Barlow Clowes

HC Deb 20 October 1988 vol 138 cc1013-30 3.30 pm

The Chancellor of the Duchy of Lancaster and Minister of Trade and Industry (Mr. Tony Newton)

With permission, Mr. Speaker, I wish to make a statement on Barlow Clowes.

Many people have been badly affected by the collapse of the Barlow Clowes operations. The extent of the suffering and distress has been fully set out in the letters I and my colleagues have received from Members of both Houses and direct from those concerned. We share the deep concern expressed on all sides, and sympathise with those who have suffered loss.

The story is very complex: it stretches over many years and involves many different participants. The House will recall that, following my right hon. and noble Friend's statement on 13 June, he appointed Sir Godfray Le Quesne QC to prepare an independent report on the facts of the Departments handling of this matter. My right hon. and noble Friend is today publishing Sir Godfray's account, subject to minor deletions made on legal advice in order to avoid possible prejudice to criminal proceedings. His report is one of the most open and exhaustive ever volunteered by a Department of State into its handling of a matter of this kind, and contains a full account of the Department's role.

I should make it clear to the House that, while the Government attach importance to maintaining the normal rule that officials' confidential advice to Ministers should not be made public, we have decided that, in the quite exceptional circumstances of this case, it is in the public interest to include the submissions to Ministers and other material which would not normally be published. In accordance with normal practice, the names of officials involved have been excluded.

We are extremely grateful to Sir Godfray Le Quesne for the thoroughness and speed with which he produced his report. In accordance with his terms of reference, the report is purely factual. The Government have studied it with great care and have taken legal advice, including that of leading counsel, and I would now like to set out to the House the key events and our conclusions.

It is only possible to judge the events that occurred in the light of the regulatory system in place at the time. The legislative framework within which all but the final events of this case took place was based on an Act of 1939, which was consolidated in the Prevention of Fraud (Investments) Act 1958. There was very little change in the way it operated until 1983. Then, against the background of Professor Gower's much broader review of investor protection, commissioned in 1981, the Government introduced new regulations. These regulations required, among other things, first, much more information about prospective licence holders; secondly, a certificate from a qualified auditor as to the firm's ability to operate as a going concern during the lifetime of the licence; and thirdly, regular financial monitoring returns, verified by a qualified auditor, covering the proper holding of client money and investments. The regulations were designed to enable the Department to rely on the verification of prescribed information by qualified auditors and solicitors.

Sir Godfray's report shows that Barlow Clowes first came to the Department's attention in 1975–76. It received advice which, due to a misunderstanding within the Department, did not adequately cover the point at issue and it did not then apply for a licence to deal in securities. The consequences of this have been carefully examined. Had it applied in 1975–76, it is almost certain that a licence would have been granted, given practice at the time. If Barlow Clowes had received a licence in 1975–76, the first monitoring return of the sort I have described would have been required by the end of December 1984. In the event, Spicer and Pegler certified in July 1985 that it had obtained verification of the clients' investments and cash, and that the statement of clients' funds gave a true and fair view of their composition as at 28 December 1984. There is no reason to think that the fact that Barlow Clowes was not licensed in 1975 had any material effect on the course of subsequent events.

The partnership again came to the Department's attention in late 1983. The review and tightening up of the system in 1983 had brought large numbers of unlicensed dealers to light. Wholesale prosecution would have been unjustified and, as Sir Godfray's report explains, it was the policy to bring unlicensed firms into the regulatory net and to take other action only where there was evidence of wrongdoing or that investors' funds were at risk. The Department originally believed that the partnership was applying for membership of the National Association of Securities Dealers and Investment Managers (NASDIM), which would have meant that it did not need to be licensed directly by the Department. When it became apparent that the partnership was not doing so, the effective choice open to the Department lay between prosecution of Barlow Clowes for not holding a licence—the only sanction provided by the legislation—and licensing the firm if it could meet the regulatory requirements. As Barlow Clowes was a partnership, the Department—even where grounds existed—had no powers to investigate it or to apply for a winding-up order, nor was there any provision for intervening to protect investors' funds if a licence were refused.

The Department therefore decided to seek to bring the partnership within the regulatory framework. In doing so it had four main aims. The first was to subject the partnership to the conduct of business rules (strengthened in 1983), the second to secure examination of its affairs by qualified auditors, and the third to persuade the firm to incorporate a limited company so that the powers available under the Companies Acts would become available. Fourthly, it was also necessary for Barlow Clowes to make arrangements which satisfied the Bank of England that the partnership was not in breach of the Banking Act 1979. When all these objectives had been met, licences were issued in October 1985 to the partnership and the company. In issuing the licences the Department made clear to the Barlow Clowes' solicitors that it had been heavily influenced by the assurances received from or through them. The Department also took full account of the report from Spicer and Pegler on clients' funds as at December 1984.

In 1986 new licences were issued to Barlow Clowes after it had submitted applications accompanied by the verifications and auditors' certificates required by the legislation. Although the majority of the powers under the Financial Services Act 1986 did not come into force until 29 April 1988, stronger and wider powers of investigation contained in that Act became available on 18 December 1986.

By the time of Barlow Clowes' licence applications in 1987, the Department had received material from the stock exchange and others that caused concern about Barlow Clowes' United Kingdom business. The Department did not at that time have the power to apply for a winding-up without first conducting a statutory investigation. Even if there had been such a power, there was not at that stage sufficient evidence to be confident that an application to wind up the company would be successful.

