or it might be taken to be still valid. The right hon. and learned Gentleman referred to the case of W. & M. Roith Ltd., in which the director, with the aim or protecting a widow's interest, entered into a service agreement which was in breach of his duty. However, if we look at the provisions of the Bill and the duty of disclosure about agreements, we see that that sort of possible abuse becomes much less likely.
      I turn to a point which relates to the right hon. and learned Gentleman's exhortation to observe the utmost good faith towards the company. That expression is well understood in insurance law, where it implies a duty to disclose material facts. Although the phrase has a certain literary appeal as a general expression—it was obviously attractive to the right hon. and learned Gentleman—I emphasise that its effect in company law is much less well known. To the Government's knowledge, the phrase is unheard of, and therefore its legal meaning in this context is unknown. Therefore, it establishes an element of further doubt.

      1435
      For those practical reasons, I advise the House that the clause—the right hon. and learned Gentleman did not remind the House that it was rejected by the Opposition last year—is misguided. I recognise at once the good purpose of the right hon. and learned Gentleman in trying to achieve simple and clear terms for the benefit and guidance of directors on the principles with which they should discharge their duties. However, for the practical reasons that I have tried to explain, the clause would have a misleading effect and it would not be beneficial. I advise the House to reject the clause.
      Mr. Bob Cryer: I have listened to the Minister with a good deal of interest. I thought that he wriggled a good deal during the course of his remarks. We legislate to prevent abuse and the Minister may well argue that there is only a tiny minority involved in that abuse. I should like to draw the Minister's attention to an area where I believe that the new clause would materially assist.
      As he says, clause 4 of the Bill will improve matters—I hope that that is the case. On the other hand, I see everything in favour of a general statement of the position and the Minister has not persuaded me that that would be otiose or redundant if it were added to the Bill. Indeed, the notion that the phrase "utmost good faith" is unknown in company law is at complete variance with his suggestion that law has to be clarified in the courts. We know that, and we know that if new law is passed which has no precedent, there may come a time when it will be tried in courts. On the other hand, we also know that, when legislation is passed by the Palace of Westminster, that law is frequently followed for many years without challenge in the courts by virtue of the fact that it puts something in writing which people believe should be followed.
      This sort of clause would be a helpful guide to directors. Many directors carry out such ideas anyway, but we are talking—hopefully—about a minority who do not. I should like to draw attention to some of the examples that have been brought forward to the House by the Department of Trade, in which the duty of good faith and the duty to disclose material facts have not always been upper-
      1436
      most in directors' minds. The new clause might not have dissuaded those directors but I should have thought that it would have been a factor that might well have inhibited certain actions and have caused a different form of action to be taken.
      I refer particularly to the Lonrho report which was carried out at great expense by the Department of Trade. It is interesting that the new clause was included in the then Conservative Government's Companies Bill 1973. At that period of time, the Lonrho affair was being brought to public attention and was a focus of action in the courts. I shall refer to two or three persons but, first, I should like to refer to Mr. Butcher, the finance director, about whom the report said:
      "A Board of directors looks to its finance director to inform it fully and fairly upon the financial aspect of the matters upon which it must reach a decision and upon the group's position generally. It is apparent from much of the evidence set out in our report that Mr. Butcher failed to discharge his duty to the Board in this respect. In relation to Nyaschere, the Duncan Sandys' consultancy agreement and Wankel he either withheld information from the Board or allowed the Board to be misled. These were not casual acts of omission but deliberate decisions to withhold information or mislead and we condemn his conduct in this respect."
      That is a clear condemnation. Incidentally, nothing has happened to compensate the company for any damage that it suffered or any action that was taken. It may well be that Mr. Butcher, when faced with an explicit statement of his position such as that contained in the new clause, would not have embarked upon his course of conduct.
      Paragraphs 12.109 and 12.110 of the report stated:
      "As director responsible for the financial administration of the group it was Mr. Butcher's duty to bring these matters to the attention of the Lonrho Board. He did not do so and without any such disclosure he acquiesced in the use of the group's funds in Rhodesia for the development of the Shamrocke mine partly for the benefit of Mr. Rowland and the family trusts established for Mr. Ball and Mr. Ogilvy. He allowed the group's funds to be used for this purpose on a basis that in our view was unduly favourable to Mr. Rowland and to the family trusts established for Mr. Ball and Mr. Ogilvy.
      It is our view that in relation to Nyaschere Mr. Butcher put his loyalty to Mr. Rowland above his responsibility to the company, its shareholders and its Board of directors and that he failed to fulfil his duty to them."
      The Minister has said that there is a clear common law duty on directors.

      1437
      However, that duty was not upheld by Mr. Butcher in his activities as financial director. He was not concerned in a lowly back-street company that was struggling to keep its head above water. He was the financial director of a massive international conglomerate that had household names on the board of directors. The company was regarded as gilt-edged, if not touched by Royal blessing. Indeed, Mr. Ogilvy quickly disappeared from the board once these issues had become public knowledge.
      The Government say that directors are busy people. They cannot necessarily find time to look up common law provisions to see whether their judgment on a conflict of interest is in conformity with a particular judicial decision. They do not know about the ratio decidendi. They cannot distinguish the ratio decidendi from the biter dicta. They cannot, therefore, decide about fine points of law. That is the advantage of statute law. It is enshrined in only two or three volumes. Hopefully, it may be enshrined in only one volume.
      The new clause gives a summary of the position. The director can readily turn to it for guidance. The Department of Trade's report on the Lonrho incident is interesting. Several non-executive directors are praised. Those directors put forward their views. They drew attention to some of the actions that the inspectors held had been wrongly carried out by the majority on the board of directors. That board was led by "Tiny" Rowland.
      Surely this new clause would help directors. It ensures that other directors do not carry the board through force of personality. The Department of Trade had reported other cases. If the Minister looks at the Peachey report, he will find that the inspectors repeatedly point out that the board had been carried along by the strong personality of Eric Miller. I shall point out later how strong the views of "Tiny" Rowland were. It would be quite handy if directors could say that the position is set down in several Acts of Parliament. It would be helpful if they had a conduct guide and a summary of the position. Such a summary would help directors to assess their judgments.
      7.15 pm
      The report refers to Mr. Sandys, now Lord Duncan-Sandys. The Minister must
      1438
      realise that the Lonrho affair is now gathering dust on the shelves. People's memories do not store such nuggets of information for ever. No doubt, several people are happy that the mists of time have gathered round those activities. However, there will be more scandals. No doubt the Department of Trade has reports in the pipeline. The ordinary person in the street feels that there is one standard of conduct for him, and another for directors. They cannot quibble about a standard of care or a standard of duty. They have to perform their functions with the devotion and diligence that is expected. Why should that not apply to directors? The Lonrho affair is an example of such dual standards.
      In paragraph 7·68, the report states:
      "On the evidence set out above, we believe that Mr Sandys was offered £130,000 compensation because that was the sum that Mr. Sandys indicated to Mr. Butcher he would require to tempt him to accepting the Chairmanship; we believe that Mr. Rowland together with Mr. Ball and Mr. Butcher concealed the matter from the remainder of the Board because they believed that the Board would not accept Mr. Sandys as Chairman if they knew about the arrangement to pay him £130,000."
      A group of people were, therefore, busy lining their pockets with vast sums of money. The current headline concerning the man who won £960,000 on the pools looks rather insignificant when compared with the vast sums that were involved in Lonrho. The directors plotted together to ensure that others in the company did not discover that Duncan Sandys would become chairman only if he received £130,000.
      In paragraph 774 the inspectors made that clear. It states:
      "It is manifest from the evidence that we have set out above that one section of the Board deliberately withheld information about Mr. Sandys' compensation payment from the rest of the Board because they knew that Mr. Sandys would not be appointed Chairman if the information were disclosed. Mr. Rowland, Mr. Ball and Mr. Butcher were responsible for this policy of concealment. During the course of 1972 Mr. Sandys came to know that Sir Basil Smallpeice and Mr. du Cann were unaware of the compensation arrangement. He was happy that Mr. du Cann should know about the compensation arrangement but not that Sir Basil should know about it. Thus during 1972 five directors became aware of the arrangement, Mr. Rowland, Mr. Ball, Mr. Butcher, Mr. du Cann and, of course, Mr. Sandys himself. These five directors together with two of the executive directors appointed in May 1972 were the seven directors who

      1439
      supported Mr. Rowland during the course of the Boardroom dispute."
      They were involved in a conspiracy. According to that statement, they were not loyal to the company, but to the board. They conspired to gain supremacy in an internal struggle.
      It was not disclosed that significant sums of money were being spent on "Tiny" Rowland's house. The sum of £75,000 was spent. The cost of furnishings amounted to £225,000. That was a financial duty not to the company, but to "Tiny" Rowland. They worked together for their own improvement. They did not work for the improvement of the company. During the squabble, few directors were prepared to criticise such action. Indeed, this unseemly squabble only came into the public eye by chance. The new clause sets out some idea of a set of rules. The new clause states:
      "A director of a company shall observe the utmost good faith towards the company in any transaction with in or on its behalf and shall act honestly in the exercise of the powers and the discharge of the duties of his office."
      If any of those five directors had read that, they could not have made a serious claim to honesty. They had concealed information and payments of massive sums. They had made personal payments and had provided perquisites.
      About £320,000 was turned into a loan, when "Tiny" Rowland overdrew his expenses. The clause is a useful guide for directors, to try to avoid the unseemly and degenerate squabble that took place on the Lonrho board.
      Mr. Clinton Davis: I believe that my hon. Friend will agree that virtually all these personalities who appear in the reports—Dowgate, Ashbourne, Lonhro and Peachey—could hardly have advanced the entirety of their cause had they not been able to rely on acquiescent, compliant professional advisers and secondary advisers.
      Mr. Cryer: That is right, and they come in for their fair share of criticism. Whenever I could, I introduced debates on the various companies. We had a useful and informative debate on Lonrho, to which my hon. Friend replied, and such criticisms were made then.
      If anyone has the guts to stand up to these people and say that they are wrong,
      1440
      it will help them to have a piece of paper —an Act of Parliament—with a rough statement of the duties that they have towards the company and shareholders rather than to their own pockets. We are talking of controlling the greed of certain people who run companies, which they turn into a Santa Claus for lining their pockets. It would be a great help to everyone to see that the Government are taking action. However, since the Minister rejects the clause, I doubt whether we shall have action.
      Mr. Parkinson: Perhaps the hon. Gentleman would not like the Bill to get in the way of a speech that he has made about three times. However, if he looks at part IV of the Bill, he will see carefully defined a series of crimes and offences against these companies, which covers many of the problems that he mentions. We believe that that is a much better way to deal with the problem than by general declarations set out in the new clause.
      Mr. Cryer: I do not believe that the Minister was here when I specifically referred to part IV. I said that some of the problems would unquestionably be covered, but that it was no bad thing to have a general declaration. It was the Conservative Party that introduced such a clause in the 1973 Bill. Perhaps the Minister should consider whether he has heard the entire speech before intervening.
      All the reports that my hon. Friend mentions refer to strong personalities. It would not be a bad idea to have a rough guide, without the complications of part IV, which could be placed above the board room table on a little revolving pedestal to remind people what they are about.
      I wish to demonstrate the kind of person whom we are dealing with. On page 655 of the Lonrho report Mr. Rowland is asked about shares by an inspector, who is an impartial, objective person carrying out a difficult task. He replies:
      "You see, Mr. Heyman, the past, and I have got an idea what the future could be depending on whether you want to kill it. But, by God, it has got one thing, and that is it has got a protector and that is me. In other words, anybody who want to kill that company has got to have a sub-machine gun, mortars, guns all sort of ammunition, because I am going to protect it to the bitter end. Believe me, Mr. Heyman, in me you have got somebody you have got to fight when it comes to Lonrho."

      1441
      That is an extraordinary collection of words from a senior director of an international conglomerate. He refers to submachine guns and ammunition. That reflects the nature of a man with a fiery temper, who doubtless tried to obstruct and demean anyone who tried to stand in his way. He is not alone.
      It would he useful for directors to have a rough guide, as Mr Rowland reaches for a sub-machine gun from under the table. They could then remind him, before he starts pressing the trigger, of the limitation in the clause. [Interruption.]
      Hon. Members are laughing at the imagery. It was not conjured up by me but by "Tiny" Rowland when speaking to an inspector, instructed by the Secretary of State for Trade, investigating the company. That inspector had the hallmark of Parliament, through the Secretary of State being accountable to this House. It is an outlandish image, but was said seriously and incorporated in the report.
      In companies there are people with varying degrees of power who, with varying degrees of force, might use it wrongly, mischieviously, badly or greedily. They may only be a minority. Hopefully, the majority act in utmost good faith. We should not need legislation if everyone acted in good faith, but we have legislation because of the danger of the minority acting badly and without good faith. The clause would be a useful guide to encourage those people to act in good faith.
      Mr. Nicholas Baker: I apologise for not being present at the beginning of the debate. I had not intended to speak in the debate, but having heard the hon. Member for Keighley (Mr. Cryer), for whose talents, particularly in looking at legal documents, I have the greatest respect, I feel that he has gone astray a little and that I must take up what he said. The hon. Gentleman said that the clause would be a helpful guide to directors in their conduct. In Committee I strongly maintained that it was not the job of company law to try to tell directors how to manage a company, and the clause does no such thing. It is not a guide, and I do not believe that it should be. It purports to lay down legal principles, responsibilities and duties for
      1442
      directors. The hon. Gentleman gave away his argument by saying that the clause would not have persuaded directors not to do that which they should not have done, and I agree.
      Mr. Cryer: I said that it might not have persuaded them. I did not say that it would not. We simply do not know. I argued that it was a useful guide which might have prevented the events in Lonrho.
      Mr. Baker: It might or might not. We have legal principles which set out standards, duties and responsibilities for directors. The clause covers little that does not already exist in law. At one time I was sympathetic to a clause of this type. It seems, however, to have one fundamental flaw, on which my hon. Friend may have touched in his comments at the opening of the debate. That flaw is to require the standard of "utmost good faith". That would make it very difficult for anyone to act as a director of more than one company. It would be very difficult for anyone to act as a director for a company at all.
      7.30 pm
      The phrase "utmost good faith" comes from insurance law. It requires a complete disclosure of every possible conceivable fact. It is based on the principle that there is only one insurance contract between the insurer and the insurance company, but that is not necessarily the case. Many directors are directors of many companies. Some people believe that that is undesirable in itself, but I understand that that does not include the hon. Member for Keighley, who believes, as I do, that non-executive directors have a role to play. In their conduct of the management of companies they often bring an objective standard into play. In the case to which the hon. Gentleman referred, there is some evidence that the non-executive directors did just that.
      Acceptance of the clause would probably not add anything to the law, but it would certainly discourage non-executive directors. Fundamentally, what the hon. Gentleman is getting at is how to dissuade directors from wrong-doing. I believe that the only way to do that is to provide penalties which are clearly laid down and which do not prevent

      1443
      necessary, perfectly trustworthy and respectable directors from doing their duty. That, to a large extent, is what is done by the later clauses.
      Mr. John Smith: I shall not pursue at this moment some of the remarks made by the hon. Member for Dorset, North (Mr. Baker). I shall, however, return to them, because I disagree fundamentally with what he has stated as being the duties of directors under the present law and his surprising redefinition of them.
      The House will be grateful to my hon. Friend the Member for Keighley (Mr. Cryer) for bringing some practical argument to what might otherwise have been an arid debate on certain aspects of a technical Bill. My hon. Friend, as he often does, brought a touch of Technicolor and a feeling of reality to our discussions. He rightly reminded us of some of the problems in this area. It is too easy for hon. Members, particularly those on the Government Benches, to laugh at these matters and to say that they are best forgotten. Their former leader described the ugly and unacceptable face of capitalism. I do not know whether there is still the same concern in the Conservative Party about having an acceptable face of capitalism.
      I do not dispute that part IV contains some improvements. By pressure, inside and outside the House, we have gently pushed the Conservative Party towards a better sense of its responsibility. If one is to run a capitalist system, one has to clean out the stables from time to time. That is what successive Companies Bills have been about.
      I found the Under-Secretary of State's reply unconvincing. He had a difficulty. He could not say that what was contained in the new clause was not a proper statement of a director's duties. He did not attempt that. He conceded that it was a proper statement of those duties. But the hon. Gentleman was in the difficulty, as my right hon. and learned Friend the Member for Warley, West (Mr. Archer), who so competently introduced the new clause, said, that the 1973 Bill of the then Conservative Government contained these very words—not an adaptation of them, or an amendment or reference to them but the same words which, on that
      1444
      occasion, purported to be a statement of law. They are now used in this new clause.
      The Under-Secretary had the option of saying that the Government in 1973 had wrongly stated the law. He found difficulty, I believe, in coming to that conclusion. Those advising him were probably advising the relevant Minister in 1973 and perhaps experienced equal difficulty. I am sure that they advised myself and Labour Ministers on the same matter.
      Some of the difficulties supposed to exist about codification did not appear to exist at the time when the former Government introduced codification of the duties of directors. There did not seem to be all these technical difficulties that have been found in the course of preparing the brief for the Minister's speech today. Let us accept that it accurately states the law.
      I was worried about one point raised by the Under-Secretary. He said that there was the difficult case of Phipps v. Boardman in 1966. I thought that it might be a problem if the law has changed and that it might be better to withdraw the new clause and think again. But if the 1966 case affects the statement of the law here, it was signally forgotten in 1973 when the then Conservative Government drafted their statement of what they thought the law was.
      I cannot see the 1966 case as a discouragement to myself or to my right hon. and learned Friend. In that situation, the Under-Secretary of State must accept that it is a proper statement of the law as it stands.
      I was further alarmed when the hon. Member for Dorset, North (Mr. Baker) said "What is all this nonsense about utmost good faith? That is just a concept that applies to the law of insurance and the contract uberrima fidei appertaining to insurance." I am surprised that the hon. Gentleman should take that view. I understand that he is a solicitor specialising in commercial and company law. He will no doubt be familiar with Gower's book "The Principles of Modern Company Law", which, on page 575, says:
      "Directors, once their appointments take effect, are fiduciaries and must therefore display the utmost good faith towards the company in their dealings with it or on its behalf".

      1445
      I had thought that to be the law, and it is confirmed by Gower to be the law. It is a little surprising that a solicitor specialising in commercial and company law is not aware of it. It is a little surprising if he is advising his clients in that regard. There is all the more need for a clear statement of the law, because one cannot rely on solicitors to advise people on it.
      Mr. Nicholas Baker: The debate has become a little personal. I hesitate to do this when the Minister, I know, is taking advice from Professor Gower. I believe that that statement is not generally accepted as a complete and accurate statement of company law.
      Mr. Smith: The hon. Gentleman is a bold man to make such statements in the face of convincing evidence. There are others, apart from myself, who have been aware for years that this was one of the duties of directors under company law. It is so axiomatic that when it is challenged it takes my breath away. It underlines the point that solicitors from time to time should perhaps read the text books on company law. Some of them might obtain advantage by being asked for assertions about what the law is in Acts of Parliament. It is alarming that such misconceptions exist. I believe that the hon. Gentleman is wrong. It does accurately state the law. Why on earth should it not be put in the Bill?
      The Under-Secretary of State points to the problem of codification. The Labour Government tried to codify all the duties of directors. There might be argument over whether there should be codification. I am personally in favour of codifying the law as much as possible. I believe that Acts of Parliament should not be quarries delved into by lawyers but clear statements of the law that can be understood by everyone in the community. There is a great deal to be said for codification from that point of view. But that argument is not very useful to the Secretary of State on this occasion, because we are not attempting to codify in that way. The Opposition have accepted that we lost that battle in Committee, and we see little point in rehearsing it here. We are now on a different tack. The Under-Secretary must find an argument to show why a clear statement
      1446
      of the principal and simple duties of a director should not appear in an Act of Parliament.
      Our proposal does not involve difficulties about care, skill or anything like that. It simply seeks to state what the law is and to stress the honesty that is required of directors of companies and the obligation of utmost good faith. I should have thought that that was the paramount duty of directors, and that must be so since they are entrusted with handling other people's money and with responsibilities to the whole community. That should be at the forefront of their attention, and I see every good reason for this provision being written into the Bill.
      The Under-Secretary said repeatedly that it would not be helpful to make the change, and that it might in some way be misleading. I cannot see how it would be misleading to have the law stated clearly in the relevant Act of Parliament. He asked why we did not seek to state all the other duties. That is another Aunt Sally. Everyone who makes one good proposal is asked why he did not make five others. We are being modest on this occasion in putting fiduciary duties first. We can write other duties in on other occasions.
      I got the impression from the Under-Secretary's speech that a great deal of thought had gone into the preparation of his brief. No doubt he gave it a great deal of thought himself, because he had the unenviable task of trying to argue against a compelling and convincing case, trapped as he was by the precedents of a previous Conservative Government. He was therefore unable to pick over the drafting with the arguments that are available to all Ministers. No legislation is ever drafted perfectly. If it were, the courts would not now be so busily engaged in interpreting the products of this place.
      It must surely be conceded that of all the duties of directors, the one concerned in the clause is paramount. I therefore hope that the House will agree to the clause. If the Government seek to resist it, we think that it is sufficiently important to force to a vote.
      Question put, That the clause be read a Second time:—
      The House divided: Ayes 132,Noes 178.

      Division No. 199]

      AYES

      [6.20 pm

      Anderson, Donald

      Flannery, Martin

      Marshall, David (Gl'sgow,Shettles'n)

      Archer, Rt Hon Peter

      Fletcher, L. R. (Ilkeston)

      Marshall, Dr Edmund (Goole)

      Armstrong, Rt Hon Ernest

      Fletcher, Ted (Darlington)

      Mason, Rt Hon Roy

      Ashley, Rt Hon Jack

      Ford, Ben

      Maxton, John

      Atkinson, Norman (H'gey, Tott'ham)

      Forrester, John

      Maynard, Miss Joan

      Beith, A. J.

      Foulkes, George

      Mikardo Ian

      Bidwell, Sydney

      Freud, Clement

      Miller, Dr M. S. (East Kilbride)

      Booth, Rt Hon Albert

      Garrett, John (Norwich S)

      Morris, Rt Hon Alfred (Wythenshawe)

      Boothroyd, Miss Betty

      Garrett, W. E. (Wallsend)

      Morris, Rt Hon Charles (Openshaw)

      Bottomley, Rt Hon Arthur (M'brough)

      Golding, John

      Morris, Rt Hon John (Aberavon)

      Bradley, Tom

      Gourlay, Harry

      Morton, George

      Bray, Dr Jeremy

      Graham, Ted

      Newens, Stanley

      Brown, Hugh D. (Provan)

      Grant, John (Islington C)

      Oakes, Rt Hon Gordon

      Buchan, Norman

      Grimond, Rt Hon J.

