§ Mr. Speaker
I inform the House that I have selected the amendment in the name of the Prime Minister.
§ Mr. John Smith (Monklands, East)
I beg to move,That this House, noting the continuing failure of the City to serve the industrial needs of the nation and concerned by the increasing evidence that the City is unable to regulate itself, urges the establishment of a statutory independent commission to supervise financial services, including Lloyd's; deplores the damage to British industry arising from the Government's complacent policy towards takeovers which, by encouraging predators, inhibits investment in capital equipment, research and development, and training; condemns the short-term perspective of the financial market which results in the denial of finance for long-term investment in British manufacturing industry; and calls upon the Government to abandon its irresponsible policies and to recognise that the provision of capital investment in manufacturing industry is essential to economic recovery.
In this debate today we focus on three interlinked and serious matters of public concern — the failure to regulate the City, the takeover mania, which provides such fertile ground for current scandals, and, the victim of both, British industry. In a challenging editorial on 15 January the Financial Times observed:The central issue raised by the Guinness affair concerns the conduct and ethics of the City of London—it already seems clear that this is the most serious challenge the present system of self-regulation on the conduct of takeover bids has had to face. With each revelation the chances of business being allowed to continue as before grow ever more slim.The article continues:Self-regulation can only work if the people being supervised have a sense of obligation towards the system which is greater than their desire to win their own way in any particular case.It thus neatly demonstrated some crucial points about the present situation from a standpoint which even the present Government could not criticise as being politically biased against them.
First, there is a very serious situation and concern should properly be expressed about it. Whatever the Governor of the Bank of England may seek to say in defensive semi-exculpation, it does concern the City of London. Secondly, it challenges the system of self-regulation which still is at the heart of Government policy. I need only quote the Prime Minister at Prime Minister's Question Time a few days ago when she said:we should go further with the present system before we conclude that we should go to a statutory one."—[Official Report, 15 January 1987; Vol. 108, c. 406.]I have noticed how apologists of the Government's policies have laid more stress on some statutory aspects of the Government's approach and less on self-regulation as the scandals have deepened. But, as the Prime Minister reminded us, it is still essentially a self-regulatory system and in the case of the takeover code and panel it is wholly self-regulatory.
Thirdly, the whole basis of a self-regulatory approach is that the obligation to observe and enforce the rules 361 overcomes the instinct for gain. No reasonable observer of the Guinness scandal could have confidence that such objectivity had been demonstrated.
We therefore argue with force and conviction that the Government should move to establish an independent statutory commission without delay. From the start the Labour party has argued that the enforcement mechanisms of the Financial Services Act were inadequate and we sought in the proceedings on the Bill to give statutory force to the takeover supervision mechanism, at present left on a self-regulatory basis.
Let us examine some of the salient issues thrown up by the Guinness affair. The most startling thought is that, but for revelations flowing from Mr. Boesky's plea bargain with the Securities and Exchange Commission in the United States, Mr. Saunders might still be riding high and one of the most audacious coups in our financial history might have been accomplished with ease and without penalty. Fortunately, as one revelation tumbled out after another, it is now clear that in the Guinness bid for Distillers a careful plot was laid and executed to gain control of Distillers by fair means or foul—clearly more emphasis on foul — and that the system existing to protect the public failed miserably.
It all started of course with the former Distillers directors who approached Mr. Saunders as a white knight—to put it mildly, an error of judgment. Not only that, they agreed to pay him the expenses of the Guinness takeover bid. The former directors of Distillers clearly did not rise to their responsibilities. Equally, the directors of Guinness—those in place at the time at any rate—failed in their responsibilities by abdicating control of their company to the ruthless Mr. Saunders. In the bid Mr. Saunders gave undertakings about a new company to be chaired by Sir Thomas Risk and undertook to locate the headquarters in Scotland. The former undertaking was incorporated in the bid under the Stock Exchange listing regulations. I raised this matter at the time with the chairman of the Stock Exchange Council who told me that the council would be satisfied with the proposal by Mr. Saunders, and his variation from his undertakings could be sanctioned by a general meeting of the company.
In my submission the Stock Exchange Council failed to exercise its responsibilities by permitting the departure by Mr. Saunders from his undertakings and allowing there to he a shareholders' meeting at which, because of his voting power — and when some of the 2.1 million missing shares were used — Mr. Saunders won with ease. The Stock Exchange Council was a pushover for Mr. Saunders.
Then the takeover panel, the apogee of self-regulation, failed to act effectively when complaints were made to it by Argyll about manipulation of the Guinness share price. That was another pushover for Mr. Saunders. At this time the Department of Trade and Industry thought it sufficient for these matters to be handled by these self-regulating organisations. Because there were no real restraints on Mr. Saunders, he and his confederates—well placed in the prestigious City institutions — were able to operate freely. An interesting insight into the prevailing attitudes is given in Mr. Gerald Ronson's letter to Sir Norman Macfarlane when he returned £5,800,000 to Guinness.
§ Mr. Smith
I am grateful to my hon. Friend for his apposite intervention. I quote from the Financial Times of 12 January which gives Mr. Ronson's letter in full Mr. Ronson tells us:Shortly before January 23, 1986, a representative of eminent brokers acting for Guinness called on me to seek Heron's support for the Guinness bid for Distillers. It was explained to me that the general opinion (which I must say I shared) was that it was in Distillers' as well as Guinness's best interests that the Guinness bid should succeed. I was told that the price of the Guinness shares was likely to be distorted because the rival bidders, Argyll and/or its supporters, were believed to be selling Guinness shares short and thereby depressing the market price. I understood that with the approval of the Guinness senior management (and Ernest Saunders in particular — whose skill and integrity were always regarded as of the highest) efforts were being made to support the Guinness share price by persuading Guinness's friends to buy in the market.In all this I naturally assumed that the Guinness senior management had had the benefit of the high quality professional advice available to it. It was, in effect, as I understood it, designed as a legitimate corrective to the tactics of the other side. I was told that in the event that Heron suffered any loss it would be covered by Guinness. This did not seem to me at the time to be in any sense unusual or sinister, particularly as it was public knowledge that Distillers itself had agreed to cover the expenses of Guinness in rescuing it from Argyll's bid. So it was agreed that Heron would give support to the extent of £10 million.
Mr. Ronson goes on to say that that support was increased to £25 million. He continues:It was by then also agreed that in the event of the Guinness bid being successful we would receive a success fee of £5 million. These arrangements were expressly confirmed to me by Mr. Saunders. In due course our invoices were rendered in the total funds mentioned above, and these were, as you will know, paid.I have been and wish to be completely frank. I did not focus on the legal implications of what had occurred, not did it cross my mind the City advisers and business people of such eminence would be asking us to join in doing something improper.We know better now. The eminent stockbroker referred to at the start of that quotation is said, in the Financial Times of today, to have been Mr. Tony Parnes who is an associate of Alexanders Laing and Cruickshank. Interestingly, the Financial Times also tells us that he was nicknamed "the animal". He also acted as personal stockbroker to various persons, including Mr. Gerald Ronson himself.
The interesting phraseI did not focus on the legal implications of what had occurredwill not have escaped notice. Many people are behind bars for failing to focus on the legal implications of their actions. Inventive though I thought I was as counsel at the bar, that never occurred to me as a useful phrase in a plea in litigation. No doubt it will pass into the lexicon of memorable phrases, together with being "economical with the truth".
At least Mr. Ronson has confessed. But did not many others, apparently eminent or otherwise, also fail to focus on the legalities of their activities? The Guinness affair has shot like a searchlight through the present system of self-regulation and shown it to be hopelessly inadequate.
§ Mr. Alan Howarth (Stratford-on-Avon)
The right hon. and learned Gentleman has spent a considerable time describing to the House circumstances of alleged malpractice in the City—[HON. MEMBERS: "Alleged?"]—and those are, indeed, very important points. By contrast, he moved hastily on in an earlier section of his speech in 363 which he called for the establishment of a statutory independent commission. Will he be good enough to tell the House, if not now, perhaps in a few minutes, exactly what the system that he envisages would be, and precisely how and why it would work more effectively to regulate the City than the system that is currently being introduced?
§ Mr. Smith
If this is what the hon. Gentleman is genuinely inquiring about, he will have seen the amendments to the Financial Services Bill that were voted down by members of the Conservative party. We argued consistently throughout the lengthy proceedings on that Bill.
Since then the Guinness affair has shown how inadequate the present arrangements are. The Government's response has been to talk tough, but they have come up with one new firm proposal. The maximum sentence for insider dealing is to be increased from two to seven years. It may be that that is wise, although I should be surprised if such a sentence were ever imposed. However, it is almost totally irrelevant to our concerns. The notion that conspirators will pause in the ante-room of crime because of the possibility that they might get five years instead of two is simply not credible. For the most part, they believe that they will be undetected. They have good cause to believe that they will be undetected. On past showing, that belief is justified. What we need is not the window dressing of irrelevant sentences but an effective system of statutory regulation and detection of abuse.
In the past few days there has been rustling in the undergrowth about changes in the takeover panel and the code. Perhaps as one of his offerings today the Secretary of State will make tentative noises. I remind the House that the Labour party sought to give statutory force to the code in an amendment to the Financial Services Bill, which the Government voted down. In that context, may I ask the Secretary of State why, in 1984, rule 37 was dropped from the code? That rule prohibited anyone.with a commercial interest in the outcomefrom buying and selling shares during a hid unless approval was obtained from the panel. Such a rule seems highly apposite to the activities of Mr. Meshulam Riklis, the distributor of Dewar's whisky in the United States, about whose activities Argyll complained to the takeover panel. Needless to say, the complaint was rejected. Why was such a rule abandoned?
§ Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)
I think that most of us agree with the right hon. and learned Gentleman that some of the things that have gone on in the City are not just unacceptable but disgraceful to any right-thinking person. However, the right hon. and learned Gentleman, in looking at the Securities and Exchange Commission, assumes that those things could not happen if we had one. Mr. Boesky was unmasked after four years and Mr. Levene after two years. Why would any statutory system be any different when the crooks in our City were unmasked after a very few months?
§ Mr. Smith
As the hon. Gentleman knows, that was after information was received. I would not advocate something precisely the same as the SEC simply because we do not have the conflict between federal and state laws to handle which there is in the United States. Opinion has been moving strongly, especially in the more sensible parts 364 of the City, in the direction of an independent statutory system in the United Kingdom. I do not believe that the takeover panel and code can rest any longer on a non-statutory base. That was the point that I was addressing.
I should like to ask the Secretary of State about the scope of the Department of Trade and Industry inquiry. Will it cover the activities of the trustees of Distillers' pension fund? It is widely said that, following Guinness establishing control, the pension fund bought Distillers shares at a high price, perhaps as a way of indemnifying those who had bolstered the price at the instigation of Guinness. They bought well above the ruling share price and, of course, since then the price has fallen steeply. The losers will be the employees who are the beneficiaries of the fund. I should like the Secretary of State to tell us whether the inquiry covers that and whether the beneficiaries' losses will be made good.
Clearly, there was some sunny optimism on the part of the Government that their proposed new system would deal effectively with the City. That confidence has been waning. Let me remind the House of how that confidence was expressed as long ago as March 1986, some time before these events occurred. I draw attention to an interview that the Prime Minister gave, which is reported in The Listener of 20 March 1986. The right hon. Lady was interviewed about high salaries in the City, and the article states:the Prime Minister herself admits: On salaries in the City, I am the first to say this does cause me great concern. I understand the resentment. And if I feel strongly about what they are taking—note "taking"—in the City compared to what Cabinet Ministers are taking then look at how the people who are struggling to get work feel. But I think it will change later this year when we get this terrific competition and all the fresh air in the City.It is at least worth asking if confidence in that "terrific competition" has been justified.
I want to consider the position regarding mergers, monopolies and takeovers. The frenetic and highly profitable activity in the City has of course been fuelled by the Government's complacent policy on takeovers. The essence of the Government's approach, as I understand it, is that referrals should only be made on competition grounds and that the shareholders alone should decide the fate of important companies. The Opposition completely reject that approach. However, we observe that, even if the decision were properly left to shareholders alone, it would be difficult for them to reach sensible decisions if markets can be rigged as easily as the Guinness case demonstrates.
The Government seem unwilling or unable to grasp the fact that those affected by takeovers are not simply shareholders. Long-standing and dedicated employees and communities to whose prosperity crucial industrial companies are vital are also affected. They are often affected more directly and more adversely as these companies are suddenly taken over. That is why it is important that wider considerations including the interests of employees and the effect on our industrial economy must be included in any sensible policy on monopolies and mergers, and that is what the Opposition advocate.
The effect of unrestrained takeovers goes to the centre of some of our industrial problems. It is too easy for the acquiring company to take the takeover route as a substitute for an investment, which takes time and involves risk. By maximising short-term cash flow, funds can be found to buy up companies made vulnerable because they 365 have taken the long-term view. Small and medium sized companies in particular which have made long-term capital investment, put money into reasearch and development, invested properly in training, are given a low rating in the stock market. That leaves such companies wide open to the predator. Perhaps worst of all, the need to boost the share price by inflating dividend payments to keep the predator at bay deters small and medium-sized companies from taking the long-term view that the management wishes to adopt.
When takeovers absorb important regional companies, the relentless drift to the centre in Thatcher's Britain is accentuated and business confidence in the regions is totally undermined. None of these vital issues seems to concern the Government. The Government simply leave it to the shareholders and let the devil take the hindmost. Those who gain from takeover mania are the City institutions, while those who work in British industry and the communities which depend upon it frequently suffer.
§ Mr. Stephen Dorrell (Loughborough)
The right hon. and learned Gentleman has described at some length what he believes to be the shortcomings of the takeover system as a discipline on incompetent or lazy managers.
§ Mr. Dorrell
The right hon. and learned Gentleman said that he thought that takeovers would encourage short-term perspectives and weaken the possible victim companies. What alternative discipline would he propose to the threat of takeover? What discipline would he propose to encourage managments to make effective use of the assets under their control?
§ Mr. Smith
I find it hard to imagine that the hon. Gentleman, whose attention to these matters I much respect, was able to misunderstand what I was saying. The whole thrust of my argument is that the threat of a takeover does not act as a discipline to make management more efficient; it acts as an incentive to make management more short-sighted because management is frightened of the predator at its elbow. Therefore, it must keep a higher share price than the company would like. It was not the threat of a takeover that made Pilkington one of the best companies in this country; it was the threat of a takeover that might have caused damage to the company. It is simply good fortune that that threat has been relieved.
§ Mr. Smith
British manufacturing industry in particular has borne the brunt of the damage caused by the Government's economic policies. Manufacturing investment, despite all the largesse of North sea oil with which this Administration have been blessed, is still 17 per cent. down on the 1979 figure. Manufacturing output, after seven years of Tory Government, is still 4 per cent. down. Our trade deficit in manufactured goods was announced today as almost £6 billion for 1986 and it is predicted to rise to £7.5 billion in 1987. I remind the House that under the previous Labour Government, in 1979 there was a 366 surplus of £2.7 billion on the balance of trade and manufactured goods. For the first time in modern economic history, we are in deficit in the balance of trade in manufactured goods. If for nothing else the Prime Minister will be remembered as the first British Prime Minister to take Britain into a deficit in the balance of trade and manufactured goods.
Without vital capital investment in British industry, that trade deficit will never be corrected. Nor will we create the wealth that we need to create a civilised society and to pay our way in the world. This Government have abandoned responsibility for the employment of our people. They have equally abandoned the responsibility for ensuring that industry receives the capital investment that it requires.
The figures are bad enough at present. They will get even worse as the blip caused by the ending of capital allowances works through. Those are the underlying realities behind the candy floss economy that the Government have promoted. There is a declining and debilitated manufacturing base; a deepening north-south divide which the Government do not even admit exists let alone profess to remedy; wickedly high unemployment; misery and lost opportunity for millions of our fellow citizens, including 1.25 million of our young people.
It is clear that the Government have no policies to get Britain back to work or to rebuild our industry, let alone to bring order and decency back into our financial system. At the heart of the Government's policy is a distorted sense of values. Mr. Ivan Boesky, when he was riding high, gave a lecture to business students in the United States. He told those who might have had some conscientious reservations:Greed is all right by the way. I want you to know that. You can be greedy and still feel good about yourself.That has, unfortunately, too obviously been taken as the motto by those favoured by the Government, those who have not only claimed but received huge salaries and also received enormous endowments from tax reductions. Their good fortune, as we have seen, has not diminished their avarice by one whit. They seek more and more, to the extent of not only bending but breaking the criminal law. It is time for others to be the beneficiaries of Government—those who work to build our industry, those who care for our people and those whose purpose it is to build a productive and decent society.
§ The Secretary of State for Trade and Industry (Mr. Paul Channon)
I beg to move, to leave out from "House" to the end of the Question and to add instead thereof:deplores the irresponsible attacks on the City by Her Majesty's Opposition which ignore its massive and continuing contribution to meeting the long-term financial needs of British manufacturing industry and business and more generally throughout the country to the balance of payments, and to employment in the United Kingdom: notes that investment growth has averaged 4.5 per cent. per year during this Parliament; notes with approval the consistency of the Government's mergers policy; and applauds, in particular, its firm action in establishing a regulatory framework for the City and its determination to root out abuses.
I begin by making it clear that we utterly reject the Opposition motion. The House is by now familiar with the Opposition's attempts to paint the blackest possible picture, to run down our industries and to leap upon and exaggerate every item of bad news that they can find. In this debate, we are discussing a sector of the economy that 367 is not just self-evidently successful but in which Britain leads the world. To most people, that should be a matter of pride. To the Opposition, it is merely something to belittle and to undermine.
Of course I fully accept that there are serious grounds for concern, with which I shall deal later. Some of the recent revelations of what has happened in some well-publicised cases in the City are worrying and damage the City's reputation. That is agreed by hon. Members on both sides of the House. The Government are determined that each case, and others that come to our notice, will be rigorously investigated and offenders will be punished with the full weight of the law. But to portray, as some Opposition Members do, everyone who works in the City as a shark or a charlatan is offensive to hundreds of thousands of honest, hard-working people. It is grossly irresponsible and against the national interest.
No one is keener than those who work in the City to see offenders brought to book. [HON. MEMBERS: "Come on."] The scoffing from Opposition Members helps to make my point. Those who work in the City know the disproportionate harm that a few individuals can do. Unless they are brought to book, they threaten to besmirch the reputation of the City of London on which so much of its business depends.
The Opposition motion talks of the failure of the City to serve the nation. The financial services industry employs more than 1 million people; it accounts for between 5 per cent. and 6 per cent. of our entire national product; and in 1985 its earnings for the balance of payments were more than £7.5 billion. The Opposition try to dismiss that contribution as a failure to serve the nation.
It is not just the size of the financial services industry that makes it such a major asset to the country. The accumulated expertise, the range of financial services available in one place and the ability to react quickly to change and to meet the requirements of a vast range of overseas customers have made the City of London the leading financial centre in Europe. As rapid advances in telecommunications lead to a 24-hour global market in financial services, London, with Tokyo and New York, will form the triangle at the heart of the financial world—[Interruption.] I am sorry that hon. Members do not like hearing good news about the City. No doubt it spoils their case.
§ Mr. Channon
If the House will give me a hearing, I shall explain exactly what we are doing, what we have done and what we intend to do — [Interruption.] For some extraordinary reason, the Opposition do not seem to want to hear this. They asked for the debate, but they do not want to hear the answer.
The City has already made the most of its strengths to develop itself as a world centre in several major sectors. It is already the largest world centre for foreign exchange dealing — £60 billion a day. It is the world centre for Eurobond trading, with £220 billion of new issues a year and five times that volume of trading. It is the largest centre of international bank lending, with more than £500 billion a year.
Nor is the City just a direct contributor to our national wealth. It has a vital role — here I answer the point 368 made by the right hon. and learned Member for Monklands, East (Mr. Smith)—in supporting the rest of British industry — [Laughter.] The right hon. and learned Gentleman laughs; that is interesting. In 1985, £6 billion of capital was raised for industry on the stock exchange; in 1986, about £7 billion was raised. The venture capital industry, which barely existed when there was a Labour Government, raised about £300 million for British unquoted companies in 1985 alone. The business expansion scheme introduced by this Government raised nearly £150 million in 1984–85. At the latest count, more than £70 billion of loans were outstanding from the banking sector to industry and commerce in the United Kingdom.
§ Mr. Channon
Opposition Members do not like hearing this. Banks are also making available finance to smaller companies in new ways that recognise their special needs. The full range of industrial and commercial risks are insured through London's insurance markets.
No financial services industry in the world can match the scale and range of these services to the rest of industry. Many foreign firms seeking to set up manufacturing facilities abroad have been attracted to Britain because of the range of services offered by the City of London. That is the context in which the debate should be set.
§ Mr. Jack Dormand (Easington)
Even if we accepted those figures, how does the Secretary of State account for the fact that, after eight years of Conservative Government, manufacturing investment is still 17 per cent. lower than it was when they took office?
§ Mr. Channon
I shall deal with manufacturing investment, but, as the hon. Gentleman has challenged me on it, he might be interested to know that output is 14 per cent. higher than the 1981 trough — [Interruption.] Profits and profitability are up — [Interruption.] When there is good news, the Opposition try to shout it down. They do not like to hear it. Unemployment is coming down, growth is going up, output is going up and exports are going up. But the Opposition scoff at that. They do not like good news.
The Opposition's behaviour on this subject has been a catalogue of hypocrisy. It was a Conservative Government who first proposed to make insider dealing illegal—in the Companies Bill of 1973. That Bill lapsed because of the general election of 1974. There then followed five years of Labour Government — five wasted years in which they failed to tackle the problem. It required a Conservative Government to take action to make insider dealing a criminal offence in the Companies Act 1980. Having conventiently forgotten their failures, the Opposition try to make capital out of the few prosecutions that have taken place. Again, they fail to mention that this Government introduced unprecedented powers for the investigators of this crime as soon as it became apparent that convictions were difficult to obtain because of the high level of evidence and proof required. Those powers, which include the right to question witnesses on oath and compel them to answer or face punishment for contempt of court, have been described as draconian, even by the Opposition spokesman in another place.
§ Mr. Anthony Nelson (Chichester)
My right hon. Friend is right to draw to the attention of the House the many 369 serious measures that the Government have taken to deal with insider trading, but may I mention one area where strengthening would be welcomed by hon. Members on both sides of the House? The Securities and Investments Board, which is the new watchdog body for the City, is expressly denied the power to investigate or to bring prosecutions in cases of insider dealing. It must seem incredible to the public at large that that body, which ostensibly has those powers, cannot look into such cases or instigate actions. Will my right hon. Friend reconsider the matter?
§ Mr. Channon
Of course, I will consider it. I shall gladly consider anything that my hon. Friend says. He must agree that there has been no lack of effort by the Government during the past few months to bring people to book for insider dealing. Indeed, in America, our powers would be in breach of the constitution. During the passage of the Financial Services Act 1986. we heard not a word from the Labour party suggesting that they were insufficient. Moreover, we brought forward the implementation of the powers so that they took effect within one week of the Act becoming law. Royal Assent was granted on 7 November. On 14 November, I made an order which came into force on 15 November, and on the same day I appointed inspectors to investigate a case. Our powers are proving to be exceedingly effective.
In addition, last week I announced that the Government would table an amendment to the Criminal Justice Bill to increase the penalty for insider dealing from two years to seven years' imprisonment, thus making it an arrestable offence. The maximum now is seven years. When the right hon. Member for Bethnal Green and Stepney (Mr. Shore) was Secretary of State, it was nothing. In trying to attack the Government's record on this matter, the right hon. and learned Member for Monklands, East does not have a leg to stand on.
§ Mr. John Smith
Bearing in mind the fact that the Government inherited a Labour Bill to make insider dealing a criminal offence—I hope that that is accepted—may I ask the Secretary of State whether he takes satisfaction from the fact that, since 1980, there have been nine prosecutions for insider dealing and five convictions while at the same time there have been 138,000 convictions for low-level social security fraud? Does that reflect the Government's priorities?
§ Mr. Channon
No, and the right hon. and learned Gentleman knows it. He tries to attack the Government on insider dealing, but he is well aware that the Conservative party brought in a Bill in 1973, which fell at the Dissolution. Five years later, the Labour party still had not enacted it. Yet only one year after the Conservative Government came to office, insider dealing became a criminal offence. That shows that we put it at the top of the list, while the Labour party put it at the bottom. That illustrates its scale of priorities. It is easy to talk loud, but Labour did not act when it had the chance.
Our determination to stamp out malpractice and abuse has led to a concerted effort, drawing on the resources of the Treasury, the Home Office, the Law Officers, the Director of Public Prosecutions, the Bank of England, the police and the DTI. I shall not read out all the measures that we have taken in the past few years, but mention only 370 the Companies Acts 1980 and 1981, the Insolvency Act 1986, the Building Societies Act 1986 and the Banking Bill now going through the House.
Last week, I announced the results of Sir Patrick Neill's inquiry into Lloyd's. The Government keenly await Lloyd's response to the report. By the beginning of October last year, the fraud investigation group, which was set up two years ago, had seen 121 cases through to conclusion, resulting in 100 convictions or guilty pleas. The Criminal Justice Bill implements the great majority of recommendations of Lord Roskill's committee on commercial fraud. A serious fraud office will be set up to bring together experts from all the relevant agencies and arm them with powers similar to those available to DTI investigators under the Financial Services Act—powers, incidentally, that the Opposition now seek to weaken through amendments tabled in Committee.
§ Mr. Chris Smith (Islington, South and Finsbury)
Clearly, the Secretary of State has not read the proceedings of the Standing Committee on the Criminal Justice Bill. The Opposition have given full support to the aims of the establishment of that office and, indeed, have secured a wide measure of agreement between the two sides represented on that Committee.
§ Mr. Channon
I have a list — I hope that this is in order, Mr. Deputy Speaker—of five amendments tabled by the Opposition that would have the effect of weakening the powers of this proposal. Indeed, one amendment is designed to weaken the offence of knowingly destroying documents. It is quite extraordinary that the Opposition should speak with two voices about these matters.