The Department had three courses open to it. It could refuse the licence. This would have stopped the company from lawfully taking on new business. But because the Department could not apply for a winding-up, there would have been no way of securing existing investors' assets. This action could therefore have precipitated a disorderly collapse of the business, which would have damaged existing investors' interests—[HON. MEMBERS: "But that happened anyway."]

The second course was to grant the licence but immediately to issue notice of intention to revoke it. The company could have referred that to the licensed dealers tribunal, which would have meant that it could carry on trading until the tribunal had decided the case.

The Department therefore adopted the third possible course. This was to institute an investigation under the powers newly available under the Financial Services Act and to issue a new licence, subject to review, pending the outcome of that investigation. The investigation proceeded but even six months later, in April 1988, with all the information the investigators had by then uncovered, there were legal doubts whether sufficient grounds existed for a winding-up petition to succeed. By May 1988, the combination of the investigation and new information on the company's solvency had yielded enough evidence to secure a winding-up order.

We are informed by the liquidators of Barlow Clowes Gilt Managers that on current information investors are likely to receive in excess of 75p in the pound, and they are hoping to make a substantial distribution before Christmas.

I now turn to Barlow Clowes International. This company was based in Gibraltar, and was not licensed. Any offshore company dealing with expatriates, and not holding itself out as dealing in securities in the United Kingdom, would not need a licence. The question, therefore, is whether the Department had reason to believe that BCI required a licence. As Sir Godfray's report shows, no firm evidence came to the Department indicating that this was so, and the information provided by the United Kingdom company from 1984 to 1987 indicated that BCI serviced expatriates and non-residents. During this entire period there were no complaints from investors, no questions about whether BCI was licensed, no approaches from intermediaries that would have revealed that BCI was dealing with United Kingdom residents.

From 1984 the Department decided that, as part of its licensing function, it would adopt a policy of sample monitoring of advertising in the national and financial press. No advertisements from BCI came to light as a result of this monitoring. Subsequently, it has emerged that a single advertisement was placed by BCI in one general supplement of The Times devoted to Gibraltar. This was not picked up by the sampling system. It has since transpired that BCI received business as a result of advertisements placed by authorised intermediaries, not in the general or financial press. These advertisements did not mention BCI, which was named only in subsequent private correspondence. No example of such correspondence was referred to the Department before the Barlow Clowes collapse.

The liquidators of Barlow Clowes International predict that there will be sufficient funds realised to make a distribution in excess of 30p in the pound. The complications in BCI will take some considerable time to resolve but the liquidators are hoping to make a small interim distribution early in 1989.

I should now like to turn to the main conclusion that the Government draws from Sir Godfray Le Quesne's report. Within the constraints of the old legislation and the information available to the Department at the time, the Department's general handling of the licensing of Barlow Clowes and Partners, and Barlow Clowes Gilt Managers Ltd., was careful and considered and its actions reasonable. Barlow Clowes International had no licence: only since the company collapsed has it emerged that its activities were such that it probably should not have operated without one. Sir Godfray's report shows that the Department did not have reason to know this.

I must also inform the House that the legal advice the Government have received on the question of liability to investors with all these businesses is clear. The Government have no legal liability.

In view of the hardship that has been caused, the Government have considered carefully whether there is a case for ex gratia compensation. The facts set out in Sir Godfray's report in the Government's view provide no grounds for concluding that the Department's handling of the matter was unreasonable or caused the losses experienced by investors, and therefore provide no justification for using taxpayers' money to fund compensation.

We are aware that the Parliamentary Commissioner for Administration has said he is considering whether to investigate complaints of maladministration in the Department's handling of the matter. My right hon. and noble Friend has today sent him a copy of Sir Godfray Le Quesne's report. If he decides, in the light of that, to carry out an investigation, the Government will, of course, co-operate fully with him and consider carefully any report he may make.

My right hon. and noble Friend is also sending copies of Sir Godfray's report to the Institute of Chartered Accountants in England and Wales, the Securities and Investments Board and FIMBRA, for them to see whether there are matters for them to consider.

It is all too clear from the account of events in Sir Godfray Le Quesne's report, and from the points I have made so far, that there were a number of significant weaknesses in the legislative framework of the Prevention of Fraud (Investments) Act 1958, even after the regulations were greatly tightened in 1983. There were no provisions for injunctions to slop unauthorised businesses or breaches of the rules, or powers to restrict business, safeguard assets or appoint trustees. Nor was it possible to investigate unincorporated investment businesses. The Government have acted to correct those weaknesses in the Financial Services Act 1986, whose main provisions came into effect in April this year. These improvements do not mean that the present system of investor protection is completely risk-free. No regulatory system can eliminate fraud or guarantee investors against loss. But the legislative framework has been radically revised and strengthened since the chain of events covered by Sir Godfray's report took place.

Hon. Members

Resign.

Mr. Tony Blair (Sedgefield)

For the 11,000 investors in Barlow Clowes who have waited for more than four months for this report, who expected not only a factual narrative but some accompanying conclusions from Sir Godfray and who hoped, not for a set of ministerial excuses but for a statement of ministerial responsibility, this report will come as a profound and bitter disappointment. Their sense of grievance will be all the greater in that Sir Godfray's report is not the report that we were promised.