      O'Halloran, Michael

      Callaghan, Rt Hon J. (Cardiff SE)

      Hamilton, James (Bothwell)

      O'Neill, Martin

      Callaghan, Jim (Middleton & P)

      Hamilton, W. W. (Central Fife)

      Orme, Rt Hon Stanley

      Campbell-Savours, Dale

      Harrison, Rt Hon Walter

      Owen, Rt Hon Dr David

      Carmichael, Neil

      Hart, Rt Hon Dame Judith

      Palmer, Arthur

      Cartwright, John

      Haynes, Frank

      Parry, Robert

      Clark, Dr David (South Shields)

      Healey, Rt Hon Denis

      Powell, Raymond (Ogmore)

      Cocks, Rt Hon Michael (Bristol S)

      Hogg, Norman (E Dunbartonshire)

      Prescott, John

      Coleman, Donald

      Holland, Stuart (L'beth, Vauxhall)

      Price, Christopher (Lewlsham West)

      Craigen, J. M. (Glasgow, Maryhill)

      Home Robertson, John

      Radice, Giles

      Crowther, J. S.

      Hooley, Frank

      Roberts, Albert (Normanton)

      Cryer, Bob

      Howell, Rt Hon Denis (B'ham, Sm H)

      Roberts, Ernest (Hackney North)

      Cunningham, Dr John (Whitehaven)

      Howells, Geraint

      Rodgers, Rt Hon William

      Dalyell, Tam

      Hughes, Robert (Aberdeen North)

      Rooker, J. W.

      Davis, Clinton (Hackney Central)

      Jay, Rt Hon Douglas

      Ross, Stephen (Isle of Wight)

      Dean, Joseph (Leeds West)

      John, Brynmor

      Sandelson, Neville

      Dempsey, James

      Jones, Rt Hon Alec (Rhondda)

      Sever, John

      Dixon, Donald

      Jones, Barry (East Flint)

      Sheerman, Barry

      Dobson, Frank

      Kinnock, Neil

      Smith, Rt Hon J. (North Lanarkshire)

      Dormand, Jack

      Lamond, James

      Soley, Clive

      Douglas, Dick

      Leadbitter, Ted

      Stailard, A. W.

      Dubs, Alfred

      Lewis, Ron (Carlisle)

      Steel, Rt Hon David

      Duffy, A. E. P.

      Litherland, Robert

      Stewart, Rt Hon Donald (W IsIes)

      Dunn, James A. (Liverpool, Kirkdale)

      Lofthouse, Geoffrey

      Stott, Roger

      Dunwoody, Mrs Gwyneth

      Lyons, Edward (Bradford West)

      Strang, Gavin

      Eadie, Alex

      McDonald, Dr Oonagh

      Taylor, Mrs Ann (Bolton West)

      Eastham, Ken

      McElhone, Frank

      Thomas, Dafydd (Merioneth)

      Edwards, Robert (Wolv SE)

      McKay, Allen (Penistone)

      Thomas, Mike (Newcastle East)

      Ellis, Raymond (NE Derbyshire)

      McKelvey, William

      Thome, Stan (Preston South)

      English, Michael

      Maclennan, Robert

      Tinn, James

      Evans, John (Newton)

      McMillan, Tom (Glasgow, Central)

      Torney, Tom

      Faulds, Andrew

      McNamara, Kevin

      Wainwright, Edwin (Dearne Valley)

      Field, Frank

      Marks, Kenneth

      Wainwright, Richard (Colne Valley)

      Fitch, Alan

      Watkins, David

      Whitlock, William

      Young, David (Bolton East)

      Weetch, Ken

      Willey, Rt Hon Frederick

      Welsh, Michael

      Wilson, William (Coventry SE)

      TELLERS FOR THE AYES:

      White, Frank R. (Bury & Radcliffe)

      Woolmer, Kenneth

      Mr. Terry Davis and

      White, James (Glasgow, Pollok)

      Wrigglesworth, Ian

      Mr. Hugh McCartney.

      NOES

      Alexander, Richard

      Grieve, Percy

      Page, John (Harrow, West)

      Ancram, Michael

      Griffiths, Peter (Portsmouth N)

      Page, Rt Hon Sir R. Graham

      Arnold, Tom

      Grist, Ian

      Page, Richard (SW Hertfordshire)

      Aspinwall, Jack

      Grylls, Michael

      Parkinson, Cecil

      Atkins, Robert (Preston North)

      Gummer, John Selwyn

      Parris, Matthew

      Atkinson, David (B'mouth, East)

      Hamilton, Hon Archie (Eps'm&Ew'll)

      Patten, Christopher (Bath)

      Baker, Nicholas (North Dorset)

      Hannam, John

      Patten, John (Oxford)

      Bell, Sir Ronald

      Haselhurst, Alan

      Porter, George

      Bendall, Vivian

      Hawkins, Paul

      Powell, Rt Hon J. Enoch (S Down)

      Benyon, Thomas (Abingdon)

      Hayhoe, Barney

      Prentice, Rt Hon Reg

      Benyon, W. (Buckingham)

      Henderson, Barry

      Price, David (Eastleigh)

      Berry, Hon Anthony

      Heseltine, Rt Hon Michael

      Raison, Timothy

      Best, Keith

      Hicks, Robert

      Rathbone, Tim

      Bevan, David Gilroy

      Hill, James

      Rees-Davies, W. R.

      Biffen, Rt Hon John

      Holland, Philip (Carlton)

      Renton, Tim

      Biggs-Davison, John

      Hunt, David (Wirral)

      Rhodes James, Robert

      Blackburn, John

      Irving, Charles (Cheltenham)

      Rhys Williams, Sir Brandon

      Boscawon, Hon Robert

      Jenkin, Rt Hon Patrick

      Ross, Wm. (Londonderry)

      Braine, Sir Bernard

      Jessel, Toby

      Royle, Sir Anthony

      Bright, Graham

      Jopling, Rt Hon Michael

      Sainsbury, Hon Timothy

      Brinton, Tim

      Kaberry, Sir Donald

      St. John-Stevas, Rt Hon Norman

      Brocklebank-Fowler, Christopher

      Kellett-Bowman, Mrs Elaine

      Scott, Nicholas

      Brotherton, Michael

      Kitson, Sir Timothy

      Shelton, William (Streatham)

      Brown, Michael (Brigg & Sc'thorpe)

      Knox, David

      Shepherd, Colin (Hereford)

      Browne, John (Winchester)

      Lang,Ian

      Sims, Roger

      Bryan, Sir Paul

      Latham, Michael

      Skeet, T. H. H.

      Lawrence, Ivan

      Speed, Keith

      Buchanan-Smith, Hon Alick

      Lee, John

      Speller, Tony

      Buck, Antony

      Le Marchant, Spencer

      Spence, John

      Bulmer, Esmond

      Lennox-Boyd, Hon Mark

      Spicer, Jim (West Dorset)

      Burden, F. A.

      Lester, Jim (Beeston)

      Squire, Robin

      Butcher, John

      Lewis, Kenneth (Rutland)

      Stainton, Keith

      Cadbury, Jocelyn

      Lloyd, Ian (Havant & Waterloo)

      Steen, Anthony

      Carlisle, John (Luton West)

      Lloyd, Peter (Fareham)

      Stevens, Martin

      Carlisle, Kenneth (Lincoln)

      Loveridge, John

      Stewart, Ian (Hitchin)

      Chalker, Mrs Lynda

      Luce, Richard

      Stewart, John (East Renfrewshire)

      Chapman, Sydney

      Lyell, Nicholas

      Stradling Thomas, J.

      Clark, Hon Alan (Plymouth, Sutton)

      McCusker, H.

      Tapsell, Peter

      Clark, Sir William (Croydon South)

      Macfarlane, Neil

      Thomas, Rt Hon Peter (Hendon S)

      Clarke, Kenneth (Rushcliffe)

      MacGregor, John

      Thompson, Donald

      Clegg, Sir Walter

      MacKay, John (Argyll)

      Thorne, Neil (llford South)

      Cockeram, Eric

      McNair-Wilson, Michael (Newbury)

      Thornton, Malcolm

      Cranborne, Viscount

      McQuarrie, Albert

      Townend, John (Bridlington)

      Critchley, Julian

      Major, John

      Townsend, Cyril D. (Bexleyheath)

      Crouch, David

      Marlow, Tony

      Waddington, David

      Dickens, Geoffrey

      Mates, Michael

      Wakeham, John

      Dorrell, Stephen

      Mather, Carol

      Waldegrave, Hon William

      Douglas-Hamilton, Lord James

      Maude, Rt Hon Angus

      Walker, Rt Hon Peter (Worcester)

      Dover, Denshore

      Mawby, Ray

      Walker-Smith, Rt Hon Sir Derek

      Dunn, Robert (Dartford)

      Mawhinney, Dr Brian

      Waller, Gary

      Dykes, Hugh

      Meyer, Sir Anthony

      Ward, John

      Elliott, Sir William

      Mills, Iain (Meriden)

      Watson, John

      Eyre, Reginald

      Mills, Peter (West Devon)

      Wells, John (Maidstone)

      Fairgrieve, Russell

      Mlscampbell, Norman

      Wells, Bowen (Hert'rd & Stev'nage)

      Fisher, Sir Nigel

      Moate, Roger

      Wheeler, John

      Fletcher, Alexander (Edinburgh N)

      Molyneaux, James

      Wickenden, Keith

      Fletcher-Cooke, Charles

      Morrison, Hon Peter (City of Chester)

      Wiggin, Jerry

      Forman, Nigel

      Murphy, Christopher

      Wilkinson, John

      Fowler, Rt Hon Norman

      Myles, David

      Williams, Delwyn (Montgomery)

      Fox, Marcus

      Neale, Gerrard

      Winterton, Nicholas

      Galbraith, Hon T. G. D.

      Needham, Richard

      Wolfson, Mark

      Garel-Jones, Tristan

      Nelson, Anthony

      Young, Sir George (Acton)

      Goodlad, Alastalr

      Neubert, Michael

      Gorst, John

      Newton, Tony

      TELLERS FOR THE NOES:

      Gower, Sir Raymond

      Nott, Rt Hon John

      Mr. John Cope and

      Gray, Hamish

      Osborn, John

      Mr. Peter Brooke.

      Question accordingly negatived.

      Division No. 200]

      AYES

      [7.42 pm

      Alton, David

      Fletcher, Ted (Darlington)

      Morton, George

      Anderson, Donald

      Ford, Ben

      Newens, Stanley

      Archer, Rt Hon Peter

      Forrester, John

      O'Halloran, Michael

      Armstrong, Rt Hon Ernest

      Foulkes, George

      O'Neill, Martin

      Ashley, Rt Hon Jack

      Freud, Clement

      Owen, Rt Hon Dr David

      Ashton, Joe

      Garrett, John (Norwich S)

      Palmer, Arthur

      Bidwell, Sydney

      Garrett, W. E. (Wallsend)

      Parry, Robert

      Booth, Rt Hon Albert

      Golding, John

      Powell, Raymond (Ogmore)

      Boothroyd, Miss Betty

      Gourlay, Harry

      Prescott, John

      Bray, Dr Jeremy

      Graham, Ted

      Price, Christopher (Lewisham West)

      Brown, Hugh D. (Provan)

      Grant, John (Islington C)

      Radice, Giles

      Brown, Ronald W. (Hackney S)

      Grimond, Rt Hon J.

      Roberts, Albert (Normanton)

      Callaghan, Jim (Middleton & P)

      Hamilton, W. W. (Central Fife)

      Roberts, Ernest (Hackney North)

      Campbell-Savours, Dale

      Harrison, Rt Hon Walter

      Rodgers, Rt Hon William

      Carmichael, Neil

      Hart, Rt Hon Dame Judith

      Rooker, J. W.

      Cartwright, John

      Haynes, Frank

      Sever, John

      Clark, Dr David (South Shields)

      Hogg, Norman (E Dunbartonshire)

      Sheerman, Barry

      Cocks, Rt Hon Michael (Bristol S)

      Home Robertson, John

      Soley, Clive

      Coleman, Donald

      Hooley, Frank

      Stallard, A. W.

      Conlan, Bernard

      Howell, Rt Hon Denis (B'ham, Sm H)

      Stewart, Rt Hon Donald (W Isles)

      Craigen, J. M. (Glasgow, Maryhill)

      Hughes, Robert (Aberdeen North)

      Stolt, Roger

      Crowther, J. S.

      Jay, Rt Hon Douglas

      Strang, Gavin

      Cryer, Bob

      John, Brynmor

      Taylor, Mrs Ann (Bolton West)

      Cunningham, Dr John (Whitehaven)

      Jones, Rt Hon Alec (Rhondda)

      Thomas, Dafydd (Merioneth)

      Dalyell, Tarn

      Jones, Barry (East Flint)

      Thomas, Mike (Newcastle East)

      Davis, Clinton (Hackney Central)

      Lamond, James

      Thorne, Stan (Preston South)

      Davis, Terry (B'rm'ham, Stechford)

      Leadbitter, Ted

      Tinn, James

      Dean, Joseph (Leeds West)

      Lewis, Ron (Carlisle)

      Torney, Tom

      Dempsey, James

      Litherland, Robert

      Wainwright, Edwin (Dearne Valley)

      Dixon, Donald

      Lofthouse, Geoffrey

      Watkins, David

      Dormand,jack

      Lyon, Alexander (York)

      Weetch, Ken

      Douglas, Dick

      McDonald, Dr Oonagh

      Welsh, Michael

      Dubs, Alfred

      McElhone, Frank

      White, Frank R. (Bury & Radcliffe)

      Duffy, A. E. P.

      McKay, Allen (Penistone)

      White, James (Glasgow, pollok)

      Dunn, James A. (Liverpool, Kirkdale)

      McKelvey, William

      Whitlock, William

      Eadie, Alex

      Maclennan, Robert

      Willey, Rt Hon Frederick

      Eastham, Ken

      McMillan, Tom (Glasgow, Central)

      Williams, Sir Thomas (Warrington)

      Edwards, Robert (Wolv SE)

      Marks, Kenneth

      Wilson, William (Coventry SE)

      Ellis, Raymond (NE Derbyshire)

      Marshall, David (Gl'sgow.Shettles'n)

      Woolmer, Kenneth

      English, Michael

      Marshall, Dr Edmund (Goole)

      Wrigglesworth, Ian

      Faulds, Andrew

      Maxton, John

      Young, David (Bolton East)

      Field, Frank

      Maynard, Miss Joan

      Fitch, Alan

      Morris, Rt Hon Alfred (Wythenshawe)

      TELLERS FOR THE AYES:

      Fitt, Gerard

      Morris, Rt Hon Charles (Openshaw)

      Mr. James Hamilton and

      Flannery, Martin

      Morris, Rt Hon John (Aberavon)

      Mr. Hugh McCartney.

      Fletcher, L. R. (Ilkeston)

      NOES

      Alexander, Richard

      Clark, Sir William (Croydon South)

      Grylls, Michael

      Ancram, Michael

      Clarke, Kenneth (Rushcliffe)

      Gummer, John Selwyn

      Arnold, Tom

      Clegg, Sir Walter

      Hamilton, Hon Archie (Eps'm&Ew'll)

      Aspinwall, Jack

      Cockeram, Eric

      Hannam, John

      Atkins, Robert (Preston North)

      Cope, John

      Haselhurst, Alan

      Atkinson, David (B'mouth, East)

      Critchley, Julian

      Hawkins, Paul

      Baker, Nicholas (North Dorset)

      Crouch, David

      Hayhoe, Barney

      Bell, Sir Ronald

      Dickens, Geoffrey

      Heddle, John

      Bendall, Vivian

      Dorrell, Stephen

      Henderson, Barry

      Benyon, Thomas (Abingdon)

      Dover, Denshore

      Hicks, Robert

      Benyon, W. (Buckingham)

      Dunn, Robert (Dartford)

      Holland, Philip (Carlton)

      Berry, Hon Anthony

      Dykes, Hugh

      Hunt, David (Wirral)

      Best, Keith

      Elliott, Sir William

      Jenkin, Rt Hon Patrick

      Biggs-Davison, John

      Eyre, Reginald

      Jessel, Toby

      Blackburn, John

      Fairgrieve, Russell

      Jopling, Rt Hon Michael

      Boscawen, Hon Robert

      Fisher, Sir Nigel

      Kaberry, Sir Donald

      Boyson, Dr Rhodes

      Fletcher, Alexander (Edinburgh N)

      Kitson, Sir Timothy

      Braine, Sir Bernard

      Fletcher-Cooke, Charles

      Knight, Mrs Jill

      Bright, Graham

      Fookes, Miss Janet

      Knox, David

      Brinton, Tim

      Forman, Nigel

      Lang, Ian

      Brocklebank-Fowler, Christopher

      Fowler, Rt Hon Norman

      Latham, Michael

      Brown, Michael (Brigg & Sc'thorpe)

      Fox, Marcus

      Lawrence, Ivan

      Buchanan-Smith, Hon Alick

      Galbraith, Hon T. G. D.

      Lawson, Nigel

      Burden, F. A.

      Gardiner, George (Reigate)

      Lee, John

      Butcher, John

      Garel-Jones, Tristan

      Le Marchant, Spencer

      Carlisle, John (Luton West)

      Goodlad, Alastair

      Lennox-Boyd, Hon Mark

      Carlisle, Kenneth (Lincoln)

      Gorst, John

      Lester, Jim (Beeston)

      Carlisle, Rt Hon Mark (Runcorn)

      Gray, Hamish

      Lloyd, Ian (Havant & Waterloo)

      Chalker, Mrs Lynda

      Grieve, Percy

      Lloyd, Peter (Fareham)

      Chapman, Sydney

      Griffiths, Peter (Portsmouth N)

      Loveridge, John

      Clark, Hon Alan (Plymouth, Sutton)

      Grist, Ian

      Luce, Richard

      1448

      1449

      Lyell, Nicholas

      Parris, Matthew

      Tapsell, Peter

      Macfarlane, Neil

      Patten, Christopher (Bath)

      Thomas, Rt Hon Peter (Hendon S)

      MacGregor, John

      Patten, John (Oxford)

      Thompson, Donald

      MacKay, John (Argyll)

      Pattie, Geoffrey

      Thorne, Neil (llford South)

      McNair-Wilson, Michael (Newbury)

      Porter, George

      Thornton, Malcolm

      McQuarrie, Albert

      Price, David (Eastleigh)

      Townend, John (Bridlington)

      Major, John

      Raison, Timothy

      Townsend, Cyril D. (Bexleyheath)

      Marlow, Tony

      Rathbone, Tim

      Trippier, David

      Mates, Michael

      Rees-Davies, W. R.

      Trotter, Neville

      Mather, Carol

      Ronton, Tim

      Waddington, David

      Maude, Rt Hon Angus

      Rhodes James, Robert

      Wakeham, John

      Mawby, Ray

      Rhys Williams, Sir Brandon

      Waldegrave, Hon William

      Mawhinney, Dr Brian

      Ross, Wm. (Londonderry)

      Walker-Smith, Rt Hon Sir Derek

      Meyer, Sir Anthony

      Royle, Sir Anthony

      Waller, Gary

      Miller, Hal (Bromsgrove & Redditch)

      Sainsbury, Hon Timothy

      Ward, John

      Mills, Iain (Meriden)

      St. John-Stevas, Rt Hon Norman

      Watson, John

      Moate, Roger

      Scott, Nicholas

      Wells, John (Maidstone)

      Morrison, Hon Peter (City of Chester)

      Shepherd, Colin (Hereford)

      Wells, Bowen (Hert'rd & Stev'nage)

      Murphy, Christopher Myles, David

      Sims, Roger

      Wheeler, John

      Neale, Gerrard

      Skeet, T. H. H.

      Wickenden, Keith

      Needham, Richard

      Speed, Keith

      Wiggin, Jerry

      Nelson, Anthony

      Speller, Tony

      Williams, Delwyn (Montgomery)

      Neubert, Michael

      Spence, John

      Winterton, Nicholas

      Newton, Tony

      Spicer, Jim (West Dorset)

      Wolfson, Mark

      Nott, Rt Hon John

      Stainton, Keith

      Young, Sir George (Acton)

      Osborn, John

      Steen, Anthony

      Page, John (Harrow, West)

      Stevens, Martin

      TELLERS FOR THE NOES:

      Page, Rt Hon Sir R. Graham

      Stewart, John (East Renfrewshire)

      Mr. Peter Brooke and

      Page, Richard (SW Hertfordshire)

      Stradling Thomas, J.

      Lord James Douglas-Hamilton.

      Parkinson, Cecil

      Question accordingly negatived.

    New Clause 27

      TWO-TIER BOARDS AND EMPLOYEE DIRECTORS
      '(1) A company employing two thousand or more employees shall establish a supervisory board and a management board in accordance with the Code of Practices set out in Schedule (Code of Practice) to this Act.
      (2) The members of a supervisory board and of a management board established pursuant to subsection (1) above shall have the same powers, duties and liabilities as any other director of a company.'.—[Mr. Radice.]
      Brought up, and read the First time.
      Mr. Giles Radice: I beg to move, That the clause be read a Second time.
      Mr. Deputy Speaker (Mr. Bryant Godman Irvine): With new clause 27 it will be convenient to take amendment No. 343, which proposes to insert a new schedule:

      'CODE OF PRACTICE
      1. Trade unions representing 30 per cent. or more of the employees in a company specified in subsection (1) of section (Two-tier Boards and employee directors) may require at any time a ballot of all employees as to whether they wish to elect employee directors on to a supervisory board directly responsible for the policy of the company which meets the minimum criteria of the provisions set out in this Schedule.
      2. If a simple majority (representing at least one third of all eligible employees voting in the ballot), supports the proposition set out
      1450
      in paragraph 1 of this Schedule negotiations to give effect to the proposition within this Code of Practice shall take place.
      3. In the event of negotiations proving unsuccessful after 12 months, a further ballot shall take place and in the event of the proposition receiving the requisite support as set out in paragraph 4 of this Schedule the Secretary of State shall impose a scheme which meets the minimum criteria provided for in this Schedule.
      4. The ballot provided for in paragraph 3 shall not be effective unless a two thirds majority in favour of the proposition is achieved, representing at least one half of all eligible employees.
      5. The minimum criteria referred to in paragraph 3 of this Schedule shall be as follows:

      (a) all employees shall be entitled to vote in any ballot;

      (b) the system adopted for employee representation on the supervisory board shall require those operating it to ensure that all significant groups of employees are adequately represented at board level;

      (c) the employee directors shall have not more than one half of the seats on the supervisory board;

      (d) the precise structure and powers of the board shall be within the scope of negotiations but shall have the following minimum powers;

      (i) the right and duty to initiate, approve, and veto policy decisions;

      (ii) access to all information relating to the company;

      (iii) the power to propose to general meetings changes in the financial structure, articles and dividends; and

      (iv) the responsibility for arranging an audit committee comprised of non-executives of the company;

      (e) the supervisory board of any subsidiary companies of the company shall not be

      1451
      able to override the decisions of the supervisory board of the parent company;

      (f) the management shall be free to establish a management committee to take day-to-day decisions within the policies laid down by the supervisory board;

      (g) the shareholders of the company shall have at least one half of the seats on the supervisory board;

      (h) the chairman of the supervisory board shall be elected by all the directors represented on the supervisory board and in the event of deadlock he shall have a casting vote;

      (i) the managers of the company (that is to say those who formulate policies) shall initially he able to choose between taking part in the elective process hereinbefore described or shall be able to select their own representative on the supervisory board, who will have the right to speak but not vote;

      (j) the preferred system of election of employee-directors shall be through an elected committee of all the trade unions represented in the company, which shall be responsible for ensuring a fair balance of representation.'.