§ Mr. John Smith
As the Secretary of State appears to be happy with progress made with the fraud investigation group, will he tell us when Mr. Peter Cameron-Webb will be brought to justice?
§ Mr. Channon
As the right hon. and learned Gentleman will know, I answered a question of his on that very point last week. I have already been in touch with my right hon. and learned Friend, but it is a matter for the DPP, as the House well knows.
The Financial Services Act, for the first time, sets up a comprehensive and effective structure of regulation for the City. There have been widespread misunderstandings of the system of regulation that that Act creates. It has been suggested that it is a purely self-regulatory system and that the Government are proposing simply to leave it to the City to police itself. That is simply not true. The system that we are setting up is backed by a framework of laws that will ensure that the system works properly. It will be a criminal offence, punishable by up to two years in prison, to conduct investment business without authorisation. What is more, the definition of investment business has been drawn sufficiently wide to extend regulation to a number of areas not previously covered.
Secondly, rules made under the Act will carry the force of law and will give a civil remedy to anyone who suffers loss as a result of a breach. These rules will cover such matters as conflicts of interest, the content of advertisements, the segregation of clients' money and a host of other matters. If the firm concerned has gone out of business, compensation will be payable from a fund set up under the new regulatory system. For the first time, market manipulation will be a criminal offence, punishable by up to seven years imprisonment.
§ Mr. Channon
I really must press on. I have given way about four times already. If the hon. Gentleman will let me continue, I may give way later.
The system of control that the Act establishes does, of course, take advantage of the flexibility and proximity to the market of practitioner-based regulation, but it is reinforced by a strict statutory framework. Indeed, on Third Reading the hon. Member for Dagenham (Mr. Gould) said that he thought it was right to strike a balance between statutory regulations and a statutory framework and a substantial element of self-regulation. The Act achieves that balance.
Of course, the Opposition have been calling for an independent statutory commission rather than the designated agency for which the Act provides. The Opposition have signally failed—with respect, the right hon. and learned Gentleman has failed today—to name a single advantage that an independent commission would have over our proposals. What matters more than any argument about the private or public sector status of the designated agency is the powers that it is given to do the job. The agency has been given those powers under the Financial Services Act— with statutory force, which means with real teeth.
§ Mr. Robin Cook (Livingston)
As the Secretary of State stands on the powers given to the SIB, I remind him of the point that was put to him by his own Back Benchers about the powers to deal with insider dealing, which he undertook to consider. When that very amendment was tabled in Committee on the Financial Services Bill his Minister resisted that power being passed to the SIB precisely because it was not a statutory agency.
§ Mr. Channon
The hon. Gentleman and the whole world knows that those powers are available elsewhere and are being effectively used at this time. Frankly, the idea that there is a lack of powers on insider dealing is preposterous; the House knows that very well.
The right hon. and learned Gentleman asked me about the role of the takeover panel. Of course, as the House will expect, we have given further thought to the concerns expressed about the conduct of takeovers. I understand from the Governor of the Bank of England that the takeover panel will be meeting shortly to consider changes to the takeover code and other actions to strengthen its application. I welcome that. I have agreed with the Governor that all of us in Government concerned with City regulation—[Interruption.] If Opposition Members will listen to me, they will find that I have certain things to tell them. The regulatory system that we are establishing should reflect our considerations on how we can best support the panel further in its important job of regulating takeovers. To that end, the Bank of England, my Department and the Treasury, in conjunction with the takeover panel, the stock exchange and the SIB, will be looking at four main areas. First, in the light of the panel's immediate plans, they will consider whether additional action by any of us would be helpful in relation to disclosure of material interests, indemnities and nominee shareholdings.
Company law is particularly relevant. First, we shall examine both its relationship with the code and whether it is desirable to amend the relevant provisions of the Companies Act. Secondly, we need to ensure that any 372 information suggesting that matters require investigation is passed rapidly to the body most able to take quick and effective action and to ensure that the investigative powers available under the Companies Act, the Financial Services Act and the Banking Bill are used to best effect to support the panel. We shall examine the arrangements for cooperation between the takeover panel, the stock exchange—particularly its surveillance department—the SIB, my Department and the Bank of England.
§ Mr. Channon
If I may finish my passage on the takeover panel, I shall of course give way to my hon. Friend.
Thirdly, we shall consider how best to reflect the provisions of the takeover code in the rules to which investment businesses will be subject under the Act. Finally, at my request the Governor, with the chairman of the panel, will review whether it has both sufficient resources and adequate representation of those with responsibility for the regulation of investment business under the Financial Services Act. The panel has much more work in hand. Our aim is together to produce a package of measures that will strengthen the existing regulation, retain the speed and flexibility of the system of regulation and enable the market to operate freely and fairly. One thing that I wish to make quite clear is that the Government are determined to enforce high standards. I underline what the Governor said on Monday — if practitioners do not respect this system, we shall replace it with one that makes greater use of statutory powers and sanctions.
§ Sir Peter Hordern
Bearing in mind what my right hon. Friend said about the powers of the takeover panel and the additional assistance that the Government will give it, will he consider also disposing of the old system of nominee shareholdings? It is time that beneficial share owners are registered. Whatever may be the administrative convenience of having them in nominee shareholdings, it is greatly outweighed by the right of companies to know who their shareholders are. That would greatly ease the difficulties of my right hon. Friend's Department.
§ Mr. Channon
My hon. Friend will recall that I said that I would ask the review to examine whether additional action would be useful in relation to disclosure of material interests, indemnities and nominee shareholdings. I think that, certainly in relation to takeovers, I have covered the point raised by my hon. Friend.
§ Sir Peter Tapsell (East Lindsey)
When the four different areas are being examined in connection with the takeover panel, can consideration also be given to the desirability of giving statutory powers to the panel to require individuals and companies to give evidence, both orally and in writing, on oath? It is the lack of power to demand evidence on oath that has, I believe, weakened the panel. I have reason to believe that in the past its members have not always felt that they were being told the truth.
§ Mr. Channon
I shall draw my hon. Friend's remarks to the attention of the review body. I do not exclude any solution to the problem, and will bear his remarks in mind.
I want to say a word about mergers. The Opposition have become fond of talking about merger mania. I assume that that means that they are, in general, against 373 them. Indeed, the Labour finance and industry group's latest document — to which the hon. Members for Dagenham and for Livingston (Mr. Cook) contributed—calls for a merger policy that iseither neutral or has a built-in bias against concentration.
Yet it was not so long ago that the Labour party believed that mergers were the solution to every economic ill. Those of us who have been in the House a long time will remember that it even set up the Industrial Reorganisation Corporation specifically to persuade, cajole and, sometimes, coerce companies into mergers. I shall not go into the details as they are unhappy memories.
In fact, of course, mergers and takeovers are in themselves economically neutral. They are one of the main ways in which the structure of industries and the management of industrial and commercial assets adapt to changing needs. It is sometimes necessary for them to adapt. That is beyond doubt, especially at the present time of accelerating industrial and technological change.
Of course I recognise that the interests of the parties to a merger and their shareholders can diverge from those of the economy as a whole. That is why, with the support of all parties, there exist powers to refer mergers which meet the statutory criteria to the Monopolies and Mergers Commission. It is common ground, too, that mergers that significantly restrict competition may require examination.
We are urged to take a broader view and be more ready to refer mergers on largely unspecified grounds of public interest. I can assure the House that I have learnt one thing—nothing could be easier or more popular than for the holder of my office to refer each and every large and controversial merger to the Monopolies and Mergers Commission. I suspect, however, that the commission's findings would often come as a salutary shock to those urging referral. I well remember the criticism, in this House and outside, that the policy pursued by my predecessors—from both sides of the House—on merger references was arbitrary and unpredictable. I know that that view is strongly held in industry, as I said earlier.
I do not rule out the very occasional case that may give real ground for public concern that is not related to competition. The Elders bid for Allied is a case in point. It was the first major example in the United Kingdom of a high-leveraged bid involving the planned break-up of a major industrial company.
The right hon. and learned Gentleman and others underrate very seriously the value to industry of predictability in merger policy and the chaos that can result if Ministers intervene on grounds more appropriate to the shareholders.
§ Mr. Tony Favell (Stockport)
When objecting to a merger, should we not remember that often the target company has itself previously taken over companies, and that its greatness may well have come about through merging with companies less successful than itself and through taking over companies not only in this country but abroad?
§ Mr. Channon
My hon. Friend is absolutely right; that often happens.
The BTR bid for Pilkington, which the House will remember well, raised very serious issues of corporate philosophy and style, industrial structure and research and development philosophy. I had no basis for believing that I — or, with great respect, the MMC — was better 374 qualified to decide on them than the shareholders, who had every incentive to make the right long-term judgment. What I do know is that intervention by me could have prolonged for months the uncertainty which was resolved in days by the market.
Of course, the last word has not been spoken on merger policy. My Department's review of policy on mergers and restrictive practices policy will continue. I should have been failing in my duty had I allowed myself to be deflected and had referred to the MMC a merger that raised no issues of competition or of anything else riot perfectly appropriate for the shareholders to judge.
§ Mr. John Fraser (Norwood)
There are two tests in the Fair Trading Act—one is competition and the other the public interest. Why does the Minister always ignore the public interest?
§ Mr. Channon
Of course I must consider the public interest. I said that cases would primarily be referred on competition grounds, and that has been the practice since 1984.
The next charge that has been levelled against the City is that of short-termism. I accept that there is a serious point here, which merits less partisan treatment than Opposition Members give it. There is a widespread feeling that the major investing institutions, whose own short-term performance is closely monitored, look too much for short-term profit and under-value expenditure on research and development, training and investment. It is said that, as a result, industrial managers, fearful of the threat of takeover, cut back on such expenditure and concentrate exclusively on the day-to-day share price.
The evidence on that is mixed. A number of companies with high research expenditure also command high market ratings. The institutions do not always take the quick profit in a takeover; Woolworth's is a case in point. Many of the shareholdings of pension funds and insurance companies are kept for long periods. Often, it is the underperforming managers who feel under most short-term pressure, and that may be no bad thing.
For industrialists who are confident of their future strategy for their companies, but feel that it is not understood by their investors, I suggest that they take the advice of the chief executive of the Prudential Corporation, which owns 3.5 per cent. of United Kingdom equities:If boards of directors have told us what they are doing, we would normally support the incumbent management in a takeover bid.Very often, the remedy is better communication.
I warmly welcome the establishment by the CBI of its City industry task force, with the object of promoting better understanding. I also warmly welcome the work currently being undertaken by the Accounting Standards Committee with a view to producing an agreed accounting standard dealing with research and development. I hope that that will be within the year. That would require the disclosure in company accounts of expenditure on research and development for the financial year reported on.
I am less convinced by some of the more radical remedies that have been proposed for the City's alleged short-termism. Changes in the tax status of the institutions and curtailment of the rights of shareholders would have repercussions far beyond the immediate target, and the case for them has not been made.
§ Mr. Tim Smith (Beaconsfield)
Does my right hon. Friend agree that there are double standards in industry on this matter? The director of an industrial company will say that the market is taking a short-term view of his company, but will also wear his hat as a pension fund trustee and encourage his pension fund managers to improve their performance.
§ Mr. Channon
My hon. Friend, as so often in these matters, has put his finger on a problem.
The Opposition motion claims that the City has failed the nation. It has not. It has served, and continues to serve, the nation well as a major industry in its own right and as a provider of a unique range of services to the rest of industry. The attempts of the Opposition to blacken its name with such phrases as "a spiv's paradise"—used by the Leader of the Opposition — and "a sleazy undercurrent of corruption" — used by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley)—are a disgrace and damaging to the nation.
I do not accept that either of those phrases bears the remotest resemblance to the truth. The overwhelming majority of those who work in the City are honest and hard-working. They are fully justified in finding such language deeply offensive. As in any profession or trade, there exists a minority of people who break the rules, and the Government are determined that they should be identified, rooted out and punished.
Last week, the right hon. Member for Sparkbrook stated in the House that the Government werereluctant to act against City fraud".—[Official Report, 20 January 1987; Vol. 108, c. 768.]We are used to the right hon. Gentleman's distortions and twistings of the truth, but with that statement he reached new depths. I challenge him or any of his colleagues to produce evidence of any case where abuse has occurred and the Government have failed to act. If they cannot do so, that statement should be withdrawn.
The Government are doing all in their power to protect and maintain the good name of the City. I urge the House to accept the amendment.
§ Mr. Ian Wrigglesworth (Stockton, South)
The House will be aware that the events of recent weeks have had considerable influence on the country's opinion of the City. It appears from the Minister's speech and from the Government's recent actions that they too have recognised this.
Before coming here I worked in the City for National Girobank and before that for the Midland Bank, and at present I advise Barclays Bank, so I have no hesitation in saying from my experience that the City plays a very important role, not only in the way emphasised by the Minister, that is, in its contribution to overseas earnings, but in providing a service to millions of people, in insurance, banking and other spheres, that is wholly beneficial. However, it is no good the City minimising the scale of what has happened. I fear, from the remarks of the Governor of the Bank of England, reported in the press this morning, that he and some others are seeking to do that. To claim, as he did in his speech to the Institute of Bankers in Scotland, that Guinness is not a City scandal is to put his head in the sand. When I consider the number of City institutions — Morgan Grenfell, Ansbacher, 376 Alexanders, Laing and Cruickshank and others — involved in this business, I wonder how one can describe it as not being a City scandal.
I have found, particularly among some of the older inhabitants of the City, a complacency about the current situation which is deeply worrying.
§ Mr. Beaumont-Dark
The hon. Gentleman is virtually accusing the Governor of the Bank of England of being complacent. Has the hon. Gentleman not noticed a letter which has gone out today to all merchant banks in which the Governor says that unless there is tighter control and self-discipline he will seek statutory powers? How can he accuse the Governor of being complacent when he says that?
§ Mr. Wrigglesworth
I regret that it has taken him so long to become aware that control in some of these apparently widely respected institutions is so lax as to allow the sort of things that have been happening in corporate finance divisions and merchant banks. As I pointed out in Question Time the other day, when the chief executive of Morgan Grenfell, who has been responsible for the supervision of that bank, is a former employee of the Bank of England and when the director of the corporate finance division of that bank is a former director-general of the takeover panel, I feel that I am not being unfair in saying that the rot has gone a very long way in terms of both supervision and the atmosphere throughout the City.
One need only look at the sort of remark made this morning in The Times by the city editor, Mr. Kenneth Fleet, when he says:There is nothing new about merchant banks and stockbrokers sailing as close as possible to the wind in takeover situationsto know what I mean. This is the trouble, that everyone expects these people to "sail close to the wind." It is fairly evident from what has happened in recent weeks that they have been sailing not only close to the wind but well beyond it. We want the City to thrive and make a contribution to the economic life of our country, but many of us fear that there is a lot more to come because in the City an atmosphere has developed: making a fast buck and greed are the order of the day. This attitude is most regrettable and must be rooted out.
The whole of the recent actions of the Governor of the Bank of England raise starkly what has long been a question for me: what is the role of the Governor and of some of the other City bodies, and who is responsible for supervision? I was sorry to hear the Secretary of State say that he was drawing in the Governor in the way that he mentioned, not because of any personal antagonism on my part or anything of that sort but because I have thought for a long time — and have said so here on previous occasions — that it should not be the role of the central bank to supervise the City. We have the Banking Bill and the responsibilities clearly lie in that direction. There are others who should be responsible for the supervision of other parts of the City. It is not the responsibility of the Bank of England.
§ Mr. Wrigglesworth
I am sure that hon. Members on the Government Benches will agree that there are others who are responsible. In my view, the supervision of the City is too fragmented and needs to be concentrated in a way that it is not planned to be at the moment.
377 The sort of atmosphere that has built up in the City is demonstrated by another facet of the Guinness affair. Mr. Olivier Roux, the finance director of Guinness, was paid the magnificent sum of £6,000 in director's fees for his work at Guinness.
§ Mr. Wrigglesworth
I will come to his worth and his payments in a moment. It raises questions about how the gentleman was remunerated. We know that he and a substantial number of other members of staff of Guinness were employed by Bain and Co. to whom Guinness paid £8 million for their services. What a curious way for a major corporation in this country to behave. Has it anything to do with the taxation of the income of the people working in Guinness and other such companies? I wonder whether the payments were made in the Cayman Islands or in some offshore tax haven so as to avoid taxes here. That sort of practice is not unknown in the City and it is the sort of thing that breeds antagonism in ordinary people who do not have the benefit of tax lawyers and accountants, who make it possible for people earning very high salaries to avoid the taxes which they should be paying and which other members of the community are paying. It is all part of this rotten atmosphere that has built up in the City over a period of years, an atmosphere that needs to be changed.
On the question of supervision and the role of the Government in all this, it took five years from the commissioning of the Gower report in July 1981 for the legislation envisaged in that report to be enacted, as it was last October. It took two years from November 1983 to December 1985, after the publication of the Gower report, to consult and then to publish the Financial Services Bill. That was two years during which hon. Members on both sides of the House were pressing Ministers about their delay in bringing forward proposals following the publication of the report. It took five years to get the legislation on the statute book. It is intended to give the delegated powers to the Securities and Investments Board only in July of this year, although we hear that that may be brought forward. That is dilatory progress on this important matter. One must also take into account the fact that the former Secretary of State for Trade and Industry made a statement to the House removing the stock exchange from the action that was taken against it in the restrictive trade practices court in July 1983.
The Government bear a major responsibility for the mess that we have got. Here we are, with the big bang having taken place last October as a direct consequence of the former Secretary of State removing Stock Exchange action from the restrictive trade practices court — in order, I may say, to protect single capacity rather than to break it up, as subsequently happened—but because of the dilatoriness of the Government we have not yet got the Securities and Investments Board in action or the provisions of the Financial Services Act 1986 in force. They should have been in place before the big bang took place. It is the Government's fault that that is not the case.
§ Sir Eldon Griffiths (Bury St. Edmunds)
While the hon. Gentleman is on the subject of delay, does not he recall that when the Conservative Government led by my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) left office, they had introduced a measure to deal with insider trading? That fell with the election and during 378 the next five years the Government who were in power did nothing about it. At the end of that Government's period in office the Lib-Lab pact was in place and the hon. Gentleman's party claimed that it had profound influence on the Cabinet of the day. How is it that it did so little to achieve the enforcement of that much-needed legislation and how can the hon. Gentleman complain of dilatoriness now?
§ Mr. Wrigglesworth
Much-needed legislation was introduced at that time. Although the history of 17 years ago may have some relevance for the hon. Gentleman, I do not think it has much relevance to the events of the last few months.
I remind the House that not only were the Government dilatory in introducing the legislation, but when they brought it to the House the original Bill was enormous, having 166 clauses and 15 schedules. So slipshod was the preparation of the Bill that the Government had to introduce 40 to 50 new clauses, make 800 to 1,000 amendments and add four more schedules. So, after all that period of gestation, the Government almost had to rewrite the Bill.
§ Mr. Wrigglesworth
No, I cannot give way because many hon. Members want to take part in the debate.
We have ended up with competition being the order of the day in the City, with the big bang having taken place and with none of the legislation properly in place to deal with it. The Government are responsible for that state of affairs and it is deplorable that they allowed it to happen without preparing properly beforehand.
As I said earlier, one of the major problems under the present regime is that the system of supervision is too fragmented. During the passage of the legislation it was proposed that the SIB should have power to investigate and to instigate actions. In the light of recent events, I have moved considerably towards that position. As we said during the passage of the Act, the takeover panel should be brought under the auspices of the SIB and should have much greater power. It should also have greater independence. We also made it clear that it should be funded by the Government, not the City, and that it should have a much more substantial representation of lay people within it to ensure confidence outside the City in the work that it was doing.
One problem about the Department of Trade and Industry exercising the powers that it does — I accept that they are substantial, and I welcome the changes that the Government have made to strengthen them in recent weeks—is, with great respect to the Secretary of State, that this is a Government Department supervised by politicians, with some 42 inspectors working for it. I do not believe that there can be public confidence in a Government Department, particularly the DTI with the history it has had over the years in policing companies legislation, continuing to have those powers.
§ Mr. John Fraser
Is not it extraordinary that recently the takeover panel resisted being dragged kicking and screaming into the divisional court, saying that it was so exempt from supervision that not even the divisional court should look at it as a matter of judicial review? Is not it extraordinary that it should behave rather like a Borgia pope trying to control nepotism?
§ Mr. Wrigglesworth
I am not sure that I take the hon. Gentleman's analogy. Before coming to the debate I was reading the report of the takeover panel on the Turner and Newall bid for AE. If the public spotlight had been put on the activities of Cazenove, Hill Samuel and others who were rebuked by the takeover panel for their activities then, and if the takeover panel had had real teeth, we would have seen more action than just a note of censure against those City institutions. That illustrates the weakness of the takeover panel's role and why it needs to be brought within the ambit of the SIB.
I do not believe, as the Labour party believes, that Lloyds should also at this stage be brought within the ambit of the SIB. The Neill report, which has just been published, recommends that the council should have a majority of outsiders upon it. That recommendation should be implemented rapidly. I hope that there will not be delay upon that. We should see how that and the other recommendations work before making a decision to bring Lloyd's under the ambit of the SIB. Indeed, the chairman of the SIB has made it clear that he does not believe that he has the resources and the ability at this stage, with all the other responsibilities the SIB has taken on, to take that on as well. So, although I do not say that it should never come within the ambit of the SIB, at the moment it is best to proceed rapidly with the Neill recommendations, and in, say, two years, make a judgment about what should happen.
Moving to the role of the City in relation to industry, I want to say a word about monopolies and mergers policy. As I said at Question Time this afternoon, I am disappointed that the Secretary of State is not bringing forward his review of competition policy. He seemed to be satisfied with it; if he is so satisfied, what is the point of the review? We believe that there is a need for a profound change and a streamlining of the machinery. We have said for some years that the burden of proof should be put on to the shoulders of the person making the bid. We believe that the Monopolies and Mergers Commission should be abolished, as should the restrictive practices court, that individuals and organisations should have power to take action in the courts against anti-competitive practices and that the Office of Fair Trading should have a much bigger role, removing responsibility from the Secretary of State to intervene and only allowing him to overturn recommendations of the Office of Fair Trading with the support of the House.
Changes of that sort would ensure that mergers took place only if they were genuinely in the economic and public interest of the people working in the firms and the customers that they serve. That could also ensure that competition was safeguarded and that we had a much quicker and simpler system of dealing with mergers and takeovers than we have at present.
§ Mr. Tim Smith
The hon. Gentleman has made an extraordinary assertion about his party's policy. I know that he is not a Liberal, but it is incredible to say that every case should have to be justified in the public interests and then to say that the system should be quicker and simpler.
§ Mr. Wrigglesworth
I said that the burden of proof should be put upon the shoulders of the person making the bid. That would result in the public interest — the interests of the employees and the consumer — being served much better than if it was the other way round, as 380 it is at present. If the hon. Gentleman is satisfied with the present system, so be it but we are not. Britain does not have the competition that it should have and the way in which takeovers and mergers have been taking place in recent years has not served the interests of British industry or the nation.
There is a great problem, not in the supply of money to industry, but in the terms and conditions upon which it is available to industry. Not enough medium and long-term funding is available and the levels of interest that people have to pay and the security that they have to provide make it impossible for many firms to obtain the funds that they want. We have proposed introducing an industrial credit scheme and small firm investment companies which would help to overcome that problem which undoubtedly exists and which many in the City also recognise exists.
It is also important to see the development of regional financial services. The great contribution made by the financial services industry in Edinburgh to the Scottish economy illustrates how important it is to the regions to have a sound financial infrastructure which other parts of England, and, indeed, Wales, do not have. We should like to see the development of regional financial services, which do not exist at the moment, and which companies have to come to the City of London to obtain.
If all those changes were made, the interests of British industry would be much better served by the financial services industry than they are at present. I hope that the Government will take into account the way in which events have changed people's attitudes in recent times and the remarkable change in the City, making it necessary for much more powerful, independent and effective supervision than we have had in the past.
§ Sir Peter Hordern (Horsham)
I should start by declaring an interest. I have worked in the City all my working life, first as a stockbroker, then as a member of Lloyd's, and now as chairman and director of investment trust companies.
Perhaps the part of the debate that I have enjoyed most so far was the expression on the face of the right hon. and learned Member for Monklands, East (Mr. Smith) when, in conclusion, my right hon. Friend the Secretary of State described the activities of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) and what he had to say about the City. He greatly enjoyed the situation and he was well justified.
The right hon. Member for Sparkbrook does not appear to be very comfortable either in the economics scene or in what he has to say about the City. To resort, as he did the other day, to talking about the "sleazy undercurrent" in the City does neither him nor the Opposition any good at all. The right hon. Gentleman would do much better to stick to writing articles for magazines and leave economics to his betters.
There has been some speculation that the right hon. and learned Member for Monklands, East might take the place of the right hon. Member for Sparkbrook on the Opposition Front Bench. That might be a good move. If nothing else, the right hon. and learned Gentleman is an extremely good lawyer and quite able to make the best of a poor case, and that is really all that the Opposition have had to say about the City so far. To blame the City for the activities that have occurred recently is absurd and 381 damaging to the Opposition. Moreover, it is surprising, because if they were ever in a position to form a Government nobody would he more dependent than they would upon the City. Time and time again Labour Governments have had to be bailed out by the City. I think that they propose to borrow several billion pounds in order to renationalise. How they can do that without the City, I do not know. However, perhaps we need not exercise ourselves too much about that, because they would inevitably fall into the embrace of the International Monetary Fund, as they have done on every occasion.
I want to say something about the place of the City and the part that it has played in our national life. The Opposition correctly talk about the loss of the share of national production and GNP in manufacturing industry. That is a phenomenon that is well known in every advanced country. Therefore, they could not be surprised at that. Indeed, any effort to retrieve that position could well be more damaging than beneficial. But what they have not done is to point to the extraordinary change which has come about in the past few years in the credit balance of our financial services.