Will the right hon. Gentleman comment specifically on the following words of the Secretary of State: This is an inquiry to determine the facts of what actually happened within the department and to determine whether or not the department is to blame in any way"—[Official Report, House of Lords, 13 June 1988; Vol. 498, c. 11.] Why do we not have such a report? [HON. MEMBERS: "Yes, we have."] We have not. Why, instead of an independent objective judgment of the facts, have we been given the Government's shamefully partisan, self-serving interpretation of the facts? Does the right hon. Gentleman not know that it is all very well to refer to the parliamentary ombudsman, but that what the investors wanted above all today was some sense of finality—not to be shunted from one investigator to another in a game of ministerial pass-the-parcel?

As for the Minister's claim that Sir Godfray's report shows that the Department was not negligent, I ask him to deal specifically with the following points. From my brief examination of the report I believe that it bears out each one of them. Is it not true that when the licence was first issued to Barlow Clowes in October 1985 the Bank of England had raised objections to the company, and that NASDIM, the City watchdog, had said that Barlow Clowes was unsuitable for a licence? Is it not true also that the DTI had been given assurances and had discovered that they were false? Barlow Clowes had then been trading illegally for more than 12 months under the Prevention of Fraud (Investments) Act 1958. How on earth was it given a licence in 1985?

Is it not right to say that in 1986—and I ask the Minister to answer this point specifically—the stock exchange expressed misgivings? The deputy head of the Bank of England's banking division said that he thought that there was a possible "fraud". The accountants to Barlow Clowes said that they thought clients' money was being misused. The monitoring returns submitted to the DTI were, according to the Minister's own inspector, seriously inadequate—but the licence was reissued.

In 1987 the stock exchange inquiry report stated, as Sir Godfray says, that there were "serious doubts" about whether Barlow Clowes was fit and proper. The police investigated Barlow Clowes, according to Sir Godfray. The Inland Revenue investigated Barlow Clowes. The DTI sent in its own inspectors. Yet in October 1987, when virtually every single body, private or public, with any responsibility for regulation was shrieking warnings at the DTI, the licence was reissued.

Is it not further the case that when the monitoring returns came in from Barlow Clowes in December 1987 —as, again, Sir Godfray finds—they were unsigned, unaudited, and then the firm was allowed to trade for a further six months, taking in millions of pounds, until in May this year the new SIB shut down in three weeks what the Minister's Department had left open for three years? What about the "disorderly collapse" that happened then, in May 1988? I may tell the Minister that in the light of all that, confirmed by Le Quesne, his denial of any negligence on the part of his Department is so brazen that it is risible.

I turn to the question of the ombudsman. Will the Minister undertake that the Government will abide by any compensation order made? Does he agree that the ombudsman should look also at the offshore investors, who, I may tell the Minister, had their funds managed in the United Kingdom, advertised in the United Kingdom, and run by residents in the United Kingdom? Will the Minister also, even at this stage, accept a proposal that I believe would command support from all quarters of the House—that the Government are bound to have some liability and should be using their good offices now to convene all those with a potential liability so that the spectacle of long, drawn-out legal proceedings can be avoided and a proper lifeboat scheme mounted? Is that not both a fair and a wise course?

Finally, I may tell the Minister this. The file in my hand is only of letters that I have received from investors over the past few months. Many right hon. and hon. Members will have received similar letters. Those who sent them are not get-rich-quick speculators. I doubt that many of them are drawing £1,000 per week for living expenses. They are Britain's new class of investors. They are the elderly couple with an accumulated nest egg. They are the young couple who have been left a small inheritance, perhaps from the sale of their parents' home. They are the mine workers or steel workers made redundant. Is it not the case that they are the very people whom the Government have encouraged into the market place of investment? The question asked by thousands of Barlow Clowes investors who are victims of malpractice today is echoed by millions more in this country who fear that they may be victims of malpractice tomorrow. Will the Government stand by them, or will they let those investors fall? Today, they have their answer, but we on the Opposition side of the House will not let them down.

Mr. Newton

Let me seek to comment on the points made by the hon. Member for Sedgefield (Mr. Blair) in the order in which he raised them.

First, it was made entirely clear in Sir Godfray's terms of reference that the purpose of his inquiry was to establish the facts on which judgments could be made. Inescapably, in a matter of this kind, those judgments will differ. Manifestly—and I understand this—the hon. Gentleman's judgment differs from the Government's judgment, which I have outlined to the House. However, it is a comprehensive description of the facts, which I believe will assist everyone in the House in considering in detail—and I hope that people will study the report in detail—the sequence of events against the background of the legislation existing at the time. I repeat that that is a very important point.

I well understand that people would have preferred some sense of finality, to use the term employed by the hon. Gentleman. But it is in the nature of an event such as this—with all the potential that it creates for legal action of various kinds—that it is very unlikely that one single statement can bring the sense of finality that he has sought. I certainly do not pretend that my statement could have done that today.

The hon. Gentleman raised a good many points about the detail of particular comments at particular times, which are set out clearly in the report. Let me make two observations that I do not consider were properly reflected in his remarks. First, as is very clear from the report, the majority of those comments did not come in the form of anything that could be construed as evidence in the context of the action that the hon. Gentleman suggests that we should have taken. [Interruption.] I hope that all hon. Members will study the report. It is very clear that in general what came to the Department consisted more of rumour and speculation than of evidence. The Department's duty was to seek to establish evidence on which proper decisions could be made, and that is what it sought to do.