      Mr. Radice: I am not so optimistic as to believe that the Government will accept this new clause or the schedule. They have already shown their attitude to the issue of industrial democracy by their opposition to the experiment with employee-directors at the Post Office. I have, therefore, no great hopes on that score.
      I believe that it is important that the issue of industrial democracy should be raised yet again. This is not the first time that I have raised it in this House. I accept that the last Labour Government, despite the publication of a good White Paper on industrial democracy, were not able to get any legislation on to the statute book. That was partly because of their minority status.
      I am prepared freely to admit that there is not yet an agreed view on industrial democracy in the trade union movement. Some trade unionists support the extension of collective bargaining as the way of achieving industrial democracy. Others believe that worker-directors are fine in the public sector but that they are not so good in the private sector. Other trade unionists are wholly in favour of employee-directors where the employees want it. So, there is a difference of view within the trade union movement.
      I do not believe that the system of employee-directors as set out in the
      1452
      schedule is of itself anything like enough. The system must be based on strong and effective collective bargaining. On the other hand I do not believe that collective bargaining by itself is sufficient.
      It is true that through collective bargaining employees are enabled to make up for their lack of individual power by their collective strength when they have been able to establish joint regulation over a number of vital subjects. However, the fact is that the strategic and important managerial decisions that shape the future of a company are largely outside the control of collective bargaining. That fact has converted me to a system of employee-directors on the boards of companies.
      When I was an employee of the General and Municipal Workers Union I was a collective bargainer. But when I saw the ineffectiveness of collective bargaining as, for example, when a firm made its employees redundant and I realised how little collective bargaining was able to influence major investment decisions or influence the shaping of a firm's corporate strategy, I changed my mind. I now believe strongly that something more than collective bargaining is needed and that employees need direct representation not just in the workplace or in negotiations but in the board room.
      There are at least three principles on which this representation must be based. It must be based partly on collective bargaining, since it is no good introducing employee-directors where there is no collective bargaining and where there is not a strong shop floor trade union movement. Otherwise that representation becomes a kind of tokenism.
      It must also be based on the power of trade unions because the unions are basically the only effective way in which workers can be represented in a company and in industry. That representation must not be merely a token. Employee representatives must be in the board rooms in strength.
      As to how that representation will work, I invite hon. Members to turn to the schedule, which sets out ways to deal with the problem. The schedule may not be perfectly drafted—I admit that freely since I did not draft it myself. I also accept that there are other ways in which we can advance industrial democracy.

      1453
      The schedule does not rule that out. It certainly would not rule out a parallel and complementary system that would give the right to collective bargainers to discuss strategic issues, as many trade unionists prefer.
      That was the pattern of the White Paper. Two options were held out. One could either do it through collective bargaining or, if employees preferred it, it could be done by way of employee representation at board level—or indeed by both. The scheme that I propose would depend on the successful outcome of a ballot. Representation would not be imposed from the top on unwilling workers. It would be based on a fairly stiff election in which certain minimum conditions would have to be fulfilled.
      8 pm
      The scheme is based on a two-tier board system which has a number of advantages, perhaps the major one of which is that it would establish a new basis of democratic control within companies, but would allow managements to deal with day-to-day management problems. I am borrowing from the German example, which has much to commend it.
      The system is based on parity between shareholders' representatives and employee representatives. In the end, that is the position to which we shall have to move. We may have to work up to it through a lesser proportion of employee representatives, as the previous Government's White Paper recommended, but in the end we shall have to get to a 50–50 arrangement. That immediately raises the problem of what will happen in case of conflict. Obviously the role of the chairman will be vital, and I take the view that the chairman will have to be elected by both sides in order to have the confidence of both sides. I do not approve of the German example of a chairman elected by shareholders. We must have chairmen who retain the confidence of both sides. Representation should be through a committee elected by trade unions.
      Mr. Renton: The hon. Gentleman has skated over an important point that I thought he was about to deal with in more depth. What will happen if all the shareholders' representatives vote for one person as chairman and all the employee representatives vote for another?
      Mr. Radice: I admit that my amendments do not work that out, though my Bill, to which I am pleased to refer the hon. Gentleman, proposed the use of ACAS in case of deadlock. That is probably the way to do it. In most cases the two sides would probably be able to agree on a chairman, but it may be necessary to have a neutral body to make an adjudication.
      As I was saying, representation should be through a committee elected by the trade unions. Here I borrow from the Bullock committee proposal for joint representation committees. The system must be based on trade unions, and that raises the problem of what happens to non trade unionists. I accept that that is a difficult problem, which was not solved by the White Paper of the previous Government.
      I am sure that the system will not work unless it is based on trade union power. In most firms trade unions should be able to feel that they can win all the elections if there is strong trade union representation, and they may feel so confident that they would be able to have nominally open ballots in the knowledge that they will be dominated by the unions. However, I appreciate that awkward problems are raised and are not wholly solved by the amendments.
      There are many fears and problems involved in industrial democracy. I start with the fears and worries of managers. The old basis of authority within a company has been, at least partially, undermined by events. If we can get a new basis of democratic authority and consent it will give managers new freedom and powers. For example, in Yugoslavia, managers have considerable powers, but within a system of overall democratic control. My proposed system may help innovation in this country.
      Another worry of managers is that industrial democracy could bring conflict into the board room, where there is no conflict. Of course, everyone knows that there is conflict in board rooms already. Many different points of view and interests are represented in board rooms. The presence of employee representatives would be an acknowledgement of the reality that employees have separate voices and interests that need to be represented at the level at which strategic decisions are made.

      1455
      All the experience shows that in industrial democracy systems, for example in Europe and, in this country, in the British Steel Corporation and the Post Office, employee-directors have generally played a constructive role, which has been of great use to the shareholder representatives.
      The other issue raised by managements is confidentiality. I do not believe that that is a serious problem. The research in, for example, West Germany and Sweden shows that it has not been a serious problem there. Given the interests of employees in the future of their firms, I do not believe that problems associated with confidentiality are likely to be serious.
      There are overwhelming arguments in favour of industrial democracy. There is an argument in human terms that work should be a satisfaction to employees. If they feel that they are able to have influence over the decision-makers that will make their work more satisfactory to them.
      Mr. Nicholas Baker: Do the schemes in West Germany and Sweden to which the hon. Gentleman referred put trade unions in the same position as the hon. Gentleman proposes?
      Mr. Radice: The German one does not, though trade unions dominate the works councils and employee representation at board room level in the supervisory boards. The Swedish system is based entirely on the single-channel method.
      There is a strong moral argument for more industrial democracy. All employees ought to have a bigger say in the decisions that crucially affect their lives and futures. Socially, too, there is a strong argument, because throughout society there is a questioning of the old bases of authority, whether in marriage, relationships between parents and children or the relationship between a management and employees. We need a new basis of consent within industry.
      In the difficult economic situation that we face, with a world economic crisis and problems of energy supplies, it is too great a luxury to leave all the strategic decisions to managements and shareholders' representatives. They are far too important to the nation. We should
      1456
      call on all the resources that we can to solve the problems and to put industry on a much firmer base.
      Those are the reason why I am strongly in favour of industrial democracy. It is a crucial issue for the House, and it will not go away. Whatever the Conservative Party may hope, we shall return to the issue a number of times in this Parliament, and when my party is returned to power at the next election we shall legislate on it.
      Mr. Clinton Davis: I congratulate my hon. Friend the Member for Chester-le-Street (Mr. Radice) on introducing the debate. He recognised the shortcomings of the new clause, but they are not important. It provides an opportunity to discuss a matter which he rightly says will remain on the political agenda, whatever the Government's view. We know that they are tepid about the issue, if not hostile.
      The debate provides me with an opportunity to congratulate my hon. Friend on his devotion to the subject, which resulted in a previous Bill. I served as a Minister on the Committee which considered that measure. It contained some interesting ideas, although we were not able to go along fully with them. However, the Bullock report took the matter further in public discussion, and that was followed by the previous Labour Administration's White Paper, which was the result of a great deal of thought and consultation.
      It was a matter of the greatest regret to me, as it was to both my Secretaries of State, that we were not able to progress further. It is a great disadvantage to the efficiency of British industry that we are not able to move along this road far more rapidly. I do not in any way deny the considerable problems that exist, but they are there to be grappled with and overcome. I hope that the next Labour Government, in two, three or four years' time, will be able to maximise agreements and push those who have entertained suspicions about the idea in the direction of its acceptance.
      Mr. Nicholas Baker: In the course of the hon. Gentleman's interesting prognostications, will he confirm his policy on trade unions in this sort of proposal? Will they be given the position that they are given in the new clause?
      Mr. Davis: I hope that the hon. Gentleman will allow me to develop my argument. I am coming to that matter. I have only just begun my speech. The hon. Gentleman must wait on my every word and listen carefully.
      The debate provides us with an opportunity to ask the Government about their attitude towards the draft fifth directive. There have been reports in the press that they are not enthusiastic about it. During a debate in the Legal Affairs Committee of the European Parliament a Conservative spokesman did his level best—I do not know whether he did it with the acquiescence of the Government—to prevent this idea emerging. As my hon. Friend said, whatever the position, there are forces within the EEC—and wider than that—who have been able to embark upon the experiment most successfully. I do not say that we should adopt exactly the examples of the Germans, the Swedes or anyone else—we have to build on our experience and collective bargaining arrangements—but it would be folly to ignore those.
      I do not say that to apply principles of industrial democracy along the lines of my hon. Friend's Bill, or the previous Labour Administration's White Paper, would be to provide a panacea for our industrial relations problems, but I believe that they would offer a considerable advance. There is no doubt that on both sides of industry there are views—which I happen to believe are antediluvian, although that would be challenged by those who hold them—that it is the job of management to manage and that it is not the job of the worker to intrude. In a sense, that is mirrored on both sides of industry.
      8.15 pm
      I believe that one of life's most painful experiences can be to change one's mind. The more rigidly held the belief about the value of the past and those well-tried things that have happened, the more painful it may be to recognise that those things need to be changed. I should have thought that the experience of the past few years would indicate that we need to embark upon change, and to do so with some rapidity.
      Industrial democracy is a controversial concept. It divides even Hackney. I know that my hon. Friend the Member
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      for Hackney, North and Stoke Newington (Mr. Roberts)—with whom I have an incredibly friendly relationship—takes a different view from myself. I hope that he will not feel that I have been insulting when referring to those who hold a different view. It is not intended to be personally denigratory.
      It is a controversial issue, because it aims at far-reaching changes of attitude on both sides of industry about the manner in which decisions are made and about relationships between people. Such a change of mind on these matters can be a painful process. Industrial democracy is about sharing responsibility for decisions and how one encourages that. Behind all the Government's words about industrial relations—and there were many weasel words—there is a clear preference for conflict. That was illustrated last night by their refusal to consult or invite the TUC to join the committee on the reform of company law. It indicated a process of mind on their part. They would prefer not to see eye to eye with the trade unions, but to view them eyeball to eyeball. That is a thoroughly bad way in which to proceed. They prefer conflict to the consensual approach that we should try to achieve.
      I believe that we must change the whole atmosphere in which we relate to each other in industry. We must give proper recognition to the most substantial investment that a worker is able to make in his working life to the industry that he serves, namely, the years of service that he gives to that industry. The purpose of the debate on industrial democracy is to reflect upon those issues. There is a democratic imperative that those who are substantially affected by decisions ought, as a matter of right, to be involved in making those decisions.
      That is an argument that is accepted by the European Commission. I do not agree with the Commission on a wide variety of issues, but I agree with it on that. The idea is accepted in several countries within and without the EEC, and it was accepted by both the majority and minority Bullock reports. It is resisted by those who see industrial relations purely in historic terms, or perhaps in terms of goodies and baddies.
      There is a striking contradiction between the political democracy which we

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      cherish in our society and, all too often, the authoritarian structure which a worker meets in his day-to-day existence at work. To expand the opportunities to provide the worker with a greater sense of involvement and participation, and make him feel that he is at the centre of things, is involved in the complexities of decision-making and is actively influencing the decisions, will not only promote good industrial relations, good efficiency, job satisfaction and profitability, but will mirror what is required in society if we are to sustain and nourish the political democracy in which everybody in the House believes.
      Our objective is not simply to build up new participative structures. I am not in favour of an edifice complex. I, and those who share my views, want to create something worth while for the chap on the shop floor, and for the girl on the shop floor, because we are living in that sort of age. At the same time it must produce some tangible benefits for the work force, otherwise it will not be interested in the ideas. In no sense do I say that all work forces throughout the country are clamouring for this idea—that would be totally untrue—but I believe that it is the job of Parliament and the Government to lead people towards ideas that will benefit society, and I passionately believe that this is one of those ideas.
      It follows from what I have been saying that if industrial democracy is to become a worthwhile concept, and if it is to become effective, it will be largely dependent for its efficacy upon effective communication and understanding. When we were in government we recognised that the best way forward was to try to maximise agreements between employers and employees. I confess that we ran into a great deal of violent reaction to the ideas. Perhaps some of that was exaggerated. Although Bullock performed a valuable service in that it focused attention in a vivid way on these matters, it nevertheless created some anxieties, which perhaps prevailed when we came to discuss our own White Paper, and which were unjustified in the light of the White Paper.
      I am anxious to see agreement maximised, and I do not believe that a minority should be able to stifle the value of the idea by imposing its own veto. In the
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      White Paper we emphasised the need for a flexibility of approach. We said that there would have to be a statutory fallback to ensure that the laggards who wanted to contract out were not able to do so where the work force wanted to embark upon that course, but the decision was to be left to the work force concerned. It would be its decision. The scheme that was thought most appropriate to the particular enterprise would also be left to it. Therefore, we proposed a wide measure of flexibility.
      We suggested that companies employing more than 500 people should be required to discuss with employee representatives all major proposals affecting the employees before decisions were made. That would cover investment plans, mergers, takeover bids, major organisational changes, and so on. We saw a joint representation committee, about which my hon. Friend spoke, as the most effective channel for discussion on these matters. We felt that it would have an interesting and useful side-effect, as it would be an important basis for producing more inter-union co-operation. Where those procedures could not be established voluntarily, we said that there would have to be a right to require the board to discuss the issue of company strategy.
      My hon. Friend touched on a number of the problems, including confidentiality of information. I believe that that problem is grossly exaggerated. Of course we must have some means of safeguarding confidential information, but the risks are belied by the everyday experience of trade unions and shop stewards, in whom there is reposed a great deal of confidential information, because that is the only way in which to work out solutions. They do not go blabbering to everyone about it. It is very rare for them to do so. When I went to Germany I was told that they never had a case where insider information had been divulged by the shop stewards. Plenty of insider in-formation had been divulged by the other side, but not by the shop stewards who were engaged in that form of enterprise.
      While this is a grossly exaggerated problem, I believe that there can be an agreed basis of approach to it. I agree that some topics would have to be ex-

      1461
      cluded. There are other problems associated with multinationals, but as has happened in Germany, I hope that the multinationals will seek to operate within the spirit of the law and to obey the law. The hon. Member for Dorset, North (Mr. Baker) finds that funny. If he would like to intervene I shall give way to him. I see that he does not.
      My hon. Friend said that the direct representation of the work force at board level would add a new dimension to the board's consideration of problems; that it would bring it much more into direct contact with what the work force was thinking. That is a dimension that is singularly absent from many boardroom discussions that take place at present. At the same time, it would give the work force a voice where it really matters.
      I know that there is major disagreement about that. Some argue that this is a highly esoteric area in which the workers ought not to be engaged because they do not have the equipment or the understanding to do it. That is an arrogant and patronising attitude. I heard it expressed to me when I visited a firm in Plymouth. That was exactly the view that was echoed by the managing director of, regrettably, a large multinational company with a branch there. It was an appalling way in which to approach the work force. It indicated his own view of it, and therefore reflected mostly upon him.
      I agree with my hon. Friend about the two-tier board concept. I think that that is a preferable arrangement, but that it ought to be left to the decision of the local work force and the enterprise itself to work out. Perhaps they would prefer to have the operation of a unitary board, and there is nothing wrong with that. I just happen to believe that it would be better to separate the functions of a management board and a supervisory board, provided that the supervisory board did not become a meeting place once a quarter where information of not much value was presented. It must allow people to get together to discuss worthwhile decisions. Otherwise it has no value at all.
      I have always believed that if we have that concept, directors must share legal duties and responsibilities. I do not think that one can segregate those. It
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      would also be an essential ingredient for worker-directors to keep in touch with the employees and trade unions. Other wise there could be alienation, which would be most undesirable and could destroy the whole idea.
      Therefore, it would really be for each company to devise the best method suited to it. If agreement cannot be reached, we propose that employees in a company employing 2,000 or more people should be able to claim a statutory right to representation. We worked out a process to require a request from the joint representation committee to organise a ballot of the whole work force. One did not have to be a member of a trade union to participate in that election. We wanted to see whether the work force wanted the idea, and if it said "No", that was the end of the matter. I sometimes suggest to my colleagues in the Labour Party and in the trade union movement that they should let the work force decide. If they do not want it, they do not have to have it. It is as simple as that.
      8.30 pm
      Mr. James Dempsey: I am interested in the argument that there should be employee representation in a company which employs 2,000 or more people. Is my hon. Friend aware that there is worker participation in companies which have far fewer than 2,000 employees, and that those companies perform extremely efficiently?
      Mr. Davis: I am aware that some enterprises have embarked upon radical measures of worker participation—for instance, Scott Bader and Glacier Metal —and that there are variations. However, I do not accept that worker participation is carried out on a wide enough scale. If there was evidence that the participative processes were working well—that was not the evidence that I received when I was a Minister—there would be no need to embark upon this idea. But that is an academic point, because the decision would be left to the local work force in the enterprise concerned.
      We have taken an arbitrary figure of 2,000 because we needed to start somewhere. We are not saying that enterprises with fewer than 2,000 employees should not embark upon worker participation, but it would be a more voluntary arrangement, and we would not include that within the terms of our legislation.

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      If the work force wanted to go ahead, the company would be able to reconstruct the board. It would have to do that in order to adopt a two-tier system, or to maintain the unitary board system. My hon. Friend the Member for Coatbridge and Airdrie (Mr. Dempsey) touched on the numbers involved. We opted first for a one-third representation, moving up to something like 50–50. It cannot be exactly 50–50 because, ultimately, someone has to be able to determine decisions if there is a deadlock.
      I recall my former colleague, Mr. Edmund Dell, saying that he had elicited the information that in Germany, if there was a 50–50 situation, the independent chairman would normally be a priest. It was felt that by being close to God he would be able to resolve some of the decisions. Curiously, however, there have been few instances of deadlock.
      The matter of selection is difficult. Should every employee be involved in the right of selection, or should that right be limited to those workers who operate through the established system of collective representation? We have operated the latter system in British industry. However, we shall leave it open for further discussion. It would be bold of me to suggest that I have the answer. I do not.
      My hon. Friend the Member for Chester-le-Street touched on the right of appeal and whether there is unfairness in the system. That is a matter to which we referred in the White Paper. It would be total folly for the Government to ignore that idea. They should work on it, embrace it, and consult about it. Regrettably, they appear to be disinterested in it. That is the worst of all worlds. The problem will not disappear. The Government will be forced to do something about it, whether they like it or not, in the not-too-distant future. If they do not accept the responsibility, we shall, and I hope that it will not be too long before we are able to grasp those opportunities.
      Mr. Eyre: Following the attempts of the hon. Member for Chester-le-Street (Mr. Radice) to influence the previous 'Government, he has now produced the interesting suggestion of legislating a mandatory system of employee directors.
      Mr. Radice: It is not a mandatory system, because employees have to take part in a ballot before they are appointed. If there is an affirmative vote, they are appointed. It is therefore not a mandatory system.
      Mr. Eyre: The hon. Gentleman's proposals may not be mandatory, but they have a mandatory tone.
      They are interesting for two reasons. First, it appears to be a solo flight, although the hon. Member for Hackney, Central (Mr. Davis) gave some indication of rather enthusiastic support. If a Division were to be called on the proposal, it would probably indicate the low degree of enthusiasm of some of his hon. Friends for this formulation.
      Despite the fact that there are several differences from the ideas contained in the Bill that was before the last Parliament, and far from the hon. Gentleman's present proposals being even-handed, the balance of advantage lies with the trade unions to initiate the establishment of a supervisory board and directly to choose the employee-directors. The hon. Gentleman fairly acknowledged in his speech the difficulty of his proposal with regard to non-union employees.
      Mr. Clinton Davis: There is no difficulty at all about non-union employees in the initial ballot to determine whether people want to advance down this road.
      Mr. Eyre: I do not think that the hon. Gentleman has accepted the point that I made about the appointment of employee-directors under the scheme. I note, incidentally, that the hon. Gentleman is now much better at posing questions than he was at producing action when he was a Minister. On a number of matters that have come forward on Report, he has indicated quite a change of attitude from that which he adopted formerly as a Minister. He has been demanding action on a number of matters in which he was not active himself for a considerable period.
      Mr. Davis: The hon. Gentleman cannot fairly say that. I have not shielded from the House the difficulties that we encountered. We were enthusiastically supporting industrial democracy as a qualification of the adversary relationship in industry. We wanted to see industrial democracy and we wanted to maximise