I have available only the figures for the first three quarters of 1986, but we ran a surplus of £6.3 billion on our financial and other services at the same time as we were running a trade balance of roughly comparable figures.
§ Sir Peter Hordern
The hon. Gentleman says, "Playing with money", and I want to take that seriously. The Labour party must address itself to the fact that manufacturing industry depends upon the import of raw materials, their conversion and final sale to other customers. The hon. Gentleman and the Labour party should consider the distinction between that and a financial institution in the City discovering that a manufacturing company in Japan wishes to raise money, raising that money in the City through its own expertise and selling that service to Japan. There is an important point here. What distinguishes that is the way in which the margin of profit can be gained in financial services which now bring, and will continue to bring, considerable benefits to Britain, and which it can be argued will displace in time to come what we can now contribute from manufacturing industry.
§ Mr. Rogers
The hon. Gentleman asked me to consider his thesis and I do, but at the end of the day I still do not see any increase in Britain's wealth coming from the operation that he has described. There will be no more investment in jobs or in industry. One can shuffle paper round all over the world, but that still does not create Britain's wealth.
§ Sir Peter Hordern
It was a mistake to give way to the hon. Gentleman and I apologise to the House for doing so. The simple point is that it is the product of financial services which also increases the profits of industrial companies, which is the motive force for further investment and employment. It is as simple as that.
I want to make one particular point about the change which has come about in the past three years. London is but one of three main centres in the world, of which the other two are New York and Tokyo. We are part of a global financial village, as it has been aptly described in 382 other quarters. The significance of that position may not have been generally recognised. Its significance is that we shall continue to earn a substantial financial surplus on our invisible earnings and services for years to come. It is perfectly possible now to see the position that Britain held for most of the Victorian era, when, as a result of our manufacturing capacity and our financing of world trade, we eventually had a large and continuing surplus on our invisible earnings. I see no reason at all why that position should not continue hereafter. Of course, if the Labour party were to take office it might sensibly diminish that by its proposals to bring back pension funds.
I should also like to comment on the earnings from our portfolio investments. Last year we received dividends amounting to £6 billion, compared with only £540 million in 1979. I understand that Opposition Members plan to persuade or induce pension funds to return their investments to this country. It appears to me that Opposition Members are signally ignorant of the economic process, because if that is done, and to the extent that it succeeds, it must increase the price of sterling, relative to other currencies. It follows from that that the effect would be to reduce the competitiveness of our manufacturing industry, thus throwing more people out of work and reducing investments in manufacturing industry. Therefore, that policy is a strange one altogether.
§ Mr. Gerald Howarth (Cannock and Burntwood)
Does my hon. Friend agree that the effect of that would be to put people out of work in other countries who have been financed from this country, leading to further calls from Opposition Members for increased foreign aid?
Sir Peter Horden
I am grateful to my hon. Friend, who is quite right. I do not wish to pursue this point any longer. I regard it as important that there has been a substantial change in our economic and trading position, which is likely to continue under good guidance for many years to come. Everyone should be aware of that. If that is to be the case and we are to keep intact our place in the global village and take advantage of the situation, the law as it affects the City must be clear and the guidance must be authoritative.
In so far as the City's activities touch upon our national life, there is a public interest 'which must be observed and protected. Although arguably we would have saved a lot of trouble if we had had an SEC, the Securities and Investments Board, with the SROs, is much more likely to uncover the sort of crooked activities that may occur than would be a full-blown SEC. However, if it is right to increase the number of nominated members on the council of Lloyd's as the new report suggested—I believe that it is right to do so—from four to eight, there is equally a case for increasing the number of lay members on ISRO from four to eight, and even, perhaps, for increasing the number of lay members on the SIB.
I do not know whether it is necessary, because my right hon. Friend the Secretary of State for Trade and Industry would be in a better position than anybody else to know that fact. However, the number of cases that are now referred to the Department for preliminary investigation make a case for strengthening the number of people in his Department.
My right hon. Friend announced some proposals that would affect the takeover panel. Plainly, either the panel should be brought into the ambit of the SIB or its powers 383 should be beefed up in one way or another. It cannot be allowed to continue quite as it is at the moment, without powers, nominated by practitioners themselves, in which they must have confidence, in the end. If it cannot produce any effective measures to stop the things that go wrong, some change must be made. Therefore, I welcome what my right hon. Friend said about the takeover panel.
§ Sir Eldon Griffiths
Does my hon. Friend agree that the takeover panel, which has done excellent work, has nevertheless lost a great measure of confidence among people in the City, the financial press and the public? In those circumstances, without pointing the finger at individuals, does my hon. Friend agree that there should be some change in the personalities at the top of the panel?
§ Sir Peter Hordern
The last thing that I wish to do is to make any remarks about personalities. However, the proposals that my right hon. Friend has made are interesting and deserve careful study. I hope that they will be carried through.
I intervened in my right hon. Friend's speech in connection with nominated shareholders. I am surprised that the issue has not been raised before. It is an old and convenient administrative practice. When stockbrokers or banks buy shares, they put them in the names of nominees. Very often, merchant banks or stockbrokers have a substantial number of discretionary clients and it takes them some time to work out how they are to be allocated.
Apart from that administrative convenience, I cannot now see any reason why the beneficial owners of shares should not be registered right away. That would get rid of the temptation that exists for those who want to buy shares for reasons which they do not wish to divulge from using nominee names in Swiss banks or in any other country.
In the long run, it would do my right hon. Friend and his Department a great service if that change were brought about. There may have been very good reasons for it when those nominee shareholdings were established and the matter was originally considered because the stock exchange, as I was told when I first joined it, existed for the benefit of its members and for nobody else. The existence of nominee shareholdings cannot now be justified—
§ Sir Peter Hordern
I hope that my hon. Friend will forgive me for not giving way. I have already given way and I want to get on. Irrespective of whether the City is as closely involved in industry as it should be, it should recognise that it should be more closely involved.
I should like to comment on merger policy and the public interest. There has been an enormous amount of merger activity. I understand that in the first nine months of last year about £11.3 billion was spent on company acquisitions, compared with £7.1 billion in the whole of 1985 and £1 billion in 1981. It would be less than realistic to suppose that all the banks that have been set up recently and the old existing merchant banks did not make a lot of money out of merger activity and that there are not a large number of people who are sedulously seeking to promote mergers and do very well out of them.
I agree with my right hon. Friend the Secretary of State that the main test must be competition. However, one 384 must consider the reality of what it means to leave it to the market. As my right hon. Friend said, it is perfectly fair to mention the Prudential as an institution with shares in virtually every company in the country, and which on the whole decides to favour an existing business rather than the one that will take it over, but there are several other fund managements which take a short-term view, because, as my right hon. Friend mentioned, their performance is compared very carefully with other funds. In every sort of takeover one sees the same names involved. I have to say that leaving it to competition means leaving a large part of it to fund managers, who are bent on getting the best price for their shares, rather than on taking a long-term view.
Anyone in manufacturing industry who in 1980 had to face $2.40 to the pound, $1.09 five years later, in 1985, and $1.52 now, would have to be a genius to anticipate that state of affairs and to carry out its trade perfectly, in every respect allowing for that fluctuation. It is perfectly possible that such a company would find it difficult to resist assetstrippers bidding for it at the bottom of the cycle. Therefore, there is a public interest when hundreds of people are laid off at the behest of a tiny company borrowing on the assets of a large company that it is considering taking over.
Through the Office of Fair Trading the Government have a duty to look at aspects of takeovers apart from competition. I urge the Government to look closely at the credentials and the financial stability of those companies—often small or highly geared—which are making a bid to take over another company. The policy should not be to prevent takeovers where the business that is being acquired is likely to have more investment as a result of acquisition, rather than less, as has been suggested. The emphasis and priority should be to allow takeovers, but to be sure that the amalgamation of the two companies will not mean that more strain is placed on the two together than would have occurred before.
It is necessary to secure an identity of interest between industry and the City if the public interest is to be served. I greatly regret the tone in which the Opposition have launched the debate. The City has served the country well for many years and will continue to do so.
§ Mr. Brian Sedgemore (Hackney, South and Shoreditch)
I shall try to be brief. One of the problems with our debates on the City is that they are getting wider and wider, so our speeches have to be ever more truncated.
I did not think that I would, but I agreed with what I thought were three interesting aspects of the speech made by the hon. Member for Horsham (Sir P. Hordern). I believe that there is a problem with the repatriation scheme that the Labour party has proposed, the level of sterling and competitiveness. That worries me slightly. I entirely agree with what he said about nominee shareholdings, and I would not disagree with some of what he said about mergers.
The Secretary of State was a grave disappointment to the House. He was credible for a couple of sentences and then my hon. Friend the Member for Easington (Mr. Dormand) asked him a simple question—if there are all of these investment funds, what has happened to manufacturing investment since 1979? It seemed a perfectly straightforward question. I understood it. 385 Instead of talking about investment, the Secretary of State spoke about output and compared output with what had happened in 1981, not 1979.
The Secretary of State has had a lifetime in business. He is the top person in Government. Let us suppose that he goes to sit an O-level examination in economics and the first question is, "What has happened to manufacturing investment since 1979?" He begins his answer, "Far be it from me to be so invidious as to discuss what has happened to manufacturing investment since 1979, but as for manufacturing output since 1981…" The examiner would not mark the paper. Such behaviour is not helpful to the House when shrewd observers such as my hon. Friend the Member for Easington intervene.
I do not think that the Secretary of State has read the figures about investment properly. If we ask who are the investors in Britain, the answer comes back that they are not rich individuals, banks, insurance companies or pension funds. The statistics of the past 20 years, as opposed to those of the past year, show that the stock exchange, which is sometimes described as the source of capital for commercial and industrial companies in Britain, has, on average, provided 5 per cent. of industrial capital annually.
The banking sector has done rather better. It has provided between 20 and 25 per cent. of the capital that commercial and industrial companies need. The real investors are the customers. Although it is described in the City as equity capital, it is not what the individual in the street understands as equity capital and it is not what I interpret as equity capital. Year in, year out, between two thirds and three quarters of the capital used by commercial and industrial companies is provided by customers who go into shops. They are savers in a real sense. They forgo consumption, but they do not get issued with a share certificate when they go into a shop. It would be fairly complicated if they were. They do the saving, but they do not get interest on their savings or on their investment.
What we see on the stock exchange, day in, day out, as described by John Maynard Keynes, who understood rather more about economics than some Conservative Members, is a vast amount of speculation which is based on what he described as a combination of psychology and probability theory. That process, carried out by bulls, bears, stags and whatever else, does not seem to be a productive enterprise for British industry.
There are eight basic foreign exchanges in the world. A recent study, which was done not by me but by perfectly respectable City people, shows that $150 billion crosses those exchanges every day. I am told that that is equivalent to about 10 per cent. of the world's trade. Let us suppose that that is wrong, and that it is equivalent to 20 per cent. of the world's trade and that some of the rest is concerned with hedging. We still end up, as the report said, with about $100 billion speculated across the exchanges each day—one third of it in London. Moreover, we still end up with major financial and industrial companies using the foreign exchanges as "profit centres". Industrial companies are not producing goods and services. Rather, they are producing money through the "profit centre" of the foreign exchange market.
That is equivalent to going into a bingo hall and playing 11-digit bingo with $100 billion as the prize every day. Conservative Members say that that is a respectable 386 activity. I do not believe that 11-digit bingo is a respectable economic activity or that any hon. Member will support such speculation.
It is often said that the Labour party makes no proposals regarding insider dealing. The hon. Member for Horsham made a proposal which did not concern only insider dealing, but it seemed sensible and a means of dealing with insider dealing. He suggested that we should make everybody declare the beneficial ownership of shares and cut out nominee shareholdings. I advanced that idea the last time we debated these matters. It seems eminently sensible. Now that the hon. Member has advanced it, I hope that Ministers will consider it a little more seriously than when I suggested it.
I know that some Conservative Members agree with it, but I do not believe that there should be own-account dealing in merchant banks and broking houses. Some limit themselves and do not have own-account dealing, but I believe that we should legislate to stop it. We would then cut out some of the conflicts that occur.
If asked what I think of the performance of the takeover panel, I think that I would say that it has done a reasonably good job. It has genuinely tried to get things right. I have said that publicly before. I believe, however, that time, technology and the problems that are piling up have ceased to make it acceptable to the public that the takeover panel should be able to carry on as a purely voluntary, body, either outside the scope of the Securities and Investments Board, because it is not appropriate there, or outside some further statutory control.
§ Viscount Cranborne (Dorset, South)
I am grateful to the hon. Gentleman for giving way, especially as his momentum has taken him past the point that I wanted to pull him up on. What mechanism would he propose for the conversion from one currency to another, which is essential to world trade, if we were to abolish the foreign exchange market?
§ Mr. Sedgemore
I know that the hon. Gentleman is not a macroeconomic expert of the highest order, but I was not proposing to abolish the foreign exchange markets. If he wants me to go in to this macroeconomic problem, I shall devote five minutes to it at the end of my speech. It is a big problem for all nation states, whether they are governed by Conservative, Labour or Social Democratic Governments. The hon. Gentleman has put himself on a major point. I do not believe that there is a simple answer, but if he wants me to develop the argument, I shall.
There is some agreement about takeover bids. I even heard the Chancellor of the Exchequer say that some people in the City are taking a short-term view and that they have a kind of tunnel vision. Some of the institutions, such as, I suggest, the Hanson Trust, take a short-term view of takeover bids. The public interest and the Labour party's proposal seems eminently sensible and I am glad that it has some support on the Conservative Benches.
One of the ways in which to get around some of the problems that have arisen, including those with Guinness, is to make it illegal for people to use their own shares in takeover bids and to insist on the use of cash. That would be a simple and fundamental step. I understand that it comprises part of the legislation in some states in America.
Our proposal that, before takeover bids of a certain size can advance, a submission must be made to the 387 Department of Trade and Industry about their likely economic, commercial and employment consequences seems perfectly reasonable.
Conservative Members cannot disclaim responsibility and say that a group of people or companies are involved who and which are divorced entirely from the Conservative party and its ideology, some of whom have committed a few crimes. Morgan Grenfell is a merchant bank which was advising Guinness, and it gave £20,000 to the Conservative party in 1985. Let us examine the way in which one of the country's most prestigious merchant banks gives money to the Conservative party and the way in which it has handled itself over the Guinness affair. Let us ask ourselves why the Conservative party is accepting funds from such a bank.
First, we discovered that Mr. Geoffrey Collier, the securities chief, was sacked. I shall not comment on that, because I believe that he faces criminal charges. Then we discovered that Mr. Roger Seelig, one of the corporate financiers, was in trouble. At that stage the chairman, Lord Catto, heard the alarm bells sounding. He set up an internal inquiry and we have all seen the headlines that it attracted, such as "No witch hunt, no whitewash." There was a whitewash, however, for nothing happened. Some of my hon. Friends, including my hon. Friends the Members for Cynon Valley (Mrs. Clwyd), who is in her place, and for Bolsover (Mr. Skinner), who is not, tabled a detailed motion about Morgan Grenfell. Lo and behold, it was only four days later that the Governor of the Bank of England, terrified that there was to be another Johnson Matthey bank examination, began to act in response to my hon. Friends' motion.
It was at that stage that we discovered that Mr. Christopher Reeves, the chief executive and a former Bank of England official, had to go. There are two ways of regarding Mr. Reeves's conduct, and I do not want to judge him. Either he was incompetent or he was dishonest, or both. If a former Bank of England official is dishonest, incompetent or both, how can we be assured about the probity of self-regulation in the City? We then learned that Mr. Graham Walsh, the head of corporate finance and a former director general of the takeover panel, had to go. Either he was incompetent, dishonest, or both. How can we believe in self-regulation when a former director general of the takeover panel is dishonest, incompetent, or both? Conservative Members must address themselves to these issues in relation to Morgan Grenfell.
Last night, I was walking across a bridge and talking to one of my—
§ Mr. Bill Walker (Tayside, North)
Has the hon. Gentleman read the report of the Adjournment debate which I initiated on 25 July 1985, which dealt specifically with Guinness and Morgan Grenfell? If he has, why was he so silent at the time and thereafter?
§ Mr. Sedgemore
I must apologise to the hon. Gentlemen because I did not read the report of his Adjournment debate. If it included some gem, I am sorry that I did not read it. That is negligence on my part. I must ask others whether they read the report. The hon. Gentleman wants to be like me, and learn how to use the media rather better. If he had been able effectively to use 388 the media, reports of his Adjournment debate would have been splashed over the front page of every national newspaper before I spoke.
§ Mr. Robin Cook
I must correct my hon. Friend. His failure is patently clear. It is that he does not read The Scotsman, and not because he failed to read the report of the Adjournment debate which the hon. Member for Tayside, North (Mr. Walker) initiated.
§ Mr. Sedgemore
That joke is too subtle for me.
There I was on a bridge talking to a City solicitor late at night. He went south and I went north. As we parted he said to me, "Listen out for the name Hanson." We have a mutual friend called Bomber Hanson, but I do not think that he was talking about him. I think that he must have been talking about Lord Hanson. I do not know whether Lord Hanson is involved in the Guinness affair or whether his name is about to come up. Perhaps Conservative Members can enlighten us. Lord Hanson was knighted in 1983, the same year in which his company provided £82,000 for the Conservative party. Between 1979 and 1984 the Hanson Trust provided £217,000 for the Conservative party. That seems to be a great deal of money. It is something that brings a close connection between the Government, the Conservative party and the use of funds—
§ Mr. Speaker
Order. The hon. Gentleman cannot criticise a Member of the other place unless by means of a motion.
§ Mr. Sedgemore
I agree, Mr. Speaker. I am talking about the Hanson Trust. The trust provided the money, and not Lord Hanson, who is chairman of the company.
We have heard about Bain and Co. this evening. It was mentioned by the Government Front Bench spokesperson, but we were not given any details. I believe that some correspondence has passed between the two Front Benches, and it seems that the Prime Minister attended a lunch that was hosted by Sir Jack Lyons at Bain and Co. a few weeks ago. What sort of company is Bain and Co.?
§ Mr. Sedgemore
We know that one of the employees or associates of Bain and Co. is Mr. Olivier Roux, the disgraced director of Guinness. We know also—this is something that I discovered — that Bain and Co. is about to receive a writ from the Church Commissioners involving a large sum of money for non-payment of rent. We know even more than that, because we had some by-play from my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) in his delightful and brilliant speech about Mr. Gerald Ronson, who returned £5.8 million to Guinness. That was a fee for putting £25 million of the company's money in that firm.
My right hon. and learned Friend did not say that Mr. Gerald Ronson was first approached by Anthony Parnes, a person who was nicknamed the "animal". Mr. Parnes is a director of J. Lyons Chamberlayne. He is a close associate of Sir Jack Lyons, who received a knighthood from the Conservative party and who more recently hosted the lunch at Bain and Co. I dare say that the "animal" was at that lunch. He is a friend of Sir Jack Lyons. We must ask ourselves why the Prime Minister went to the lunch. Who was she trying to meet? Did she want to meet Mr. Olivier Roux? Did she want to meet the 389 "animal"? Did she want to help Bain and Co. deal with its defence in the face of a writ from the Church Commissioners? Was she trying to give the firm some general solace or, as is more likely, was it a general meeting at which the Conservative party raises funds?
One of the great problems facing the City is that which arises from the big bang, which has not been discussed in the House. I only hope that we shall have the opportunity to do so. I cannot be sure of what I shall say, but there is something disturbing in that separate control of financial institutions may well disappear. Financial institutions have operated basically under some form of separate control—the banks, merchant banks, discount houses, accepting houses and money markets have all operated under it—but they are now beginning to operate under joint control. Most of the clearing banks are in on these mergers. Every conceivable form of financial and economic activity is coming together under the same control. Some firms will not survive and they will go bust. There will be some takeovers of financial institutions as well as some mergers. There is a real fear that in 10, 15 or 20 years time we shall have large mega-merge financial institutions that will wield much greater power than any present institution of that type, and power that may be wielded globally.
American banking law is changing. The regulations that apply to state banking are beginning to change and the New York banks are beginning to come to Britain. With Japanese and American banks coming here, mergers, amalgamation and bankruptcies could occur that will create colossal problems for a Labour Government as well as the present Government. That is something that the House should debate.
§ Mr. Cecil Parkinson (Hertsmere)
I have listened with interest to the speech of the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) and his discussion on the big bang and the City revolution. Last week, we heard the speeches of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) and today from the hon. Member for Stockton, South (Mr. Wrigglesworth) which seemed to imply that the whole City revolution was started by the Conservative Government as a way of creating a sort of free-and-easy in the City.
I wish to remind the House that the rule book of the stock exchange was referred to the restrictive practices court in February 1979 by the right hon. Member for Sparkbrook. It was the Labour party that decided that the stock exchange. in its old form, was guilty of unacceptable restrictive practices and set out to make sure that the stock exchange rules were changed.
In 1983, the Conservative Government, after four wasted years on the legal case, sought to get the equivalent of an out-of-court settlement and we obtained from the stock exchange all the concessions that were sought by the Office of Fair Trading when it started its action. Indeed, the Director General of Fair Trading, who initially resisted the actions that I took, later admitted that the reforms that had been agreed were the ones he and the Labour Government had had in mind. Therefore, the notion that the free and easy City was started by the Conservative Government and that all troubles such as Guinness flow from it does not stand up to examination. The truth of the matter is that — perhaps the right hon. Member for 390 Sparkbrook is ashamed of it and perhaps he did not realise what he was doing — that the right hon. Member for Sparkbrook set the changes in train.
It is a mistake to think that the big bang was somehow connected with the Guinness and Distillers affair. That wrong thinking argues that, because of the big bang and the resultant changes, affairs such as that of Guinness have become possible. The Guinness affair was concluded in March but the changes to the City took place on 27 October.
The hon. Member for Stockton, South spoke about the absence of a regulatory system after the big bang but the troubles of which he complained took place before the big bang under the old system. The other fallacy is that because of the big bang and the Guinness affair the new system of regulation has been discredited and there is convincing evidence that what we now need is a statutory system of regulations. It is argued that because of the existence of the Securities and Exchange Commission, insider trading and the Guinness affair came to light.
Mr. Boesky's activities came to the attention of the SEC because someone wrote an anonymous letter to it about Mr. Levene and his insider trading. Mr. Levene then talked about Mr. Boesky and Mr. Boesky talked about Guinness. It was not because of the magical powers of the SEC that Mr. Boesky's activities came to light; it was because of an anonymous letter. I would have thought that the Securities and Investments Board is just as capable as the SEC of receiving an anonymous letter.
§ Mr. Nelson
Although I accept that the SIB is capable of receiving such a letter, there is nothing that the SIB can do about it.
§ Mr. Parkinson
I appreciate that, on the Conservative Benches, my hon. Friend is almost a lone devotee of the SEC. The Opposition have argued that there is a need for a body such as the SEC but nothing that has happened justifies that argument. The fact is that Mr. Boesky prospered for four years under the SEC. He made hundreds of millions of dollars and he was discovered only by accident. There is no argument for trying to impose on Britain the system that failed in America.
Opposition Members make a big mistake by arguing that statutory somehow means certain. The impression is that if one has statutory regulations it is bound to work.
§ Mr. Parkinson
I shall give way in a moment.
Allow me to offer to the House the experience that I gained when I was Trade Minister. We were having trouble with the Americans who were trying to extend their market regulations into our commodity markets. I invited the chairman of the Commodity Futures Trading Commission—that is another statutory body—to come over and see how we regulated our markets. At the end of the week, he admitted that our system of self-regulation was better than theirs. Unfortunately, he had to leave early because Hunts had cornered the silver market — his statutory system had failed. Therefore, to believe that somehow statutory means certain and that, as a result a statutory system, discovering people is inevitable has no basis when one considers the experience of the American or other markets overseas.
§ Mr. Rogers
If we accepted the logic of the right hon. Gentleman's argument we would not need statutory 391 regulations to catch criminals. The process that led to the apprehension of the criminals in this case is exactly the same that pertains in many instances, for example, in America, when one canary sings and the rest of the Mafia are pulled in. American crooks are just the same as British crooks.
§ Mr. Parkinson
The hon. Gentleman is implying that we will have a system that is voluntary and, in some way, unenforceable. That is the big difference between the two sides of the House.
We do not know whether the SIB will work as it is not fully in place and, therefore, to argue its failure before it is in operation is to overstate one's prejudices.
The SIB is not a voluntary body exercising, if it wishes, powers. It is a body made up of practitioners in the market who understand how the system works but who have imposed upon them, by law, statutory duties that they must carry out. We have a system that is based on the law but run by people who understand the market.
I believe that our system is imaginative and that it will work. It is quite wrong for Opposition Members to argue in favour of the SEC, a system that has patently failed, and to dismiss the SIB which is not yet in operation and which we have every reason to believe will be a success.
The hon. Member for Hackney, South and Shoreditch congratulated one of his hon. Friends because he tripped up the Secretary of State by asking him why investment was not bigger than it was in 1979. Today's debate is on the City and I would argue that it was not a shortage of funds that caused a shortage of investment. That is the implication of the Opposition's motion.
When I first went into the City as a chartered accountant more than 20 years ago there were few sources of capital. One could get short-term money from the joint stock banks, the ICFC that took minority stakes in medium-sized businesses, the merchant banks—but they wanted a substantial stake in the company if they agreed to be involved — and the stock exchange. Therefore, many companies went to the stock exchange far earlier than they should have done. That was the only way to get the necessary money.
Now everything is different. There are venture capital organisations, the joint stock banks have their own merchant banks, business expansion schemes have been introduced and the banks are more ready to lend money. There is, in fact, a proliferation of sources of capital. There is no shortage of money for a good proposition. To criticise the City because the figures show that investment has not increased is to misunderstand the fact that the money is available, but the demand for it has not been there. That is hardly the City's fault, and the demand is growing.