Let me make it absolutely clear that there was no question of the Securities and Investments Board precipitating action that the Department had been unwilling to take. It was decided, in the light of powers that had become available at the end of April 1988, under new legislation passed by this Government, that the best way of producing an orderly conclusion—an orderly winding-up of Barlow Clowes—was for the SIB to take the action that it accordingly took.

There was some laughter in the House when I referred to the issue of a disorderly collapse, which was the likelihood under the previous powers on the occasions to which the hon. Gentleman has referred. The suggestion was made, I think probably from a sedentary position below the Gangway, that what happened was a disorderly collapse. Let me make the difference clear. What happened was a collapse in which a proper winding-up order was made in circumstances in which equitable dealing between all the investors in the companies could be secured. A disorderly collapse would have occurred if the Department had taken action that would have precipitated a position —[Interruption.] I hope that the House will listen to this point—[Interruption.]

Mr. Speaker

Order.

Mr. Newton

—which would have caused the collapse in circumstances in which no action could have been taken to safeguard and freeze the assets. The more sophisticated investors would have got all their money, and the rest would have got nothing. That is what I mean by a disorderly collapse, and that is one of the risks that the Department was concerned to avoid.

It is not for me to suggest what the Parliamentary Commissioner should investigate, how he should investigate it or what he should conclude, but I have no doubt that he will have noted the hon. Gentleman's comments.

Lastly, the hon. Gentleman asked me what view the Government took of the need to ensure proper protection for that growing army of investors that we are rightly proud of having brought about. The answer is that we have already passed a comprehensive Act which has dramatically improved the framework of regulation in this whole sphere—and that comes after a period in which the Labour Government, as far as I can discover, did nothing whatever with a framework that went back to 1939.

Sir William Clark (Croydon, South)

Is my right hon. Friend aware that most hon. Members will have sympathy with him in handling this case when he was not in the Department when all these things happened? Does he agree that when the DTI had its reservations about Barlow Clowes, without winding it up with a disorderly collapse or whatever, the advice from the civil servants to Barlow Clowes should have been "Don't take any more investments from the public until we have satisfied ourselves that you are safe and sound as an investment instrument"?

The report refers to expatriates, but, in all kindness to my right hon. Friend, I can assure him that the investors in Barlow Clowes who live in my constituency are not expatriates. Consequently, for civil servants to suggest that the overseas fund was being used only by expatriates really is beyond belief.

Secondly, many invested their money unwittingly not knowing the full facts, yet those facts were known by the Department, which had reservations. Not giving that advice must be a dereliction of duty. Can my right hon. Friend assure the House that whichever officials were responsible for that dereliction of duty are no longer in that section?

Mr. Newton

First, there must have been a risk, which would have weighed with the Department, that action during most of the period of the kind for which my hon. Friend asked in the first part of his question would itself have contributed to the company's collapse, and that would necessarily have been a disorderly collapse, given the legal framework at the time.

Of course, I am not suggesting that my hon. Friend's constituents, or the many others who so unhappily have been caught up in this wretched business, are expatriates, because manifestly they are not. The issue is whether the Department could reasonably have been expected to know that those non-expatriates were being invited to invest in Barlow Clowes in the way that subsequently transpired. In the passage of my statement on the advertising that took place and the way that that was done, I think that I have shown why, in my judgment, the Department could not reasonably have been expected to know.

On the question of facts and civil servants, I should tell the House that the permanent secretary at the Department —it is a matter for him to investigate rather then for Ministers—has considered whether the facts set out in Sir Godfray's report give rise to a case for disciplinary action, and has decided that they do not.

Mr. David Steel (Tweeddale, Ettrick and Lauderdale)

Are Ministers in the Department satisfied that the people in the Department who are having to deal with these sharks and the rumours and speculation—to use his own phrase—which were drawn to the Department's attention, have sufficient expertise and qualifications to do so?

Secondly, the Minister tells us that the Government are advised that there is no legal liability, but does he agree that a particular feature of this tragic collapse is that many of the thousands of investors were elderly people, such as my own constituents, who put all their redundancy pay into the fund believing that they were buying British Government securities with the DTI's stamp of approval? In those circumstances, is there not a moral liability?

Mr. Newton

It is precisely because we had doubts about the overall adequacy of the previous regulatory system that such an immense amount of effort went into producing the Financial Services Act 1986 and to bringing it into effect. An important part of that Act is to improve the regulatory system by bringing to bear on it the expertise of those who really are involved in the field. Hence, the establishment of the Securities and Investments Board, and, of course, FIMBRA, regulating the sort of people about whom we are talking in important respects of the statement.

I have made the position on legal liability clear. I have also made it clear that the Government have considered the issue of compensation on other grounds but arrived at the conclusion that I gave in my statement.

Several Hon. Members

rose——

Mr. Speaker

Order. There can be hardly an hon. Member whose constituents are not involved in this, including my own. May I ask those hon. Members who are called not to repeat questions that have already been asked and, furthermore, to ask single questions rather than a range of questions?

Mr. Michael Grylls (Surrey, North-West)

Does my right hon. Friend agree that those who press for compensation to be paid by the Government should bear in mind that compensation will come from taxes paid by all taxpayers and we should be cautious before we go down that route? However, is it surely not right that there should be a thorough investigation into the role of the financial intermediaries who made such rash recommendations, and, perhaps, the auditors, who should have known what was going on in Barlow Clowes throughout?