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      consent about it. The hon. Gentleman cannot fairly say that we were not active. We produced a White Paper and we wanted to embark on legislation. It was in our election manifesto.
      Mr. Eyre: I am glad that the hon. Gentleman acknowledges those difficulties, particularly with regard to the demands that he made in the closing stages of his speech.
      I shall in a moment touch on some of the detailed problems involved in the clause and schedule, but many of them are related to wider criticisms which can be made of moves such as this to impose on companies by law some form of two-tier board structure. Those who seek to do this must answer a number of questions.
      A fundamental question relates to the implied inadequacy of the administration of companies, and therefore of company law as it stands. While the corpus of company law imposes particular restraints on the activities of companies—for example, the requirement to produce audited accounts, as well as enabling them to be subjected to official investigation—its underlying rationale is to permit companies to adapt their structures and procedures in ways best suited to their own circumstances.
      There is, therefore, nothing in company law to prevent companies from establishing a two-tier supervisory and management structure, dividing—for internal purposes at least—the functions between the two levels as they wish. Nor are there any obstacles to prevent the appointment of employee-directors. It is right that as many employees as possible should be involved in the development of a company. Coming from an industrial area, I agree wholeheartedly with that purpose. It is necessary so that the development of a company should move forward with as much wholehearted support as possible.
      I believe that the vast majority of companies accept this and reflect this acceptance in the way that they are run. But —and this is the crucial point—companies involve their employees by many different methods, ranging from the purely informal in smaller firms to the rather more formal system in many large companies.
      At a time when many boards realise the need to pursue policies designed to
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      encourage employee involvement, we remain unconvinced of the need to impose arbitrary rules on them.
      We have noted with interest the developments in Strasbourg, to which reference has been made, where the European Parliament is beginning to recognise that the rigid requirement of the Commis-mission's proposals for a fifth directive on company law is not the only way in which to meet the objective of greater employee involvement.
      I turn to the details of the proposals that have been put forward. I note that there is no provision for the secret ballot of employees and that the system proposed can be triggered only by the trade unions, even though only 30 per cent. of the employees may be union members. Further, it is proposed that employee-directors shall occupy half the seats on a supervisory board, which is not consistent with the one-third suggested by the Labour Government less than two years ago.
      The position of management is not so much obscured in the code of practice as reduced to that of the Victorian child who may be seen but not heard. Under these proposals the managers may have a management committee, but they cannot be represented on the audit committee, whose functions are not hinted at anywhere. If management chooses a representative on the supervisory board, he does not appear to be entitled to vote.
      In these ill-considered proposals, it is curious that, while the clause itself requires the establishment of both a supervisory and a management board, the code of practice does not once refer to a management board; it refers only to a management committee. The proposals, judged all in all, are a recipe for great damage to the largest of our companies. I recommend the House to reject the clause, together with its code, both of which are in part objectionable and impracticable.
      Mr. Clinton Davis: Is not the Minister going to deal with the principle of democracy? My hon. Friend the Member for Chester-le-Street (Mr. Radice) and I recognised that to put the whole law of industrial democracy into a schedule to the Bill is not possible. What my hon. Friend has done is to stimulate further debate on the matter. The Minister has

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      adopted a ludicrous, appalling, narrow-minded attitude to this subject. Let him leave aside his brief and give us his attitude and his views.
      Mr. Eyre: I have listened to the naive and muddled opinions of the hon. Member for Hackney, Central. I believe that it would be better if we passed on and dealt with the important business that follows in the Bill. I have dealt with the basic proposals that have been put forward and I have explained why they are impracticable and objectionable. I have indicated the strong desire of the Government to work to increase the involvement of employees in the work of their companies.
      Mr. Ernie Roberts: I want to question the need for two-tier boards, supervisory management boards and worker-directors. This I will do on the basis of my experience as a national trade union leader and of the views of my own union and others. I want to pose some questions and also give some answers.
      First, will the measures that are referred to in the new clause and the proposed schedule bring industrial democracy to working people? Let us look at the experience of existing worker-directors. There are worker-directors in the steel industry, yet we have had a nine-week strike over pay, conditions of work and mass sackings. The worker-directors in that industry are expected to help the management and the Government and to work against those whom they are supposed to represent.
      What did the worker-directors in the steel industry know about the £500 million deficit that was exposed a short while ago or about the proposed closure of the Bilston plant? The union officials said that they knew nothing about them. Clearly they had not been informed of these matters by the worker-directors. What did the worker-directors at Corby report back to the workers whom they represented? On the face of it, nothing, because they are appointed.
      8.45 pm
      British Leyland is supposed to have the best-ever industrial democracy agreement, with workers' representatives on joint management councils, on joint committees
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      concerned with running the divisions and attending conferences with the management on company problems. Yet, within a few months of signing that agreement, The Sunday Times carried the headline:
      "Leyland men warned by management 'You will kill the Midlands'."
      Mr. Radice: Will my hon. Friend give way?
      Mr. Roberts: When I have finished this further quotation:
      "Leyland bosses threaten to sack 100,000 workers."
      That was disclosed in the national press on 5 October 1976.
      Mr. Radice: My hon. Friend is putting forward a better argument against my clause than was posed by the Government. My hon. Friend is at least dealing with the principles of the issue. However, it is unfair to illustrate Leyland, because there was no system of worker-directors there. It was a system below board level. Many shop stewards argued that, if they were to have such a system, it should be possible to get at the top decisions. For example, many Transport and General Workers Union representatives were in favour of having worker-directors at Leyland.
      Mr. Roberts: What I have disclosed makes the situation worse. Even at that lower level, the workers' representatives, who were supposed to have been sitting alongside management discussing the business and future of the company were not consulted and did not take part in discussions with the management about the running of the company. It is not conceded there and it certainly has not been conceded in British Steel.
      I was going on to point out that it was said on television that an ultimatum had been issued by the management and that had done the trick. On the other hand, Mr. Eddie McGarry, the joint chairman of the British Leyland shop stewards, described the ultimatum as being stupid. To illustrate the lack of consultation with and participation by workpeople in British Leyland, the chairman of BL, on ITN on 8 January, said that there would be a cutback of 30,000 jobs. He gave the press that information, but not the shop stewards and trade unions. They said that there had been no consultation

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      on that matter or on the closure of Speke at Liverpool. That was a management decision.
      The lack of industrial democracy has been shown by a series of strikes at British Leyland, ending with the dismissal of the chairman of the shop stewards, Mr. Derek Robinson. Can that be described as an illustration of industrial democracy and proper workers' representation?
      Mr. Radice: No.
      Mr. Roberts: Obviously "No", as my hon. Friend said. That is because, within the agreement, British Leyland has stated that at all levels, from the board down to the workshop floor, executive responsibility rests with the management.
      The point is often made that a supervisory board has no right to interfere in the day-to-day running of a company. If industrial democracy means anything, it means that the workers should be consulted and should have a say in the decisions affecting the running of the company and day-to-day problems.
      The situation in the coal industry is no better. There is representation at various levels from the top to the bottom. The coal miners have been involved in industrial conflict, closures and sackings. There have been no proper consultations or joint decisions. The National Union of Mineworkers is putting forward proposals for drastic changes in the democratic control of the pits. In the public sector there is a case for instituting real joint control of undertakings with the workpeople and managements responsible.
      The Post Office is, in effect, to be wound up by the Government. There are appointed members on the board, but if we are to have democracy there must be elections. Representatives at board level, or at any level of management, who represent workpeople and trade unionists must be elected by those whom they represent. My union and the Confederation of Shipbuilding and Engineering Trade Unions, which represents about 2½ million work people in the engineering industry have gone on record against worker-directors in private industry. The TUC, which represents about 12 million workers, has voted against the mandatory imposition of supervisory boards with worker-directors and for the rights of
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      trade unionists to negotiate on these issues with their companies. However, there may be a loophole by which a means may be found of trying out the business of worker-directors.
      The fear among many trade unions and trade unionists is that worker-directors will become prisoners on the boards. If the shareholders and owners are still in majority control, it is feared that worker-directors will become Trojan horses within the unions.
      There is a clear need for industrial democracy. My union, on behalf of its 1½ million members, makes certain recommendations in a booklet that has been produced in hundreds of thousands for the membership. The summary of recommendations states:

      "(1) In the private sector we should proceed towards Industrial Democracy through an unlimited extension of collective bargaining.

      (2) We should seek to establish company bargaining on broad issues without interference in traditional plant bargaining.

      (3) In the nationalised industries we should become involved in decision making, seeking majority Trade Union representation at board level and effective control at other levels.

      (4) That we"—

      use—
      "the new Procedure Agreement"—
      an agreement that we have established with the engineering industry—
      "to establish, as far as possible, company bargaining."
      (5) Where new Workers' Co-operatives need financial support, we would consider each case on its merits."
      Industrial democracy concerns the lives and safety of individuals. The summary states:
      "Where safety representatives operate in the name of this Union they should only de so as Shop Stewards."
      Those are a few of the proposals that my union makes for the purpose of extending democracy within industry.
      In spite of all the talk—there is much of it—about the need to give workers industrial democracy, we find that they still have to take action for ordinary, basic and elementary rights. These are the rights that trade unionists had to fight for in the 1820s—for example, the right to have trade union recognition within a company. One has only to mention

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      examples such as Grunwick, the steak houses, Automats in Manchester, Dessoutters and other companies—
      Mr. Deputy Speaker (Mr. Richard Crawshaw): Order. The hon. Gentleman has been in order, but he has begun to move outside the scope of the clause.
      Mr. Roberts: The elementary democratic rights that we require as a result of making changes within industry are, first, the provision of facilities for the shop stewards to function, meet and discuss their problems and for management to provide facilities for workers. The Government could easily have given some essential democratic rights in the Bill in relation to information and disclosure. We believe that democratic rights should be given to individual workers to allow them access to the sort of information that is circulated to shareholders. They should be told the terms and conditions of their employment, including wages, hours, holidays, pensions, sick pay arrangements and so on. They should be given access to the files and the information that the company has built up about employees and employment prospects. Through the Bill, workpeople's representatives should be given information on manpower, the number of employees, job descriptions, the rate of turnover, statistics on short-time working, absenteeism, sickness, accidents, recruitment, deployment, promotion and so on.
      Those are some of the ordinary elementary matters which trade unions require for the establishment of basic democratic rights within industry. Without such facilities the idea of workers having rights as worker-directors is a hollow sham. Companies should look into such matters and ensure that such specific matters shall be included in order to give workers those basic democratic rights.
      Mr. Anderson: My hon. Friend the Member for Hackney, North and Stoke Newington (Mr. Roberts) has made a valuable contribution. He accepts the general concept of industrial democracy but he points out an alternative road to that which my hon. Friend the Member for Chester-le-Street (Mr. Radice) has outlined in his new clause. My hon. Friend the Member for Hackney, North and
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      Stoke Newington mentioned the inadequacy of the tentative steps which are being attempted in the direction of employee participation. Of course, conflicts of interest will remain, whatever structure is devised within industry.
      I congratulate my hon. Friend the Member for Chester-le-Street. He has done an immense amount of work on the subject, both in this Parliament and the previous one. If he wanted anybody to blow his trumpet, he should note the reaction of The Economist to his book "The Industrial Democrat":
      "The value of this book"—
      in which he outlined something akin to his present new clause—
      "especially since it was written by a first-rate Labour MP and former union research officer, is that it points unions in the direction of reforms, both in structure and attitude, which will be essential to successful participation."
      Having had such a useful start to the debate, we found it all the more disappointing to hear the Minister's response. He was stuck in the straitjacket of his brief and he gave no hint of personal or other willingness to escape from that brief and indicate whether the Government were prepared, in the lifetime of this Parliament, to make a positive contribution to the concept of industrial democracy. If one looks at the record of the Post Office, one may well imagine that the reverse will be the case. Any tentative steps towards industrial democracy may be set back by the Government.
      9 pm
      My hon. Friend the Member for Hackney, Central (Mr. Davis) drew attention to the decision of the Legal Affairs Committee of the European Assembly of 20 February. It rejected the fifth directive on-worker participation. It decided that the structure of company law should be left to the discretion of individual Governments within the Community. That appears to accord with the general view of the Government. It would be helpful to know whether the Government stimulated the torpedoing of that directive. The general concept of employee participation is now firmly on the agenda. Whatever the Government may say, it will not go away. We therefore require a more positive response from the Government.
      As regards the new clause that stands in the name of my hon. Friend the

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      Member for Chester-le-Street, a substantial case can be made for changing to a two-board system. However, that is not necessarily connected with employee participation. The debate about a two-board structure has become enmeshed in a debate about employee participation. The case for a two-board structure does not necessarily depend upon the view that one holds about employee participation. For example, the supervisory councils of German companies were introduced in the 1890s. They gave shareholders more effective control of the operations of management. Greater participation did not effectively begin until the 1920s. That was long after the supervisory boards had begun operation.
      As my hon. Friend the Member for Hackney, North and Stoke Newington has said, a two-board structure may not be the best or only means of ensuring employee participation. However, the concept of a two-board structure implies criticism of the existing structure. I shall give brief examples of some of the advantages of a two-board structure.
      First, it would give a more effective voice to shareholders in large private sector corporations. The wishes of shareholders come to light at present only if there is a public row. One could argue in favour of a formal process whereby shareholders could join together. At present, they have insufficient clout and influence in a general meeting. At a general meeting it is difficult to call management to account effectively. A two-tier structure with a supervisory board would mean continuing pressure on behalf of certain interests. We can define and add to those interests. The supervisory board would appoint a management board. It would, therefore, exercise effective discipline over the board.
      Secondly, the two-tier board structure allows managerial independence at operational level, separating the amateurs from the professionals. That separation is well-nigh impossible in a unitary board structure. The combination of chairman and managing director would not be appropriate. The chairman would have a strategic role, being responsible to the interests, however defined, and responsible for the general operation of the company, whereas the chairman of the management board would have more of an operational role.
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      It may also provide scope for dealing with the problems of a growing family business. That may appeal to the Government. There is the traditional syndrome of a family business declining through managerial incompetence, in part because of too much responsibility being given to family members, and then a takeover occurs. In the two-board structure, family shareholders could be on a supervisory council, leaving the professionals to get on with the job of running the business. It also does away with the need to put the operational heads of the business on the main board, when they may be quite unsuited for a strategic role.
      The two-tier board structure is particularly applicable to public sector corporations, where the Government want to influence but do not want to run the business. It is an ideal way of dealing with the problems of Government supervision.
      The case for a two-tier board can rest on bases other than employee participation. My hon. Friend the Member for Chester-le-Street was supported by my hon. Friend the Member for Hackney, Central when he said that the case for greater employee participation had in the past been linked with discussion of the two-tier hoard. It is a basic democratic principle that the status of the employee should he no less than, and often should he be seen to be greater than, that of shareholders.
      In social terms we find the role-playing irritating. People appear to lose their democratic rights and dignity when they pass through the factory gates, and are therefore, far less able to play a different role when they leave the factory. It is more appropriate that interests such as those of employees should be represented on a supervisory board and not a unitary board.
      The two-tier structure also has interesting implications for the roles of financial institutions vis-a-vis companies. It preserves accountability, yet leaves management with the task of getting on with the job of running the company on an operational basis. We could well see the development of industrial banks, with greater participation by banks on a supervisory board in running a company. At present they normally stand apart and

      1475
      do not take a share in equity. They merely have an overall oversight of the affairs of a company.
      My hon. Friend the Member for Chester-le-Street put forward an important case, which he argued well. He set the context for the debate. There must be a discussion on this important matter. I congratulate my hon. Friend. I am only sad that the Government's response has so far been negative. Although they point out deficiencies in the drafting of the new clause, they have said nothing—
      Mr. Clinton Davis: They do not have an idea in their heads.
      Mr. Anderson: They have not given us the courtesy of revealing any ideas that they may have. Do they, for example, reject out of hand a more flexible structure with employee representation on supervisory boards, beginning at a relatively small level and developing as the company wills? With the agenda for this debate set by my hon. Friend, we ought to hear some more positive response from the Government to this most important of issues.
      Mr. Archer: I should like to echo the congratulations of my hon. Friend the Member for Swansea, East (Mr. Anderson) to my hon. Friend the Member for Chester-le-Street (Mr. Radice). I do not consider that this debate has been wasted. It has been a good debate on the Opposi-tion side of the Chamber.
      It is unfortunate that the Under-Secretary of State has had to leave. I wanted to tell him that he must not confuse two separate matters. It is true that we in the Opposition are not wholly in agreement about the exact working out of these ideas. But the hon. Gentleman must not confuse that with a lack of interest. One can have a lively discussion on a matter without any absence of interest. One cannot have a lively discussion, as we have discovered from the Government side tonight, without a measure of interest.
      Discussion in the Labour movement on this issue goes back a long way. I was reading this morning a pamphlet published by the Fabian Society in 1953, picking up the German experiment and trying to draw out lessons for this coun-
      1476
      try. The discussion on the Opposition Benches, encouraged or not from the Government Benches, will continue. This is part of a general discussion of what company law is about. We have always known that it was about shareholders. I have said more than once in these debates, but will perhaps be forgiven for saying again, that part of the problem we encountered at the beginning was that shareholders were members of the company. A shareholder who last week heard about the company for the first time when he picked up a bundle of shares is a member. An employee who has devoted 50 years of his life to the company is not a member. All that exists between the company and the employee is a contract of employment.
      Company law was about shareholders. More recently and a little more marginally, it is about creditors. But, as international law was about nation States and individuals did not count until individuals forced themselves into international law, so company law is chiefly about shareholders and partly about creditors. Employees did not exist. Even in this Bill, the Government have been forced to accept that employees have a legitimate place in company law. If the existence of employees is recognised, one of the questions that is bound to arise is their right to participate in decisions, not just decisions about wage rates and working conditions but decisions not all of which are susceptible to collective bargaining.
      The TUC, in its guide to the Bullock report, says in the introduction:
      "Until we extend the machinery of joint regulation to cover issues such as investment and product development, trade union involvement at company level will be an illusion rather than a practical reality."
      Employees may have an interest in the future of the company at least as close to their hearts as that of many of the shareholders. Many of my constituents have recently known this to their cost. I echo the remarks of my hon. Friend the Member for Swansea, East. A democratic way of life includes the right of people to demonstrate that they have a measure of control over their own destiny. That control does not terminate at the factory gate. It is necessary if their role is to be more than merely demanding more and more. If we are asking them

      1477
      to face up to decisions and to decide what they will renounce as well as claim, they cannot be expected to exercise responsibility if they are not treated as responsible people.
      However, there are problems, and we all know that. They run through the whole of company law, and I suspect that they are not confined to company law. How does one give effect to the contradiction that there is within any workplace a strong community of interest? Employers are concerned with the prosperity of the enterprise. So are the employees. There is a community of interest which may be opposed to the interests of people who are not at the enterprise. But the enterprise is not homogeneous. There is also within the enterprise a conflict of interest. That is not destructive of good relations. It is recognising the fact. Given that the gross profits are constant, the higher the employeees' remuneration the lower will be the distributable profit. So there will be conflicts of interest of that kind that will have to be resolved.
      9.15 pm
      We are looking for a way in which both sides can join in the resolution of the conflicts while pursuing their common interest in the prosperity of the enterprise. First, they will require a right to information, and there will be encountered difficulties of confidentiality. However, as my hon. Friend the Member for Hackney, Central (Mr. Davis) said, I suspect that they have been somewhat over-dramatised. The very fact that meaningful collective bargaining exists entails that there must be a provision of some information, some of which is confidential.
      Mr. Dempsey: I believe that my right hon. and learned Friend is aware that employee representation has been operating in this country for the past half century. He will be aware of the example of the co-operative movement, in which employees are elected directly to the board such as the one on which I served. There is no problem of confidentiality there, no problem of questioning auditors, or of deciding whether an enterprise should go or whether it should be extended and a new edifice erected to provide more employment. Those problems do not exist. I believe that they are becoming a figment of the imagination of the Minister and
      1478
      some of his supporters. I am sure therefore that my right hon. and learned Friend will remember that model.
      Mr. Archer: I am most grateful to my hon. Friend for pointing out that model. Of course, he is absolutely right. At risk of perhaps overdoing the commercials, may I mention another Fabian pamphlet written recently by my hon. Friend the Member for Consett (Mr. Watkins), which is most valuable on this subject?
      I understand the difficulties that were alluded to by my hon. Friend the Member for Hackney, Central. All this could become a meaningless slogan, and none of us would want to participate in a merely cosmetic exercise.
      The examples quoted by my hon. Friend indicate two things. First, this proposal will work only where there is cooperation from management. My hon. Friend left open the question whether there might be merit in placing management under a statutory duty to co-operate. That is something that we can discuss. Secondly, it is important in all our discussions to listen to the experience of those who have had to make industrial relations work. I hope that we shall not overlook that. I accept, as he said, that should we ever decide on having statutory recognition of employee-directors they would not operate exactly like commercial directors. In its supplementary evidence to the Bullock committee the TUC made that quite clear. It said:
      "The objective is to find a form of representation and participation in decision-making in the private sector which provides for participation in major decisions, but leaves the lines of responsibility of the workers' representatives to their constituents. The aim must be to give legal rights to workpeople of collective participation and control over decisions which the collective bargaining and consultative process have not given them."
      We cannot expect employee-directors simply to operate in the best interests of the company in the old sense of that expression.
      That was recognised by the TUC in its summary of the Bullock report. It says that the representatives would not in a legal sense be committing the workers or the joint representative committee to company policy. However, the representatives would carry the same responsibility as shareholder representatives in that they would be required to act in what they believed to be the best interests of the

      1479
      company. That would no longer be equivalent to saying—as at present—"in the best interests of the shareholders". They would obviously have different duties, functions and interests from those they have at the moment.
      What was said by my hon. Friend the Member for Chester-le-Street is particularly applicable here. The whole experiment would have to grow out of the existing machinery of collective bargaining. One cannot conjure it out of mid-air. It grows out of what is happening already at the grass roots. The way in which the system will be moulded was indicated by my hon. Friend the Member for Hackney, Central. It would be left to the employees in the workplace to decide whether they wanted to try this experiment, what kind of experiment they wanted and how they would mould it to their particular problems and circumstances. It would be left to them to decide whether there would be a two-tier board.
      It is not true to say that companies already have the right. Of course, shareholders can authorise an experiment of this kind, but it is not true that employees have the right to authorise it. If we make it mandatory, one of the questions that will arise will be how far we should spell out the details of what the employees would be entitled to opt for. In a document published after the Bullock report, the General and Municipal Workers Union said that it would like to leave the issue fairly open so that each workplace could fill in the gaps in accordance with its own problems.
      I repeat to the Government what has been said by my hon. Friends. This question will not disappear. We can now get on with what the Minister has called the important matters in the Bill, but one day, whether he welcomes it or not, the hon. Gentleman will come to believe that this subject is important, because it will affect the future of this country and the future of this Government.
      Mr. Radice: I beg to ask leave to withdraw the motion.
      Motion and clause, by leave, withdrawn.