It is wrong to argue that the City has failed in its job of providing capital. There is growing demand for investment capital, and I am pleased about that. However, it is wrong to imply as the Opposition motion does, that the cause of our less than desired investment is shortage of money. It has been shortage of good propositions.
When the Labour Government were in power we had low company profitability and high rates of yield on gilts, and the stock exchange was used by the Government as a way to fund their ever increasing debt. It is outrageous of the Labour party to criticise the stock exchange because 392 it does not provide enough capital when it was creating an economic climate in which business could not make the profits that justified further investment. We do not want any nonsense from the Labour party about the stock exchange. Nobody used the stock exchange more actively than the Labour Government, to raise money at high yields that were beyond the reach of industry, thus pricing industry out of the investment business.
There is a notion that the British investment institutions take a short-term view. This morning, I was at a meeting of the board of a unit trust group that handles £4 billion of savers' money. We have over 400,000 investors. When Labour Members talk about City institutions and how they are investing money, they talk as if they are the private property of the people who are running the organisations. We are investing the savings of 400,000 people, and it is no part of our business to experiment with them. We have to invest them soundly so that we can give a proper return to those who save with us.
The House partly contributes to the problem of short-term thinking in the City and investing institutions because we have such relatively short parliamentary terms. We have to face the fact that the two sides of the House offer the electorate a different economic system. One of the reasons why our investors shorten their thinking is the uncertainty that could arise if we had a change of Government. Unlike other, successful capitalist countries, we have an Opposition who basically do not believe in private enterprise, so do not support the system.
I refer now to BTR and Pilkington. We have supported enthusiastically the privatisation of nationalised industries, because we believe that the Government are a bad commercial decision taker and should be taken out of commercial decision taking wherever possible. We have also supported the sales because we believe in wider share ownership and giving people a stake in the businesses in which they work and a say in how those businesses are run.
It struck me as absolutely unbelievable, when my right hon. Friend the Secretary of State took the correct decision that the takeover was a matter for the shareholders of Pilkington, and that there should not be a reference, that that decision was criticised by people who have made speech after speech saying that Governments should not take commercial decisions, we should privatise and reduce the size of the public sector. It is wrong of the House to say that we want to take the Government out of commercial decision taking, we want to privatise and spread share ownership, but then to say that there are a range of decisions that are far too important to be left to people such as shareholders, and the Government should intervene and take those decisions.
My right hon. Friend the Secretary of State is to be congratulated on resisting the pressure to refer the BTR bid. That pressure was not the result of a genuine desire to see the Monopolies and Mergers Commission do its job. The only reason why anybody wanted the reference was to delay the bid and to mess it about. It was not to allow the MMC the chance to decide whether the bid was in the public interest.
I have one thing to say to my right hon. Friend the Secretary of State about the review of mergers policy. We have broad criteria which my right hon. Friend uses in arriving at his decisions about whether to accept the advice of the OFT, and the principal criterion is that of national and public interest. My right hon. Friend has been urged 393 to come forward with a series of very tightly drawn specific proposals. I hope that he will resist that advice, as he resisted the advice on Pilkington.
As an accountant, I found that the section of the tax law that was most effective was the general anti-avoidance provision. The more specific the provisions, the easier it was to get around them. The more specific the rules about takeovers and mergers, the easier it will be for people to work their way round them, and my right hon. Friend will be legislating continuously. With the national interest criteria applied sensibly and wisely, my right hon. Friend has the basis for good decision taking. I hope that he will not allow himself to pushed or cajoled into thinking that if he comes forward with specific and clear-cut rules he will be doing something worthwhile. The present rules, with the national and public interests, as the main criteria, are just what he needs.
I heard the right hon. and learned Member for Monklands, East (Mr. Smith) quoting the theory that one of the problems is that a company that makes investments and does research makes itself vulnerable. The idea is that one can either be profitable or invest and do research. The best companies do both, and they do them in tandem. I know that Labour Members admire the SEC greatly, so I was interested to read a speech by the acting assistant Attorney General of the anti-trust division of the American Government. He said this about the argument that one makes oneself vulnerable if one does research:Finally, this argument is also contradicted by an SEC study that demonstrates firms that are subsquently takeover targets spend relatively less on research and development than firms in the same industry that are not takeover targets.The idea that one makes oneself vulnerable in this way is nonsense. Companies that are not doing research are shown, by the Labour party's favourite, much admired organisation, the SEC, to he the vulnerable ones.
§ 7.8 pm
§ Mr. Doug Hoyle (Warrington, North)
I start by declaring an interest as president of the Association of Scientific, Technical and Managerial Staffss. The right hon. Member for Hertsmere (Mr. Parkinson) talked about voluntary regulation of the City, but that is different from the way in which the Government view trade unions. They insist on the compulsory regulation of trade unions. But when they are dealing with their friends in the City, regulation can be voluntary.
We are debating a scandal without a parallel. Of what has been going on in the City, we know only the tip of the iceberg. There is much more to come out. Whether the Government or Conservative Members like it—I know that they do not, because they are dependent on what they call free enterprise—there are in the City an awful lot of fat cats who are greedy and who are not content with what they are getting with their champagne-breakfast style and with the high salaries that they receive, so move into criminal dealings. At long last the Government have woken up to them and have been forced into action because of the public outcry. It is not something that they were originally determined to do, but something that they have been pushed into doing.
Many interesting people in the City have been dismissed or had to resign. Many of them have been referred to. Those people earn very high salaries. Geoffrey Collier of Morgan Grenfell had to resign because of insider dealing in relation to AE. He received a salary of £300,000 394 a year. Roger Seelig was very highly paid and he had to resign in connection with the Guinness bid. Ernest Saunders, the chief executive and chairman of Guinness, earned £375,000 a year. Oliver Roux, who was the finance director of Guinness, was seconded from Bain and Co. He was reported to be on a six-figure salary. Christopher Reeves is the chief executive of Morgan Grenfell and was earning £300,000. Graham Walsh was head of corporate finance at Morgan Grenfell and was earning £200,000 a year. Lord Spens was head of corporate finance at the merchant bank Henry Ansbacher and earned £100,000 a year. All those people have had to resign, yet we are told that there is nothing wrong with the City. Those people were earning salaries that are not even dreamt of in my constituency or in most others. In spite of that, they were not satisfied and had to look for ways to inflate their earnings.
Sir Ralph Halpern is the chief executive of Burton. He has not resigned, but his lurid activities were reported in all the tabloids on Sunday. However, I am concerned, not with his sexual dealings, but with his share dealings. This should be of interest to the House.—[Interruption.] The hon. Member for Crawley (Mr. Soames) should listen. He is not renowned for listening. I am concerned about the takeover of Debenhams and the 7 per cent. that switched the balance in the takeover. Sir Ralph's company was involved in that takeover. Mr. Tony Parnes of Alexanders Laing and Cruickshank, known as "the animal", was involved in the Debenhams takeover, just as he was involved in the Guinness hid for Distillers. This gentleman arranged for Gerald Ronson to take an interest. Mr. Ronson was one of the investors involved in the block of 7 per cent. that switched the balance. That Debenhams takeover should also be the subject of an investigation by the Department of Trade and Industry. We might find out some interesting things.
Morgan Grenfell was the banker in the takeover bid by Guinness. The position of that company is somewhat shaky and, having lost so many of its executives, it is in the process of reorganising.
The Government have no policy in relation to merger mania. Up to the end of November, 250 offers were registered for British companies. The value of the bids is £34.4 billion. That is four times the figure of 1985, yet the Government have been complacent about that.
Many famous names have had to fight off takeover bids and some have been successful, such as Allied Lyons, Plessey, and more recently, Pilkington. The chairmen and chief executives of those companies have better things to do than fight off predators or always to be looking over their shoulders at who is going to make a bid. They would prefer to spend all their time, as they should, creating wealth and looking to the future of the company.
We have heard already about the earnings of the City and about how indispensable it is to the nation. We should look at the other side of that. at the capital outflow from the City. Between 1980 and 1985 there was a total outflow from Britain of £30,270 million. That money would have been better used by investing in British companies rather than in strengthening our competitors and putting British companies out of business and employees out of jobs..
Two thirds of the takeovers have been financed by ordinary share capital. That illustrates the critical position of share prices. It also shows why there has been a big rise in the profits of many of the companies which might have been subject to takeovers, while investment in British 395 industry in general has been stagnant. If investment is stagnant or falling, we know that the net result will be fewer British companies.
The right hon. Member for Hertsmere talked about short-termism. He said that he did not like that and that there was much finance available. Our competitors, such as Japan and Germany, have been investing in long-term ventures but we, especially the City, have been investing instead in short-term ventures because those involved are interested in short-term profits.
The scandal of Guinness has been revealed. There has been resignation after resignation and we do not yet know whether the resignations are at an end. However, we know that about £200 million or £300 million has changed hands in share purchases. We also know that £25 million has been paid in compensation to those who have helped. I do not think that there will be any end to the saga. Every time we pick up the newspapers we see some new issue.
§ Mr. Deputy Speaker (Mr. Ernest Armstrong)
The hon. Gentleman should not use the word "your". It is certainly not my press.
§ Mr. Hoyle
I mean the Conservative party press. I wish that it was your press, Mr. Deputy Speaker, because if it were it might be more favourable to the country and to the press itself.
We know that there have been offshore dealings in the Guinness affair. We are also finding out that spiv after spiv has made a quick buck over Guinness.
§ Mr. Campbell-Savours
My hon. Friend makes an interesting point. There is a danger that if more and more stories come out, and if incidents surface of illegality and criminal activity in the City, the British public will simply become conditioned to accept them. If that happens, the newsworthiness of those stories will subside and the danger is that we will create a climate of acceptability for these practices in the City. That is a real danger. It will become like Northern Ireland, where, when someone dies, the media do not treat it in the same way as they did perhaps 10 years ago.
§ Mr. Hoyle
My hon. Friend makes an interesting point which is worthy of consideration. All the time people come up to me and say, "Ah well, Guinness was unlucky. They were the unlucky people, but there were a lot more involved in insider dealing." That is precisely the point that my hon. Friend is making. People also say to me, "Will Argyll press ahead with the litigation, and if not why not?" Is it because, as my hon. Friend says, there is a lot more of this hidden away in the City? We know that that is so when we look at the bid for AE, in which Turner and Newall was finally successful. Hill Samuel gave an indemnity to investors who were trying to fight off the threat to the company. In this case, even the tabby cat City takeover panel voiced an opinion that that was not the right way of conducting the matter. As I mentioned earlier, one individual had to resign because of insider dealing in relation to that bid as well.
396 Then there is Hanson Trust, which is the epitome of short-termism and short-term profit. We all know that Hanson Trust and Lord Hanson are great favourites of the Government and of the Conservative party. They signify what is wrong with industry in this country. All that we have seen from Hanson Trust is a succession of takeover bids.
§ Mr. Heddle
Instead of treating the House to this catalogue of episodes that anyone can read in the press from time to time, will the hon. Gentleman devote just a little of his speech to praising some of the exceedingly good things that the City does; for example, the protection that it gives to unit trust investors, as my right hon. Friend the Member for Hertsmere (Mr. Parkinson) mentioned, and the protection that the building societies give to their investors, who now receive a real rate of return at three times the rate of inflation? Will he devote just a little of his speech to an optimistic view of the City, which is the envy of the free world?
§ Mr. Hoyle
I can understand why the hon. Gentleman and other Conservative Members are nervous when we talk about the City and what is happening there. I also understand why he does not defend the Hanson Trust. What have we had from Hanson Trust? We have had a succession of takeovers that reached their zenith with the Imperial Group takeover last April.
The difficulty now is that Hanson Trust requires even larger takeovers to maintain profits and share prices. It is rumoured that City institutions backed Hanson Trust in its successful bid for the Imperial Group, not because it made industrial sense against a rival bid from United Biscuits Ltd., but because they were afraid of the consequences for Hanson share prices had it not been successful.
Hanson Trust is a company which never hesitates to sacrifice sales, market share or employment for short-term profit. Yet that is the company which is admired by the Conservative party, which is in office at present. Recently, Hanson tried to strip £80 million from the pension funds of Courage into which it had not paid a penny. That is the sort of company with which we are dealing, and those are the asset strippers whom all of us should be condemning. The Conservative party should be interested in building up long-term investments in industry.
The Secretary of State was praised for his conduct over Pilkington by the Prime Minister. Only last week the right hon. Lady said the right hon. Gentleman was right not to refer the matter to the Monopolies and Mergers Commission and that the market took its own decision much more quickly than if the bid had been referred. Of course, it was nothing of the sort. What really happened was that, in the wake of the Guinness affair, and following political pressure, BTR's bid was withdrawn. Pilkington is a world leader in flat glass manufacture—we do not have many world leaders — and it was spending £62 million on research and development and, £200 million on modernisation. It had invested in the regions and was one of the few multinational companies that had its headquarters in one of the regions. The company and its employees were under threat from the predator BTR, although it had made a profit.
It was the outcry that occurred in the House and outside that caused Owen Green to back off. Certainly there was a sigh of relief from the Conservative party when 397 that happened, because had that not occurred the Conservatives would have been under a lot of pressure from many of their own party who were very concerned that a company such as Pilkington was facing that threat. I have no doubt at all that, before too long, we shall see Owen Green residing in the House of Lords for what he did in withdrawing his bid.
I come to another matter—the destiny of Westland. Its destiny was determined by about six unusual people making bids at the same time. What happened to Westland? Several people purchased shares within the 5 per cent. limit and therefore did not have to declare their shareholding. They were very strange people. There was the Actraint No. 34, Proprietary of Australia which had just purchased 4.99 per cent. There was Lynx Marketing SA, of Panama which purchased 4.79 per cent. There was Rothschilds Bank AG, of Zurich, which purchased 4.89 per cent. There was Sterling Trust SA, of Geneva, which purchased 4.89 per cent. There was Gulf and Occidental Investment Company SA, which purchased 1.38 per cent. Sir John Cuckney said, when he was giving evidence to the Select Committee on Trade and Industry, that he thought there was one other company involved, Les Fils Dreyfus, which also purchased shares. Those purchases altogether totalled about 21 per cent. and they determined which way Westland went. All the bidders appeared late on in relation to the bids that were being made by the Americans and by the European consortium. They all purchased shares and appeared to be voting in one direction. If that was not a concert party, I do not know what was. That is the sort of thing that occurs.
I ask Conservative Members not to be complacent about what is happening in the City or about the destiny of companies that are important to it. What are some of the factors that are encouraging the illegal activity that is occurring? One factor is the massive fluctuation in share prices, which means that enormous profits can be made when a takeover bid takes place. The Distillers shares rose from 200p to 700p in the course of the takeover. There is increasing competition to partake, especially among the merchant banks. We know about Morgan Grenfell. Morgan Grenfell has benefited considerably from the present takeover mania. There is also increased competition resulting from the big bang. If the merchant banks do not keep their present customers, the American banks that are coming in and are determined to press to the limit the regulations will get them instead.
There are large fees and large commissions to be made from the takeover business. There is also pressure on the companies to which I have referred to neglect things that they should be doing, such as investing, so that they can keep profits high and stave off the takeover, merger and asset-stripping sharks in the market. The Guinness bid for Argyll generated £160 million in legal fees and commissions for the City. Thus, takeovers not only make for rich pickings in the City but give the speculators a field day.
What action has been taken? Everybody regards the present takeover panel as a pretty useless body. It has failed to do what it was set up to do in the 1970s—to oversee takeover bids. Many people think that the chairman, Sir Jasper Hollom, despite the fact that he is an ex-deputy governor of the Bank of England—perhaps because he is—has not been strong enough, but the real reason for the panel's ineffectiveness is that it is a purely voluntary body run by the City for the City.
§ Mr. Hoyle
It may be unbelievable. Nevertheless, it is true. The hon. Gentleman might not believe it. Indeed, it seems hard to believe. Nevertheless, that is what is occurring in the City. That is what is occurring all the time.
What action has been taken by the Governor of the Bank of England? Why has he not used his powers? What about the deputy governor? What has he been doing? He has responsibility for takeovers. Why has he not initiated action?
Then we come to the Government. They have been reluctant to take any action. There is a grave difficulty with their Front Bench. The Secretary of State cannot speak on Guinness because it is the family firm arid because the foundations are rocking. The Minister responsible for corporate and consumer affairs, the hon. and learned Member for Folkestone and Hythe (Mr. Howard), cannot speak on Lloyd's. How can people have confidence in the Government doing anything when two of the leading spokesmen cannot voice an opinion on a major crisis in relation to Guinness and Lloyd's? This is a disgusting state of affairs. The country will wonder why they are allowed to remain there when action should be taken.
§ Mr. Deputy Speaker
Order. Perhaps I can help the House. The debate started at 4.52 pm. The hon. Member for Warrington, North (Mr. Hoyle) is the seventh speaker, and, out of those seven speeches, only two have been less than 20 minutes. Many right hon. and hon. Members are anxious to catch my eye. I appeal for brevity.
§ Mr. Hoyle
I shall be as quick as I can, but I think you will agree, Mr. Deputy Speaker, that it would be wrong if we in the Opposition did not say what we want.
I am in favour of a statutory body. I should now like to speak a little about the public interest, which the Conservatives have decried. Emphasis should be placed on the public interest. When we talk about the public interest, we should take into account the interests of the employees who created the wealth of the company and who are subjected to a takeover, as well as the interest of the shareholders. Through the trade unions, the employees should be represented on the statutory body. At least one third of the places should go to them. They should have the right to give evidence. That is important, because if the company goes and they lose their jobs, not only they but their families will suffer. They should be able to say to any company that is successful in a takeover bid that the conditions of employment and pension rights should be maintained. If an employee is dismissed as a result of a takeover, that should be deemed to be an unfair dismissal.
It is not enough to consider just shareholders and competition. We should consider the public interest and the national interest. We should consider whether a takeover is good for the country. Equally, we should take into account the interest of the company's employees
§ Mr. Michael Grylls (Surrey, North-West)
I shall not follow too far the line taken by the hon. Member for Warrington, North (Mr. Hoyle), much as I like him 399 personally. I believe that on almost every issue that he raised, he is entirely wrong. However, in the interests of politeness, I shall not follow him down that route. I shall be brief because I know that many colleagues want to speak.
I shall make only a passing reference to the present problems of the City and the scandals that are coming out almost daily. Everything that my right hon. Friend the Secretary of State said today gave the answer to the criticisms put by the right hon. and learned Member for Monklands, East (Mr. Smith). He made a firm, tough and resolute speech, and everybody on the Conservative Benches was delighted to hear it. I hope that the right hon. and learned Member for Monklands, East will listen to this. It may be to his advantage. He will not damage the Conservative party by trying to smear the City or us. People are too sophisticated to do that, and my right hon. Friend the Secretary of State has given the answer.
The right hon. and learned Gentleman may succeed —it would be a tragedy—in damaging the City itself and all the good things that it is doing for this country, such as raising money for industry and bringing benefit to the balance of payments, and all the things that have been brought out in the debate. Although we may be in an election year, I hope that the Labour party will desist because it is damaging the national interest very much.
I should like to concentrate my few remarks on competition policy, under two heads. One is merger or takeover policy and the other is anti-competitive practices which, again, are an important part of competition policy, but sometimes are not discussed enough. I applaud my right hon. Friend the Secretary of State for the decision that he took some seven months ago in setting up the committee under Hans Liesner from the Department of Trade and Industry to look into competition policy. The House will be comforted to know that the committee is sitting at present, so in a way this debate is timely.
I refer first to merger or takeover policy. I am sorry that my hon. Friend the Member for Horsham (Sir P. Hordern) is not here to hear what I shall say because much of what he said was near to the truth. It is a fine judgment as to whether the law is right. Of course many mergers can be constructive in an industrial sense. When a firm has floppy management, it can be rejuvenated by joining a more dynamic group. It would be idiotic to say anything else. However, we must also weigh this in the scales. For the past 30 or 40 years we have become the most concentrated economy probably in the whole of the western world. I admit that it is difficult to measure — I shall not give statistics, because there is not time — but not many people would contest the truth of that. If the private enterprise system is to work effectively and the market that we talk about and believe in is to be fair, I fear that we have to regulate, and not encourage, or encourage too much, further concentration in British industry and commerce. Many would agree with that.
A concentrated economy also runs absolutely counter to one of the outstandingly successful policies followed by the Government, to encourage the development and growth of small and medium businesses. For 40 years before this Government took office, those businesses had been largely neglected in Britain through a lack of understanding that such businesses are the key to a successful private enterprise economy.
§ Mr. Grylls
No, I want to finish my point.
If that is true, if it is important to have a policy to encourage the growth of small and medium enterprises, we cannot allow the economy to become more and more concentrated. One works against the other.
I am sure that the Government want to pursue their successful policies towards small and medium firms and they would be wise to consider some of the effects of merger policy. This concern is not simply a sudden quirk on my part or on the part of others. The provision that I have described has been written into the United States anti-trust law. There is a phrase in American statute relating to the need to protect the interests of small businesses. That is one of the criteria. For many takeovers, that would not be the most important criterion. However, with the Americans' belief in a fair market system and the diversification of economic power rather than the concentration of such power, they believe that that is a factor which must be observed when a merger is under consideration.
With respect to some of my colleagues, it is not enough to say that we will only consider mergers if two similar firms are involved. If BTR and Pilkington had been two glass firms proposing to join together, under the present guidelines established in 1984, my right hon. Friend the Secretary of State would almost automatically have referred that proposed merger to the Monopolies and Mergers Commission for consideration. However, the bid was not referred because the firms were not both glass companies. I do not want to consider the Pilkington case here, because it is finished with and is old hat. However, other factors should be taken into consideration because other forms of concentration may be just as damaging.
The economics editor of The Times wrote an excellent article today. He states:."Of course, takeovers across industries can result in a reduction in competition if it is possible, for example, for a large company to force rivals out of the market by undercutting through cross-subsidisation from the other industries in which the firm operates.In a sense, that is a horizontal merger. That can result in anti-competitive practices that would be every bit as damaging to the free enterprise system as the traditional cartel. We should consider adding to our policy — I know that my right hon. Friend is considering this—the protection of smaller firms.
I want to consider anti-competitive practices in general. It is unique to British competition law that our bureaucratic system allows a decision to be made more or less by an official. In other countries, if a firm is damaged by an anti-competitive practice—driven out of business or severely damaged—it can sue and receive damages. What happens in this country? A firm may report to the regulatory authorities the details of that anti-competitive practice and the regulatory authorities—which I admit have a good record in this respect — may decide that that is an anti-competitive practice and must be stopped. Of course, it probably is stopped, but very often it is too late. The damage has already been done.
I believe that there should be some remedy at law for firms that are damaged by anti-competitive practices. It is interesting that in most industrial economies that principle is accepted. It is unique to this country that firms that are damaged by those forms of anti-competitive practice cannot recoup damages.
401 It would be ridiculous for me to leave the impression—I do not want do to this— that I am against large firms and mergers. In the 1960s and 1970s we believed that it was important to be big, no matter how a firm became big. The lesson that we have learnt by considering more successful overseas competitors is that they have become big because they have been successful, not successful because they have been big. There is a difference.
We should be encouraging the internally generated growth of successful firms rather than growth by acquisition. If that view was taken in respect of merger policy, we would gradually have a less concentrated economy in which a free enterprise system could operate more fairly and successfully. That would be completely in line with the thrust of the Government's policy, which has been so right to aim for a fair enterprise economy. We will achieve that if we adjust our general competition policy in some of the ways that I have suggested tonight.
§ Mr. D. N. Campbell-Savours (Workington)
I am glad to follow the hon. Member for Surrey, North-West (Mr. Grylls). If he studies the Committee proceedings on the Bill which became the Competition Act 1980 he will find that his proposition about anti-competitive practices was debated at some length by myself and my hon. Friends. I would like to take the opportunity to pay tribute to the hon. Gentleman for the work that he performs on some of the more innovative aspects of small business policy that have been fed from the Conservative Back Benches to the Front Bench over the past few years, some of which I have openly supported on the Floor of the Chamber when I believed that they were right and thought that they may work—especially the small business subsidy.
Before I put the boot in, I want to pay a tribute to the right hon. Member for Hertsmere (Mr. Parkinson). In many ways he was the father of the big bang in the sense that he was responsible for negotiating a deal on commissions with the stock exchange in the early 1980s which, in effect, brought in the changes. I was sad to hear him criticise my hon. Friends for being unappreciative of that move. As those of us who sat on the Committee of the Financial Services Bill made clear, we support the changes and the greater freedom and liberation brought about in the City of London.
We are concerned about the vast expansion in the market. We felt that some suitable regulatory system should be in place to ensure that abuses would not break out in the way that they have and will repeatedly break out in future. Without giving the case away, there is one particular reason why an SEC-type statutory operation would have been more appreciated by many hon. Members—the public would have a better perception of such a body.
I do not believe that the British public can understand an arrangement whereby the policing of the City—apart from the statutory powers available under the Companies Acts to the Secretary of State — is carried out by a private firm of policemen in the form of the SIB. The City of London will be policed by a private company. Irrespective of the powers—and we can argue at length whether increased powers would be available to an SEC-type statutory SIB — there will always remain the 402 problem of perception. We will never convince the people that a private policing operation in the City will work. Even if it did work, people would never believe it. Wherever they saw deficiencies, they would say, even if that was not true—and I will not go into the merits of that — that they arose only because the policing operations were in the hands of a private company.
More brutally, may I deal with the arguments during the past few months about Guinness and what it did. Despite assurances from the Dispatch Box, I believe that the Department of Trade and Industry will try to ensure that the number of people who are prosecuted is minimal. I have no doubt that some of those directly involved in the activities will be prosecuted, but the vast majority of them will not. We shall be fortunate to see two or three prosecutions from this entire affair. I believe that not just two or three people but hundreds of people are involved, and I can prove it. It was not a few people who received the £25 million, if that was the sum paid, but many people. Anyone who is willing to conspire with others to break sections 151 and 152 of the Companies Act 1985 is guilty of a criminal offence under the Criminal Law Act 1977, which sets out the offence of conspiracy. Clearly, some people conspired with those who set up the arrangements that are in default of sections 151 and 152 of the 1985 Act. They knew precisely what they were doing. They knew that they were conspiring to commit a criminal offence, and I believe that they were many.