Mr. Newton

I obviously acknowledge my hon. Friend's first point. Whether it would be right to ask taxpayers to compensate is an issue to which the Government gave close consideration. I hope that my hon. Friend and the House will realise that in making the statement I labour under the difficulty, among others, that further action of various kinds may well arise from the facts revealed by the case. The point that my hon. Friend has in mind is perhaps best covered in the statement by my having said that my right hon. and noble Friend the Secretary of State has referred the report to the Institute of Chartered Accountants in England and Wales and to other regulatory bodies. I think that my hon. Friend will understand that I cannot go much beyond that, but I am sure that his point will have occurred to others.

Mr. Robert Sheldon (Ashton-under-Lyne)

Is not the point encapsulated by one of my constituents who, at the age of 50, put all his redundancy money into Barlow Clowes, having gone to an intermediary, been informed that this was Government gilt-edged, that the company had its certificate and that its certificate had been renewed? Is not there clearly some sort of duty upon the Department to make some sort of compensation to such people?

Mr. Newton

I agree entirely with the right hon. Gentleman that the problem is encapsulated in the case that he has set out. However, I am afraid that I cannot agree that on the basis of the account of the Department's actions within the legislative framework—I am sorry to have to emphasise this again—that existed at the time the Department's behaviour gives rise to a case for asking taxpayers to fund a compensation scheme.

Mr. Nicholas Winterton (Macclesfield)

I warmly welcome the factual content of my right hon. Friend's statement, but does he accept that many hon. Members find his conclusions completely unjustifiable and con-fused? How is it that the Department granted a licence to a group of companies about which it had been warned by me, among other hon. Members, and when clearly, before granting the licence, there was inadequate monitoring, incompetent accountancy advice and inadequate auditing? Despite all that, the Department still gave the licence. Is it not correct to say that this was not an official decision but a political decision because the Department knew that something was wrong with the company and if it did not grant the licence some people would lose, whereas if it did grant the licence people might come out of it all right? Was not it a gamble—a gamble that went wrong for which the Government should accept liability?

Mr. Newton

I can readily accept, because it is made clear in the report, that at certain points in time decisions were put to and taken by Ministers, not by officials, which is entirely right. That is not at all the same as saying that they were political decisions in the sense that my hon. Friend rather implied in his remarks. They were decisions made in good faith on the basis of the information available and applying a necessary judgment about the balance of advantage and disadvantage, including to investors in general, arising from different courses of action. I have explained why judgments were made which led to the decisions that were taken at the time. I hope that my hon. Friend will study the report with care, which I recognise he has not yet had time to do, before continuing with suggestions of the kind that he made in his question.

Mr. Alfred Morris (Manchester, Wythenshawe)

Is the Minister aware that it was the case of my constituent, Mr. Leslie Mullard, aged 75, and his wife, who have lost £65,000, which went to the ombudsman as a test case, and of the reply to me from the ombudsman of 8 July? If the Government are not prepared to offer compensation, will they at least give a plain assurance in the House today that they will abide by any recommendation for compensation which may be made by Sir Anthony Barrowclough? What does the Minister say about the remark of the right hon. Member for Chingford (Mr. Tebbit) that he was minded to refuse the licence? How could the offshore fund have existed without the licence for the onshore fund?

Mr. Newton

I was of course aware, because it had been reported in the press, although I am not sure that it has been confirmed by the Parliamentary Commissioner, that the right hon. Gentleman had referred a case to the Parliamentary Commissioner. I have no doubt that a number of other cases have been referred to him as well. I made it clear in my statement, and I readily reiterate it, that the Government will co-operate, as they rightly should, and that they will consider with great care any report that the ombudsman may make. Beyond that, I am not prepared to engage in speculation about the hypothetical conclusions of a report that we do not yet know is going to be written without any opportunity to consider what it says.

Mr. Norman Tebbit (Chingford)

I remind my right hon. Friend, and I ask him to make it plain, that although I was not at the Department at the time that the licence was granted and that although it was reported in the press —and no doubt it will be dealt with in the report of the inquiry—a document during my time at the Department said that I was minded not to grant a licence. As anybody who has been in Government will know—I realise that few of those who sit on the Opposition Benches have been in Government——

Hon. Members

Is it in your book?

Mr. Speaker

Order.

Mr. Tebbit

As anybody who has been in Government will know, such an expression is a commonplace expression in correspondence, whether a Secretary of State has or has not minded himself to grant a licence. [AN HON. MEMBER: "Wriggling."] The hon. Gentleman says that I am wriggling. I think that he has forgotten that the correspondence said that I was minded not to grant a licence. What I am making plain is that I cannot take credit for having made a decision not to grant.

Mr. Newton

I think that I would simply like to thank my right hon. Friend for his observations.

Dr. David Owen (Plymouth, Devonport)

Popular capitalism, which this Government and many hon. Members support, surely depends on trust in institutions. How can we trust an institution, in this case the Department of Trade and Industry, when we know that the Bank of England and the stock exchange raised very serious questions? Can the right hon. Gentleman really come to the House and say that, given the background to these events, its actions were careful, considered and reasonable? Is it not time for this House, as an institution of Government, now to demand ex gratia payments for these small investors?

Mr. Newton

I hope that the right hon. Gentleman will —as I am sure he will—read, in the case of the Bank of England in particular, the text of the letter that it wrote, which is contained in the report. The suggestion in that letter on which I think his comments rely is of the form that "it occurs" to the writer that something may be the case. I think that the right hon. Gentleman will accept that that is not a basis on which a Department could launch action that would precipitate the collapse of a company or, in this case, a partnership. As for the stock exchange, my statement made it absolutely clear that once the concern began to have some flesh put on it, which was only at a relatively late stage, the Department not only took it seriously but set in hand the action that ultimately brought about the winding up of the company.