    New Clause 28

      SEPARATION OF POSTS OF CHAIRMAN AND CHIEF EXECUTIVE
      "In any publicly-quoted company which either employs more than two thousand people or has net assets in excess of one hundred million pounds (both figures being assessed on a group or consolidated basis), the posts of chairman and chief executive, or managing director, shall be held by separate people; and they shall be confirmed in these posts by ordinary resolution at the first general meeting of shareholders following their appointments, and they shall be reconfirmed in a similar manner at intervals of not less than five years.".—[Mr. Renton.]
      Brought up and read the First time.
      Mr. Renton: I beg to move, That the clause be read a Second time.
      The purpose of the clause is to achieve in large, publicly quoted companies—which I have defined as companies employing more than 2,000 people or having net assets in excess of £100 million—the separation of the posts of chairman and chief executive. I believe that the clause has one outstanding advantage, and that is that despite two lengthy and wide-ranging Committee stage debates on Companies Bills in the last 12 months, this is a subject that has not been touched on.
      It has, therefore, at least the benefit of originality and freshness.
      The clause also follows logically from the interesting debate we have just had on the issue of the statutory imposition of supervisory boards. I am against the legal imposition of supervisory boards, though I am all for companies, within their articles of association, developing in that way if they wish. In the holding company structure we already have many companies in this country with supervisory boards.
      I am also against the legal imposition of employee directors, although I am all for companies, by consultation between boards and works councils if they so desire, having some representatives of their workforce on the board. That is a proper decision for companies to take.
      My approach to corporate structure has always been that I prefer us to make use of the strengths within the present structure of companies. I do not believe in too much change, but I believe in using the

      1481
      positions of chairman, managing director, executive directors and non-executive directors to the full and, by implication, within a unitary hoard structure, making use of the creative tensions which can, and probably should, exist between executives and non-executives.
      That has led me to my view, which is shared by a number of my hon. Friends, that in the larger publicly quoted companies the positions of chairman and chief executive should be divorced and held by separate people. In discussions with outside organisations I have found that that view has wide support among those concerned with corporate structure.
      In large companies the chairman and the managing director have different jobs. The chairman is responsible for the social audit functions—keeping in touch with Governments and local authorities, being concerned about the environment and public relations, travelling round this country and the world meeting chairmen of other companies and forming impressions of how the industry in which he is involved is changing and developing. Above all, he is responsible to both shareholders and employees for overseeing and criticising the executive function.
      The chief executive is the most senior representative of management. His job is to maximise profits, develop new products, expand overseas and see that the company is in the market place ahead of its competitors. By definition, he cannot be the best judge and critic of himself and the performance of the management that reports to him.
      In suggesting the separation of the posts of chairman and chief executive I am introducing into the unitary board an element of the supervisory function, because if my suggestion were incorporated into the law the chairman and non-executive directors would, within a unitary board, be the supervisors of the managing director and the executive directors. We would be using to the full the strengths and tensions within the existing unitary board structure.
      In our large companies there is too much danger of the personalisation of companies. Often an individual becomes lionised and the company comes to be thought of as his creation and empire. The hon. Member for Keighley (Mr. Cryer) referred to Mr. Rowland and Lonrho.
      1482
      That is one example of a company being identified with an individual, and we can all think of others.
      The danger is that when such an individual has an accident, or dies or has to retire suddenly through ill health there may be a feeling that the whole company and its fortunes cound be in difficulties. The advantage of my proposal is that the concentration of a company's reputation and public image round one person would obviously be limited, at least halved, if the chairman and the chief executive were separate people.
      9.30 pm
      I quite understand that the chairmen who are already chief executives could complain about my proposal. Indeed, I have received some correspondence to that effect. That does not surprise me. If they consider the matter further they will realise that all my proposal calls for is a reorganisation of their functions. They would be reminded that, as chairmen, they are above all else chairmen of boards. Their primary duty is to the shareholders and the employees, whereas the chief executive or managing director has a duty to maximise the performance of management.
      The second half of my new clause calls formally for shareholders' resolutions to approve at a general meeting the appointment of chairman and managing director, and for their reappointment at intervals of not less than five years.
      It is an irony of our present position that in many articles of association the chief executive is appointed by the board, but that that appointment is not subject to confirmation by the shareholders. The appointment of non-executive directors to the board—who have a less important function in the company than that of the chief executive—must be ratified by the shareholders. That is an irony and an anomaly that should be rectified. It is one of the purposes of the second half of my new clause. Another purpose is to ensure that the appointment is checked and revalidated at the end of every five years.
      I do not wish to protract my opening remarks, but I think that it is a subject that deserves consideration. As I said earlier, it has not been brought up in Committee stages of other company law Bills in the past 12 months. I shall be

      1483
      interested to hear my hon. Friend the Minister's remarks when he replies.
      Mr. Parkinson: As my hon. Friend the Member for Mid-Sussex (Mr. Renton) said, one of the advantages of the debate is that it has an air of novelty about it. Almost every other subject that we have discussed in the past two days we have had the opportunity in Committee and in the House of discussing at least four or five times in the past 18 months. I wish to thank my hon. Friend for injecting this note of novelty into our proceedings. I am afraid that the remainder of my remarks may not be so welcome to him.
      While we accept the validity of my hon. Friend's remarks, and while it may be desirable in some cases to separate the job of chairman from that of managing director, we think that it would be wrong to impose that as a condition on companies. As a statutory imposition, it would be a mistake.
      Such an imposition may have the appearance of doing a number of the things that my hon. Friend said, but a strong chairman might, as a formality, elevate one of his colleagues to the position of managing director simply to comply with the rules. He would not be observing the spirit of my hon. Friend's remarks but merely complying with the law. That would open the door to a window-dressing operation which would satisfy the requirements of the law but do nothing to promote the objectives that my hon. Friend had in mind when he moved the clause.
      It was interesting to note that in the Watkinson report a few years ago, when Lord Watkinson was keen on the idea that there was a strong case for separation, he said that
      "experience in a wide range of companies shows that it is a matter in which some flexibility is essential."
      Once one builds into the law the sort of requirements that my hon. Friend has outlined, flexibility flies straight out of the window. Therefore, I am not attracted to the idea that we should impose this as an obligation on the range of companies that he described.
      I have much more sympathy with the points that my hon. Friend made in the second half of his speech. He said that the appointment of the chairman and
      1484
      chief executive was a fairly major event about which the shareholders ought to have an opportunity of expressing a view, and that they ought to have the opportunity to reaffirm their decision at regular intervals.
      I do not want to give my hon. Friend a cast-iron commitment, but we shall read what he has said with great interest. We shall certainly look with particular interest at the second half of the new clause and the ideas that he promotes in it. I shall keep in touch with him as our thoughts develop, and it may well be that in our next Bill, which will be introduced in the next Session, we shall be able to meet some of the points that he has made so persuasively tonight.
      Mr. Clinton Davis: I heard—I do not have to read it again—the speech of the hon. Member for Mid-Sussex (Mr. Renton). It was a most interesting speech, and the hon. Gentleman put forward many constructive ideas. But evidently those chairmen and chief executives who have written to him in such numbers will be able to breathe again and will be able to sleep in their beds tonight in absolutely security.
      I hope that the Minister will give careful thought to this idea. It has been embarked upon with some success in the United States. I am not quite sure whether it is a mandatory provision there, or whether it was something recommended by the SEC. My recollection does not enable me to recall exactly what the situation is. However, I know that in most instances there is a separation, and it seems to be something that has worked remarkably well.
      I hope that this is not something that will die with the debate tonight. The Minister said that he would look at one part of the new clause. I hope that he will look at both parts, because I believe that the hon. Gentleman has made a number of interesting points.
      Mr. Renton: My hon. Friend has given me one crutch of comfort without giving me the second. I also thank the hon. Member for Hackney, Central (Mr. Davis) for his reference to practice in the United States. He is right, in that evidently there is a separation of duties.
      I do not propose to remind my hon. Friend at quite the same length as the

      1485
      right hon. and learned Member for Warley, West (Mr. Archer) that this is a matter which will not go away. I shall be looking with great interest at what is contained in the next companies Bill. I thank him for his offer to keep in touch with me about it in the meantime.
      I beg to ask leave to withdraw the motion.
      Motion and clause, by leave, withdrawn.

    New Clause 34

      APPOINTMENT OF DIRECTORS
      '(1) No election of a director of a public company shall be a valid election unless—

      (a) he is already a director of the company, and is seeking re-election, or

      (b) a statement in respect of his qualifications to be a director was circulated to the members before the meeting at which he was elected in accordance with the provisions of section 140 of the Companies Act 1948.

      (2) For the purposes of this section the number of members necessary for a requisition under the terms of section 140 of the Companies Act 1948 shall be—

      (a) any number of members representing not less than one-fiftieth of the total voting rights of all the members having at the date of requisition a right to vote at the meeting to which the requisition relates; or

      (b) not less than ten members holding shares in the company in which there has been paid up a minimum sum, per member, of not less than one thousand pounds.'. —[Sir Brandon Rhys Williams.]

      Brought up, and read the First time.
      Sir Brandon Rhys Williams: I beg to move, That the clause be read a Second time.
      It gave me great pleasure, Mr. Speaker, to discover that there had been an amendment to your selection list for today and that you had decided to include the opportunity for me to introduce a debate on new clause 34.
      I do not need to introduce it at enormous length. The House is possibly aware by now that I believe that it is most important that public companies should appoint non-executive directors. I fully recognise the arguments of those who say that the selection of suitable people to be non-executive directors is extremely important.
      1486
      With regard to the procedure for the election of directors, the Companies Act as it stands is somewhat imprecise. All too often what happens is that when a board vacancy arises it is filled by the existing members of the board, and when the person who has been chosen as an interim measure comes up for ratification at the annual general meeting, his appointment is almost invariably approved automatically.
      If the vacancy first arises the directors will make a nomination at the annual general meeting. No other person normally will be nominated and the few shareholders present with any interest in what is happening will automatically approve the name that is put in front of them, whether or not that person is suitable for the job. I am not trying to say that boards of directors consist of unsuitable people. But we need to be more careful about the selection of non-executive directors. I have been asking myself for some time how we can solve the problem of making sure that the right people are chosen for this role. We must find a way of enabling the shareholders to play a more active and better-informed part in the appointment of directors, and we should seek to ensure that vacancies are filled after a contest, rather than by the adoption of the only name put forward.
      I have sought to devise a way in which, through a small change in the Companies Act 1948, names could be put before shareholders sufficiently long in advance for them to be able to consider the qualifications of the various candidates, and possibly to take advice through the press or from other comment that they might receive, and to make an informed judgment.
      I realise that it is difficult for a small shareholder to differentiate between the qualifications of one candidate and another. But the institutional investor could adopt the role of selection agent—if I may call it that—between different candidates for board responsibilities.
      I have often made the point that we must try to find ways of helping institutions to take a more active hand in management without becoming insider traders. This is one of the ways in which institutional investors could exercise a benign influence without stepping ahead

      1487
      of the other shareholders, or seeking to acquire inside knowledge which, inevitably, over the course of time, would colour their investment judgment. In a question of choice of personalities, the institutions could begin to play an extremely responsible and important role.
      Section 140 of the 1948 Act already allows certain bodies of shareholders to require the companies to circulate to the members notices that they think are important. I do not see why that section should not be used to require the company to let the members know in advance of an election of a candidate that it wishes to propose, so that the shareholders are warned that there is to be an election. A group of shareholders, other than the board, could also put forward a candidate, and circulate his name and particulars to the shareholders at the company's expense.
      The criteria in the existing Act are, I believe, too difficult. Therefore, in new clause 34 I have tried to suggest a way in which the conditions might be modified so that a group of shareholders could work together to bring new blood to the board, without being baffled by procedure.
      My particular recommendation is that a group of shareholders with as little as 2 per cent. of the equity might be entitled to require the company to circulate the name and particulars of its candidate. That would allow perhaps even one important investing institution, or a group of investing institutions with small holdings, to come together to suggest one or two candidates who might have a beneficial effect if they were elected to the board. I have not forgotten the small shareholders. I have suggested that as few as 10 members with a holding of £1,000 could also put up their own candidate.
      9.45 pm
      These are, of course, matters for further discussion. I recognise that it is very unlikely that a clause drafted by a Back Bencher will be in a sufficiently accurate form to be adopted as it stands. But I hope that my hon. Friend—I know that he has given the subject a good deal of thought—may be prepared to look further into the possibilities of what I am suggesting, and that a reform on these lines may be on its way to the statute book.
      Mr. Parkinson: My hon. Friend the Member for Kensington (Sir B. Rhys Williams) has, as usual, brought before the House a very interesting suggestion and has identified a problem that is, I believe, in need of an answer.
      The problem is that very few people know anything about the directors whom they elect to the boards of the companies in which they are shareholders. A name appears on the agenda saying that Mr. So-and-so is retiring by rotation and, being eligible, offers himself for reelection. The shareholders who bother to turn up hear a quick muttering and the item goes through on the nod so that there is re-elected to the board of directors a person about whom many of the shareholders know nothing.
      There is a very strong case for putting in the agenda of the annual general meeting a few details about the person whom the shareholders are being invited to reelect so that people may know for whom they are voting and for what policy—or at least have a chance to do so if they bother to read the agenda.
      The procedure suggested by my hon. Friend is very cumbersome and I do not think that it is one that I would wish to recommend to the House. But in his search to make companies more responsive to their shareholders, and in his ambition to make sure that the shareholders know something more about the people whom they are to elect as directors, my hon. Friend is to be encouraged.
      We cannot accept the clause, but we accept the spirit in which my hon. Friend moved it. We shall look at ways —perhaps a little less cumbersome than the ones he has suggested, and a little less regimented—of trying to accommodate at least some of his ambitions.
      Mr. Keith Wiekenden: Is it not the case that at present shareholders may nominate directors if they know when the annual general meeting is to be held? Provided they give the requisite notice, surely they may nominate a director. It would be a very rash shareholder who nominated such a director without circulating details to other directors.
      Mr. Parkinson: My hon. Friend is right. It is possible for shareholders

      1489
      at the moment, under the present rules, to nominate directors. It would not be a bad thing, as a matter of course, for shareholders to know a little about the people they are electing as directors of the companies in which they hold shares. After all, we all make sure that our electors know a little about us before we invite them to vote for us. We hope that sometimes it influences them.
      I have not any great ambitions about this matter, but my hon. Friend is right in constantly seeking to find ways of making companies more responsive to the views of their members and of making sure that people who run companies' affairs are properly elected by those who elect them. In those two ambitions he is to be encouraged, and it is against that background that we shall look at his suggestion.
      Sir Brandon Rhys Williams: I am very grateful to my hon. Friend, and I appreciate the welcome that he has given to the spirit that lies behind my amendment. I recognise that it would not be fruitful to press it but I hope that he will accept this much of what I have recommended, that is, that in future no election should be valid unless some particulars have been circulated beforehand of the candidate for a directorship.
      My hon. Friend is perfectly right. Shareholders can use section 140 of the Companies Act, or possibly other means, to put up a candidate for a directorship. But it is difficult and unusual for them to secure the right to require the particulars of the person they choose to be circulated in advance at the expense of the company. The more common practice is to put someone forward at the shareholders' meeting, by which time it is almost certainly too late to overcome the proxies already held by the board in favour of its own candidate.
      I should like to see the quality of all candidates for company directorships improved by the fact that boards would be ashamed to circulate the particulars of someone who was plainly not a suitable person. That would act as a barrier. More important, I am trying to provoke contests for vacancies on the boards of important companies and enable shareholders to choose between a number of good candidates.
      I beg to ask leave to withdraw the motion.
      Motion and clause, by leave, withdrawn.

    Clause 4

      PUBLIC COMPANY NOT TO DO BUSINESS UNLESS REQUIREMENTS AS TO SHARF CAPITAL COMPLIED WITH
      Mr. Parkinson: I beg to move amendment No. 1, in page 3, line 33, leave out 'issued' and insert 'allotted'.
      Mr. Speaker: With this we may take Government amendments Nos. 5, 6, 9, 11, 12, 13, 14, 21, 51, 60, 146, 229 and 230.
      Mr. Parkinson: We now move away from the exciting parts of the Bill to the more mundane, detailed amendments. Many of these amendments represent commitments given in Committee by the Government. A considerable number of them represent undertakings given to my right hon. Friend the Member for Crosby (Sir G. Page).
      This large group of amendments has a simple and common theme running through it. They all arise from a commitment that we gave to look sympathetically at various suggestions to change "issued" to "allotted". We looked carefully at the suggestions and agreed that they were correct, and this battery of amendments is testimony to that.
      Sir Graham Page: I rise only to say "Thank you".
      Amendment agreed to.
      Mr. Parkinson: I beg to move amendment No. 2, in page 3, line 34, leave out from 'a' to end of line 39 and insert:
      'statutory declaration complying with subsection (3) below.'.
      Mr. Speaker: With this we may take Government amendments Nos. 3, 4, 8 and 23.
      Mr. Parkinson: This group of amendments gives effect to a proposal made by my right hon. Friend the Member for Crosby (Sir G. Page) in Committee. He suggested that statutory declarations required by the Bill should be able to be signed by a director or secretary rather than by not fewer than two directors of

      1491
      a company. We agreed in Committee that this was sensible. These amendments represent the fact that my right hon. Friend won this particular argument.
      Amendment agreed to.
      Amendments made: No. 3, in page 3, line 40, leave out 'written statement' and insert 'statutory declaration'.
      No. 4, in page 3, line 42, at end insert—
      '(aa) the nominal value of the company's allotted share capital is not less than the authorised minimum;'.
      No. 5, in page 3, line 44, leave out 'issued' and insert 'allotted'.
      No. 6, in page 4, line 11, leave out 'issued' and insert 'allotted'.—[Mr. Parkinson.]
      Mr. Parkinson: I beg to move amendment No. 7, in page 4, line 11, leave out 'allotted as'.
      The purpose of this amendment, which flows from a recent comment by the Law Society of England and Wales, is to widen the range of shares that can count towards the minimum allotted share capital of a public company. Under clause 4, when a public company formed under clause 3 applies for its certificate to commence business, it has to satisfy the Registrar of Companies that its allotted share capital is not less than the authorised minimum, which is at present £50,000. However, it cannot count shares allotted under an employee share scheme where the shares, by virtue of a special derogation, have not been paid up as to 25 per cent. of their nominal value and the whole of any premium.
      However, where shares allotted under any employee share scheme have been allotted as paid up to at least 25 per cent. of the nominal value, together with the whole of the amount of any premium, they can count towards the authorised minimum.
      The Law Society pointed out to us that, if an employee share scheme is allotted as paid up to less than the critical level, but before the application is made for a certificate under clause 4 it is further paid up to above that level, the subsection, as drafted, excludes it. There is no good reason for that, but it happens because
      1492
      the subsection refers in line 11 to "allotted as paid up" and so on. By removing "allotted as" the amendment removes a needless restriction.
      Amendment agreed to.

    Clause 5

      RE-REGISTRATION OF PRIVATE COMPANIES AS PUBLIC COMPANIES
      Amendments made: No. 8, in page 5, line 24, leave out
      'not less than two directors'
      and insert 'a director or secretary'.
      No. 9, in page 6, line 25, leave out 'issued' and insert 'allotted'.—[Mr. Parkinson.]
      Mr. Parkinson: I beg to move amendment No. 10, in page 6, line 30, leave out first 'the' and insert 'any'.
      This amendment changes a reference to
      "the alterations in the memorandum and articles"
      to
      "any alterations in the memorandum and articles".
      As such, it is hardly an earth-shattering event. This is necessary because, again as the Law Society pointed out, there may well be no alterations in the articles. In particular, by virtue of clause 8(7), this subsection applies to an old public company going public. The directors' resolution in such a case cannot, in fact, alter the articles. It is, therefore, more appropriate in clause 5(8) to refer to "any alterations".
      Amendment agreed to.

    Clause 6

      REQUIREMENTS AS TO SHARE CAPITAL OF PRIVATE COMPANY APPLYING TO REREGISTER AS PUBLIC
      Amendment made: No. 11, in page 8, line 9, leave out 'issued' and insert 'allotted'.—[Mr. Parkinson.]
      Sir Graham Page: I beg to move amendment No. 359, in page 8, line 19, after 'discharged', insert:
      'except by another such undertaking'.
      Mr. Speaker: With this it will be convenient to take the following amendments:
      No. 360, in page 8, line 27, after 'discharged', insert:
      'except by another such undertaking'.
      No. 362, in clause 8, page 11, line 44, after 'discharged', insert:
      'except by another such undertaking'.
      No. 363, in page 12, line 8, after 'discharged', insert:
      'except by another such undertaking'.
      Sir G. Page: This is little more than a drafting amendment. Clause 5 provides for the re-registration of a private company as a public company. Clause 6 provides that the private company has to put its share capital in order before re-registration. One of the requirements of putting its share capital in order is in clause 6(1)(c), which provides that, as a condition of re-registration, where a share has been paid up by an undertaking to do work or perform services, that undertaking must be discharged to put the share capital of the private company in order for re-registration of the company.
      The amendment would obviate the position if that undertaking were discharged by another undertaking. As I read the clause, that would be a way of getting round the Bill as it stands. The amendment would add that the undertaking must be discharged otherwise than by another undertaking of the same sort.
      It is merely a drafting amendment, but, in my view, it is necessary. The other three amendments deal with exactly the same phrases in clause 6(1)(d)(i), clause 8(11)(b) and clause 8(1)(c)(i).
      It being Ten o'clock, the debate stood adjourned.
      Ordered,
      That, at this day's sitting, the Companies Bill [Lords] may be proceeded with, though opposed, until any hour.—[Lord James Douglas-Hamilton.]
      Question again proposed, That the amendment be made.
      Mr. Eyre: My right hon. Friend the Member for Crosby (Sir G. Page) has correctly described the effect of clause
      1494
      6(1)(c). The Law Society of England and Wales has said that such an undertaking could be discharged by a further undertaking of the same sort. The same point applies to clause 6(1)(d)(ii) and clause 8(11)(b) and (c), as my right hon. Friend has shown in his amendments.
      The same difficulty could be said to arise where, for example, an undertaking to provide a non-cash consideration is substituted for a previous undertaking to pay cash. The latter would not be the subject of valuation as under clause 24. Generally, when shares are paid up by an undertaking, it is possible subsequently to vary it.
      I appreciate that the Law Society and my right hon. Friend have highlighted an area in which the statutory scheme does not cover every possibility. However, we must bear in mind that directors are under general duties towards the company. Thus, in substituting one undertaking for another, they must not prejudice the company's position. I am sure that my right hon. Friend will agree with that principle.
      In the Bill we rely on that broad duty to hack up and enhance the statutory obligation of the substitution of one consideration for another, namely, where the second consideration supports an agreement to discharge the first consideration. In deciding how far it is proper or necessary to go in statute in setting out detailed rules to cover such situations, it is entirely legitimate to rely on the common law duties of directors. I believe that taken together they provide a satisfactory answer.
      We therefore concluded—I hope that my right hon. Friend will agree—that we should not attempt to put even more complex rules into the statute. In all the circumstances, I hope that my right hon. Friend will not press the amendment.
      Sir Graham Page: I cannot help feeling that it would be even more complex to rely on half a rule and on common law for the other half. However, as my hon. Friend has put on record the way in which we may proceed, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Amendments made: No. 12, in page 8, line 44, leave out 'issued' and insert 'allotted'.
      No. 13, in page 9, line 4, leave out 'issued' and insert 'allotted'.—[Mr. Parkinson.]