I warn the Secretary of State that when he comes to the House and announces the names of those who will be prosecuted, I shall be asking for prosecutions under the Criminal Law Act 1977. He knows that they have committed offences and they must not get away with it. It is as important that they are prosecuted as it is to prosecute someone who fiddles his supplementary benefit. They have all broken the law. As the Government have been willing to prosecute thousands of people who have fiddled their supplementary benefits, if it can be proved that at least hundreds, but perhaps thousands, of people are involved in this conspiracy, they should, equally, be prosecuted. I shall expect the Secretary of State to take that action.
Earlier today—I must choose my words carefully because I gave the Secretary of State an undertaking privately — at Question Time I mentioned a licensed security dealer operating in the City and I asked the Minister to confirm that I had given him, privately, the name of that licensed security dealer, who was trading fraudulently, and that, during Question Time, that company was open for business and trading. I know that the people who bought shares today through that licensed security dealer will lose much of their money. Since I asked that question, people will have purchased shares not knowing that they will lose their money, but they will, as many before them have lost.
I gave the Minister the name of the company and mentioned the nature of the offence that was being committed. I put it to him that, since he had the information, unless he took action to close the company immediately — his departmental officials have been considering the matter for several months and, in my view, have been hanging about and not taken the necessary action—it could be said that the Government or the officials had been negligent and that those who had lost money may have a claim against the Government.
I give the Secretary of State notice that I intend to proceed with the case on that basis: I gave him the 403 information today. I know how much that company has been paying for shares, as today I made arrangements to ring in to discover the sale and purchase prices of their shares so that I can measure any losses in the future. If anyone who has bought shares comes to me in the future, I shall refer him to my statements in the House.
The company, which I shall not be naming—I shall explain why in a moment — has international connections with associated companies carrying out similar activities overseas. A company associated with it in the United States of America is already the subject of an inquiry by the Securities and Exchange Commission. Information that I received from an SEC informant helped me to put together my case to the Minister at Question Time and during this debate, and I have taken that information in conjunction with further information received directly from investors. The company is already the subject of inquiries by the Department of Trade and Industry, and I am at a loss to understand why no action has been taken. There is sufficient evidence to warrant the Minister moving in to close the company before more money is lost.
I have not revealed the name of the company for one reason. The company, which deals in the over-the-counter market, is warehousing shares. It is a market-maker in some shares and, because of its position as a market—maker, if I revealed its name, it would affect the price of shares held by ordinary people. I do not wish to be held responsible for a rapid drop in the price of those shares because many of them could be small savers.
I have been criticised for refusing to name the company in the Chamber, and that is why I gave my reason. It is said that by refusing to name that licensed dealer, I am placing a question mark over other licensed dealers which might, as a result of my actions, lose business. I do not know. It was a hard judgment to make, and I can tell the House that I was up until 4 o'clock this morning discussing how to approach the matter. Eventually, the company will fall, and I place an obligation on the Minister to resolve the matter before the public loses more money.
Finally, I should mention briefly the attempt by Lonrho to take over Harrods. We have all received a mountain of information from Tiny Rowland. The pile of paper that I have received during the past year is extremely thick. There must be a company somewhere doing nothing but photocopying and sending out correspondence. It is significant that much of the correspondence that he is sending out is clearly libellous. I do not know whether he is trying to provoke a legal action. He must realise that he will not get it, so now he simply says what he thinks. Some of the statements are outrageous, but they may be true. The problem is that none of us knows.
I am informed that Tiny Rowland does not intend to give up. He will continue to ply us with information. This man may well be obsessive about this matter, but he may well be telling the truth. He is making grave allegations against Department of Trade officials, people in the Monopolies and Mergers Commission, the Prime Minister and, indeed, the Prime Minister's son, who allegedly was involved in discussions about the takeover. I do not know whether it is true or false.
§ Mr. Campbell-Savours
That is the problem. We must discover the truth.
Every hon. Member who, weekly or monthly, receives information from Tiny Rowland on this matter needs a full explanation. It is insufficient for Ministers to go to the Dispatch Box, as they do, and answer questions on this matter by referring to statements that were made some years ago about the Monopolies and Mergers Commission's decisions Nos. 1 and 2 on the proposed Lonrho takeover. Today, I mention the tax aspects of the matter. For those who were not present when I mentioned it at Question Time, I repeat that we have lost £20 million of revenue because of a decision taken in the early 1980s to refuse Lonrho the right to take control of Harrods. That in itself is worthy of some form of statement, if only a sentence — [Interruption.] It is not central to a statement, but may be mentioned during the course of a general statement on that takeover.
§ Mr. Austin Mitchell (Great Grimsby)
Does my hon. Friend agree that a statement, and indeed discussion in the House, will not clear up the matter? Grave allegations which may be accurate have been made. Certainly, in the argument put forward by Tiny Rowland in his letters to hon. Members, a strong case has been made for an inquiry, at the very least.
§ Mr. Campbell-Savours
From my point of view, it does not matter what it is. All we want is an explanation.
§ 8.2 pm
§ Mr. Kenneth Warren (Hastings and Rye)
The title of the debate is:The City's Duty to Serve the Nation.As the Opposition chose this topic, I am amazed that more than 95 per cent. of Opposition Members are not present. It is their choice, their debate, and they make enough noise in the headlines—but where are they today? It was a delight to see the hon. Member for Stockton, South (Mr. Wrigglesworth) join us. Where are all his friends in the alliance? Where are the Ulster Unionists? Where are the Scottish nationalists? Where are the Welsh? It is an Opposition day, but they are not here. They serve their case very badly in seeking to criticise the City. They provide Conservative Members with an opportunity to talk in a sane and sensible fashion about the Government's relationship with the City, and to take Opposition time to do so.
The interests of the Government and the City are mutually indivisible in exactly the same way — as we would be told by the Labour party, if its members were here—as the interests of Government and manufacturing industry are indivisible. There should be no qualification about the fact— I am sure that it will be apparent in the Lobbies—that the City does a valuable job for the nation. That job is well recognised around the world, even if it is not recognised on Opposition Benches.
We heard the Secretary of State for Trade and Industry make a sensible statement about the value of the City. Now, in Opposition time, we could consider the way in which Her Majesty's Government should act and react to the City in a fair and reasonable fashion. Our trading position is disadvantaged because of the high cost of money in our domestic and trade economies. I hope that the Government appreciate that the regulation of interest rates should not be imposed so rigorously as to deny competitiveness. We must look sternly at the way in which 405 the present high interest rates, both in the City and in the promotion of manufacturing industry, are hurting our competitiveness.
The issue of nationalisation compensation has been explored by Conservative Members on a number of occasions. It has been virulently pursued by my hon. Friend the Member for Surrey, North-West (Mr. Grylls), who made an interesting contribution to the debate. The Government must examine their relationship with the City — those who invest in it and those who rely on it to make progress in their businesses. That fact has not been spelt out more clearly than by the representations, for instance, by Sir William Lithgow in the Kincaid case. In letters to hon. Members, he stated that he considered thatThe Government's attitude is quite incomprehensible to an industrial community like ours, not least because my organisation could provide so many more jobs in an area of great distress.He wrote that letter from Port Glasgow in Renfrewshire.
When the Conservative party was in opposition, it was acknowledged that the Government of the day were not fair in the way in which they nationalised industries and paid compensation. I refer to the case of one company. I do not make this a cause celebre, but merely say that it is a sign of the general problem. It was stated before the European Court that Kincaid, an engineering business that had no special departmental aide, was vested in the Government on 1 July 1977. The Government acquired a business valued at £19 million, including £5 million in cash, for less than £4 million. The Government of the day acquired £5 million cash for £3.8 million and a business worth £19 million for nothing. Even at this late stage, Her Majesty's Government should examine this and other instances. The Government must be seen to be fair in their dealings with industry and the City to make sure that they protect future industry and commerce that may be threatened if the Labour party were to be in power. If Conservative Members cannot make the situation fair, the people of this country must look to Parliament and ask, "Where is our protection?"
On 23 September last, my right hon. Friend the Prime Minister, in reply to the chairman of Scott Lithgow, wrote that she could not accept that the Government had produced unfair results. She went on to say:Payment of additional compensation would require legislation.
Today or tomorrow is not too late to try to achieve equity. In their relations with those who invest and deal in the City and in the community, the Government must act in a fair and reasonable fashion before we decide that we should always blame the City for any wrongs that may be done, as is so readily the accusation of the Opposition.
What will the Government do about multiple applications in terms of the denationalisations that are most welcome and that we must pursue vigorously? At a convenient time, I shall give the Secretary of State information about the way in which multiple applications are being effected, which, judging from a reply that my right hon. Friend gave me in a written answer last week, appears not to be detected. We do not support anything that will allow multiple applications on denationalisation, but, apparently, they are taking place. I hope that my right hon. Friend the Secretary of State will pay strict attention to the need to control multiple applications without any hesitation.
The tin crisis has almost become a traditional subject of interest to the Select Committee on Trade and Industry, 406 of which I have the honour to be Chairman. Following a personal representation — I was not acting in my capacity as Chairman—in a letter dated 22 January my right hon. Friend said:I do not believe that the Government should seek a negotiated settlement of the claim against the International Tin Council and its members.
The Government are held in high esteem throughout the world, and should take the initiative where responsibility is clearly seen to be that of the Government as a participant in an international agreement. We have only 4 per cent. of the total responsibility. I am advised that the Government's total legal liability would be not more than £20 million. However, because there has been no initiative from the Government, the creditors' hankers and brokers have been forced to take recourse in the United Kingdom courts.
If the Government, whom I support wholeheartedly, believe in the strength and the future of capitalism but will not try to ensure that it is protected, I believe that they must examine their position and state whether they are prepared to reconsider carefully the way in which they have acted.
Mr. Justice Millett, when considering the proposals for winding-up petitions, said:The responsible course now would be for the member states by diplomatic means to negotiate suitable arrangements to meet the shortfall.The Government have an opportunity to take the initiative, but they are holding back. If they exercised their ability to take the lead in an international problem, it would greatly enhance their stature.
The opportunity for debate provided by the Opposition today has, strangely enough, given Conservative Members an opportunity to tell the Government that they should act more strenuously to protect capitalism and to be seen to enhance its value
§ Mr. Allan Rogers (Rhondda)
I, too, am glad that the House is debating this issue today, although not for the same reasons as the hon. Member for Hastings and Rye (Mr. Warren). For a long time we have been concerned not about the relatively new events with mergers and insider dealing, but with the fraud in the City that has occurred over a considerable period, and that has been well known to the Minister with responsibility for consumer affairs. Indeed, our motion encapsulates the proper dissatisfaction felt not only among Opposition Members but throughout the country with what is happening in the City.
There was a time when the City evoked some national pride; today, it stands for fraud, chicanery and fiddling — [Interruption.] It is true. If we ask anyone on the streets for his views on the City, that will be his general concept—
§ Mr. Rogers
No, I shall not give way to the Tory Member. Most Tory Members are sponsored by and are consultants to firms and companies operating in the City. Most of them act as parliamentary consultants to large groups that have been involved in mergers and takeovers. I ask them to sit back and learn a lesson, rather than come to the House at this late stage of the debate and become very excited. They should listen—
§ Mr. Beaumont-Dark
What lateness? I was here for the beginning and the middle of the debate. Does my honourable colleague think it logical to say that the City is noted for chicanery and fraud? Does he not know that £7.4 billion is earned by the City? Does he think that the world is as stupid as he is? Does he think that the world would deal with us if that were so? Will he not moderate his language and think of the country rather than only of the Welsh valleys, just for once?
§ Mr. Rogers
I thank the hon. Gentleman for those remarks. Had I realised that he would be so personally insulting, I would not have given way.
§ Mr. Rogers
I might have been rude about Conservative Members in general, but I did not personally insult the hon. Gentleman. However, I admit that it is not difficult to be rude to him.
The hon. Gentleman asked me to justify my opening statement; if he sits back and listens, I shall do just that. We are not dealing tonight with the new phenomena of Distillers, Argyll, Pilkingtons and BTR—we are dealing with a long history of fraud and chicanery in the City. The extent of fraud in the City's insurance sector is extraordinary in moral, legal, criminal, financial and social terms—[Interruption.] Perhaps I should say that it is anti-social. The hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) keeps muttering, and perhaps there are reasons why he does so at this time of night. I simply ask him to listen so that I can put my case.
The position is extraordinary in the number of frauds that are perpetrated, in the audacity of those frauds and in their treachery. In general, those frauds are not simply a matter of one person against another—they are only the vehicles for handling the money of ordinary, decent people who, through pension funds or bank deposits, put their money into the hands of the City — and, more important to me, into the hands of the insurance sector. That aspect of the City has not previously been highlighted in this debate.
Conservative Members are fluttering around their Benches, claiming to be concerned about standards and worried about what I may say. The Government appear to have an obsession with standards—probably because they do not have any themselves. Not long ago, the leader of the Conservative party spoke of standards in society—the need for more law and order, the need for the hanging penalty for terrorists, the birching of hunt saboteurs and the flogging of miners—[Interruption.] If Conservative Members read Hansard, they would then know that that is what was said during the miners' strike. As Max Hastings said,All the other little human touches that would make British civilisation a better and a finer thing"—
§ Mr. Warren
I must protest, Mr. Deputy Speaker. The hon. Gentleman has made the serious accusation that a Conservative Member has advocated the flogging of miners. Will he please name that Member?
§ Mr. Rogers
Yes, I will. I shall not do so now, but will check with Hansard — [Interruption.] Because I have prepared myself for this debate—[Interruption.] I wish that the hon. Member for Edinburgh, Central (Sir A. 408 Fletcher), who is parliamentary adviser to the Argyll group, would allow me to speak. After all, I am speaking only for the Rhondda constituency—
§ Mr. Rogers
I shall check with Hansard later.
The one area in which the Government especially lack standards is in their dealings with their friends in the City.
As the Lord Chancellor said last year:The bottom seems to have dropped out of morality.When considering the background to the frauds, we must remember that the City has changed. The image the Conservative Members put forward in defence of their friends is one of the City still being of good men and true, working hard and honestly for God, Queen and country; of people whose word is their bond, and who meet in their clubs or at their old boy's reunions and order the world for the benefit of others.
That is the image that Conservative Members would like us to have of the City of London but, of course, it is miles away from the present-day image of the City. It may well have been true some time ago but it bears no resemblance to the modern, high-technology money market where vast sums of money are moved and manipulated, as illustrated earlier by the hon. Member for Horsham (Sir P. Horden), and where the measure of success is not integrity but acquisition and greed.
We know that the City is a dynamic institution and is constantly changing. As Andrew Philips said in The Observer on 15 December, 1985:With all this, London has become an international crime haven, allowing financial racketers from mainland Europe and the United States to continue their commodity swindles, advance fee frauds and the like unmolested. But we also have a fraud boom all of our own. Any firm you talk to will have its own in-house tale of woe. But it will probably remain under wraps. Exposing crooked employees in court is a rarity.That is a City solicitor talking. He was certainly not challenged by his friends in the City.
In the research that I have done for this debate, I have been impressed by the scale and number of frauds perpetrated. When I asked the staff in the Library if they could give me a list of all frauds that had been brought to public attention in the past couple of years, they came back to me a day or so later and said that they could do it but that there was so much I should get someone to help me carry the paper. I was not impressed, I was frightened by the volume and number of frauds perpetrated. In 1981, for example, the City of London police fraud department had 80 cases under investigation. In 1984 there were 117. New matters recorded were 536 in 1981 and 621 in 1984. In 1981 there were 35 arrests. By 1984 the figure had increased to 77.
Before Conservative Members applaud the Government for the increase in the number of arrests, I would like them to consider the fact that there were only 18 Crown court cases in 1981 and only 18 in 1984; there has been no increase in the number of City fraudsters brought before the courts. The sums involved are huge, almost beyond what normal people can comprehend. A recent study, for example, calculated that British companies are now defrauded of £3 billion or more a year.
§ Mr. Rogers
The hon. Member is using a rude word. It is probably either because he cannot understand, hear or read—
§ Mr. Rogers
—and he will drown there in his ignorance not just for the rest of the evening but probably for the rest of his life.
An informed insider reckons that the recent reinsurance frauds netted £500 million. The City of London fraud squad has actually reported these figures.
§ Mr. Rogers
Are the City of London police figures wrong? I would prefer to accept them rather than the mutterings of the hon. Gentleman. The Government's own Inland Revenue has come up with figures as well. If there is nothing going on, as the hon. Gentleman is saying, why on earth in 1985 did Lloyd's agree to pay the Inland Revenue £42.5 million in respect of liabilities wrongfully secreted by members of Lloyd's? These were men of high probity, men in the City who settled with the Inland Revenue for forty two and a half million quid. That is the scale of the fraud that goes on in the City.
Andrew Philips has further referred to underresourcing. Perhaps I could refer to the number of people involved in investigations in the City, the numbers that I have mentioned as compared with the numbers that my hon. Friend the Member for Workington (Mr. Campbell-Savours) mentioned, when he talked of hundreds, if not thousands. We are dealing with cases that are only in the low hundreds, because there are no people to investigate the crimes. The allegations are being made, yet there are insufficient trained police to catch up with the criminals. I quote Andrew Philips again, when he talks ofthe bizarre under-resourcing of those responsible for policing the City and bringing its malefactors to book. The Fraud Investigation Group of the DPP, for example, has a paltry qualified staff of 21.
Over 30 specialist claims control units investigate petty fraud in the social security system. My hon. Friend the Member for Workington said that it would be quite proper for people who were cheating on supplementary benefit to be brought before the courts. Quite right, but why do the Government have to have thousands of inspectors chasing people who may have cheated them of 5p or lop and only 21 people investigating the City of London?
The Minister intimated last year that he was going to put more resources into this area. Perhaps he could give us some indication of this now. I am sure that he will accept my argument that more resources should be put into increasing not only the number but also the quality of the people who do this work.
It has been argued by Government Members that other financial centres are more corrupt than the City of London, that there have always been rotten apples in the City and that we have to live with corruption and fraud. I do not think that we have to. This debate today is vital for the interests of the country. We Opposition Members are to be applauded for removing the wraps from the iniquitous goings-on in the City of London. The debate should not be in any way about self-regulation versus statutory control because to some extent it is now sterile. We cannot legislate for an institution whose moral foundations are crumbling. We can have the finest laws on earth, the finest structure and the finest institution, but if there are crooks operating inside and we do not root them out it will still be an evil, decaying institution.
§ Sir Alex Fletcher (Edinburgh, Central)
I am obviously happy to declare my interest in this matter, first as an adviser to the Argyll Group but, more important for the purposes of this debate, as the Member for Edinburgh, Central, the United Kingdom's other financial centre. I might add that also in my constituency I have what was supposed to be the headquarters of Distillers, although the actual headquarters' activities were rather difficult to find.
I shall be very brief on matters of competition policy and in terms of City regulation, not least because my right hon. Friend the Member for Hertsmere (Mr. Parkinson) covered these points extremely well in his speech. I had the pleasure of working with him at the Department in 1983. There should not be over-reaction to the criticisms that have been made by some of my hon. Friends, but more frequently by Opposition Members, about policy on competition and mergers. I recollect that in 1973 there was over-reaction to the secondary banking crisis. As a result we had the development land tax, which stifled economic growth in the market.
On the question of the regulation of the City, the biggest problem that we face on this side of the House, for which I must take much of the responsibility, is the continued use of the expression "self-regulation". Self-regulation was the old system of voluntary club rules in the City, but the new system which has been introduced in the Financial Services Act 1986 is by no means voluntary. If people wish to trade and do business in financial services in the United Kingdom, they are obliged to register and to submit to the rules that will be supervised by the Securities and Investments Board. These rules are no soft option. They require the consent of my right hon. Friend the Secretary of State for Trade and Industry. He in turn has the full advice of the Director General of Fair Trading. So I can only apologise for having in my time at the Department stuck with the term self-regulation. If nothing else, I can now see how badly it describes the system that is being introduced.
In the interest of time I shall come straight to the problems that confront us in the Guinness case. This is a case of financial fraud clumsily perpetrated, one that was bound to be revealed, if not by Boesky or Ansbacher, by someone else; most likely it would have been the company auditors, Price Waterhouse. I have every reason to believe that when the DTI inspectors arrived on the scene Price Waterhouse was well on the way to investigating many of the matters that are now being aired publicly. Instead of Price Waterhouse presenting the evidence to the company's shareholders, as it would have done, it presented it conveniently to the DTI inspectors. I have no doubt that Price Waterhouse would have carried out its public duty whether or not inspectors were sent in.
I wish that more of our companies would return to the habit of taking advice from their auditors, rather than always going to the smoothly operating merchant banks in the City. There is a good tradition in this country of people going to their accountants. This is not a commercial for my profession but it is a fact that companies do well to seek financial and business advice in general from their auditors.
The point that I wish to make in bringing in Price Waterhouse at this stage of the debate is that investment 411 protection is not a new invention. We may be critical of aspects of it, but it is carried out day in and day out by firms such as Price Waterhouse.
§ Mr. Wrigglesworth
The hon. Gentleman has raised a very important point about auditors, but is the history of auditors in not blowing the whistle on matters of this sort good enough to give him the confidence that he has about the role of Price Waterhouse in this case? Does he not feel that the powers of auditors should be strengthened?
§ Sir Alex Fletcher
In my experience, yes. Having worked as a professional accountant, and having been involved in audits, I have seen many examples of fraud being exposed. It is not always exposed publicly, because it does not always have to be exposed publicly. If the auditor confronts the company chairman and says, "This is not right," nine times out of ten the company chairman will see that the matter is sorted out or that the police are called in and an investigation takes place. I am talking not about a cover-up, but about the power of an auditor to declare publicly in his audit certificate that he is unhappy with the way that the directors are treating shareholders. He has such power that the directors cannot afford to go against his advice.
§ Mr. Robin Cook
The hon. Gentleman is making a serious point and I am with him in much of what he says. He will appreciate, of course, that his last observation weakens some of the force of his argument that Price Waterhouse would have been going to the chairman of Guinness, Ernest Saunders. If that method of investment protection is to work, would it not be desirable to consider having an audit committee within the board?
§ Sir Alex Fletcher
I do not disagree with the last point that the hon. Gentleman has made, but it is wrong for him or the House to think that because an auditor finds a difficult chairman that is the end of his action in the event of fraud. He has other powers available to him, and he uses them. A firm of Price Waterhouses's stature need fear no one in anything that it might come across in an audit.
On that point, I might say to the House that Price Waterhouse may also find evidence in the course of its investigation of Guinness of cash payments for which there will be no invoices, payments that were probably made in plain brown envelopes to members of the professional criminal classes. I say this because I have reason to believe that someone in Guinness may have resorted to tactics designed to intimidate those who, like myself, desired an investigation into the affairs of the company following its acquisition of Distillers. I know that such payments are difficult to detect. As I have said, I have worked as a professional accountant and I know the difficulties that Price Waterhouse faces. I am sure that if it detects such payments it will present its evidence to the new directors of Guinness, and I am sure that they in turn will wish to be as forthright about these as about the other matters that have been made public.
§ Sir Alex Fletcher
I am sorry, but I cannot give way. I must allow hon. Members who have been here all afternoon an opportunity to speak.
During the Report stage of what is now the Financial Services Act I referred briefly to the takeover panel, which 412 is the last remaining vestige of the old club rule system of self-regulation. The Guinness affair has confirmed my view that the panel should become part of the new statutorily backed system, whether as part of the SIB or in some other way. It would be better if it could be contained within an existing body, rather than create another body which has to supervise the affairs of the City. This is a matter to which my hon. Friend the Minister can give further thought.
During the Argyll bid for Distillers, Argyll complained to the takeover panel a number of times about certain dealings in Guinness shares. The panel simply accepted the assurance of Morgan Grenfell over the telephone that the takeover rules were not being broken. With the benefit of hindsight, we need much more effective supervision in the new markets. The SIB will have the resources and the authority that the panel lacks to investigate and take quick action where evidence suggests that all is not well. In any case, the SIB will be doing just that in the markets generally. I hope that in reply to the debate my hon. Friend will go a little further than my right hon. Friend in saying how he thinks the panel might be brought into the takeover sphere.
In the wake of the Guinness revelations, the Chancellor of the Exchequer and the Governor of the Bank of England have acted quickly and effectively in the City. They were absolutely correct to ensure that the top brass cannot simply dismiss junior directors and leave it at that. The captain is responsible for the fate of his ship, whether he is on the bridge or down below in his bunk. That should apply on land just as much as it does at sea.
Serious as these City matters are, the fundamental question in this shameful affair must be the legality of the Guinness acquisition of Distillers. I can do no better in that respect than quote briefly from the Financial Times of last Saturday 24 January:It is now clear that the takeover battle for Distillers was not decided simply by free market forces. Instead the share price of Guinness was manipulated so as to give shareholders in Distillers a misleading impression of the value of its bid.That says it all.
The criminal matters arising from this affair will be dealt with by the courts. Argyll and the other companies will decide what civil actions they should raise against Guinness and its advisers. But what about the Scotch whisky industry and its future? A year ago Guinness followed Argyll's lead and promised to return to Scotland the headquarters and top management of Distillers as part of the newly merged company. That commitment was broken, along with several others.
Are the shareholders of Guinness content that the Guinness family directors and the remaining executive directors, who sat silently but profitably throughout the Saunders' stewardship, should be permitted to merge or dispose of Johnny Walker, Dewar's, Bell's or Gordon's as they think fit? I have every respect for the new non-executive directors and the new chairman, Sir Norman Macfarlane, who is a personal friend of mine, but their hands are full trying to measure the extent of the damage inflicted on the company by its directors. In any case, their presence now does not alter the thrust of my question about the future of the Scotch whisky industry.