Mr. Stephen Day (Cheadle)

Is the Minister aware that over 400 investors in my constituency have been affected and is he also aware that the majority of these people are not City whizz-kids? They put their life savings into Barlow Clowes largely because of the guarantee that they thought they had of a DTI licence. Will the Minister comment on the fact that if the Financial Services Act 1986 had been fully in operation when Barlow Clowes collapsed, many of these investors would probably have been protected by the fund that was established under the provisions of that Act? As the Government recognise the principle and the need for such funds to be available in those circumstances, will they not accept that principle and do something about it, not because they are legally required to do so but because they have a moral duty to help people who are now in extremely dire circumstances?

Mr. Newton

It is certainly the case that, had the full framework of the Financial Services Act been in place, the position would have been a great deal better than under the legislation as it existed at the time. I cannot quite endorse the precise proposition that my hon. Friend has put to me. It would have depended on whether or not this or any other firm was duly authorised under the Financial Services Act. In the light of v/hat we now know, it appears to be highly unlikely that that would have been the ease, but what is very clear indeed is that the new legislation —the improved regulatory system—should make it very much less likely—even though, in the nature of things, it cannot make it totally impossible—that events of this very unhappy kind for my hon. Friend's constituents and others will occur again.

Mr. Brian Sedgemore (Hackney, South and Shoreditch)

Is it a fair summary of the Minister's 17-minute statement that for a long time members of the DTI knew that Barlow Clowes were criminals but could not prove it and that when they could prove it and had the option of prosecuting or granting a licence they chose to grant a licence? Is that the acceptable or the unacceptable face of Thatcherism?

Mr. Newton

The short answer to the hon. Gentleman's question is that that is not true. When he has had a chance to read the report I think that he will recognise that that is not true.

Mr. Anthony Nelson (Chichester)

Is my right hon. Friend aware that his very full and detailed statement will be studied with care not only by Barlow Clowes shareholders and investors but by investors throughout the country in many other concerns? I put it to my right hon. Friend that the lesson to come out of this is that we should not wait for the horse to bolt before we close the stable door. Whether it is the Department of Trade and Industry or the Securities and Investments Board, I think that investing members of the public would like to feel that at an earlier stage of the proceedings the whistle was blown on fraudsters and rip-off merchants such as this. When this matter was discussed in the House during the passage of the Financial Services Bill, hon. Members on both sides of the House argued the case for the Securities and Investments Board to be able to play a much more incisive and investigative role in these matters, but that argument was resisted by the Government who said, "We are too afraid of a more powerful body overseeing the City." I believe, as do many other people, that the time has come for a rethink.

Mr. Newton

First, I agree with my hon. Friend that there is material in this report and in the sequence of events for large numbers of people to study. I hope that the report will be studied by many intermediaries and by all those who are concerned with the regulatory system. Secondly, if my hon. Friend is suggesting that we waited for the horse to bolt before we shut the stable door, may I make the simple point that this Government, after decades during which no previous Government had tackled this problem, set up the Gower committee on investor protection in 1981 and introduced new regulations under the existing legislation in 1983. The Government have now produced a comprehensive framework. Far from waiting until the horse had bolted, we have got on with the job and a new framework is now in place.

Mr. James Lamond (Oldham, Central and Royton)

When the Minister remembers that many thousands of small investors have lost at least a quarter of their capital, some of them perhaps 75 per cent. of it, together with the income that they derived from it, and when he recalls the crocodile tears that have been wept over the years, by the Prime Minister in particular, over the erosion of old people's capital by inflation, and also the very substantial "lifeboat" that was launched in the past to assist the banks who got into trouble, does it not smack a little of hypocrisy for him now to speak of protecting taxpayers' money in order not to compensate the small savers who have lost their savings?

Mr. Newton

The hon. Gentleman will, I hope, recall from my statement that I made it clear that we considered very carefully—I mean that—whether it would be proper to compensate for just the sort of reason that he has outlined. We came to the conclusion that, on the basis of the facts set out in Sir Godfray's report, we could not properly do that.

Sir Peter Emery (Honiton)

My right hon. Friend will recognise the concern felt on both sides of the House, which is justified, but we must not reach a judgment until people have had time to study the report. Sir Godfray was asked: to investigate … with particular reference to … the monitoring of the activities of the licence holder. We have not heard anything from my right hon. Friend about the activities of the licence holder, which many of us believe were extremely dubious. If he conducted his business in a doubtful way, ought that fact not to be made clear from the Dispatch Box? If it is believed from the report that there are liabilities attaching to the auditors and to the financial advisers, can the Government bring together those who are liable—many of whom are insured, so the insurance factor will deal with the liability—so that we can finalise the matter quickly and not have it drag through the courts for years and years?

Mr. Newton

I note my hon. Friend's latter suggestion. I hope that people will read this extremely comprehensive report thoroughly. With regard to monitoring, my hon. Friend will realise that he is taking me back to the ground, over which I skated delicately some questions ago, concerning possible issues of liability in various directions arising from the report. My hon. Friend will realise that I cannot speculate or comment further on that, having made it clear that the report has gone to the relevant regulatory bodies.