    Clause 8

      OLD PUBLIC COMPANIES
      Amendment made: No. 14, in page 11, line 32, leave out 'issued' and insert 'allotted'.—[Mr. Parkinson.]
      Mr. Eyre: I beg to move amendment No. 15, in page 12, leave out lines 12 to 14.
      Clause 6(1) referred to sums being received by the company for shares. Special provision had to be made in subsection (4) for bonus shares which are fully paid up but for which no consideration is actually received. Subsection (1) was redrafted by amendment in Committee so as to refer to shares simply being paid up. Subsection (4) therefore became unnecessary and it was removed. The reference to it in clause 8(11) also needs to be removed, which is the effect of the amendment. Special provision for bonus shares was made unnecessary in the clause because of the similar drafting changes made in clause 6.
      Amendment agreed to.

    Clause 9

      FAILURE BY OLD PUBLIC COMPANY TO OBTAIN NEW CLASSIFICATION
      Sir Graham Page: I beg to move amendment No. 348, in page 12, line 27, leave out from first 'company' to 'unless' in line 28 and insert
      'shall cease to carry on business'.
      Mr. Deputy Speaker (Mr. Bernard Weatherill): With this it will be convenient to take amendment No. 349, in page 12, line 37, leave out subsection (2).
      Sir G. Page: These are amendments to clause 9, which provides for certain courses of action if an old public company fails to re-register as a new public company—what we shall come to call PLCs in due course.
      1496
      The company carries out the re-registration by delivering a statutory declaration, which was mentioned in connection with the previous amendment, under clause 8(9). That declaration shows that the company has the qualifications for the re-registration. Under Clause 9, if the company does not proceed with the re-registration of itself as a new public company, it is visited by the extraordinarily harsh provision that the company and any officer of the company who is in default shall be guilty of an offence. I cannot see the harm that is done if an old public company fails to re-register as a new public company, in itself. Of course, if the company goes on trading, it may be misleading the public.
      I should have thought that the only measure that we should take when an old public company fails to register as a new company is that it should be prevented from carrying on trading. If the directors of an old public company satisfy the conditions for the re-registration as a new public company, and if they consider that it should not apply to be reregistered, in the normal course of events they will convene a general meeting at which there will be a special resolution for the company not to be re-registered. If that resolution were not passed and if application were not made for re-registration because the directors believe that in those circumstances it is better for the company not to continue but to cease to trade, under the clause as it now stands both the company and the officers of the company will be criminals for not re-registering.
      It seems to be wrong to create a criminal offence merely for not carrying out a re-registration. Because of that, I seek by these amendments to leave out the words
      "any officer of the company who is in default shall be guilty of offence"
      and to replace them with a provision to the effect that the company should not continue to trade in those circumstances. That would mean removing subsection (2) of clause 9 which imposes the offence.
      In general, it is unnecessary in company law to create too many offences merely for not carrying out company procedure.

      1497
      If that involves harm to the public, by all means the company should be visited with stringent remedies. However, when it is a matter of not re-registering, I should have thought that all we need to say is that the company need not go on trading.
      Mr. Eyre: As my right hon. Friend the Member for Crosby (Sir G. Page) has explained, the effect of the amendments would be to remove the criminal penalties in clause 9 for old public companies which do not take the steps required of them to settle their status under clause 8 within a reasonable time. Instead of the criminal sanctions, the amendments propose that such companies should
      "cease to carry on business."
      I confess that I am not clear what is meant by ceasing to carry on business. For example, does it mean that the company has to be wound up? Does it imply that any contracts entered into by the company are to be void?
      Difficult questions are involved. My right hon. Friend will appreciate that the position of creditors, shareholders and employees could be prejudiced. For example, it is not clear whether shareholders could take any action to remedy the position. We cannot simply say that the company in question shall cease to carry on business. We cannot be certain of the effects. Such a sanction would not necessarily punish those at fault. I do not think that we should lightly impose criminal sanctions. I agree with the remarks of my right hon. Friend on that point. However, they are an appropriate penalty in this instance. It is very difficult to find another suitable penalty.
      An offence will be committed under this clause only if, after the re-registration period, the company has not taken the necessary steps to re-register as a public or private company; that is to say, the company has not applied to be re-registered as a public company under clause 8. That means that it has not passed a special resolution not to be re-registered as a public company under clause 8, or that any such resolution has been revoked or cancelled.
      If the company's officers have not taken measures to regularise the company's position, it is right that sanctions should be
      1498
      directed at them. It is therefore appropriate to have a criminal penalty that is directed at the company, and any officer in default. Perhaps it will help my right hon. Friend if I emphasise that directors will be liable only if they are in default; in other words, if they knowingly and wilfully permit the default. If a director does all that he can to regularise the position, he will not risk criminal penalties.
      My right hon. Friend also asked whether an old public company could be wound up if it failed to re-register as a public or private company. In addition, there is a power to wind up an old public company that has failed to register as a public or private company. That is set out in schedule 3, paragraph 23. It amends section 222 of the 1948 Act. In such a case, the court would be able to balance the interests of all those concerned with the company. However, as a first resort it is appropriate—as a result of the complicated consequences of default—to have a criminal sanction against the company and those officers in default.
      I understand my right hon. Friend's reservation about creating criminal offences. However, I ask him to consider that it is difficult to find other appropriate sanctions.
      Sir Graham Page: I do not understand how it will help shareholders or creditors of the company, if officers of that company are made criminals. Of course, the company must be wound up. I was under the impression that if a company ceases to trade, that is a ground for winding it up. I contemplated that point when drafting the amendment. The company should be wound up and its creditors and shareholders should be properly dealt with. However, it should not necessarily be a criminal offence, provided that the company does not continue to trade and mislead the public. The shareholders and creditors should be dealt with in a proper fashion.
      When we get the next Companies Bill—a ghost that floats before us at every debate—I hope that my hon. Friend the Under-Secretary will come forward with a more detailed clause that will cover what happens if a public company fails to re-register as a new public company. Perhaps he will merely deal with winding

      1499
      up the company rather than with prosecuting officers. In the present circumstances, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.

    Clause 10

      RE-REGISTRATION OF PUBLIC COMPANY AS PRIVATE COMPANY
      10.15 pm
      Mr. Eyre: I beg to move amendment No. 16, in page 13, line 6, leave out "and".
      Mr. Deputy Speaker: With this it will be convenient to take Government amendments Nos. 17 to 20 and No. 22.
      Mr. Eyre: Once again, these amendments arise from points made in Committee by my right hon. Friend the Member for Crosby (Sir G. Page). He questioned why it was necessary to provide criminal sanctions in clause 10 when directors of public companies did not forward to the registrar the application for a public company to be re-registered as private within the relevant period. We agreed with him that that provision was misconceived in these circumstances, and said that we would reconsider it.
      The effect of the amendments that we are proposing would be that criminal sanctions would be removed from the clause. The approach would instead be analogous to that under clause 8(8). The registrar would be able to issue the certificate required for re-registration as a private company either when the period during which an application may be made to the court for cancellation of the resolution has expired or after any such application has been withdrawn or refused, if later.
      The argument against criminal sanctions in this clause is essentially, as my right hon. Friend put it when he raised the matter, that it is a rather Draconian measure for an idle director. There could be civil remedies available where the directors have ignored the wishes of the shareholders, and, of course, there would be the sanction of an ordinary resolution to remove the directors. Criminal sanctions are not provided in similar circumstances under clause 5, when directors of a private company do not apply, follow-
      1500
      ing a special resolution, to become public. Nor are there such sanctions in the 1967 Act, where unlimited companies wish to be re-registered as limited, and vice versa.
      I said in Committee that, however, we needed to ensure that a company does not seek re-registration before the time allowed for minority shareholders to apply to the court for relief. That is achieved in the amendments by providing that the registrar shall not issue a certificate until that period has elapsed. The registrar will receive notice of that resolution by reason of section 143 of the 1948 Act. The registrar will also receive note of any application to the court under clause 11 by virtue of subsection (5) of that clause. The amendments will therefore ensure that the rights provided to minority shareholders are protected.
      Finally, a minor change incorporated in the amendments is that a reference in line 12 to the memorandum and articles being "added to" as well as altered by the resolution is removed. As was recognised in a large number of amendments agreed in the Committee, an addition to the memorandum and articles is also an alteration. We were able therefore to simplify the verbiage by removing the references to additions. We overlooked that reference to additions in clause 10, and now propose to remove it.
      I believe that my response demonstrates that we try to meet my right hon. Friend's view when we reasonably can.
      Amendment agreed to.
      Amendment made: No. 17, in page 13, line 9, leave out
      "in accordance with subsection (3) below".
      No. 18, in page 13, leave out line 12 and insert
      "by the resolution; and

      (c) the period during which an application for the cancellation of the resolution under section 11(2) below may be made has expired without any such application having been made; or

      (d) where such an application has been made, the application has been withdrawn or an order has been made under section 11(6) below confirming the resolution, and a copy of that order has been delivered to the registrar."

      No. 19, in page 13, leave out lines 17 to 38.
      No. 20, in page 13, line 39, leave out from "satisfied" to "he" in line 41 and insert
      "that a company may be re-registered under subsection (1) above'.—[Mr. Nott.]

    Clause 12

      REDUCTION BELOW AUTHORISED MINIMUM OF ISSUED SHARE CAPITAL OF PUBLIC COMPANY.
      Amendments made: No. 21, in page 16, line 3, leave out "issued" and insert "allotted".
      No. 22, in page 16, line 22, leave out "(2), (3) and (4)" and insert
      "(c) and (d) and (2)".—[Mr. Nott.]

    Clause 13

      REGISTRATION OF JOINT STOCK COMPANIES AS PUBLIC COMPANIES
      Amendment made: No. 23, in page 17, line 21, leave out
      "not less than two directors"
      and insert
      "a director or secretary".

    Clause 17

      PRE-EMPTION RIGHTS
      Sir Graham Page: I beg to move amendment No. 350, in page 22, line 5, leave out
      "his right to their allotment"
      and insert
      "the benefit of the offer".
      Clause 17 gives pre-emption rights to shareholders when a company is proposing to allot equity shares. Subsection (1) provides that the company
      "shall not allot any of those securities on any terms to any person unless it has made an offer to each person who holds relevant shares or relevant employee shares to allot him on the same or more favourable terms a proportion of those securities".
      Subsection (3) provides that if
      "a company makes an offer to allot any securities to such a holder, and…he or anyone in whose favour he has renounced his right to their allotment accepts the offer,"
      Subsection (1) does not apply. The words
      "his right to their allotment"
      seem a little inappropriate here.
      The order of events will be that the company will offer to allot securities to an existing shareholder in that same group of class of shares and then renounce. He will not at that stage have had the shares allotted to him or even have secured
      1502
      the right to their allotment. But he will be transferring or renouncing in favour of someone else the benefit that he is gaining from this allotment by the company. I suggest in this amendment that the right words are "the benefit of the offer" which is being made by the company. It is that which he is renouncing and not "his right to their allotment". It is a simple drafting point.
      Mr. Eyre: My right hon. Friend correctly described the circumstances in which the view that he has advanced about the use of the words "the benefit of the offer" come into account. This is essentially a drafting amendment put to us by the Law Society. We are grateful to my right hon. Friend for raising a point of some technicality with a view to improving the Bill.
      The Bill describes renunciation as a renunciation of the right to the allotment. It is this terminology that has been criticised by the Law Society and by my right hon. Friend on the ground that the shareholder has no right in such circumstances as he has described but only the benefit of an offer. Although this point has been carefully considered and there may be room for more than one opinion, the Government are firmly of the view that the Bill is best left as it stands. I am advised that there can be no doubt about the effect of the Bill as it is.
      It is not a misnomer to describe the shareholders as having a right in circumstances where their entitlement to be offered the shares is conferred upon them by the articles. Describing them as having the benefit of an offer may be positively misleading. They have a right, although a contingent right, to the allotment of the shares. While I am, therefore, grateful to my right hon. Friend for raising this point, I hope that, in the light of this explanation, he will feel able to withdraw the amendment.
      Sir Graham Page: Although I disagree with my hon. Friend's interpretation of the words in the Bill, he has put on record the way in which they can be interpreted. In those circumstances, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Mr. Eyre: I beg to move amendment No. 24, in page 22, line 17, at end add—
      '(4A) Subsection (1) above shall not apply in relation to the allotment of any securities which

      1503
      would apart from a renunciation or assignment of the right to their allotment be held under an employees' share scheme.'.
      The purpose of this amendment is to add a new subsection that protects companies and third parties from undesirable consequences when the right to relevant employee shares is renounced or assigned. Under the Bill as it stands, a company is free to allot relevant employee shares without offering them pre-emptively. If the employee or trustee on his behalf sells the rights before the shares are allotted, they would cease to be relevant employee shares and become relevant shares. When the company came to allot the shares to the person to whom the employee had renounced his right, the company would find that it could not allot them to him because they would be relevant shares and would not have been offered preemptively as clause 17 (1) requires.
      The amendment makes clear that in such a case the allotment of the securities can go ahead, despite the absence of a pre-emptive offer, since they would but for the renunciation have been held under employee share schemes. Thus, the amendment ensures that clause 17 does not make the rights under employee share schemes unrenounceable and therefore of less value to those entitled to them.
      Amendment agreed to.
      Sir Graham Page: I beg to move amendment No. 351, in page 23, line 5, leave out "the company, and".
      This amendment is on the same subject as that which we have been discussing on the last two amendments on the subject of the pre-emption rights of shareholders when the company is issuing or allotting equity securities. This is little more than a drafting amendment, and it has some serious implications if the Bill is left unamended.
      If a company is allotting equity securities and it fails to give the pre-emption rights that it is required to give to existing shareholders, under subsection (9)
      "the company, and every officer of the company who knowingly authorised or permitted the contravention, shall be jointly and severally liable to compensate any person to whom an offer should have been made".
      It then deals with damages that those persons may have suffered through their not getting that benefit. I question that
      1504
      the company should be made liable. I agree that officers of the company who have knowingly contravened the clause should be liable, but if we make the company liable surely it means that all the shareholders have to compensate perhaps a class of shareholders, some shareholders or even one shareholder who has not had a benefit that he ought to have had. Meanwhile, someone who ought not to have had that benefit has gained it.
      That is the simple point, but as the Bill is drafted all the shareholders—that is, the company—should, out of the assets of the company, compensate perhaps a class of shareholders who have not had the benefit. Those who benefited from one shareholder being denied that benefit are the ones to whom the shares have been allotted when they ought to have been shared out between everyone. I still cannot see why the company should be made liable, because in those circumstances someone who has no responsibility for this matter will be penalised.
      Mr. Eyre: This is an important matter, but I believe that I can show my right hon. Friend that the Bill should be left as it is.
      The question is whether, when a shareholder suffers loss because he has not received a pre-emptive offer to which he was entitled, he should have a right to claim damages against the company as well as against any officer in default. It may well be that there is no officer in default, as, for example, when a junior clerk has failed to post a letter to the shareholder. The shareholder has undoubtedly lost the benefit of the preemptive offer, and is worse off to that extent compared with the other shareholders. In the circumstances, it seems to me reasonable that he should have a remedy against the company. The company may have a claim against the individual who failed to make the preemptive offer, but that is another matter to be settled under the general law.
      As to ordering compensation from the person who benefited by the contravention, that would make sense only if he had been a party to a deliberate evasion by someone acting on behalf of the company's statutory duty. In such a case, the company would have a remedy against that defaulting employee or officer, and

      1505
      also an action in conspiracy against the recipient of the shares who was a party to the wrong. That position seems to me to be entirely right. I therefore hope that my right hon. Friend, on considering my explanation, will not press his amendment.
      Sir Graham Page: In this case I disagree so much with my hon. Friend in his making the company liable that I will not ask the leave of the House to withdraw the amendment. If my hon. Friend wishes to negative it, he can do so.
      Amendment negatived.
      10.30 pm
      Mr Eyre: I beg to move amendment No. 25, in page 23, line 44, leave out "either" and insert "both".
      Mr. Deputy Speaker: With this it will be convenient to take Government amendment No. 26.
      Mr. Eyre: The Law Society suggested to us that as presently drafted the phrase
      "either as respects dividends or as respects capital"
      in the last lines of clause 17(10 was ambiguous. Shares will confer relevant rights or non-rights as respects both dividends and capital. What we wanted to achieve was that where the rights conferred on shares were the same as respects distribution by way of dividends and as respects distribution by way of a capital and also as respects voting, they must be treated as being in the same class. However, where the rights were different in any of these respects the shares were to form separate classes.
      The amendments propose to change the reference from "either" to "both". I think that this makes the intention clear and I hope that the House will accept these small amendments.
      Amendment agreed to.
      Amendment made: No. 26, in page 23, line 45, leave out "or" and insert "and".—[Mr. Eyre.]

    Clause 24

      EXPERTS' REPORTS ON NON-CASH ASSETS REQUIRED FOR ALLOTMENT OF SHARES
      Mr. Parkinson: I beg to move amendment No. 319, in page 29, line 28, after "company", insert
      "by a person appointed by the company".
      Mr. Deputy Speaker: With this it will be convenient to take amendment No. 27, in page 30, line 11, leave out
      "that is to say, a person",
      and insert "who is", and Government amendments Nos. 28 to 33.
      Mr. Parkinson: The effect of these amendments is to ensure that the expert who carries out the report required by the clause on non-cash considerations provided in the payment of shares has to be appointed by the company.
      The Law Society of England and Wales pointed out to us that, as drafted, the clause does not specify by whom the expert may be appointed and this amendment—our having accepted the strictures of the Law Society—deals with the problem so kindly highlighted for us.
      Amendment No. 27 is concerned with the requirements as to the expert who makes the report required by clause 24 on non-cash assets provided in payment for the allotment of shares. As drafted, the Bill defines the expert as an independent person—that is to say, a person qualified at the time of the report to be appointed or to continue to be the auditor of the company.
      Amendment No. 27 would have the effect that the expert would have to meet two criteria. As well as being qualified to be the auditor, he would also have to be in some other respect independent. The question is, do we really need this additional requirement? This was discussed in Committee and we promised to consider the matter further. Indeed, following that further consideration, my hon. Friend wrote to the members of the Committee in January to say that we did not think that this change was necessary. Obviously we have not succeeded in convincing the Opposition that we were right. I would, therefore, like to explain our reasons for maintaining our view.

      1507
      The point essentially is that if a person is sufficiently independent to be the company's auditor, surely he is also independent enough to provide the sort of report required by clause 24. Section 161 of the 1948 Act lays down various provisions concerning the appointment of auditors—they must have particular professional qualifications, they cannot be officers or servants of the company and so on. Indeed, as the right hon. and learned Member for Warley, West (Mr. Archer) said in Committee, section 161 contains two sorts of qualifications—the professional qualifications and the qualifications relating to independence. That is the point. Auditors will be independent of the company. Section 161 effectively provides two tests and we see no point in duplicating those, as we believe amendment No. 27 would do.
      The purpose of Government amendments Nos. 28 to 33 is to clarify the clause, which requires an independent expert to value a consideration, other than cash, which is to pay up shares on allotment. Under subsection (4) he can, if he wishes and if it is appropriate, arrange for some other person to provide him with a valuation on which he can rely, provided that the independent person complies with the safeguards built into the clause.
      It was intended that the independent person should have the power to rely on some other person to value part of the consideration in question, with the independent person, for example, valuing the rest. However, it can be argued that the clause as drafted, and in particular subsection (4), does not permit that, but requires that the other person must value all the consideration. We believe that this inflexible all-or-nothing requirement would not be sensible and therefore the amendments spell out clearly that the independent person has the power to arrange for other persons to value part of the consideration.
      Mr. Archer: We are grateful to the Minister for Trade for setting out what is in issue in relation to our amendment No. 27. The Bill provides that the report should be made by an independent person, who is defined as a person qualified to be an auditor. As some of us said in Committee, we believe that there can be
      1508
      someone qualified to be an auditor who could not be said to be independent.
      Indeed, at some stage perhaps we should have a debate on the whole question of the independence of auditors, because I have always been a little troubled by the fact that an auditor owes his work to the fact that he is engaged by the very people on whom he is reporting. But that is perhaps a debate for another time, and I hasten to set the Minister's mind at rest: we do not propose to pursue the matter tonight, because the hour is late, but perhaps we can pursue it at another time.
      Amendment agreed to.
      Amendments made: No. 28, in page 30, line 14, after 'valuation', insert
      'of the consideration, or a valuation of part of the consideration'.
      No. 29, in page 30, line 14 after 'accept', insert 'such'.
      No. 30, in page 30, line 17 after 'consideration', insert
      'or that part of the consideration'.
      No. 31, in page 30, line 32 after 'consideration', insert
      'and, as respects so much of the consideration as he himself has valued, a description of that part of the consideration,'.
      No. 32, in page 31, line 1 leave out 'the consideration' and insert
      'so much of the consideration as was valued by that other person'.
      No. 33, in page 31, line 6 leave out
      'where the valuation was' and insert
      'in the case of a valuation'.
      —[Mr. Parkinson.]

    Clause 32

      VARIATION OF RIGHTS ATTACHED TO SPECIAL CLASSES OF SHARES
      Mr. Parkinson: I beg to move amendment No. 34, in page 39, line 16, after 'three-quarters', insert 'in nominal value'.
      Mr. Deputy Speaker: With this we may take amendments Nos. 354 and 355, and Government amendment No. 35.
      Mr. Parkinson: Amendments Nos. 34 and 35 are simple drafting changes which are needed to ensure that the proportion of the holders needed for consent to the variations in rights of classes of shareholders is decided with reference to the nominal value of the shares held rather

      1509
      than to just the number of shares. That is the sole and, believe, acceptable reason behind the amendments.
      Amendments Nos. 354 and 355 in the name of my right hon. Friend the Member for Crosby (Sir G. Page) are drafting changes. The Government accept the reasoning behind them and once again my right hon. Friend is making his mark on the legislation.
      The logic behind Government amendment No. 35 and the reason for it are exactly the same as the reason behind amendment No. 34. I have achieved my mission when I thought that I was only half-way through it.
      Sir Graham Page: Perhaps I can deal with amendments Nos. 354 and 355. In thanking my hon. Friend for accepting them, I wish to put on record the reason behind them.
      Subsection (6)(a) requires as a quorum
      "two persons at least holding or representing by proxy one-third of the issued shares of the class".
      A quorum is the fixed number of persons that must be present to make valid the proceedings of a meeting. Therefore, it cannot be "at least a quorum". Either it is a quorum or it is not. That is why I have changed the position of the words "at least". They refer to the number of shares. They should come before the number of shares and not refer to the quorum, otherwise we should be using "quorum" in quite the wrong sense of the word.
      Amendment agreed to.
      Amendments made: No. 354, in page 40, line 24, leave out 'at least'.
      No. 355, in page 40, line 25, after 'proxy', insert 'at least'.—[Sir Graham Page.]
      No. 35, in page 40, line 25, after 'one-third', insert 'in nominal value'.—[Mr. Parkinson.]