In recent weeks the City has revealed its deep concern for its reputation as a leading financial centre, and rightly so. I have already praised the work of my right hon. Friend the Chancellor and the Governor. But the City has another 413 equally important role in this affair as the major institutional shareholder in Guinness. The City backed Guinness twice last year, first in the bid—many people in the City took the view that because it was an agreed bid with Distillers they should back both the Distillers board and the Guinness board — and again at the extraordinary general meeting at the beginning of September when it personally backed the chairman when he went against all that the City should believe in and said that he would be chairman and chief executive. He was stubborn on that point and the City gave way, and we know why. He could not risk an independent chairman — if hon. Members will pardon the pun — of Guinness. If Sir Thomas Risk had become chairman, the company's affairs would all have tumbled out in the few weeks thereafter. However, that was not to be. On both occasions the City was seriously misled. Indeed, it was deceived.
I respectfully suggest to the City that in the present circumstances, with Guinness confronted by enormous management and financial problems and possibly vulnerable to an overseas bidder, and with the competition policy that has been stated and restated many times—the Government cannot simply kick it into touch to the Monopolies and Mergers Commission; at least, I hope that they would, for reasons not to do with competition or the public interest — it should, as the dominant shareholder, assert its influence on the future of the Scotch whisky industry, and he seen to do so.
The City would enhance its reputation a great deal if it showed that it could act, not just as practitioner, merchant banker, broker and dealer, but responsibly as a shareholder, rather than have this great industry floating around rudderless and, at the moment, captainless. No new captain coming on board suddenly out of the blue would easily remedy the enormous problems that that company faces. That is where I see the City's further responsibility in this affair.
Ministers also have a responsibility here, because they have it in their power to influence swift and effective action to heal the severe wounds which the Guinness company has inflicted on the Scotch whisky industry. This is a time where the aims of the City, of the industry and of the Government should combine. They should be at one in ensuring that our financial reputation, industrial performance and good government prevail.
§ Mr. Austin Mitchell (Great Grimsby)
I followed the speech of the hon. Member for Edinburgh, Central (Sir A. Fletcher) with great interest. I agree with the major part of his argument. Indeed, quite by coincidence, I have just written to the Prime Minister and the Secretary of State for Trade and Industry suggesting that Guinness should be required to divest itself of the Distillers company. We cannot countenance a situation in which the criminal is allowed to keep the spoils of the crime. The hon. Gentleman mentioned the brands concerned. Will it be good for the reputation of those brands that they are now diluted with Guinness in the market? It will certainly not be good for Scotch whisky. I hope that that suggestion will be considered seriously because such a measure is well justified in this case.
The hon. Gentleman's speech also stood out, if he does not mind me saying so, because, unlike many other speeches by Conservative Members, it was not a panegyric for the City. Clearly, Conservative Members are sensitive 414 about the City's reputation, as well they might be, but to defend it on the grounds that it earns so much money overseas for Britain, or at least for a section of Britain, is rather like the citizens of Colombia defending the drug trade for fear of endangering overseas earnings.
What happened in the Guinness affair was surely a test of the City club and the vaunted principle of self-regulation. Most social security frauds, which the Government are so assiduous in dealing with, come to light because neighbours report on the fiddler. They complain to the Department of Health and Social Services. Yet here, in full view of the City, was a scandal of major proportions which many people knew was going on. That kind of thing cannot be kept within a close circle. The merchant banks, the institutions and the overseas connections involved must have known on a considerable scale what was going on, but nobody grassed. Nobody turned anybody in and nobody complained. They all sat there silent—the club operating.
Then the City asks us to accept the principle of self-regulation; that the mafia can best do its own police job. We see that kind of performance in that kind of case, faced with that kind of scandal. That surely undermines the whole principle of self-regulation. The stimulus to the inquiries, the original accusations and information, came from the United States, not from the City of London where it had all been happening. That is a major indictment of the City.
I do not want to join in this chorus of denunciation. Clearly, there are major problems. Insider trading is a major problem. If the Government want to encourage shareholder democracy, they must not allow the small shareholder whom they are encouraging to be ripped off. Yet that is what is happening with insider trading. The smaller shareholders are being ripped off by people with inside information using it for their own, now criminal, fortunately, purposes. That is what is at issue. Although few cases have been detected or prosecuted, it clearly must be occurring on a considerable scale judging by the share price movements of companies in contested takeovers. The movements always start before the bid is launched. Most of the research that I have seen shows substantial movements, which can only come from insider information and trading before the launching of the bid.
The scandal is amplified by what went on in addition in Guinness. But I do not find that surprising. The City is, after all, about money. It is about self-interest, greed and speculation. It is about lemmingism turned into a computer programme and wearing a dark suit. The City is not the Church of England at lunch. It is not a cathedral and we should not be surprised that such things happen.
The City is now characterised by a kind of up-market barrow boy mentality. It is rather like the Conservative party. There is no noblesse and there is no oblige. There is a kind of lowering of the accent. The elocution teacher element has gone. It is about that kind of greed and self-interest. Those who do not make it in the City, in either sense of the word, come here to the House of Commons as the pioneer corps of the City, trying as best they can to defend what is going on down the river from which they are mercifully excluded. That is not surprising because, in the ethics of the jungle, people will get away with what they can. It is no use expressing surprise that that has happened.
We need proper, effective regulation and that is why, in Committee on the Financial Services Bill, Opposition 415 Members were adamant that the Government should place regulation on a statutory basis. We said that there should be a body with the power to prosecute and to be its own police force, rather like the Securities and Exchange Commission in the United States, and functioning in the same fashion. In the more intimate atmosphere of the City, my hon. Friends and I saw that as the most effective way of dealing with the issue of regulation.
Indeed, we advised the Minister that a Labour Government would have to begin the work of regulation all over again if he did not accept our suggestions. We had hoped that we could come to cross-party agreement on some statutory body. The Minister unwisely rejected that advice and the Government are now desparately trying to back-pedal from their current position. They now have to strengthen what is, essentially, a limited company, financed by the City to regulate the City. That is not good enough.
One of the next Labour Government's first jobs on taking office will be to restore the City's reputation. In that sense, we have its real interests at heart. Its trading ability and worldwide connections depend upon its reputation and it has done more harm to its reputation than have any attacks from this side of the House. By providing a statutory basis for regulation, we shall be defending the City's reputation.
We should go further. I would like to see a requirement for the registration of the beneficial ownership of shares so that overseas nominee companies cannot go in for such raids as are involved in the process of takeover. Why should the beneficial ownership of shares not be registered? That is a legitimate requirement, and one of the problems facing us is why are the Government not proposing that.
My hon. Friends and I should also like to see a takeover panel with statutory powers and with a duty to take the economic situation of the company and the wishes of the workforce into account to stop the highly leveraged bids that have been built on a pile of money and credit, so that we can adequately control takeovers. I would give the first response to any bid to the employees of the company so that they can take over their own company, if that could be written into the legislation. A takeover panel with statutory powers seems to be the absolute minimum requirement.
If the Prime Minister is so keen on turning the unions over to their members, why is she not so keen on turning companies over to their shareholders? Why are the Government not bringing forward a radical programme of shareholder democracy, if they want to encourage small shareholders? Shareholders should be given more say in power and control over their companies. Why are the Government allowing small shareholders to be fleeced, exploited, rooked and duped in the way that has happened because of insider trading? Why are the Government not making the same song and dance about shareholder democracy that they made about the trade unions? Why are the Government not doing any of that?
I should like to deal briefly wth two problems. I decline to join the chorus of praise about the achievements of the City. In the main, those achievements have benefited a fairly small and wealthy class in this country, and not the great mass of our people who depend on the real economy 416 of jobs, manufacturing and industry, not on manipulation, and certainly not on a City that is now an adjunct or an outhouse shed to international manipulation, instead of having British interests, industry and investments at the centre of its preoccupations. The interests of the people of this country are in industry and not in the speculation of the City. Therefore, I decline to join the chorus of praise.
I note that our share of world financial services has been declining as steadily and at about the same rate as our share of world manufacturing trade. If that is achievement, the City will shortly be in the same situation as British manufacturing industry. In part, British manufacturing industry is in its current situation because of the City's approach to it.
The Chancellor has told us that he condemns shorttermism in the City. He is the kind of man who should recognise short-termism, whenever it occurs, because his economic policies are essentially based on a short-term approach. However, in this instance, the Chancellor is right to point to the problem of short-termism in the City and to draw attention to the problems that that causes. The City's short-term attitude towards investments, shared by the banks, has fostered an attitude of shorttermism towards takeover bids, or the possibility of such bids, and is a penalty on investment. Any company that takes a long-term view makes itself unattractive to the market and immediately vulnerable. A company with an investment programme that is designed to enable it to survive as a competing, effective company in a competing world market makes its share price less attractive and, therefore, becomes vulnerable to takeover. A short-term attitude penalises innovation and one of the great problems facing this country is the lack of finance that the City has provided for innovation, new initiatives and new products.
We do not have a similar ability to the Japanese to think long-term. The Japanese Ministry of International Trade and Industry not only has influence, but common personnel with the banks, and is able to arrange finance for a company that wants to invest in the long-term and to get a certain share of the market for its new products. That allows the company to sit through the hard years of getting a market share and building up its product and marketing force and to survive to draw the benefits. In Japan, a company can decide the market share that it wants, can get the finance to achieve that and can build on a long-term basis. That is something that we have never been able to do in this country. The City and the banks are largely responsible for the fact that we have not had such a long-term approach to investment. It is now too late for the City to pull its socks up. The City is doing a bit but it is certainly not doing enough. When it comes to investing in industry, the banks have nothing like the record, reputation or ability of the banks in West Germany. The approach of the banks has been short term. They want a quick, profitable balance sheet. A profitability time scale of three months seems to be the aim, rather than thinking of the five or 10-year expectations of the company.
The banks in my constituency are much more keen to operate as glorified pawnbrokers and to provide money for assets rather than to invest in the future for investment, growth or business. If those banks lend money they are too keen to charge fees for arranging the loan that would be a burden on the firm. The banks snatch the loan back at the first sign of difficulty and cannot evaluate whether the 417 firm has a real possibility of success. They do not nurture business as their television commercials tell us they do, and they certainly do not nurture business as do the West German banks.
We need an institution that looks to long-term investment. That is why the Labour party proposes a national investment bank or an industrial bank—I am not sure what the current nomenclature is—which will bring back, by stick and carrot, money that has been invested overseas and ensure that it is invested in Britain for long-term purposes.
The weakness of the banks and the City, and their failure to nurture industry and he involved with it like the Japanese and West German banks, is one of the reasons why we have had to labour too long with an overvalued pound. The interests of finance are taken separately from those of industry. The West German and Japanese banks are keen to see that their exchange rates are as competitive as possible. They are keen to resist appreciation. They must allow their exchange rates to appreciate substantially if we are to trade fairly, win back markets and indeed survive in the face of competition from them.
West Germany and Japan are now trading unfairly because the value of both currencies is kept lower than it should be by such devices as exporting capital, low interest rates and membership of the European monetary system. We should have gone in for that type of strategy if our banks had had similar involvement with industry and knowledge of its interests.
We are all worried about the amount of credit. The Bank of England has called it the overhanging glacier of credit. It is one of the main engines of inflation. An example of that is the appreciation of house prices. That appreciation creates collateral. People can then borrow on an appreciating house price and, because more credit is available, the house price increases again, enabling people to borrow even more.
One of the Labour party's aims should be to achieve effective control of credit. We should reverse the decisions that have been taken in regard to competition and credit control. They were disastrous, as they made credit an engine of asset appreciation and speculation. We must be able to direct credit so that it is used for the proper purposes of industry and the community.
I should like the banks to be required to take Treasury bills at a low rate of interest so that they cannot fund the debt in the traditional fashion, and so that we can use Government credit and put the money out directly into public spending, benefit increases and, if necessary, tax cuts to stimulate the economy rather than pump it out through the banks. The latter course leads only to a fever of speculation on asset appreciation. It is not for the banks to fuel the fever of speculation and takeovers. One of our first jobs, as the Government, must be to ensure that credit is used for the people and not for the banks.
§ 9 pm
§ Mr. Peter Lilley (St. Albans)
I too must declare an interest, although I am currently on leave of absence from my old firm. Like each right hon. and hon. Member, and every constituent who has a pension plan or an insurance policy, I have a vested interest in effective and rigorous regulation and honourable and honest investment by those people who handle our funds in the City.
418 It is therefore sad that riot one Liberal Member of Parliament has turned up for such an important debate and that, although it is an Opposition day, fewer than eight Labour Members are present.
§ Mr. Lilley
I should like to deal with some of the sources of confusion which bedevil the debate in the House and in the country.
The first is the term "self-regulation". Unfortunately, it normally conjures up the idea that it is all voluntary or, at best, imposed by the moral persuasion of professionals in the City. People therefore deduce that we need something statutory. What we have is a system of practitioner-based statutory regulation. The alternative is civil servant-based statutory regulation. Anybody who believes that it is possible for civil servants to regulate a business that is so complex and rapidly changing as effectively as those who operate a system which involves practitioners who know what is going on is talking through his hat.
The motion talks of imposing a statutory independent commission—an SIC. The Opposition seem to believe—the right hon. and learned Member for Monklands, East (Mr. Smith) implied it—that we have not established any body to supervise the City, have no plans and are relying on the sense of obligation of those involved. All I can say is, to use the words of the advertisement, he should go and tell SIB.
The second source of confusion is what might be called a paradox of successful detection. As long as crime and misdemeanours go unnoticed, nobody thinks that there is a problem, but as soon as we have some success at identifying crimes and those responsible for them, the public becomes aware of the problem and, as the public is wont to do, says that something must be done. It says that precisely because something has been and is being done.
I hope that we can get over the fact that we are successfully identifying wrongdoing which was previously going unrecognised, not least because some of the things which are now crimes were riot crimes under the Labour Government.
The third source of confusion arises from the two uses of the term "moral standards" in the phrase, "declining moral standards in the City". The first use concerns the standards which we all agree ought to be observed and which are enshrined in the rules and laws that govern the City.
The second use is the degree to which those standards are at any time adhered to and complied with. There is no doubt in my mind that the standards that are accepted and enshrined in the rules and imposed by law have increased steadily and, over a period, dramatically from those which used to prevail. I can think of many examples, and the most obvious is insider trading, which used not to be an offence in law and was not considered to be morally wrong. Through lack of rigorous analysis, it was not known who lost as a result of it.
My right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) talked in an earlier debate about his experience in the City. He explained that at that timethere was no legislation on insider dealing bcause nobody imagined for a moment that there would be an orgy of insider dealing."—[Official Report, 20 January 1987; Vol. 108, c. 793.]419 He suggested that the City did not reckon to involve itself in that sort of activity. I must tell my right hon. Friend—I endeavoured to do so at the time—that he let a lot pass him by. It was considered the norm to deal on the basis of insider information, if it was available, until about a decade ago.
Other changes have raised the standard of morality and rule-making in the City, including the change of attitude to multiple applications for new issues. That was considered to be a bit of a lark and it is now potentially a criminal offence. It used to be considered normal for those working in banks and broking houses and acting in a corporate capacity for a company to deal in the shares of the company. That would now normally be prohibited except on the terms on which the directors of companies deal. It used to be considered normal to deal before offering advice to a client. It was commonly held to be rather a recommendation when it was said, "I have bought some myself, old boy; why don't you?" That is considered now to be wrong and improper and no one is expected to deal on that basis until after all his clients have been enabled to buy.
There have been changes in the morality and rules that we seek to establish in the City. None of us has any firm evidence whether there has been any change in the number of bad apples in the crop and we do not know the extent to which there is compliance with the rules. My suspicion is that there has been little change over the decades and that there are as many rotten apples now as there were in the past, but probably no more.
There is the belief that, if a company invests, its profits will be reduced and it will render itself vulnerable to a takeover. This is held to be the mechanism by which the City enforces a short-term attitude on industry, which leads to a lack of investment in research and development, for example.
Short-termism is a weakness in industry, in the City and not least in politics. It was Lord Wilson of Rievaulx who said that a week is a long time in politics, but it is nonsense to suggest that investment is discouraged by the City and that it leads to takeovers. Investment does not reduce a company's profits. It does not enter into the profit and loss account until after the project in which it has occurred comes on stream and starts producing profits. The only areas in which there is a significant reduction in short-term profits are those where research and development is written off in the short term, and that is especially important in the pharmaceutical industry. Exploration costs are written off straight away in the oil industry, which again is an important factor.
It so happens that the pharmaceutical and oil industries are favoured by the City and are not prone to successful takeover bids. They have not been dissuaded from investing. On the contrary, they have invested heavily, successfully and in the extremely long term. I used to be involved in the oil business and we took a 20-year view. I believe that much the same is true of the pharmaceutical industry. The City has encouraged that, not discouraged it.
The Opposition are trying by means of the debate to arouse misunderstanding in the City on the basis of their own semantic confusions. I have mentioned the 420 pharmaceutical industry and I think that the Opposition should take the motto that was hung above a pharmacist's shop, which was, "We dispense with accuracy".
§ 9.9 pm
§ Mr. Bill Walker (Tayside, North)
I am grateful for this opportunity to contribute to this important debate. First of all, I declare that I have no interest whatsoever other than that of a Member of Parliament in whose constituency are the firms of Distillers and Bell. On that basis, I shall concentrate my comments, in the few minutes available, on the problems in the city concerning Guinness.
In my Adjournment debate on 25 July 1985 I spelt out the problems concerning the decision taken at that time by the takeover panel. I said that I considered that the takeover panel had made the wrong decision concerning the Bell takeover when it allowed Morgan Grenfell to continue as Guinness's merchant banker and adviser while Morgan Grenfell's corporate finance department had acted, for 10 years, as Bell's corporate finance department. Therefore, it was privy to all Bell's secrets right up to the point of the takeover. Immediately prior to the takeover, the corporate finance department was acting on behalf of both Bell and Guinness. There were no Chinese walls there.
I criticised the takeover panel because I believed that it had let the City down and I still believe that—but, more important, the criticism that has been heaped on to the City should properly and justifiably be put on those whose job it was to look after the affairs and morals of the City. I believe that the chairman of the takeover panel should consider his position.
At the time, I said that it was wrong of the takeover panel to allow Guinness, during the Bell takeover, to say:Scotland's best performing manufacturing company has lost its way.That was the biggest lie that I have ever read in my life. No one could ever describe Bell as a company that had lost its way. Every year, the company had increased its profits and its sales, and the employees — who were all shareholders—enjoyed its profitability. I shall return to the matter of employee shareholders shortly as I think that it is important and crucial to any decisions that we make about the future of the City.
I found it rather odd that General Accident, Bell's next-door neighbour, deserted Bell at the last minute of the takeover—it held 11 per cent. of Bell's shares—and if it had stayed with Bell, Bell would probably be independent today.
The reason I speak about this is that there have been reports in the press, which I confirm are accurate, of correspondence between a director of Noble Gorssart, which was acting for Guinness, and the present chairman of Guinness, Sir Norman Macfarlane. I believe that there are questions that require an answer. I am not seeking to cast any slurs, but those questions must be answered. Why was Peter Tyrie's account of £51,000 at Quayle Munro paid for by Guinness prior to the completion of the takeover? No declaration was made.
I congratulate my right hon. Friend and hon. Friends on the Front Bench on the speed with which they have moved. They have my full support. The criticisms that I am making are in no way a reflection on the present Front Bench. However, I must criticise my hon. Friend the Member for Edinburgh, Central (Sir A. Fletcher)— 421 unfortunately he is not in the Chamber at the moment—because he was the Minister at the time when I gave him the early evidence that I had, which stands up to close examination, that there was skulduggery going on in the City.
My hon. Friend let the Scottish whisky industry down and it is no good for him to call foul. We would not have faced the ghastly problems of Distillers if the problems had been dealt with during the takeover of Bells. Ernest Saunders used the same tactics and the same strategy with Bells, but the funds used were smaller. I know that, because I was followed by a private investigator during the period of the Bells takeover. He must have been rather disappointed, because my life is not that exciting. Nevertheless, I know that I was followed, as were the directors of Bells.
There is much that I wish to say about this, but I hope that the situation of the employee shareholders will be looked at. I hope that a formula to return Bells to its former directors and employee shareholders will be found and we can get rid of the greed, skulduggery and political ineptness that have brought us to this situation today.
§ Mr. Robin Cook (Livingston)
For the first time since the hon. Member for Tayside, North (Mr. Walker) entered the House, I can say that it is a pleasure to follow him. Lest that comes as too much of a shock to my colleagues, let me explain that I represent one of the two main production centres for Bells whisky and I accompanied the hon. Gentleman when he went to see the hon. Member for Edinburgh, Central (Sir A. Fletcher). In the light of what has happened since, I rather wish that he had agreed to our representations to refer the Guinness bid for Bells to the Monopolies and Mergers Commission. Perhaps, in the light of his deep knowledge of the subsequent bid by Guinness for Distillers, he can now see the force of the arguments that we put to him.
§ Sir Alex Fletcher
I am sorry that I did not hear all the speech of my hon. Friend the Member for Tayside, North (Mr. Walker) but I can guess those remarks that I did not hear. However, there was no evidence presented by anyone during my time as a Minister in the Department of Trade and Industry to show that there was any misconduct by Guinness or anyone else in the course of the takeover bid for Bells.
§ Mr. Cook
That is what the takeover panel says about the Guinness-Distillers bid, a point to which I shall return.
I shall refer to many of the speeches made today, but the House will expect me to make the core of my remarks, around which I shall weave these references, the revelations that we have had in the past month about the way in which the City operates. These have made the business pages of the newspapers much the most interesting and entertaining pages, reporting as they do flights of creative energy that we cannot discover on the arts pages.
It is now evident that Guinness succeeded in beating off its Argyll rival for Distillers by a touch of more than pure genius. It was partly, at least, secured by the use of a war chest of £25 million, disbursed to members of the concert party. I understand that the £25 million was paid by means of petty cash invoices. Guinness is a large company, especially now that it has swallowed Bells and Distillers, 422 but even a company as large as that is not accustomed to handling £25 million through petty cash. Payments have been made to several people who have been named tonight—Gerald Ronson, Sir Jack Lyons, S. and W. Berisford. I noticed the rather plaintive observation of Jacob Rothschild's J. Rothschild Holdings the other week:We appear to have been one of the few investors in Guinness which did not receive a kick-back for its help. We were a genuine part of the fan club.I am not sure whether the second sentence is offered in explanation of why it did not get the kick-back or a complaint about not getting the kick-back.
An obvious series of questions flows from these revelations. The first and most clear is: is Guinness an isolated affair? Is it without parallel in the recent history of the City? Are there any comparable cases? We have the intriguing remark of Lord Hanson, who, rather unfortunately, said on 9 April 1986:Guinness … are doing so many of the things we are doing in our fight for Imperial.I have no doubt that if he could have his time over again, he would phrase that rather more felicitously.
The question whether there are any parallels is prompted by one or two considerations, of which the first is that Guinness is not the only company to have launched a takeover bid and discovered to its surprise its share price rising during the course of that bid. One need look no further than the case of the Burton bid for Debenhams, which was also accompanied by an interesting rise in the share price at the time of the offer for Debenhams.
The other reason why we might speculate whether Guinness is an isolated case is the fortuitous way in which we understand that the DTI inquiry began. It began, as everybody in the world knows, because the DTI received information from the SEC which had stumbled over the link between Guinness and Boesky. The Department of Trade and Industry knew that that link was going to break on Wall street in the following week if it did not send in its people first.
The right hon. Member for Hertsmere (Mr. Parkinson) took a dim view of the SEC in America for having taken four years to nail Boesky. It is a fact that Boesky was active not simply on Wall street, but in the City. He was involved in several of the takeover deals in the City. He formed one of his major investment trusts in the City. It is true that his enthusiasm for the City was tempered by his observation that he did not care to do business there because, as he said in his delightful phrase, he found it "too leaky". Nevertheless, Mr. Boesky was very active in the City. It ill becomes the right hon. Member for Hertsmere to complain that it took the SEC four years to uncover Mr. Boesky in Wall street when he was never uncovered in any of his operations in the City.
It is fair to reflect on what happened during the Guinness bid for Distillers as a test of self-regulation or, as we now must learn to call it, practitioner-based regulation. At the heart of the failure of the regulatory system was the operation of the takeover panel. That panel is a prime example of practitioner-based regulation. It exchanges personnel with the rest of the City. One of the personnel it has exchanged is Graham Walsh who, five years ago, was its director general before he transferred back to Morgan Grenfell, from which he resigned earlier this month having discovered that his bank had helped to break the rules that he had helped to frame while he was at the takeover panel.
423 Where was the takeover panel when Guinness was not just breaking the takeover rules, but was comprehensively pulping them? What was it doing? Did it know? If it knew, why did it not act? If it did not know, why did it not know? It has no excuse. We know that the Argyll group made sure that it was informed about the suspicious and curious things happening to Guinness shares.
In The Independent this morning Sir Martin Jacomb observed that the takeover panel should not be thrown to the wolves. I would not adopt that course of action. That appears to be the Lord Avebury solution. I believe that Sir Martin is missing the point. The point is not whether the takeover panel should be thrown to the wolves, but why it failed to notice such a large ravenous wolf in its own backyard.
I listened with interest to the Secretary of State talking about setting up another review. I hope that it will report earlier than the review on competition policy which, as I understand it, will not report until the end of the year. He would have been spared the need to set up such a review if he had accepted the many offers of advice and the many amendments tabled during the passage of the Financial Services Act 1986 and taken the opportunity to put the takeover panel on a proper statutory basis.
Another area of concern in the Guinness scandal is how it was so easy for Guinness, having embarked on its course, to find so many willing accomplices in the City. My hon. Friend the Member for Rhondda (Mr. Rogers) made a characteristically robust and fearless contribution to the House. However, I differ from him in the emphasis that he placed on crime in the City. I do not take the view that all those who operate in the City are crooks. I would go so far as to say that most of those in the City would not knowingly break the law. Over the past three months I have met many people operating in the City on many different occasions. I have not been invited to chateau Morgan Grenfell, which I understand is located in Whitehall court. However, I have met many operators in the City and it is clear that many of them —[Interruption.] My right hon. Friend the Leader of the Opposition holds out the prospect that I will be invited. I hope that this speech has drawn my absence at the chateau to the attention of those in Morgan Grenfell.