Mr. Jack Ashley (Stoke-on-Trent, South)

The Minister has given us his interpretation of the facts and mentioned a possible reference to the ombudsman. May I suggest that he goes much further and assures the House that, if the ombudsman finds a different interpretation of the facts and also finds maladministration, there should be full compensation? If he does not, the right hon. Gentleman is saying that the Government will accept the ombudsman's findings only when they suit them.

Mr. Newton

I do not think that I have implied any such thing. I have said very clearly that we shall consider carefully any report which the Parliamentary Commissioner produces. I repeat what I said to the right hon. Member for Manchester, Wythenshawe (Mr. Morris) —I am not prepared to engage in speculation about hypothetical reports before we have had a chance to study them.

Mr. David Howell (Guildford)

We shall obviously have to examine the report in great detail and not rush to instant judgments. Is my right hon. Friend aware that he does not sound quite right, and nor, from what he says, does the Le Quesne report, when he makes such a clear distinction between the Barlow Clowes UK portfolios and its Gibraltar portfolios? Is he aware that some investors had their funds switched between the two, often without their knowledge, and that there was not the clear distinction that seems to be implied in the report? Will my right hon. Friend take that into account? My right hon. Friend is aware that the reference to the ombudsman will take several months, so will he not rule out the idea of temporary support and help for real hardship cases while this affair drags on?

Mr. Newton

With regard to the latter part of my right hon. Friend's question, I cannot add to what I have already said about the compensation issue as a whole. Of course I accept—it is clear with hindsight—that funds were switched from one portfolio to another and that a number of things that happened should not have happened. The issue that Ministers have had to consider is whether the Department, exercising its regulatory functions, could reasonably have been expected to know that that was happening when it was happening. That is the point to which my comments were directed.

Several Hon. Members

rose——

Mr. Speaker

Order. I appreciate the House's anxiety about this matter but I have to balance it against today's business. There was great distress among hon. Members last night who were unable to speak in the debate on the Defence Estimates. I shall therefore allow questions on the statement to run for a further 10 minutes when we shall move on to business questions. I shall endeavour to ensure that hon. Members who cannot be called to ask a question on this statement will be called then.

Mr. Joseph Ashton (Bassetlaw)

Is the Minister saying that his Department monitored only sample advertisements in the financial press? Was it unaware of massive advertising in trade union magazines and others aimed at professional and managerial people nearing retirement or taking large lump sums on redundancy? Was no check made on those advertisements to establish how many people might be caught?

Mr. Newton

I think that I made it clear in my statement that the Department's monitoring rested on sampling the national and financial press. Some of the advertising to which the hon. Gentleman refers was not covered by that sampling system. I am advised that there are about 8,500 periodicals and publications in Britain which carry heaven knows how many advertisements. I think that the hon. Gentleman will understand that monitoring each and every advertisement in each and every publication would be a task on a scale which would present great difficulties.

Mr. Ian Gow (Eastbourne)

Is it really the Government's view that no fair-minded person reading Sir Godfray's report could believe that any blame, let alone any negligence, attaches to my right hon. Friend's Department? If the Parliamentary Commissioner should decide to investigate a complaint of maladministration against his Department, is there any information over and above that already provided by his Department to Sir Godfray which could be provided to the Parliamentary Commissioner?

Mr. Newton

I am certainly not aware of any additional information which the Department could make available because—I hope I need hardly say it—the Department has made available to Sir Godfray for his inquiry all the information and papers that it has on this subject. That is not to say that nothing further could conceivably emerge from other quarters. We have co-operated with Sir Godfray in good faith, just as we shall co-operate with the Parliamentary Commissioner for Administration if he decides to investigate.

The report sets out a set of facts on which, necessarily, a judgment has to be made. As I have said to one or two hon. Members on both sides of the House, it is obviously possible for judgments to differ, but I have given the Government's judgment on these facts.

Mr. Harry Ewing (Falkirk, East)

Is the right hon. Gentleman aware that I have a great deal of sympathy for him as he has been landed with this problem although he had no ministerial responsibility during the course of events which led to his statement?

It is extremely important that the right hon. Gentleman should take up the point made by hon. Member for Croydon, South (Sir W. Clark) about civil servants in the Department, and the announcement from the Dispatch Box that the permanent secretary is examining whether civil servants should be moved or removed. Is he aware that it is highly undesirable for Ministers to come to the Dispatch Box and make such statements about civil servants? If heads are to roll, they ought not to be civil servants' heads but ministerial heads.

Mr. Newton

I thank the hon. Gentleman for his initial comments but, to judge from the rest of his question, I think that he may have misunderstood what I said. I was asked about the position of civil servants. I made it clear that that is a matter ultimately for the Head of the Civil Service, but in the first instance it is one for the permanent secretary to the Department of Trade and Industry. I said what conclusion the permanent secretary to the DTI had come to.

Sir Peter Hordern (Horsham)

Will my right hon. Friend confirm that in the face of warnings from the Bank of England and the stock exchange his Department issued a licence in 1987, and that it did so on the balance of advantage, to avoid turmoil? What is the position of those investors who would have been saved had the Department taken action in 1987 and refused a licence, but many of whom invested their life savings thereafter? Does my right hon. Friend really feel that no moral responsibility attaches to the Government in that case?