    Clause 34

      OBLIGATION TO CONVENE EXTRAORDINARY GENERAL MEETING IN EVENT OF SERIOUS LOSS OF CAPITAL
      Mr. Archer: I beg to move amendment No. 39, in page 42, line 8, leave out 'public'.
      Mr. Deputy Speaker: With this, we may take amendment No. 40, in page 42, line 17, leave out 'public'.
      Mr. Archer: These amendments at least have the merit of making their purpose clear immediately on reading them. Therefore, I can spare the House a long exposition of their purpose. It is not a merit that is shared with all the amendments to the Bill.
      Clause 34 relates to the action to be taken where it emerges that there has been a serious loss in the value of the company's capital assets. Everybody agrees that that would be a serious position for any company. It would be serious for the shareholders, the creditors and the employees. It could mean that the company would not be able to meet its actual or potential obligations. It must at least raise the query whether the company could continue business.
      There may be a legitimate argument about what action the company should take in those circumstances. Certainly it is clear that it should take some decisive action. The Bill provides that the company should convene an extraordinary general meeting and that the directors should report the position to the shareholders. Although some Labour Members thought that there might be other action that should be taken, that is not at issue on this amendment.
      What is at issue is whether those provisions should apply to a public company only. What is it about a private company which makes such provisions unnecessary in its case? Surely it is just as serious a matter for a private company. It will cast just as grave a doubt over the company's future. It is important that the members of the company should be consulted.
      We discussed the matter in Committee, and it is reported in the Official Report of 15 November 1979, at column 203 and succeeding columns. Why would it impose an undue burden on private companies to make the directors keep an eye on the assets? The obligation in the Bill is not a particularly onerous duty to look at the accounts, because it arises expressly not later than 28 days from the earliest day on which that fact is known to a director. In fact, the Minister for Trade was kind enough to tell us that in his view there was not even room for the doc-

      1511
      trine of constructive knowledge. That caused some of us some anxiety, but again that does not arise on this amendment.
      10.45 pm
      It is not true that every private company is of interest only to a small family. It is not even true that every member of every family confides all his knowledge to other members. Not every family is totally intra-communicative. The right hon. Member for Crosby (Sir G. Page) echoed my puzzlement over why that distinction should be made. but, to be fair, he was questioning whether the obligation should be imposed at all, and he asked "Why this distinction?".
      As I understood him, the Under-Secretary replied that all this was at a very early stage, that we were breaking new ground and that we ought to see how it worked before we extended it to private companies. His reasoning seems to be "We are not quite sure whether what we are doing is right. We are only exploring it. Therefore, we shall apply it to some companies and not to others". That is like the reasoning of the signalman at the level crossing who said that he had his gates half open because he was half expecting a train.
      I cannot be accused—I hope that no Labour Member can—of being insensitive to the problems of small companies. We do not want to impose particularly heavy burdens upon them to no purpose. But I am still puzzled why this distinction should be imposed in this context. Surely it is an important element of protection. It cannot be said that it is to no purpose. It does not impose a heavy obligation upon them. It is an obligation which any assiduous director can take in his stride.
      The Under-Secretary has had time to reflect. He may be able to produce a more convincing reason, but in the absence of one we shall persist with our query.
      Mr. Martin Stevens: Following the comments of the right hon. and learned Member for Warley, East—
      Mr. Archer: West.
      Mr. Stevens: I beg the right hon. and learned Gentleman's pardon and that of his distinguished constituency. I should like to develop a point that he made.
      1512
      During the passage of the Bill through Committee we were all conscious that we were loading many duties on to company directors and others which should not only be tolerable and comprehensible, but also, desirably, enforceable.
      In the passage to which the amendment applies we are saying that any company director who becomes aware of a fall in the value of the company's assets, in comparison with the called-up share capital, shall be guilty of an offence if he wilfully and knowingly fails to cause a meeting to be called. It seems to me that that is a difficult point to prove in law. We are requiring the law to prove a negative. As I told my hon. Friend the Minister for Trade in Committee, if we accept this kind of amendment, can we not make it simpler to apply by making the duty to call the meeting the absolute duty of a named officer of the company, rather than a general duty of all the officers?
      If, as in the case of the depositing of the company returns with the registrar, the duty were an absolute offence, it would be something that everyone could understand. It would be easy to enforce, and if it were applied to a single officer of the company it would take it out of the area of vagueness and doubt and put it into the area of certainty. I ask my hon. Friend to consider the point.
      Mr. Parkinson: I shall consider the point raised by my hon. Friend the Member for Fulham (Mr. Stevens), but it might have the result of making one director a rather worried man, even if it made the rest rather more relaxed because they knew that they were absolved from any responsibility. I am not sure that the point is a very strong one, but we shall consider it.
      The right hon. and learned Member for Warley, West (Mr. Archer) asked why we apply this requirement to public companies and not to private ones. There is only one reason why we are applying it to any company. It is because article 17 of the second directive insists that we apply it to public companies. I cannot imagine that we would have volunteered to introduce the clause into our own company law. It is a highly experimental clause. It may prove to be of value; we do not know. It is an interesting suggestion. But I am by no means convinced

      1513
      of its value. If we are to meet our Community obligations we have to apply it to public companies, and therefore we do so in the Bill.
      That is the first reason why we have to do it, and why, therefore, we shall do it. We regard it as experimental, we are not convinced of its value, although we are intrigued about how it will work in practice.
      It does not seem to me, therefore, since it is essentially experimental, that we should impose it on the 650,000 private companies on which we do not have to impose it. If as an experiment it proves to be worth while, we can extend it to the smaller private company.
      It was the hon. Member for Caithness and Sutherland (Mr. Maclennan) who, when we discussed the previous Government's Companies Bill, pointed out that over 600,000 registered companies are exempt private companies—companies which would have qualified for exempt private status. They are essentially small companies, with a limited range of shareholders. In tens of thousands—probably hundreds of thousands—of cases the shareholders are the directors. It is utterly absurd, therefore, to impose on them a duty to call a meeting which they will attend themselves so that they can discuss the affairs of the company when they probably live day and night with them. That does not seem to be particularly sensible.
      Our attitude to these amendments is that we accepted an obligation to introduce the clause into our law, that we are sceptical about its value, but that we are willing to be impressed. However, since it is so experimental, we do not think that we should impose it on the 650,000 companies on which we do not have to impose it.
      If the right hon. and learned Gentleman were to choose to force the House to vote on the amendment—I can see that the Opposition spokesmen have kept their colleagues behind them because they feel so strongly about the matter—we should be forced to resist it.
      Sir Graham Page: I entirely agree with my hon. Friend the Minister for Trade that this provision ought not to apply to private companies. I say that because there was some implication—
      1514
      although the right hon. and learned Member for Warley, West (Mr. Archer) was quite fair to me—that I want it to apply to private companies. That is the last thing that I want.
      Clause 34(1) is most complicated, and I do not know how anyone can carry out the duties within 28 days of knowing that the company has assets of only half the amount of its called-up share capital. It means that someone will have to value the assets every day. There will be dispute after dispute on the value of the assets. What happens when the value of property changes from day to day? What happens when the rate of inflation changes from day to day? How will anyone be able to say that the assets are half the value of the called-up share capital?
      I am making this impassioned plea because I suggest that the Minister could have left out subsection (2) altogether. That is the subsection which creates this offence if subsection (1) is not carried out. Our obligation under any EEC directive or regulation is to make a law which provides that this shall be done or this shall not be done. There is no obligation to make anything an offence. That is left to each nation of the Community. We have on occasions merely made a declaratory statement to enforce a directive or a regulation and left it without making it an offence. It is ridiculous to ask us to do this. Therefore, I think that in this instance we might make some protest by leaving out the offence provision.
      Mr. Archer: I have always believed that there was merit in our membership of the EEC. Clearly, part of that merit is that otherwise we would not have had what seems to me to be an eminently sensible provision.
      I was shocked by what was said by the right hon. Member for Crosby (Sir G. Page). I hope that we shall not normally seek to comply with our international obligations by putting on the statute book duties of imperfect obligation and just leaving them there.
      Sir Graham Page: Not imperfect. It would be left for the company to enforce it. It would make it not an offence against the company or its officers, but merely an obligation on the company

      1515
      towards the company, as we have elsewhere in the Bill.
      Mr. Archer: I should hate to be counsel who would formulate a cause of action on behalf of the company. But perhaps it is a little late to become involved in that matter.
      As regards the problem of applying this in an inflationary situation, the right hon. Gentleman may recollect that in Committee his hon. Friend the Member for Kensington (Sir B. Rhys Williams) suggested a way of dealing with that matter.
      There it is. I should like to see more of a good thing. However, since it appears that the Government would not even have gone this far of their own volition, we must be grateful for such blessings as we have. We would not wish to prejudice the Government's prospects of extracting £1,000 million from the EEC. Therefore, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.

    Clause 35

      ACQUISITION OF A COMPANY'S SHARES BY THE COMPANY
      Mr. Eyre: I beg to move amendment No. 41, in page 42, line 33, at beginning insert
      "Except as provided by subsection (1A) below,".
      Mr. Deputy Speaker: With this it will be convenient to take Government amendments Nos. 42, 49, 50, 52 and 53 and the following amendments:
      No. 364, in clause 36, page 44, line 11, at end insert—
      "(b) to shares acquired by a nomineee of a company in the ordinary course of its business as a trustee and when the company has no beneficial interest in the share; or".
      Government amendment No. 305, in clause 37, page 44, line 30, at end add—
      "In determining for the purposes of paragraph (aa) and (b) above whether a company has a beneficial interest in any shares, there shall be disregarded, in any case where the company is a trustee (whether as personal representative or otherwise), any right of the company (as trustees) to recover its expenses or be remunerated out of the trust property.".
      Amendment (a) to Government amendment No. 305, in line 1, leave out
      "paragraphs (aa) and (b) above"
      1516
      and insert
      "section 36 above and this section".
      Mr. Eyre: These amendments arise from a commitment that we gave in Committee to meet points made by my right hon. Friend the Member for Crosby (Sir G. Page). He pointed out that under the existing law a company may receive a gift of its own shares but may not hold them directly in its own name. It must arrange for a nominee to hold the shares, as was the case in re Castiglione.
      My right hon. Friend argued that there was no sensible reason why the company should always have to put such shares in the name of a nominee. I was grateful to him for raising this matter because although, as he said, it is hardly a vital issue, one way or the other, we agree that it is unnecessary to maintain the need for a nominee in such cases. The amendments therefore change this rule by allowing companies to acquire their own shares by way of gift. This change will undoubtedly delight new generations of law students.
      The amendments to clause 37 are called for by articles 19 to 22 of the second directive and treat shares given to the company in the same way as other shares falling under clause 37; that is, voting rights in respect of the shares may not be exercised, the company must cancel or dispose of the shares within three years, and so forth. These provisions apply only to public companies.
      The amendment to clause 35 will apply to all companies and will allow both public and private companies to acquire their own shares by way of gift. Whether companies should be allowed to purchase their shares for valuable consideration is another question. We attach high priority to relaxing this rule, mainly as a means—I think that this will please my right hon. Friend—of enabling small companies to operate and grow. A consultative document is at an advanced stage of preparation. It will set out an examination of the complex issues that are involved. This is a matter that will require careful consideration. We intend that our consultation will lead to legislation in our Companies Bill next Session.
      The amendment is a minor rationalisation which I am sure will be welcomed. I am grateful to my right hon. Friend, as I am sure companies will be, for

      1517
      prompting this useful change, which I commend to the House.
      11 pm
      Sir Graham Page: I am grateful to my hon. Friend for tabling the right amendments. I tabled amendments No. 364 and (a) to 305. My amendments are well covered by the Government's amendments and I need not argue the proposals contained in them. Amendment No. 364 is an amendment to clause 36. That is why I tabled the amendment to the Minister's amendment. Neither of my amendments is now necessary. I am grateful to my hon. Friend. It is an important issue, and it has been cleared up by the Government's amendments.
      Amendment agreed to.
      Amendment made: No. 42, in page 42, line 35, at end add—
      "(1A) A company limited by shares may acquire any of its own fully paid shares otherwise than for valuable consideration.".—[Mr. Eyre.]

    Clause 36

      ACQUISITION OF SHARES IN A COMPANY BY COMPANY'S NOMINEE
      Mr. Eyre: I beg to move amendment No. 43, in page 43, line 18, leave out 'subsection (5)' and insert 'subsections (5) and (6)'.
      Mr. Deputy Speaker: With this it will be convenient to discuss Government amendments No. 44 to 48.
      Mr. Eyre: The purpose of the amendments is to modify the operation of what is presently subsection (5). That subsection contains two exemptions from the provisions of the clause.
      The first exemption applies where a nominee for a public company acquires shares in that company in circumstances where clause 37(1)(c) applies. That is where the company provides financial assistance for the acquisition and acquires a beneficial interest. Such assistance is of course likely to be in breach of section 54 of the Companies Act 1948, but none the less there is recent authority in the Court of Appeal that the company may acquire a beneficial interest in the shares, since recognising such an interest
      1518
      protects creditors and section 54 is intended to protect creditors.
      The first exemption deals with this case. As presently drafted, it exempts such cases entirely from subsection (1) and from subsection (2). Subsection (1) strikes down the beneficial interest of the company when the nominee takes shares on subscription from the company and where he acquires partly paid-up shares from third parties. The exemption is therefore necessary, otherwise the company's beneficial interest will be destroyed. However, in the somewhat unusual case of a nominee for the company taking shares on subscription from the company, the second directive insists that the company should acquire no beneficial interest, and therefore the exemption as presently drafted goes too wide. The effect of amendment No. 46 is to exclude from the exemption cases where subscription is involved.
      The first exemption in subsection (5) also operates at present to exclude subsection (2) in such cases. Subsection (2) imposes personal liability on those responsible for the improper subscription or acquisition, and there is no reason why they should be exempted because they have contravened section 54 of the 1948 Act. Amendment No. 45 therefore operates to restrict the first exemption to subsection (1).
      Amendments Nos. 47, 48, and 44 are simply consequential drafting amendments which do not alter the amendment before us.
      Amendment agreed to.
      Amendments made:
      No. 44, in page 43, line 25 leave out "as aforesaid" and insert "to subsection (6) below".
      No. 45, in page 44, line 9 leave out
      "The foregoing provisions of this section"
      and insert "Subsection (1) above".
      No. 46, in page 44, line 10 after "acquired", insert "otherwise than by subscription".
      No. 47, in page 44, line 11 leave out "or".
      No. 48, in page 44, line 12 at beginning insert—
      "(6) Subsections (1) and (2) above shall not apply".—[Mr. Eyre.]

    Clause 37

      TREATMENT OF SHARES HELD BY OR BEHALF OF A PUBLIC COMPANY
      Amendments made:
      No. 49, in page 44, line 20, at end add—
      "(aa) where shares in the company are otherwise acquired by the company and the company has a beneficial interest in those shares;".
      No. 305, in page 44, line 30, at end add—
      "In determining for the purposes of paragraphs (aa) and (b) above whether a company has a beneficial interest in any shares, there shall be disregarded, in any case where the company is a trustee (whether as personal representative or otherwise), any right of the company (as trustee) to recover its expenses or be remunerated out of the trust property.".
      No. 50, in page 44, line 34, after "(1)", insert (aa)".
      No. 51, in page 44, line 39, leave out "issued" and insert "allotted".
      No. 52, in page 45, line 44, at end add—
      "or are otherwise acquired by the company".
      No. 53, in page 46, line 22, after "(1)", insert "(aa) or".—[Mr. Eyre.]

    Clause 38

      CHARGES TAKEN BY PUBLIC COMPANIES ON OWN SHARES
      Mr. Parkinson: I beg to move amendment No. 54, in page 46, line 40, leave out "taken by" and insert "of".
      Mr. Deputy Speaker: With this it will be convenient to take Government amendment No. 55 and amendment No. 365, in page 47, line 11, at end insert—
      "(e) in the case of a company acting as a trustee, any lien or equitable charge which it acquires over its own shares, in its capacity as such trustee".
      Mr. Parkinson: As you can see, Mr. Deputy Speaker, I am having great difficulty in containing myself as we tear through this exciting part of the Bill. In the Department we describe clauses such as clause 38 as "Page country". It is an area into which Ministers venture rarely and where my right hon. Friend the Member for Crosby (Sir G. Page) romps around with absolute confidence and serenity.
      1520
      The amendments, as one might guess, are technical amendments to clause 38 (2)(b), and seek to broaden its scope somewhat. Clause 38 implements the directive requirement and provides that liens or other charges taken by a public company over its own shares, whether taken expressly or otherwise, shall be void unless permitted by subsection (2). Subsection (2)(b) is one of the exceptions and operates for what may broadly be called financial institutions. It refers to a charge taken by the company on its own shares, whether fully paid or not, as security for the purposes of a transaction entered into by the company in the ordinary course of its business. The problem is that certain liens arise in the course of dealings and it is hard to say that they are taken by the company as security for the purposes of a transaction, but, rather, they tend to arise in connection with such transactions.
      Therefore, as drafted, it might be held that as such they did not come within clause 38(2)(b). To ensure that they are protected the amendment would change the relevant phrase to:
      "a charge of the company on its own shares, whether fully paid or not, which arises in connection with a transaction entered into by the company in the ordinary course of its business."
      With your permission, Mr. Deputy Speaker, I should like to comment on the amendment which is shortly to be moved by my right hon. Friend the Member for Crosby. I hope that the House will forgive me if I refer regularly to my notes on this technical amendment. The amendment raises the question of the lien which a trustee company may have over a trust property, where the trust property includes shares in the trustee company. Whether this would be prohibited by clause 38 depends on a number of circumstances. The prohibition in clause 38(1) bites only on public companies.
      Many trustee companies are wholly owned subsidiaries of other companies. Where the trustee company has a lien over the shares in its parent, that is not affected by clause 38. In the unusual case where the trustee company is a public company and has a lien over its own shares because it is a trustee, the validity of the lien will depend upon whether it comes within clause 38(2)(b). I understand that certain banks carry on

      1521
      their trustee business in their own name as a department of the bank rather than as a subsidiary. In that case, they seem to come within the defence in subsection (2)(b). If their ordinary business is not such as to bring them within subsection (2)(b), the lien would be void unless it came within subsection (2) (c) or (d). However, I am advised that a specific defence for trustees' lien would not be within the directive. I therefore hope that my right hon. Friend will not press the amendment.
      Sir Graham Page: I am grateful to my hon. Friend for amendments Nos. 54 and 55. They cover what I have tried to achieve in amendment No. 365, which states:
      "in the case of a company acting as a trustee, any lien or equitable charge which it acquires over its own shares in its capacity as such trustee".
      I was convinced that amendments Nos. 54 and 55 achieved that which I had tried to achieve in amendment No. 365. I thought that they had achieved the same end neatly, and by using only a few words, but my hon. Friend has now sown doubt in my mind. I understand from his comments about my amendment that he does not like it. He seemed to be saying that his amendment did not cover it. However, I think that he has satisfied my aims. I shall therefore be satisfied with amendments Nos. 54 and 55.
      Mr. Clinton Davis: I was troubled by the initial remarks of the right hon. Member for Crosby (Sir G. Page). Rarely have the people of Hackney, Central felt so strongly about anything. They are delighted that the Government have responded by improving this Bill in such a meaningful and direct way. We in Hackney, Central are therefore delighted. I can now call the demonstration off.
      Amendment agreed to.
      Amendment made: No. 55, in page 46, line 41 leave out
      'as security for the purposes of'
      and insert
      'which arises in connection with'.—[Mr. Parkinson.]

    Clause 39

      PROFITS AVAILABLE FOR DISTRIBUTION
      Mr. Eyre: I beg to move amendment No. 325, in page 47, line 18 leave out '41(3)' and insert '41(1)'.
      Mr. Deputy Speaker: With this it will be convenient to discuss Government amendments Nos. 338, 326, 327, 328, 429, 330, 331, 332 and 333.
      Mr. Eyre: Clause 41 takes advantage of a derogation in the European Community's second directive, obtained by the United Kingdom on behalf of the investment trust companies. It deals with the problem that could arise if the rules in clause 40, dealing with capital maintenance, were applied to investment trust companies. The articles of investment trust companies prevent them from distributing capital profits. If such a company invested substantial sums in shares whose market value had subsequently fallen, the net asset shown in its accounts could fall below the aggregate of the called-up share capital and the undistributable reserves.
      The company would therefore be unable to make a distribution out of current income. Furthermore, an investment company which failed to distribute its current income would lose its special position under tax legislation regarding capital gains tax. Clause 41 applies different rules to investment companies in order to overcome that problem. However, as drafted, the clause envisages a continuing role for my Department in issuing certificates and in monitoring companies to which certificates had been given.
      In Committee we announced that this group of amendments would be put down on Report. They will achieve a simpler administrative solution. They will provide greater flexibility of distribution for investment companies. They will secure the derogation for, and provide a clear definition of, the investment trust company for which the derogation was sought. Finally, they will provide means whereby other companies—within the scope of the directive's derogation—may obtain investment company status if there are sound reasons for that.
      Amendments Nos. 325, 326 and 328 are merely consequential to the following amendments.