I have met many operators in the City and there is no doubt that from most of them there emanates a sense of indignation and embarrassment at the way in which the City is being portrayed in the press, because it has been let down by what they see as a minority. I accept that as a fair point of balance. Nevertheless, the awkward fact remains that Guinness had no difficulty in finding accomplices for its manoeuvre. It found plenty who were willing to help it in merchant banks and among the stockbroker community. Since we have talked much about merchant bankers, I wish to say something about stockbrokers.
We have as our first witness Mr. Parnes. He was described by Gerald Ronson as "an eminent broker" which immediately prompted the wonderful spectacle of top City stockbrokers hurrying to the press to say that they were not eminent brokers.
As my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) reminded us, and as my hon. Friend the Member for Hackney, South and 424 Shoreditch (Mr. Sedgemore) said in an entertaining speech, Mr. Parnes has apparently been known for a long time in the City as "the animal".
One of the things that fascinates me about each successive Guinness revelation is that every time someone is named there are always two dozen people around to say, on an unattributable basis, that they always knew that he was a bad apple and that he was suspect. Mr. Parnes turns out to be a case in point. Nevertheless Mr. Parnes, having got Mr. Ronson's commission, successfully placed it through Alexanders, Laing and Cruickshank, which handled all Mr. Parnes' business and also, of course, took its half of the commission, worth £500,000.
To put it mildly, the supervision at Alexanders, Laing and Cruickshank does not appear to have been of the best, which may make it regrettable that the Secretary of State has appointed the chief executive of Alexanders, Laing and Cruickshank as one of the members of the Securities and Investments Board to oversee the whole of the City.
Mr. Parnes' tie with Alexanders, Laing and Cruickshank has now been severed. He is, interestingly, the only broker to have been thrown overboard in the past month. He is the only broker who has been involved in the share deals worth £500 million, involving perhaps one third of the entire Guinness stock, who has been caught out. I must ask the House: what about Cazenove? Cazenove was the regular broker of Guinness and handled all its share purchasing and sales. As any other stockbroker would do when acting for a client, Cazenove monitored all the purchases and sales of Guinness shares. I can reveal to the House that on 6 May, the settlement day after the closure of the bid for Distillers, Cazenove purchased 20 million shares in Guinness for Cazenove nominees. That was, of course, the same day on which Morgan Grenfell paid £7.5 million to Henry Ansbacher for Down Nominees. It is an irresistible conclusion that that payment by Cazenove on the same day was for the same purpose, to pay off some members of the concert party who had bought Guinness shares on a temporary basis during the bid for Distillers to drive up the price.
§ Mr. Cook
A minority are. My emphasis is different from that of my hon. Friend. This again poses an interesting test of self-regulation because the body that would be responsible for scrutinising the actions of Cazenove is the stock exchange — one of the self-regulating organisations appointed under the Financial Services Act. The stock exchange has signally failed to achieve the same changes at Cazenove that the Bank has manifestly secured at Morgan Grenfell and leaves one with the doubt that it finds Cazenove too big, too prestigious or perhaps too influential within the stock exchange for it to take effective action against them.
We now turn from the stock exchange and the City to the Conservative party. I have been greatly interested in the change in rhetoric that I have witnessed in the short time in which I have held the portfolio for the Labour party. The fact that the Government did nothing effective at the time of the bid to stop the City's excesses has not stopped them pouring forth a spate of speeches in the past month promising vengeance on it for being so troublesome to them. I notice that one Minister was quoted on an unattributable basis in the Financial Times as saying:The quicker we put the handcuffs on somebody the better.
425 We now have the proposition that those caught insider dealing and sentenced will be liable to a penalty of seven year's imprisonment. I presume that that is what Conservative Members would describe as the longer-term view of financial services.
I speak for the whole of the Opposition. We welcome the new commitment by the Conservatives to bringing City fraud to book. It sits a bit oddly with their record of the past six years—with 110 references of suspected insider dealing passed to them by the stock exchange as a result of which only nine people were prosecuted, none of whom has spent a single day in prison. It sits a bit oddly with the couple of dozen cases that they have been sitting on for a couple of years, referred to them by Lloyd's insurance as cases meriting prosecution. It sits a bit oddly with the failure for several years to attempt to extradite Peter Cameron-Webb from Florida, where he is sitting on top of the £38 million that he siphoned away. It sits oddly with the failure to bring a single prosecution arising out of the Johnson Matthey Bankers scandal, which is one of the biggest banking scandals since the war.
My hon. Friend the Member for Workington (Mr. Campbell-Savours) made a plea to the Minister to act on a firm whose name, understandably, he was not prepared to disclose to the House. I understand that he has passed information to the Minister. I say to my hon. Friend only that I hope that the Department of Trade and Industry is swifter in acting on the case that he has passed to it than on the other licensed dealers, Ravendale, which was closed only two years after it was being regularly exposed in the Sunday papers.
However, let us be generous. Let us not complain that the Government have tacked with the wind now that the climate has changed. However, we must say to them that they cannot reduce the lessons of Guinness to a simple matter of law and order. The issue of Guinness begs wider questions about the abuse of corporate power and about the new culture in the City, which means that in certain quarters of the City, apparently, there is a willingness to tolerate the excesses that Guinness represented; a new culture that was partly fostered by the Government, who have passed easy pickings to it in the form of the privatisation programme. They have also helped to fashion the City in the image of their own ideology. It is a completely free market, deregulated by Government, not burdened by an obtrusive Government body to supervise it, and allowed to pursue without check the dictates of market forces with the net result that it is repugnant to the public and embarrassing to the Government. Self-regulation needs self-restraint, and that is conspicuously lacking in the City today.
The most fundamental lesson from the Guinness affair is that the City and business must shift their priorities from chasing the acquisition of each other back to investing in the future of the companies and developing real machinery, real plants and real jobs.
Guinness was at the flood of takeover bids. It is the high-water mark. The strength of that tide was remarkable. In 1983, £2 billion was staked in takeover bids. In 1986, £16 billion was staked in takeover bids—37 per cent. of all investment capital made available in 1986. The irony is that at the very time when that takeover stampede was accelerating in pace, the Conservatives restricted the grounds on which they would make a reference of a takeover to the Monopolies and Mergers Commission panel. They bound themselves voluntarily to 426 confining references to competition and excluded the wider considerations of the public interest, which they are entitled to consider in terms of the law. They have left the public interest to be safeguarded by shareholders.
It is no disrespect to shareholders to say that they are not there to safeguard the public interest. They are there to safeguard their shares. That, of course, is what they do. It is the Conservative Government who are charged with the important duty of safeguarding the public interest, and that is what they have now failed to do.
Labour Members do not speak on these matters from a purely academic perspective. I want to conclude on a personal note as Conservative Members have on many occasions during this debate referred to their experiences in the City. I want to share with the House a recent experience in my constituency. At the end of last week a company operating in my constituency announced the closure of a plant within the Golden Wonder group with the loss of 350 permanent jobs and 150 seasonal jobs, which usually last for several months.
My hon. Friend the Member for Linlithgow (Mr. Dalyell) is aware of the closure because many of those operating the plant live in his constituency. The relevance of the closure to the debate is that the company has been sold and resold over the heads of its workers. It has had three owners in two years. One of those owners was the Hanson Trust which has just broken an undertaking not to sell the company that it had acquired from the Imperial Group. The latest owners are the Dalgety food group. That company acquired the firm three months ago. Only three months later, it announced the closure, although the plant has the most modern machinery in the group, machinery which Dalgety proposed to strip and remove although it was installed only last year with the help of a development grant from the Scottish Office.
I am sure that I speak for my hon. Friends when I say that I find it deeply offensive that a company which has owned a plant for only three months should shut it down without consultation, while refusing negotiations with the work force, many of whom have worked in the plant for 20 years. It is not just plant and machinery that change hands in a takeover. The work force which operates that machinery also changes hands. The job security of employees and the economic prosperity of communities cannot be left to be auctioned in the City.
The truth is that the City has shown verve, enthusiasm, imagination and initiative in speculating with the ownership of British industry. However, it has shown scant interest in investing in the development of that industry. It has done itself proud, but it has failed the needs of the real economy. That is why we shall vote against the Government, who have proved the willing accomplice of the City.
§ The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Michael Howard)
I want to begin by welcoming the return of the hon. Member for Livingston (Mr. Cook) to these rather down-to-earth matters. He has had his mind on higher things in recent days. He made a characteristically robust contribution to the debate, and I shall have a word or two to say about his comments in due course.
No one listening to the speeches by Opposition Members would have the faintest idea that we have been discussing one of the most successful sectors of the British 427 economy. Quite apart from its contribution to British business, London attracts huge volumes of business which has no natural reason to come here. There is no law of nature which compels Australian owners to insure the risks that they incur in the United States of America with London insurers, or which compels West German purchasers of Japanese shares to deal through London stockbrokers or Dutch borrowers to raise Swiss currency through London bankers. This business is conducted in London because the City is efficient, competitive and convenient. We should always bear that in mind when considering the criticisms that have been made about the City.
I want to consider some of the criticisms that have been made. We have heard a good deal about short-termism. However, it is not true to suggest that the stock exchange in particular or the City in general is incapable of looking to the long term. My hon. Friend the Member for St. Albans (Mr. Lilley) quoted some specific examples. In general, companies whose shares are quoted on the stock exchange are not all rated equally. There are wide variations between the price-earnings ratios of different shares. These reflect the different long-term outlook that different companies face. Proper information must be given. If a company is spending a great deal on research and development, the financial world must be told. If that expenditure is likely to leave a temporary depression in profits, companies should be open about it. If the institutions, whose liabilities, by and large, are extremely long-term, are kept in the picture, they are perfectly capable of taking a long-term view.
Many of those who spoke in the debate, not least the hon. Member for Livingston, commented on takeovers. In this area our policy is under review, but whatever their views on current policy, few objective observers would view with anything other than extreme alarm the proposals made yesterday by the Labour finance and industry group and commended enthusiastically outside the House by the hon. Member for Livingston, who is a member of that group, but not mentioned at all during the debate either by the right hon. and learned Member for Monklands, East (Mr. Smith) or by the hon. Member for Livingston.
Let us spend a moment or two discussing those proposals. They would involve the vetting of almost every merger — it would involve hundreds of commercial transactions every year—by the Office of Fair Trading and, acting as an appeal body, the Monopolies and Mergers Commission. That would represent a massive increase in bureaucracy and would dramatically increase the burden on companies which are the targets of bids as well as the bidders. The criteria on which bids are to be vetted are, to say the least, confused. On page 17 of the document we read that competition may play a relatively small part in these matters, but on page 12 we are promised legislation to incorporate articles 85 and 86 of the treaty of Rome directly within our law and to apply them to purely domestic mergers. It is a pity that the person who wrote page 17 was not told about that, because those articles are based fairly and squarely on competition.
Most disturbing of all, under Labour, the Office of Fair Trading and the Monopolies and Mergers Commission would no longer be independent bodies. They would be staffed by people with a political and ideological 428 understanding of Labour party policy. They would be selected on the ground of their political inclinations—those are the words in the report. Under a Labour Government, one would need a party card to get a job with the Office of Fair Trading or the Monopolies and Mergers Commission.
I contrast that attitude with the attitude that this Government have taken to those bodies. I remind the House that the present Director General of Fair Trading was appointed by the Labour Government in 1976 and that the present chairman of the Monopolies and Mergers Commission was appointed by a Labour Government. Both have rendered distinguished, independent public service since then and have been reappointed to their posts by this Government. There would be no place for that approach if the Labour party was again concerned with such matters. That document says much about the reality of Labour's policies when one gets behind the rose-tinted facade.
The hon. Member for Stockton, South (Mr. Wrigglesworth), on behalf of the Social Democratic party, suggested two possible changes to takeover policy. He suggested changing the burden of proof and giving direct access to the courts to individuals and companies affected. Those ideas will be considered during the review, but it is clear that they could not conceivably lead to the advantages which the hon. Gentleman claims for them. He said that they would streamline the system, that they would make it quicker and simpler. How reversing the burden of proof and thus involving, in common with the policy of the official Opposition, the reference of almost every merger so that that burden can be discharged could conceivably be described as making the process quicker and simpler is beyond credibility. It is hardly surprising if the hon. Gentleman's party's policies are not taken seriously, either inside or outside the House, if it continues to make such extravagant and far-fetched claims about the significance of the policies that it advocates.
My hon. Friend the Member for Hastings and Rye (Mr. Warren) raised a series of interesting points, perhaps slightly outside the mainstream of discussion, in relation to which he has already received letters from my right hon. Friends the Prime Minister and the Secretary of State. Perhaps he will forgive me if I do not add to those letters during these observations.
My hon. Friend the Member for Edinburgh, Central (Sir A. Fletcher) spoke about the takeover panel and made a number of points about the possibility of changing the way in which the panel operates. My right hon. Friend the Secretary of State dealt with that point in his remarks this afternoon. I have nothing to add.
The hon. Member for Great Grimsby (Mr. Mitchell) called, perhaps a trifle surprisingly, for greater shareholder control. He said that the Government should return the control of companies to their shareholders. I was under the impression that shareholders had control of their companies and that that was why Opposition Members were unhappy with our policy on mergers. They constantly claim that we should not leave decisions of this kind to shareholders. Of course, the City's success brings obligations with it. We have legislated to ensure that those obligations are recognised and discharged. The law must be observed. The action that we have taken demonstrates our determination to ensure that it will be observed.
Many hon. Members have expressed concern about some of the events that have been reported in the 429 newspapers in recent weeks, and I share that concern, but they are not grounds for criticism of the Government. As soon as we had good grounds for taking action, we acted. It may be recalled that when I appointed inspectors to investigate the affairs of Guinness plc many thought and wrote that I had beeen precipitate. What subsequently has come to light provides ample vindication of my decision and of my determination vigorously to enforce the law.
§ Mr. Allan Rogers
The Minister said that he will be assiduous in prosecuting people who have broken the law. How is it that only 18 cases were brought in 1981 and 1984?
§ Mr. Howard
I am not entirely certain to which cases the hon. Gentleman is referring. If evidence exists that justifies cases being brought before the courts, they will be brought before the courts.
§ Mr. Campbell-Savours
We understand that there may well be prosecutions under the Companies Act 1985. Will the Minister not rule out prosecutions under the 1977 criminal law, which provides for prosecutions when conspiracy has taken place? There may be persons who conspired with Guinness to break the law under section 151.
§ Mr. Howard
I rule out no prosecutions when evidence is available and justifies a charge being brought.
The inquiry into Guinness plc is proceeding under the Companies Act. The inspectors, although appointed by me, are entirely independent. They have far-reaching powers. They may call for documents, examine witnesses on oath, and require witnesses to answer questions even if such answers involve self-incrimination.
There have been calls, principally from the Opposition Front Bench, for an interim report, but the inspectors have told me that that would impede their inquiry. To compile it they would have to turn from their investigations and call a halt to their inquiry. They would have to devote their energies to the demanding procedure that must be followed before any report, full or interim, can be published if it is to contain any criticism of any individual. Of all the half-baked suggestions that have emanated from the Opposition in recent weeks, that suggestion —persisted in long after the effects were explained to them—was probably the most inept. I am not prepared to contemplate any action that would impede the independent inspectors as they set about their task. Their inquiry must be full and thorough, and I shall not take any action that would detract from that objective.
§ Mr. Robin Cook
I entirely concur with the hon. and learned Gentleman's wish to put no impediment in the path of the inquiry into the Guinness affair. Does he recall his answer to a question from me last week, which showed that the average time taken by a DTI inquiry to come to final report is 36 months and two weeks? In the light of that extraordinary time scale, is he satisfied that his Department is sufficiently swift in carrying out its inquiries.
§ Mr. Howard
We have taken steps to ensure that this inquiry is completed in the shortest possible time that is consistent with a full, thorough and effective report. The inspectors are devoting all their time to the inquiry, they have all the resources that they need to carry out their investigation and they are very conscious of the need for expedition.
430 As I said previously, the inspectors do not have to wait until they submit a report before they can submit to me any evidence of criminal activity that they discover. Nor is it necessary for them to complete their report before criminal charges can be laid if the evidence justifies that. The inspectors are well aware of their powers in that respect and I have encouraged them to make full use of them. If, at any time, it becomes appropriate for prosecutions to be commenced, commenced they will be.
§ Mr. Allan Rogers
During my speech I asked the Minister to tell us how many additional inspectors had been engaged. In 1985, 21 inspectors were investigating billions of pounds of City fraud, compared with the thousands who were investigating social security fraud. How many additional inspectors have been engaged since 1985?
§ Mr. Howard
The hon. Gentleman misunderstands the position. I explained that the Inspectors whom we appoint under the Companies Act and in connection with insider dealing—a subject to which I shall come in a moment—are independent. They are appointed for the purpose of carrying out specific inquiries. We shall continue to appoint inspectors to carry out such inquiries wherever and whenever we have the evidence to justify doing so. There is no restriction on the resources available to them for that purpose.
As my right hon. and learned Friend said, when the Opposition were in power they never got around to making insider dealing an offence. It was this Government who took that step in 1980, and it is this Government who have taken steps to enable evidence to be obtained if the offence is to be made to stick.
My right hon. Friend described the powers in the Financial Services Act for the purpose, but they were described as draconian by the Opposition spokesman in another place. They take away from anyone suspected of the offence the right to silence so as not to incriminate himself. They far exceed the powers available to the Securities and Exchange Commission. They are certainly not available to anyone investigating social security fraud — the Opposition's favourite comparison. Like the powers available under the Companies Act, they are available to independent inspectors appointed by the Secretary of State.
The Opposition constantly hark back to the inadequate record on prosecutions for insider dealing before the powers were available. It is precisely because we recognised that the record was inadequate that we took increased powers. My right hon. Friend the Secretary of State has explained how speedily we have brought them into effect.
§ Mr. John Butterfill (Bournemouth, West)
Is it not true that the Opposition in another place tried to water down the powers that we were giving to inspectors under sections 147 and 148, by moving an amendment to that effect?
§ Mr. Howard
I have looked at the amendments which were put down in another place on this matter and I think that my hon. Friend is probably correct, but the discussion that took place was so inordinately complicated that, frankly, I gave up the task of trying to discover whether the effect would be to whittle down those powers.
The motion before the House this evening calls for a statutory independent commission to supervise financial 431 services. We have heard that phrase before. We have been asking for more than a year now what it means. When the hon. Member for Dagenham (Mr. Gould), who was his party's spokesman on these matters, during the passage of the Financial Services Bill disclaimed the Securities and Exchange Commission as a model, he said that in looking for a model he would not look to that commission, and he made certain criticisms of it. The hon. Member for Livingston, by contrast, and with a touching if uncharacteristic faith in transatlantic models, seems very keen on the Securities and Exchange Commission. The right hon. and learned Member for Monklands, East, speaking earlier this afternoon, said that he was looking for something not precisely the same as the Securities and Exchange Commission.
Not one of those hon. Members has told us what powers such a body would possess which the regulatory authorities established under the Financial Services Act will not have. Nor have they told us how, in particular, such a body could be expected to be more effective in the exercise of its power than the regulatory authorities set up under the Financial Services Act will be. If any of those Opposition Members wishes to take the opportunity now to identify a single power which the body would have, were it made statutory, and which the regulatory authorities to be established under the Financial Services Act will not have, I shall gladly give him the opportunity of making that plain to the House and to the country.
§ Mr. Robin Cook
I rest with the single illustration, which will serve for the present, of the amendment, which the hon. and learned Gentleman himself resisted in Committee, to give the SIB the same powers as he is so proud of having taken in relation to insider dealing, but which he resisted in Committee precisely because the SIB was not a statutory body.
§ Mr. Howard
The hon. Gentleman is wrong. It is perfectly true that we have decided not to give the SIB those particular powers, but it has nothing to do with its not being a statutory body. As I have indicated, the powers which are given to inspectors to investigate this particular offence, comparable only to the powers available to inspectors under the Companies Act, are draconian in the extreme. They are unprecedented in our legislation and are not available to the Securities and Exchange Commission. Powers of that kind should be exercised only by inspectors directly appointed by the Secretary of State because he is directly accountable to the House.
The hon. Member for Great Grimsby seemed to be unaware, despite the fact that he served on the Financial Services Bill Committee, that the SIB would have the power to prosecute. I have beside me a list of about a dozen offences on which the SIB could prosecute when powers are transferred to it, should it be designated by the Secretary of State.
Opposition Members have been content to mouth slogans, in the hope that no one will ask them questions or insist on answers to those questions. We do not think in slogans. We are putting into place a tough and effective system for regulating the financial services industry. We are determined to ensure that the City maintains the highest standards of conduct, and we look forward to its continuing success. I urge the House to reject the motion.