Mr. Newton

My hon. Friend has rightly made a point that came up on numerous occasions in my statement and during the questions on it. Any decision on these matters had to be made on the basis of a balance of considerations and the consequences that would flow from alternative action. I hope that he will weigh the possibility at least —perhaps even more—that had Ministers made a different decision at the time we should be debating not his point about those who invested subsequently but instead the plight of those who had suffered from a disorderly collapse of the kind that I outlined earlier.

Mr. D. N. Campbell-Savours (Workington)

Is not the real reason why the Government do not want to pay compensation that the matter has implications for investors in Investor Discount Brokerage, Afcor Investments and Harvard Securities, all of which have closed down over the past 12 months? In each case, investors allege—and have sent evidence to the Department—that Department inspectors had refused to act when they clearly should have acted to protect investors' interests.

Mr. Newton

No, I do not accept that interpretation in any way. As I said in my statement, the Government have carefully considered the case for compensation against the background of the facts revealed in Sir Godfray's report and decided that against that background it was not possible for us to conclude that taxpayers should be asked to fund compensation.

Mr. David Shaw (Dover)

Does my right hon. Friend accept that, from the point of view of anyone with experience of the investment industry, there is no question but that his Department acted in accordance with the correct and proper procedures, from all that he has said? However, the real issue surely is that the blame must lie substantially with the firms of accountants and solicitors that gave false assurances to his Department. I note that he did not say that he was referring the report to the Law Society, and I trust that he will assure us that he is. He must surely accept that the real question is not where the blame lies but how quickly old-age pensioners—the elderly investors who might die before they can get their money back—will receive compensation. Will my right hon. Friend look at the legal procedures and all the problems that those investors will face in getting quick compensation?

Mr. Newton

I referred in my statement to the estimates that we have been given by the liquidators in respect of this country and Gibraltar, both of the current position and of the timing of any payments to investors. In particular, the liquidator of the United Kingdom operation hopes to make an interim distribution before Christmas. I hope that that will be some encouragement to my hon. Friend. We shall certainly do anything that we can to ensure that the process is completed as soon as possible.

On my hon. Friend's first point, I refer him to what I said earlier in these exchanges about the position of the various advisers involved. I have no doubt that the Law Society will have its attention drawn to his remarks.

Mr. Bill Michie (Sheffield, Heeley)

The Minister has outlined the long period of fiddling by Barlow Clowes and the dithering of the Department of Trade and Industry but then said to the House that there would be no compensation for those affected by this illegal action. On behalf of those of my constituents who have written to me, I must ask how the Minister and the Government can justify allowing £1,000 expenses a week for Clowes when some of the victims are now having to manage on social security.

Mr. Newton

I can certainly give the hon. Gentleman an undertaking that we shall do everything in our power to encourage the liquidator—the decisions in these matters are his—to ensure that the expenses are kept to a minimum. I do not accept the hon. Gentleman's description of the Department's handling of the matter, which was a very difficult matter involving complex issues. As I have said repeatedly, the matter involved courses of action all of which were bound to have some disadvantages. I believe that reasonable judgments were made at the time against the background of the information available at the time and in the context of the legal powers available at the time.

Mr. Tim Smith (Beaconsfield)

Could my right hon. Friend do a little more than take note of the suggestion made by my hon. Friend the Member for Honiton (Sir P. Emery)? Given that people who have just lost all their life savings are not the best placed to take legal action, and that the Department relied heavily on assurances given by Spicer and Pegler and Herbert Smith, could he not get together some of the professional advisers to decide whether there should be some sort of out of court settlement?

Mr. Newton

I note that that suggestion has been made for a second time. However, in the circumstances and for reasons that my hon. Friend will understand against the background of my remarks, I do not think that I want to go further on the role of the various special advisers involved.

Mr. George Foulkes (Carrick, Cumnock and Doon Valley)

After the Minister's long statement and all the answers that he has given I am still not clear how to advise my constituents who invested in Barlow Clowes and felt safe to do so because the DTI had given the company a licence in 1985. Will the Minister amplify what he said in reply to my right hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris)? Is some kind of compensation one of the options that he will eventually consider when he gets the ombudsman's report or should my constituents and all the other investors now abandon hope of any compensation and realise that they have been abandoned by the Government?

Mr. Newton

I should make clear what I said in my statement about the current expectations of the liquidators concerning the amount that will be returned to investors. As I suggested, in the case of the United Kingdom operation in particular, that amount is expected to be really quite substantial. I am sorry, but beyond that I cannot add to what I have already said about the Parliamentary Commissioner and the report that he may possibly produce.

Mr. Alastair Goodlad (Eddisbury)

Does my right hon. Friend accept that the sorry sequence of events that he has recited will give no comfort to the unfortunate victims of the affair, who may have hoped for compensation from his Department, for which there are clearly no grounds whatever, or for ex gratia payment, for which there are clearly no grounds whatever——

Mr. Robin Maxwell-Hyslop (Tiverton)

There are excellent grounds.

Mr. Goodlad

—but that in what my right hon. Friend has said about the position of the solicitors, accountants and intermediaries of all sorts there are grounds for hope? More generally, does my right hon. Friend accept that in the regime following the enactment of the Financial Services Act 1986 events such as these could not be repeated?

Mr. Newton

I am grateful to my hon. Friend for the first part of his remarks. I should perhaps make it clear that I have not—in the sense in which he implied—said anything about the accountants or the solicitors. I have also made it clear that there are issues which will need to be—and which no doubt will be—considered by the relevant regulatory bodies.

I note my hon. Friend's last point.