      1523
      Amendment No. 327 maintains the same definition of distributable profit for investment companies as contained in clause 41(3) but, as allowed by the directive, gives a relaxation by providing that a company which falls within the revised definition of investment company, and meets the criteria, will have the option of making a distribution on the basis of the asset ratio test in clause 41 or the capital maintenance test in clause 40. The conditions in paragraph (a) and (b) of clause 41(5), which are required by the directive, are not affected by this amendment and must be met if a distribution is made under clause 41.
      Amendment No. 332 relates subsections (8) to (12), and thereby does away with the certification procedure envisaged in those subsections which, as I explained, are replaced by a simpler administrative solution.
      11.15 pm
      Because no certification procedure is required, it will fall to the directors, in conjunction with their professional advisers, to decide whether the company meets the definition and criteria for an investment company and to ensure that it complies with those requirements. As a safeguard, amendment No. 329 provides that the company meeting the requirements shall give notice to the registrar of its intentions to carry on business as an investment company and has, since the date of the notice, continued to comply with the requirements.
      Amendment No. 330 changes the definition of an investment company. The reference to "land or other assets" is deleted, thus restricting the definition to investment trust companies whose business it is to invest in shares and securities with the aim of spreading investment risk, which is the specific class of company for which the derogation in article 15 of the European Communities second directive was sought and obtained by the United Kingdom.
      Amendment No. 331 deletes the power envisaged in clause 41(7)(b) for the Secretary of State to prescribe conditions by regulations. The conditions are now set out in the primary legislation by these amendments. They are similar to certain of the criteria in section 359, as amended, of the Income and Corporation Taxes Act 1970, which defines an investment trust
      1524
      and are designed to ensure that, subject to later provisions in this amendment, companies which are not recognised by the Inland Revenue as investment trusts will not be able to take advantage of investment company status under the Bill. The amendment also provides that necessary consequential provisions of the Income and Corporation Taxes Act will have effect for the purpose of this clause as they have effect for that Act.
      The amendment continues by providing that an investment company may not make a distribution unless its shares are listed on a recognised stock exchange. That is a minor change to the clause, which, as drafted, makes the listing requirement a condition for investment company status.
      The process of obtaining a listing by a newly incorporataed company will usually take some time and the amendment will allow such a company, provided that it complies with the requirements, to achieve investment company status before being listed. When listed, it would be able to distribute on the basis of clause 41 if it so wished.
      Two further restrictions are placed on an investment company before it can make a distribution. These require that, during the period from the start of the accounting reference period preceding that in which the distribution is made to the time of the distribution, the company must not have distributed any capital profits and not have applied the profits specified in cluase 41(4) in the manner prohibited by that subsection.
      The period is necessary to prevent the possibility of companies adopting investment company status merely for the purpose of a particular distribution, and then revoking that status and adopting it again for the purpose of the next distribution.
      The prohibition on the distribution of capital profits parallels the earlier condition in the amendment—that the company must have such a restriction in its memorandum or articles of association—and is designed to ensure that the breach by the company of such a restriction will also disentitle the company from making a distribution.
      The second prohibition concerning the application of unrealised or capital profits has the same effect as clause 41(4), which is a corollary to clause 41(3), and is designed to prevent amounts not directly

      1525
      available for distribution under that subsection to be distributed indirectly.
      Furthermore, the amendment provides that an investment company may not make a distribution under clause 41 unless the company gives the requisite notice before the period commencing with the start of the preceding reference period. As I explained earlier, this is designed to stop companies moving in and out of investment company status at will. Appropriate provision is made for those particular cases where that period began before the appointed day and where the company was incorporated on or after the appointed day.
      The amendment also contains a provision that the notice by a company to the registrar of its intention to carry on business as an investment company may be revoked by the company giving notice to the registrar.
      Finally, the amendment contains a power whereby the Secretary of State may, by statutory instrument, subject to affirmative resolution, extend the status of investment company to other companies. This power enables different classes or categories of company to be specified as investment companies and allows different rules to be made for the conduct of business, the direction of affairs, and the making of clause 41 distributions by those companies. But, as I stated earlier, the Secretary of State will need to be convinced that there are sound reasons for extending the definition and scope of investment companies under this power.
      Amendment No. 333 to schedule 3, which embodies the directive's requirement as to publicity, is merely consequential on the new procedures contained in this group of amendments.
      As I indicated earlier, this group of amendments will provide a simpler administrative scheme, give greater flexibility of dividend regime, express a clear and comprehensive definition of investment trust company and provide means whereby the class of investment company may be extended with modifications to the requirements.
      These new proposals have been circulated to the Association of Investment Trust Companies, which agrees that they are an improvement to the clause as presently drafted, and to other interested
      1526
      parties, who have not raised any objections. The Government believe that the amendments provide for a practical scheme which complies with the second directive and contain the appropriate safeguards. For these reasons I recommend to the House that they should be adopted.
      Mr. Clinton Davis: I shall make a suggestion for the reform of government. When the hon. Gentleman comes to move non-contentious clauses, those advising him should put on his brief "Resist". He will then say nothing.
      Sir Graham Page: I want to ask my hon. Friend a question on this admirable new amendment. I should be precluded from doing so if the suggestion of the hon. Member for Hackney, Central (Mr. Davis) were adopted. Have the Government in mind any particular companies, or class of companies, to which this amendment would be extended by order? Power has been taken in the amendment to extend the list. The Minister must have something in mind. I wonder whether he will let the House into the secret. Will some companies come within this amendment soon?
      Mr. Eyre: Not to my special knowledge, but it may be for the convenience of some companies to come within this investment company status. Means will be provided for them to do so in proper circumstances.
      Amendment agreed to.
      Amendment made:
      No. 338 in page 47, line 28 after first "of", insert "all".—[Mr. Eyre.]

    Clause 40

      RESTRICTION ON DISTRIBUTION OF ASSETS
      Amendment made:
      No. 326 in page 48, line 13 at beginning insert "Subject to section 41 below," —[Mr. Eyre.]
      Sir Graham Page: I beg to move amendment No. 393 in page 48, line 24, leave out 'accumulated'.
      Mr. Deputy Speaker: With this it will be convenient to take amendment

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      No. 391 in page 48, line 25, after "previously", insert
      "distributed before the appointed day to shareholders in dividends or".
      Sir Graham Page: The clause puts a restriction on the distribution of certain assets. It provides that a company cannot distribute in dividends the undistributable reserves. That it should not distribute something that is undistributable sounds reasonable enough. We then come to the definition of undistributable reserves. According to the Government's interpretation of the EEC directive, with which I disagree, undistributable reserves include something already distributed.
      If, for example, a property company has found that in the past—there is no limitation on the number of years so far as I am aware—its property has increased in value and it has revalued the property and included that as part of its assets—or, indeed, as part of its profits—and distributed the enhancement in value, it can never again, if the clause is passed, distribute anything in dividends until it has made up what it has previously distributed in the way that I have described. That puts many property companies in an extremely difficult position. Therefore I tabled these amendments to ensure that the clause is not retrospective.
      I think that everyone accepts that in future this type of distribution of assets as profits should not occur. So far it has been perfectly legal and perfectly proper for a company to do it. It is not a good practice, but it is certainly a legal practice. It is accepted that in future this shall be illegal, but it imposes an extreme burden on companies to make it retrospective, so that a company must put back all the money that has been distributed before it can distribute another dividend.
      I hope that there is some way round this directive. I wait for my hon. Friend to disclose the way round it, if there is one. That will make it possible for me to withdraw my amendment.
      Mr. Eyre: I believe that there will be a solution to the problem raised by my right hon. Friend. As this affected certain investment companies, my right hon. Friend will remember that I promised that I would meet the representatives of those companies. Accordingly a meeting took place between officials of the Department
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      and the British Property Federation. It was agreed that, in principle, the affected companies could overcome the problem by a change in accounting practice. The British Property Federation is now holdful discussions with the Inland Revenue. which I understand are proceeding well, and that a satisfactory outcome is expected. I am sure that the answer will please my right hon. Friend.
      Sir Graham Page: I am grateful to my hon. Friend for carrying out the assurance and undertaking that he gave to the Committee. I hope that the solution will prove satisfactory. It has been reported to me that the property companies are happy with the discussions which they had with the Department and believe that they will have similarly fruitful discussions with the Inland Revenue. In those circumstances, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Further consideration of the Bill adjourned.—[Mr. Parkinson.]
      Bill, as amended (in the Standing Committee), to be further considered tomorrow.

EDUCATION POLICY (BEDFORDSHIRE)
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Boscawen.]
11.27 pm
Mr. John Carlisle: I welcome the opportunity to bring to the attention of the House the disturbing nature of some features of the education policy of the Bedfordshire county council over the past few months, and to seek the guidance of my hon. Friend the Minister.
Before I begin to heave too many bricks through the double-glazed windows of the authority—it seems deaf to most noise outside—I must congratulate it on having just announced the second lowest rate rise in the shire counties of England, about 15·5 per cent., and at the same time leaving £8 million in the balance. Great credit is due to Philip Hendry, the leader of the council, and his colleagues, and I express to them the great appreciation of the people of Bedfordshire for what has just been announced.

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My duties in respect of the education department are not quite so pleasant. I wish to draw attention to the great concern that has arisen over problems in my constituency. One problem that we have suffered greatly since May concerns the change of catchment areas. Many parents now find themselves outside the area of the school of their original choice. Many of them bought houses in particular areas, but with the stroke of a pen in county hall the areas have been changed with very little notice and without consultation with the parents. Quite rightly there have been many protests from my constituents. It seems that in many cases the authority has refused to listen to the protests. Soon after the general election several meetings were held. Appeals were made for councillors and the chairman to attend those meetings to hear some of the parents' anxieties over the change in the catchment areas, but they fell on deaf ears.
The authority seems determined to follow its education policy through on a basis of pure numbers. Choice seems to play very little part in what it is doing. That is particularly disturbing for me, given the spirit of the excellent Education (No. 2) Bill, which is now in the other place. The Government were right to place before the people the criteria of choice, but the authority in Bedfordshire seems to be disregarding the Bill. The economists in the authority have juggled their figures with complete disregard for the merits of particular schools. There are several rules of selection in the authority. Brothers and sisters are given preference, as are medical cases.
I am particularly concerned about the Challney boys' school, for which there were more applicants than places. The school has an excellent academic record. At the start of the school year about 20 children were on the waiting list. I take issue with the council over the fact that the list was apparently kept secret from the parents and many councillors who wished to examine the chances of children to go to the school. Great anxiety was caused to the parents of children on the list.
I question the policy by which that list was compiled by a form of lottery, with the chairman of the authority pulling numbers out of a hat to determine which
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children should go to the school of their parents' choice. The school is a fine school, as is the Challney girls' school. They are unique in the town in that they are the only single-sex schools there. They have a fine academic record and they attract fairly high numbers of applicants. But I fail to see how, by topping up the numbers in other schools, to the detriment of those other schools, the council can implement any policy of parental choice. I appeal to my hon. Friend the Minister to see that his Department issues a recommendation to the authority about the way in which it draws up its list.
I also complain that there has been a direct lack, or breakdown, of communication between the authority and the chairman, and my constituents and myself. Letters have gone unanswered and many telephone calls have been ignored. The Minister will know that one reply from the department took about 36 days to reach me. If there is little co-operation between the chairman and his Member of Parliament, what chance have constituents further down the line? This has, unfortunately, created a rather bad feeling among some of the parents and a suspicion that all is not well with the authority.
I bring the attention of the House to one child in particular, an 11-year-old boy called Clive Ramscar, who, until a few days ago, had been kept away from school since last September simply because the authority persistently refused to listen to the request of his parents that he should attend a certain school. He was caught up in this secretive waiting list to which I have referred. Not many days ago a visit was made to his home by a local official, with the purpose of serving an attendance order.
A meeting of the schools and special services sub-committee—which I understand is the only committee which can enforce such an order—was held a week after the official visit. The chairman refused to have this matter brought before that committee, knowing full well that the committee would not meet again until April. I am suspicious about this because, if the order had been implemented, the Secretary of State would have had to decide the matter, and it may be that the authority was frightened of the

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eventual result. It is surprising, considering the enormous amount of excellent publicity that some of the local papers have given to this case, that it should be shelved in this way.
Looking ahead to the next school year, I am concerned because it appears that we shall be in for the same sort of trouble. Rumours begin to abound that catchment areas are about to be changed. Obviously parents are worried. In a letter from my hon. Friend the Under-Secretary on 30 November he said:
"it is the authority's intention to retain the intake level at the Challney boys' school at 210".
In times of falling rolls, I hope that the authority will keep to its word.
I am wary of some of the changes which the authority might bring in. These practices of changing areas, refusing parents the right to choose a school, of operating a lottery, and the whole atmosphere of secrecy that has surrounded some of the authority's policy, are completely contrary to the spirit of the Education (No. 2) Bill which has now passed through this House. I look forward to the institution of the appeals system, which is a reasonable way of dealing with the matter. The authority has probably kept to the proper procedures, but the spirit in which it has carried out its policies has left much to be desired.
It is probably unusual for a Member of Parliament to call upon the chairman of the local education authority to resign when the chairman belongs to the same political party, but I did this some days ago, and I do not regret doing so because the patience of my constituents is beginning to run out. The facts in the case that I have mentioned, and in other cases, highlighting as they do the policy of the council, speak for themselves. Parent reaction has been fairly violent. I wait to hear what the Minister will say about it.
We want to restore freedom of choice the the parents in my constituency. I believe that the Government were elected, among other things, on two counts. The first that of restoring freedom of choice, political and financial, and the second was that of cutting expenditure. Those two factors are compatible. To ignore parents' wishes, as the council has throughout the last few months, is con-
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trary to Conservative policy. Where places are available at good schools it is not unreasonable that parents should want their chilren to fill those places. The policy of taking pupils from good schools to fill places elsewhere is a bad one, which I abhor. To take from mediocre schools and keep up numbers in good schools must be the policy of the council in future. Schools stand on their own merits. They stand on pupil behaviour, on the quality of the teachers, and on their academic reputation. It must be wrong to take from the good to fill up the bad.
I ask the Minister to take note that education in Bedfordshire has, to a certain extent, been by lottery over the last few months. I think that this easy allocation of numbers and the policy which the authority has followed should cease. I look forward to a new policy next year and possibly this debate and the remarks of the Minister will go some way to explain why that is needed.
11.40 pm
The Under-Secretary of State for Education and Science (Dr. Rhodes Boyson): I am sure that we are grateful to my hon. Friend the Member for Luton, West (Mr. Carlisle), who has given us the opportunity not necessarily to resign but to discuss the question of parental choice, which is important not only in the Luton area but throughout the country.
I am grateful for the infomation given to us by my hon. Friend that the rates in his area—presumably under a good Conservative-controlled authority—will increase by only 15·5 per cent.
I welcome this debate because I know that my hon. Friend has been closely involved with the issue of parental choice in schools in Luton. I do not wish in any way to detract from my welcome to his vigorous assertion of the right of parents to have a real say and a real choice in the education of their children.
As my hon. Friend has reminded the House, that is a cardinal feature of Conservative policy for education, and it is at the heart of the Education (No. 2) Bill, which, having been considered at great length over the past few months in this House—it seems years to me—received a Second Reading in the other place this week.

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It is important to understand that though the Education Act 1944 stated in section 76—a section often referred to—that children should be educated according to their parents' wishes, it contained no provisions whereby those wishes could be carried out. It is widely and incorrectly assumed that a Secretary of State has powers under the present law to step in at will and settle disputes between parents and local authorities on school allocations. That is not the case.
If, as things stand, a parent wants to complain to the Secretary of State about the decision of an authority, he must show that the authority's action is unreasonable under section 68 of the 1944 Act. Hon. Members will recall the Tameside case, on which the previous Government—if one may say so—blunted their horns. Since then, Governments and the Department have been very careful of the use of that section.
The test of unreasonable behaviour is extremely stringent, and this provision affords little effective control or support to the aggrieved parent. The Bill that is now in the other place provides, for the first time, a statutory right for parents to express a preference and places a statutory duty upon local authorities to comply with that parental preference, subject to specified limitations.
I am sure that we would all agree that there can be no absolute freedom of choice. We do not live in a world where complete freedom of action is always possible. We have to accept that physical, financial and geographical constraints preclude absolute freedom of choice. We accept that a balance must be struck between the wishes of parents and the need for local education authorities to husband their educational resources in a satisfactory way for the benefit of all the children in their area. The absence of absolute freedom of choice does not mean that we should not have the maximum freedom of choice attainable, and it is the policy of the Government to give that maximum choice wherever possible.
I should not like to give the impression that the principles of parental choice and the efficient provision of education are not always practised by certain local authorities. The Bill will apply a consistent and structured system as widely as
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possible. What we have tried to do in the Bill is to develop the practice where it has been used and to structure it so that all authorities will follow similar good practice.
It is not a matter of sowing seeds on previously barren ground. In general, most local authorities do their best to be fair to parents and to achieve a high level of "first preference satisfied" year after year. But this has never been an easy task and it is not getting any easier with falling school rolls. I am sure that the Bedfordshire education authority would concur in that view.
In formulating our legislative proposals we have endeavoured to strike a more equitable balance between the legitimate wishes of parents and the need for LEAs to use precious educational resources in a satisfactory way for the benefit of all children in their area.
Before I turn to particular points made by my hon. Friend about arrangements in Luton—an area whose best interests I know my hon. Friend has been pursuing assiduously since his election last year—I should like to say a few words about two other provisions of our proposals for promoting parental choice. I am sure that they will be of interest not just in the Luton area, but throughout the country.
The first is that authorities and, where appropriate, school governors will be required to publish for each school year the arrangements for school admissions, appeals against admission decisions and the arrangements for enabling parents to express preferences. The published details must give particulars of the number of pupils to be admitted in the year and of arrangements that the authority has for filling places at non-maintained schools and at schools maintained by other authorities. The Secretary of State may make regulations about the manner of publication of this information, and prescribe in regulations other information about schools, such as examination results.
My hon. Friend referred to two schools and stated how excellent they are. If parents are to exercise real choice, it is important that they are given maximum information, particularly in city areas, where there is often a wide variety of schools, over no great distance, so that

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they know the emphasis, achievements, values, discipline and approach of the schools.
Secondly, when parents are dissatisfied with the school allocated to their child, they may have recourse to an appeal committee, which will be constituted of persons other than those who took the original decision and the appeal committee's decision will be binding on the authority. If parents in Luton did not get the school of their choice, they can appeal to the committee.
I do not expect my hon. Friend to be convinced by every detail of our proposals—I have looked up in Hansard his characteristically frank contribution to the Second Reading debate on the Education (No. 2) Bill—but I am sure that he will agree that our proposals provide a much-needed framework for giving greater parental choice.
If I have taken a little time to get to the questions that my hon. Friend raised it is only because I believe, and I hope that he accepts, that our policy in this area is of the greatest relevance to the wishes and anxieties, not only of his constituents, but of parents throughout the country. I am conscious, too, that the case to which he referred is concluded, in the sense that the boy concerned is now attending school, having been kept at home by his parents for several months. My hon. Friend has properly pointed out, however, that the issues will not disappear with the settling of a particular case. We are now nearly at the time of applications for the coming September in local education authority areas throughout the country.
I turn to the Luton case to which my hon. Friend referred. He came to see me about Clive Ramscar and has been in correspondence with my noble Friend the Minister of State. I already know quite a lot about the background of the case. The school preferred by the parents—Challney school for boys—was not the school serving the area in which the family lived, according to the catchment area policy which the Bedfordshire authority considered it necessary to operate. I understand that it is a popular school and is regularly the subject of more applications for places than the authority considers that it can accom-
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modate, having regard not only to the accommodation available in these schools, but to the efficient use of other school accommodation in the area.
The authority is prepared to consider applications from outside the catchment area if there are places available after catchment area demand has been satisfied. Such applications are considered according to prescribed criteria, which I understand are well known and of long standing. These are, in order of priority, medical grounds, whether brothers or sisters currently attend the school, whether brothers or sisters have recently attended the school, by drawing lots, to which my hon. Friend referred, among those who have not fulfilled the three previous qualifications. but wish to attend that school. It is only fair to the authority to make clear that that last criterion, the drawing of lots, is used only when the other criteria have been applied.
Any spare places are allocated to the pupils in the order of priority established by those criteria, until the planned intake figure for the year is reached. It seems to me that my hon. Friend may have a strong point in suggesting that proximity or accessibility to the school of the parents' choice would be a useful additional criterion—it is a criterion which is used in many other authorities—perhaps supplementing or taking the place of the lottery, which might be considered by some to be rather arbitrary. We are a great gambling nation, but I do not think that parents would welcome the idea that they will be allocated a school by a lottery or raffle draw. It is entirely a matter for the local education authority to consider, and I do not want to appear to be intruding on its responsibility.
These arrangements are made known to the parents concerned in good time each year and are properly followed. As the law stands they cannot be considered unreasonable, and the Minister of State, having examined the material submitted by my hon. Friend on behalf of Mr. and Mrs. Ramscar, made this known in her letter to him of 30 November.
I wish to refer to the school attendance orders. My hon. Friend and I have had a previous discussion about the matter. My hon. Friend has said that the LEA was reluctant to take this action in the case which concerns him of serving school

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attendance orders. I cannot comment on that, for I am not privy to the authority's inner deliberations. We all have our views, but without some form of X-ray we cannot see what is in the mind of a local authority. It is its responsibility to decide what action, if any, to take in such cases.
The House will be aware that it is one of the purposes of the Education (No. 2) Bill to amend the provisions relating to school attendance orders—section 37 of the 1944 Act—to correspond with the new provisions on school admissions. This is not closing our opportunity to exercise choice. Section 37 was never designed as a means of securing parental choice, but as a procedure for ensuring school attendance. Because of the way in which it is operated, parents have begun to use it as a means of exercising choice. That is why, under the Education (No. 2) Bill, we have included the question of parental choice, information for parents on the way in which the allocation is to be made, and the right of appeal for parents. The parents can then use the proper procedure instead of removing their children from school over a long period as the only means, as they sec it, of exercising choice.
We cannot continue to condone the practice whereby parents who keep their children out of school for two or three terms are at an advantage compared with law-abiding parents who ensure the attendance of their children at school. Our proposals will ensure that all parents are on an equal footing in future, by building into the initial provisions of section 37 of the 1944 Act a new duty on authorities to comply with expressed preferences, and the appeal provisions for cases where authorities consider that there are good reasons why they should not comply.
I know that my hon. Friend feels strongly about parental choice, as I do, and as do all Conservative Members. In the case that he has mentioned, I ask him to accept that there are no grounds on which we could determine that the LEA had acted unreasonably by using section 68. That procedure was used in the
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Tameside case. He and his constituents can, however, take comfort from our proposals for school admissions, which will, I hope, allow such questions to be settled quickly and fairly at local level, without the strains which were evident in the Ramscar case, and from which no one benefits.
These new arrangements cannot operate for the coming school year but will, I hope, be in operation the following year. It is our intention to put into being this part of the Education (No. 2) Bill when it passes into law, for the entries in September 1981.
I thank my hon. Friend for this useful reminder of the great relevance of the Government's measures to large numbers of families. I commend to the House what he has said. We have established the Education (No. 2) Bill to develop the practice whereby there is more parental choice, to follow the best practices of local authorities and to make them more widespread. All local authorities know that the new procedures will not apply until September 1981, and that the way in which they deal with their allocations and parental preferences this year is entirely within their control. However, I should be very surprised if local authorities have not read the Education (No. 2) Bill. I should also be surprised if indications were not made by those authorities that they wish to move as soon as possible to the procedure that will become mandatory from September 1981.
I am sure that my hon. Friend, as well as all hon. Members, will be pleased to know that, as a result of that Bill, I trust that the sorts of cases that have been brought to light tonight will become rarer and that parental choice of school will become paramount throughout the country.
Question put and agreed to.
Adjourned accordingly at four minutes to Twelve o'clock.