§ Question put, That the original words stand part of the Question:—
§ The House divided: Ayes 181, Noes 283.435
|Division No. 75]||[10 pm|
|Abse, Leo||Gilbert, Rt Hon Dr John|
|Adams, Allen (Paisley N)||Godman, Dr Norman|
|Alton, David||Golding, Mrs Llin|
|Anderson, Donald||Gould, Bryan|
|Archer, Rt Hon Peter||Gourlay, Harry|
|Ashley, Rt Hon Jack||Hamilton, James (M'well N)|
|Ashton, Joe||Hamilton, W. W. (Fife Central)|
|Atkinson, N. (Tottenham)||Hart, Rt Hon Dame Judith|
|Bagier, Gordon A. T.||Hattersley, Rt Hon Roy|
|Banks, Tony (Newham NW)||Healey, Rt Hon Denis|
|Barron, Kevin||Heffer, Eric S.|
|Beckett, Mrs Margaret||Hogg, N. (C'nauld & Kilsyth)|
|Bell, Stuart||Holland, Stuart (Vauxhall)|
|Benn, Rt Hon Tony||Home Robertson, John|
|Bennett, A. (Dent'n & Red'sh)||Howarth, George (Knowsley, N)|
|Bermingham, Gerald||Howell, Rt Hon D. (S'heath)|
|Bidwell, Sydney||Hoyle, Douglas|
|Blair, Anthony||Hughes, Robert (Aberdeen N)|
|Boothroyd, Miss Betty||Hughes, Roy (Newport East)|
|Boyes, Roland||Hughes, Sean (Knowsley S)|
|Bray, Dr Jeremy||Hughes, Simon (Southwark)|
|Brown, Gordon (D'f'mline E)||Janner, Hon Greville|
|Brown, Hugh D. (Provan)||Jenkins, Rt Hon Roy (Hillh'd)|
|Brown, N. (N'c'tle-u-Tyne E)||John, Brynmor|
|Brown, Ron (E'burgh, Leith)||Jones, Barry (Alyn & Deeside)|
|Buchan, Norman||Kaufman, Rt Hon Gerald|
|Caborn, Richard||Kennedy, Charles|
|Callaghan, Rt Hon J.||Kinnock, Rt Hon Neil|
|Callaghan, Jim (Heyw'd & M)||Lambie, David|
|Campbell-Savours, Dale||Lamond, James|
|Canavan, Dennis||Leadbitter, Ted|
|Carter-Jones, Lewis||Leighton, Ronald|
|Clark, Dr David (S Shields)||Lewis, Terence (Worsley)|
|Clarke, Thomas||Litherland, Robert|
|Clay, Robert||Lloyd, Tony (Stretford)|
|Clelland, David Gordon||Lofthouse, Geoffrey|
|Clwyd, Mrs Ann||Loyden, Edward|
|Cocks, Rt Hon M. (Bristol S)||McCartney, Hugh|
|Cohen, Harry||McDonald, Dr Oonagh|
|Conlan, Bernard||McKay, Allen (Penistone)|
|Cook, Frank (Stockton North)||MacKenzie, Rt Hon Gregor|
|Cook, Robin F. (Livingston)||McTaggart, Robert|
|Corbett, Robin||McWilliam, John|
|Craigen, J. M.||Madden, Max|
|Crowther, Stan||Marek, Dr John|
|Cunliffe, Lawrence||Marshall, David (Shettleston)|
|Dalyell, Tam||Martin, Michael|
|Davies, Rt Hon Denzil (L'lli)||Mason, Rt Hon Roy|
|Davies, Ronald (Caerphilly)||Maxton, John|
|Davis, Terry (B'ham, H'ge H'l)||Maynard, Miss Joan|
|Deakins, Eric||Meacher, Michael|
|Dewar, Donald||Michie, William|
|Dixon, Donald||Mitchell, Austin (G't Grimsby)|
|Dobson, Frank||Morris, Rt Hon A. (W'shawe)|
|Dormand, Jack||Morris, Rt Hon J. (Aberavon)|
|Douglas, Dick||Nellist, David|
|Dubs, Alfred||Oakes, Rt Hon Gordon|
|Dunwoody, Hon Mrs G.||O'Brien, William|
|Eadie, Alex||O'Neill, Martin|
|Eastham, Ken||Park, George|
|Evans, John (St. Helens N)||Patchett, Terry|
|Fatchett, Derek||Pavitt, Laurie|
|Faulds, Andrew||Pendry, Tom|
|Field, Frank (Birkenhead)||Pike, Peter|
|Fields, T. (L'pool Broad Gn)||Powell, Raymond (Ogmore)|
|Fisher, Mark||Radice, Giles|
|Flannery, Martin||Randall, Stuart|
|Foot, Rt Hon Michael||Raynsford, Nick|
|Forrester, John||Redmond, Martin|
|Foulkes, George||Rees, Rt Hon M. (Leeds S)|
|Fraser, J. (Norwood)||Richardson, Ms Jo|
|Freud, Clement||Roberts, Ernest (Hackney N)|
|George, Bruce||Robertson, George|
|Rogers, Allan||Straw, Jack|
|Rooker, J. W.||Thomas, Dafydd (Merioneth)|
|Ross, Ernest (Dundee W)||Thompson, J. (Wansbeck)|
|Rowlands, Ted||Thorne, Stan (Preston)|
|Sedgemore, Brian||Tinn, James|
|Sheerman, Barry||Torney, Tom|
|Sheldon, Rt Hon R.||Wardell, Gareth (Gower)|
|Shore, Rt Hon Peter||Wareing, Robert|
|Short, Ms Clare (Ladywood)||Weetch, Ken|
|Short, Mrs B.(W'hampt'n NE)||Welsh, Michael|
|Silkin, Rt Hon J.||White, James|
|Skinner, Dennis||Wigley, Dafydd|
|Smith, Rt Hon J. (M'ds E)||Williams, Rt Hon A.|
|Snape, Peter||Winnick, David|
|Soley, Clive||Young, David (Bolton SE)|
|Steel, Rt Hon David||Tellers for the Ayes:|
|Stewart, Rt Hon D. (W Isles)||Mr. Frank Haynes and|
|Stott, Roger||Mr. Chris Smith.|
|Aitken, Jonathan||Clark, Dr Michael (Rochford)|
|Alexander, Richard||Clark, Sir W. (Croydon S)|
|Alison, Rt Hon Michael||Clarke, Rt Hon K. (Rushcliffe)|
|Amess, David||Clegg, Sir Walter|
|Ancram, Michael||Cockeram, Eric|
|Arnold, Tom||Colvin, Michael|
|Ashby, David||Conway, Derek|
|Ashdown, Paddy||Coombs, Simon|
|Aspinwall, Jack||Cope, John|
|Atkins, Rt Hon Sir H.||Cormack, Patrick|
|Atkins, Robert (South Ribble)||Cranborne, Viscount|
|Atkinson, David (B'm'th E)||Critchley, Julian|
|Baker, Nicholas (Dorset N)||Crouch, David|
|Baldry, Tony||Currie, Mrs Edwina|
|Batiste, Spencer||Dicks, Terry|
|Beaumont-Dark, Anthony||Dorrell, Stephen|
|Beith, A. J.||Douglas-Hamilton, Lord J.|
|Bellingham, Henry||Dover, Den|
|Bendall, Vivian||du Cann, Rt Hon Sir Edward|
|Benyon, William||Durant, Tony|
|Bevan, David Gilroy||Dykes, Hugh|
|Biffen, Rt Hon John||Edwards, Rt Hon N. (P'broke)|
|Biggs-Davison, Sir John||Evennett, David|
|Blackburn, John||Eyre, Sir Reginald|
|Body, Sir Richard||Fallon, Michael|
|Bonsor, Sir Nicholas||Farr, Sir John|
|Boscawen, Hon Robert||Favell, Anthony|
|Bottomley, Peter||Fenner, Dame Peggy|
|Bottomley, Mrs Virginia||Fletcher, Sir Alexander|
|Bowden, Gerald (Dulwich)||Fookes, Miss Janet|
|Boyson, Dr Rhodes||Forman, Nigel|
|Braine, Rt Hon Sir Bernard||Forsyth, Michael (Stirling)|
|Brandon-Bravo, Martin||Fowler, Rt Hon Norman|
|Bright, Graham||Franks, Cecil|
|Brinton, Tim||Fraser, Peter (Angus East)|
|Brittan, Rt Hon Leon||Freeman, Roger|
|Brooke, Hon Peter||Fry, Peter|
|Brown, M. (Brigg & Cl'thpes)||Gale, Roger|
|Browne, John||Galley, Roy|
|Bruce, Malcolm||Gardiner, George (Reigate)|
|Bruinvels, Peter||Gardner, Sir Edward (Fylde)|
|Bryan, Sir Paul||Garel-Jones, Tristan|
|Buchanan-Smith, Rt Hon A.||Gilmour, Rt Hon Sir Ian|
|Buck, Sir Antony||Glyn, Dr Alan|
|Bulmer, Esmond||Goodhart, Sir Philip|
|Burt, Alistair||Goodlad, Alastair|
|Butcher, John||Gow, Ian|
|Butler, Rt Hon Sir Adam||Gower, Sir Raymond|
|Butterfill, John||Grant, Sir Anthony|
|Carlile, Alexander (Montg'y)||Gregory, Conal|
|Carlisle, John (Luton N)||Griffiths, Sir Eldon|
|Carlisle, Rt Hon M. (W'ton S)||Griffiths, Peter (Portsm'th N)|
|Carttiss, Michael||Grist, Ian|
|Cash, William||Ground, Patrick|
|Channon, Rt Hon Paul||Grylls, Michael|
|Chapman, Sydney||Gummer, Rt Hon John S|
|Chope, Christopher||Hamilton, Hon A. (Epsom)|
|Churchill, W. S.||Hamilton, Neil (Tatton)|
|Hampson, Dr Keith||Marshall, Michael (Arundel)|
|Hancock, Michael||Mather, Sir Carol|
|Hanley, Jeremy||Maude, Hon Francis|
|Hannam, John||Maxwell-Hyslop, Robin|
|Hargreaves, Kenneth||Meadowcroft, Michael|
|Harvey, Robert||Merchant, Piers|
|Haselhurst, Alan||Miller, Hal (B'grove)|
|Hawkins, C. (High Peak)||Mills, Iain (Meriden)|
|Hawksley, Warren||Miscampbell, Norman|
|Hayhoe, Rt Hon Sir Barney||Mitchell, David (Hants NW)|
|Hayward, Robert||Moate, Roger|
|Heathcoat-Amory, David||Monro, Sir Hector|
|Heddle, John||Montgomery, Sir Fergus|
|Henderson, Barry||Moore, Rt Hon John|
|Heseltine, Rt Hon Michael||Morrison, Hon C. (Devizes)|
|Hickmet, Richard||Morrison, Hon P. (Chester)|
|Hicks, Robert||Moynihan, Hon C.|
|Higgins, Rt Hon Terence L.||Mudd, David|
|Hind, Kenneth||Neale, Gerrard|
|Hirst, Michael||Nelson, Anthony|
|Hogg, Hon Douglas (Gr'th'm)||Newton, Tony|
|Holland, Sir Philip (Gedling)||Nicholls, Patrick|
|Holt, Richard||Onslow, Cranley|
|Hordern, Sir Peter||Oppenheim, Phillip|
|Howard, Michael||Oppenheim, Rt Hon Mrs S.|
|Howarth, Alan (Stratf'd-on-A)||Ottaway, Richard|
|Howarth, Gerald (Cannock)||Owen, Rt Hon Dr David|
|Howell, Rt Hon D. (G'ldford)||Page, Richard (Herts SW)|
|Howell, Ralph (Norfolk, N)||Parkinson, Rt Hon Cecil|
|Howells, Geraint||Patten, Christopher (Bath)|
|Hubbard-Miles, Peter||Patten, J. (Oxf W & Abgdn)|
|Hunt, David (Wirral W)||Pattie, Rt Hon Geoffrey|
|Hunt, John (Ravensbourne)||Peacock, Mrs Elizabeth|
|Hunter, Andrew||Percival, Rt Hon Sir Ian|
|Irving, Charles||Pollock, Alexander|
|Jackson, Robert||Porter, Barry|
|Jenkin, Rt Hon Patrick||Portillo, Michael|
|Jones, Gwilym (Cardiff N)||Powley, John|
|Jones, Robert (Herts W)||Prentice, Rt Hon Reg|
|Jopling, Rt Hon Michael||Price, Sir David|
|Joseph, Rt Hon Sir Keith||Proctor, K. Harvey|
|Kershaw, Sir Anthony||Raison, Rt Hon Timothy|
|Key, Robert||Rathbone, Tim|
|King, Roger (B'ham N'field)||Rees, Rt Hon Peter (Dover)|
|King, Rt Hon Tom||Rhodes James, Robert|
|Kirkwood, Archy||Rhys Williams, Sir Brandon|
|Knight, Greg (Derby N)||Ridsdale, Sir Julian|
|Knowles, Michael||Roe, Mrs Marion|
|Knox, David||Ross, Stephen (Isle of Wight)|
|Lamont, Rt Hon Norman||Rost, Peter|
|Lang, Ian||Rowe, Andrew|
|Latham, Michael||Ryder, Richard|
|Lawler, Geoffrey||Sackville, Hon Thomas|
|Lawrence, Ivan||Sainsbury, Hon Timothy|
|Lawson, Rt Hon Nigel||St. John-Stevas, Rt Hon N.|
|Lee, John (Pendle)||Shaw, Giles (Pudsey)|
|Leigh, Edward (Gainsbor'gh)||Shelton, William (Streatham)|
|Lester, Jim||Shepherd, Colin (Hereford)|
|Lewis, Sir Kenneth (Stamf'd)||Shersby, Michael|
|Lightbown, David||Shields, Mrs Elizabeth|
|Lilley, Peter||Silvester, Fred|
|Livsey, Richard||Sims, Roger|
|Lloyd, Sir Ian (Havant)||Smith, Tim (Beaconsfield)|
|Lloyd, Peter (Fareham)||Soames, Hon Nicholas|
|Lord, Michael||Stevens, Lewis (Nuneaton)|
|McCrindle, Robert||Stewart, Allan (Eastwood)|
|McCurley, Mrs Anna||Stewart, Andrew (Sherwood)|
|Macfarlane, Neil||Stewart, Ian (Hertf'dshire N)|
|MacKay, John (Argyll & Bute)||Sumberg, David|
|Maclean, David John||Temple-Morris, Peter|
|McLoughlin, Patrick||Thompson, Patrick (N'ich N)|
|McNair-Wilson, M. (N'bury)||Thurnham, Peter|
|McNair-Wilson, P. (New F'st)||Townend, John (Bridlington)|
|McQuarrie, Albert||Twinn, Dr Ian|
|Madel, David||van Straubenzee, Sir W.|
|Major, John||Waddington, Rt Hon David|
|Malins, Humfrey||Wainwright, R.|
|Maples, John||Wakeham, Rt Hon John|
|Marland, Paul||Walker, Bill (T'side N)|
|Marlow, Antony||Waller, Gary|
|Wells, Sir John (Maidstone)||Tellers for the Noes:|
|Wolfson, Mark||Mr.Michael Neubert and|
|Wood, Timothy||Mr. Gerald Malone.|
§ Questions accordingly negatived
§ Questions, That the proposed word be there added, put forthwith pursunant to standing order No. 30(Questions on amendments):—
§ The House divided:Ayes 267, Noes 192.437
|Division No. 76]||[10.15 pm|
|Aitken, Jonathan||Cranborne, Viscount|
|Alexander, Richard||Crouch, David|
|Alison, Rt Hon Michael||Currie, Mrs Edwina|
|Amess, David||Dicks, Terry|
|Ancram, Michael||Dorrell, Stephen|
|Arnold, Tom||Douglas-Hamilton, Lord J.|
|Ashby, David||Dover, Den|
|Aspinwall, Jack||du Cann, Rt Hon Sir Edward|
|Atkins, Rt Hon Sir H.||Durant, Tony|
|Atkins, Robert (South Ribble)||Dykes, Hugh|
|Atkinson, David (B'm'th E)||Edwards, Rt Hon N. (P'broke)|
|Baker, Nicholas (Dorset N)||Evennett, David|
|Baldry, Tony||Eyre, Sir Reginald|
|Batiste, Spencer||Fairbairn, Nicholas|
|Beaumont-Dark, Anthony||Fallon, Michael|
|Bellingham, Henry||Farr, Sir John|
|Bendall, Vivian||Favell, Anthony|
|Benyon, William||Fenner, Dame Peggy|
|Bevan, David Gilroy||Fletcher, Sir Alexander|
|Biffen, Rt Hon John||Fookes, Miss Janet|
|Biggs-Davison, Sir John||Forman, Nigel|
|Blackburn, John||Forsyth, Michael (Stirling)|
|Body, Sir Richard||Fowler, Rt Hon Norman|
|Bonsor, Sir Nicholas||Franks, Cecil|
|Boscawen, Hon Robert||Fraser, Peter (Angus East)|
|Bottomley, Peter||Freeman, Roger|
|Bottomley, Mrs Virginia||Fry, Peter|
|Bowden, Gerald (Dulwich)||Gale, Roger|
|Boyson, Dr Rhodes||Galley, Roy|
|Braine, Rt Hon Sir Bernard||Gardiner, George (Reigate)|
|Brandon-Bravo, Martin||Gardner, Sir Edward (Fylde)|
|Bright, Graham||Garel-Jones, Tristan|
|Brinton, Tim||Gilmour, Rt Hon Sir Ian|
|Brittan, Rt Hon Leon||Glyn, Dr Alan|
|Brooke, Hon Peter||Goodhart, Sir Philip|
|Brown, M. (Brigg & Cl'thpes)||Goodlad, Alastair|
|Browne, John||Gow, Ian|
|Bruinvels, Peter||Gower, Sir Raymond|
|Bryan, Sir Paul||Grant, Sir Anthony|
|Buchanan-Smith, Rt Hon A.||Greenway, Harry|
|Buck, Sir Antony||Gregory, Conal|
|Bulmer, Esmond||Griffiths, Sir Eldon|
|Burt, Alistair||Griffiths, Peter (Portsm'th N)|
|Butcher, John||Grist, Ian|
|Butler, Rt Hon Sir Adam||Ground, Patrick|
|Butterfill, John||Grylls, Michael|
|Carlisle, John (Luton N)||Gummer, Rt Hon John S|
|Carlisle, Rt Hon M. (W'ton S)||Hamilton, Hon A. (Epsom)|
|Carttiss, Michael||Hamilton, Neil (Tatton)|
|Cash, William||Hampson, Dr Keith|
|Channon, Rt Hon Paul||Hanley, Jeremy|
|Chapman, Sydney||Hannam, John|
|Chope, Christopher||Hargreaves, Kenneth|
|Churchill, W. S.||Harvey, Robert|
|Clark, Dr Michael (Rochford)||Haselhurst, Alan|
|Clark, Sir W. (Croydon S)||Hawkins, C. (High Peak)|
|Clarke, Rt Hon K. (Rushcliffe)||Hawksley, Warren|
|Clegg, Sir Walter||Hayes, J.|
|Cockeram, Eric||Hayhoe, Rt Hon Sir Barney|
|Colvin, Michael||Hayward, Robert|
|Conway, Derek||Heathcoat-Amory, David|
|Coombs, Simon||Heddle, John|
|Cope, John||Henderson, Barry|
|Cormack, Patrick||Heseltine, Rt Hon Michael|
|Hickmet, Richard||Monro, Sir Hector|
|Hicks, Robert||Montgomery, Sir Fergus|
|Higgins, Rt Hon Terence L.||Moore, Rt Hon John|
|Hind, Kenneth||Morrison, Hon C. (Devizes)|
|Hirst, Michael||Morrison, Hon P. (Chester)|
|Hogg, Hon Douglas (Gr'th'm)||Moynihan, Hon C.|
|Holland, Sir Philip (Gedling)||Mudd, David|
|Holt, Richard||Neale, Gerrard|
|Hordern, Sir Peter||Nelson, Anthony|
|Howard, Michael||Neubert, Michael|
|Howarth, Alan (Stratf'd-on-A)||Newton, Tony|
|Howarth, Gerald (Cannock)||Nicholls, Patrick|
|Howell, Rt Hon D. (G'ldford)||Onslow, Cranley|
|Howell, Ralph (Norfolk, N)||Oppenheim, Phillip|
|Hubbard-Miles, Peter||Oppenheim, Rt Hon Mrs S.|
|Hunt, David (Wirral W)||Ottaway, Richard|
|Hunt, John (Ravensbourne)||Page, Richard (Herts SW)|
|Hunter, Andrew||Parkinson, Rt Hon Cecil|
|Irving, Charles||Patten, Christopher (Bath)|
|Jackson, Robert||Patten, J. (Oxf W & Abgdn)|
|Jenkin, Rt Hon Patrick||Pattie, Rt Hon Geoffrey|
|Jones, Gwilym (Cardiff N)||Peacock, Mrs Elizabeth|
|Jones, Robert (Herts W)||Percival, Rt Hon Sir Ian|
|Jopling, Rt Hon Michael||Pollock, Alexander|
|Joseph, Rt Hon Sir Keith||Porter, Barry|
|Kershaw, Sir Anthony||Powley, John|
|Key, Robert||Prentice, Rt Hon Reg|
|King, Roger (B'ham N'field)||Price, Sir David|
|King, Rt Hon Tom||Proctor, K. Harvey|
|Knight, Greg (Derby N)||Raison, Rt Hon Timothy|
|Knowles, Michael||Rathbone, Tim|
|Knox, David||Rees, Rt Hon Peter (Dover)|
|Lamont, Rt Hon Norman||Rhodes James, Robert|
|Lang, Ian||Rhys Williams, Sir Brandon|
|Latham, Michael||Ridsdale, Sir Julian|
|Lawler, Geoffrey||Roe, Mrs Marion|
|Lawrence, Ivan||Rost, Peter|
|Lawson, Rt Hon Nigel||Rowe, Andrew|
|Lee, John (Pendle)||Ryder, Richard|
|Leigh, Edward (Gainsbor'gh)||Sackville, Hon Thomas|
|Lester, Jim||Sainsbury, Hon Timothy|
|Lewis, Sir Kenneth (Stamf'd)||St. John-Stevas, Rt Hon N.|
|Lilley, Peter||Shaw, Giles (Pudsey)|
|Lloyd, Sir Ian (Havant)||Shelton, William (Streatham)|
|Lloyd, Peter (Fareham)||Shepherd, Colin (Hereford)|
|Lord, Michael||Shersby, Michael|
|McCrindle, Robert||Silvester, Fred|
|McCurley, Mrs Anna||Sims, Roger|
|Macfarlane, Neil||Smith, Tim (Beaconsfield)|
|MacKay, John (Argyll & Bute)||Soames, Hon Nicholas|
|Maclean, David John||Stevens, Lewis (Nuneaton)|
|McLoughlin, Patrick||Stewart, Allan (Eastwood)|
|McNair-Wilson, M. (N'bury)||Stewart, Andrew (Sherwood)|
|McNair-Wilson, P. (New F'st)||Stewart, Ian (Hertf'dshire N)|
|McQuarrie, Albert||Sumberg, David|
|Madel, David||Thompson, Patrick (N'ich N)|
|Major, John||Thurnham, Peter|
|Malins, Humfrey||Townend, John (Bridlington)|
|Malone, Gerald||Twinn, Dr Ian|
|Maples, John||van Straubenzee, Sir W.|
|Marland, Paul||Waddington, Rt Hon David|
|Marlow, Antony||Wakeham, Rt Hon John|
|Marshall, Michael (Arundel)||Walker, Bill (Vside N)|
|Mather, Sir Carol||Waller, Gary|
|Maude, Hon Francis||Warren, Kenneth|
|Maxwell-Hyslop, Robin||Wolfson, Mark|
|Merchant, Piers||Wood, Timothy|
|Miller, Hal (B'grove)|
|Mills, Iain (Meriden)||Tellers for the Ayes:|
|Miscampbell, Norman||Mr. Michael Portillo and|
|Mitchell, David (Hants NW)||Mr. David Lightbown.|
|Abse, Leo||Ashley, Rt Hon Jack|
|Adams, Allen (Paisley N)||Ashton, Joe|
|Alton, David||Atkinson, N. (Tottenham)|
|Anderson, Donald||Bagier, Gordon A. T.|
|Archer, Rt Hon Peter||Banks, Tony (Newham NW)|
|Ashdown, Paddy||Barron, Kevin|
|Beckett, Mrs Margaret||Fisher, Mark|
|Beith, A J||Flannery, Martin|
|Bell, Stuart||Foot, Rt Hon Michael|
|Benn, Rt Hon Tony||Forrester, John|
|Bennett, A (Dent'n & Red'sh)||Foulkes, George|
|Bermingham, Gerald||Fraser, J (Norwood)|
|Bidwell, Sydney||Freud, Clement|
|Blair, Anthony||George, Bruce|
|Boothroyd, Miss Betty||Gilbert, Rt Hon Dr John|
|Boyes, Roland||Godman, Dr Norman|
|Bray, Dr Jeremy||Golding, Mrs Llin|
|Brown, Gordon (D'f'mline E)||Gould, Bryan|
|Brown, Hugh D (Provan)||Gourlay, Harry|
|Brown, N (N'c'tle-u-Tyne E)||Hamilton, James (M'well N)|
|Brown, Ron (E'burgh, Leith)||Hamilton, W W (Fife Central)|
|Bruce, Malcolm||Hancock, Michael|
|Buchan, Norman||Hart, Rt Hon Dame Judith|
|Caborn, Richard||Hattersley, Rt Hon Roy|
|Callaghan, Rt Hon J||Healey, Rt Hon Denis|
|Callaghan, Jim (Heyw'd & M)||Heffer, Eric S|
|Campbell-Savours, Dale||Hogg, N (C'nauld & Kilsyth)|
|Canavan, Dennis||Holland, Stuart (Vauxhall)|
|Carlile, Alexander (Montg'y)||Home Robertson, John|
|Carter-Jones, Lewis||Howarth, George (Knowsley, N)|
|Clark, Dr David (S Shields)||Howell, Rt Hon D (S'heath)|
|Clarke, Thomas||Howells, Geraint|
|Clay, Robert||Hoyle, Douglas|
|Clelland, David Gordon||Hughes, Robert (Aberdeen N)|
|Clwyd, Mrs Ann||Hughes, Roy (Newport East)|
|Cocks, Rt Hon M (Bristol S)||Hughes, Sean (Knowsley S)|
|Cohen, Harry||Hughes, Simon (Southwark)|
|Conlan, Bernard||Janner, Hon Greville|
|Cook, Frank (Stockton North)||Jenkins, Rt Hon Roy (Hillh'd)|
|Cook, Robin F (Livingston)||John, Brynmor|
|Corbett, Robin||Jones, Barry (Alyn & Deeside)|
|Craigen, J M||Kaufman, Rt Hon Gerald|
|Crowther, Stan||Kennedy, Charles|
|Dalyell, Tam||Kinnock, Rt Hon Neil|
|Davies, Rt Hon Denzil (L'lli)||Kirkwood, Archy|
|Davies, Ronald (Caerphilly)||Lambie David|
|Davis, Terry (B'ham, H'ge H'l)||Lamond, James|
|Deakins, Eric||Leadbitter, Ted|
|Dewar, Donald||Leighton, Ronald|
|Dixon Donald||Lewis, Terence (Worsley)|
|Dobson, Frank||Litherland, Robert|
|Dormand, Jack||Livsey, Richard|
|Douglas, Dick||Lloyd, Tony (Stretford)|
|Dubs, Alfred||Lofthouse, Geoffrey|
|Dunwoody, Hon Mrs G||Loyden, Edward|
|Eadie, Alex||McCartney, Hugh|
|Eastham, Ken||McDonald, Dr Oonagh|
|Evans, John (St Helens N)||McKay, Allen (Penistone)|
|Fatchett, Derek||MacKenzie, Rt Hon Gregor|
|Faulds, Andrew||McTaggart, Robert|
|Field Frank (Birkenhead)||McWilliam, John|
|Fields, T (L'pool Broad Gn)||Madden, Max|
|Marek, Dr John||Sheerman, Barry|
|Marshall, David (Shettleston)||Sheldon, Rt Hon R.|
|Martin, Michael||Shields, Mrs Elizabeth|
|Mason, Rt Hon Roy||Shore, Rt Hon Peter|
|Maxton, John||Short, Ms Clare (Ladywood)|
|Maynard, Miss Joan||Short, Mrs R.(W'hampt'n NE)|
|Meacher, Michael||Silkin, Rt Hon J.|
|Meadowcroft, Michael||Skinner, Dennis|
|Michie, William||Smith, Rt Hon J. (M'ds E)|
|Mitchell, Austin (G't Grimsby)||Snape, Peter|
|Morris, Rt Hon A. (W'shawe)||Soley, Clive|
|Morris, Rt Hon J. (Aberavon)||Spearing, Nigel|
|Nellist, David||Steel, Rt Hon David|
|Oakes, Rt Hon Gordon||Stewart, Rt Hon D. (W Isles)|
|O'Brien, William||Stott, Roger|
|O'Neill, Martin||Strang, Gavin|
|Park, George||Straw, Jack|
|Patchett, Terry||Thomas, Dafydd (Merioneth)|
|Pavitt, Laurie||Thompson, J. (Wansbeck)|
|Pendry, Tom||Thorne, Stan (Preston)|
|Pike, Peter||Tinn, James|
|Powell, Raymond (Ogmore)||Torney, Tom|
|Radice, Giles||Wardell, Gareth (Gower)|
|Randall, Stuart||Wareing, Robert|
|Raynsford, Nick||Weetch, Ken|
|Redmond, Martin||Welsh, Michael|
|Rees, Rt Hon M. (Leeds S)||White, James|
|Richardson, Ms Jo||Wigley, Dafydd|
|Roberts, Ernest (Hackney N)||Williams, Rt Hon A.|
|Robertson, George||Winnick, David|
|Rogers, Allan||Wrigglesworth, Ian|
|Rooker, J. W.||Young, David (Bolton SE)|
|Ross, Ernest (Dundee W)|
|Ross, Stephen (Isle of Wight)||Tellers for the Noes:|
|Rowlands, Ted||Mr. Frank Haynes and|
|Sedgemore, Brian||Mr. Chris Smith.|
§ Question accordingly agreed to.
§ MR. SPEAKER forthwith declared the main Question, as amended, to be agreed to.
That this House deplores the irresponsible attacks on the City by Her Majesty's Opposition which ignore its massive and continuing contribution to meeting the long-term financial needs of British manufacturing industry and business and more generally throughout the country to the balance of payments, and to employment in the United Kingdom; notes that investment growth has averaged 4.5 per cent. per year during this Parliament; notes with approval the consistency of the Government's mergers policy; and applauds, in particular, its firm action in particular, its firm action in establishing a regulatory framework for the city and City and its determination to root out abuses