HL Deb 06 July 1939 vol 113 cc1070-81

Order of the Day for the Second Reading read.

3.9 p.m.


My Lords, this Bill is of an unusual character, and at first sight it looks rather alarming. It comes from another place, and the Examiner of Petitions for Private Bills in that place reported that the Standing Orders applicable to the Bill had been complied with. It is a hybrid Bill and was considered by a Select Committee of members of another place. The usual formalities were gone through. In fact no Petitions were presented against the Bill, the Preamble was proved, and a Report in favour of the Bill was presented. I mention that because your Lordships will see that the Bill as it comes before the House contains more than two pages of recital of circumstances which have led to the presentation of the measure. Of course that statement of facts has already been considered in evidence elsewhere and has been approved. I should add that the Third Reading, in another place, on June 13 was unopposed. If your Lordships have the print of the Bill in your hands, you will observe that the recital relates mainly to two somewhat singular facts which arise out of the administration of the Public Trustee Department under the Public Trustee Act, 1906. Your Lordships will be aware that the Public Trustee may be a trustee by himself of a number of trusts or he may be a trustee in association with others. I should like to begin by saying that this Bill relates to cases where he is the sole trustee, because thus alone was it possible for him to do the various things which are sought to be validated by this Bill.

The Public Trustee is remunerated by fees, and the fees go into the Exchequer. The costs of administering what is now a vast Department are provided out of Parliamentary funds, and Parliament makes in that way some not very large profit out of the administration of the Department. Under the Act of 1906 provision was made, not unnaturally, that separate accounts should be kept for every trust, and there are a very large number of trusts. Altogether during the years with which we are concerned there have been over 100,000 such trusts, some of them relating to small sums and some relating to much larger sums. The matters with which we are concerned here really substantially relate only to comparatively small trusts on the whole. Your Lordships will appreciate that the Public Trustee, every now and then, has to pay sums of interest to beneficiaries from trust funds, he has sometimes to invest such funds or to make new investments, and sometimes he has to distribute the whole, or part, of the fund, and pro tanto that trust then comes to an end. It was found as his business increased that he generally had in hand a pretty large sum consisting of a number of cash balances relating to all these trusts which, as I have already said, were very numerous.

Your Lordships will at once appreciate that if he had with complete strictness complied with his duty and kept the funds relating to every one of these trusts quite separate, when he had a small sum relating to some particular trust in hand for a few weeks or at most a few months, he could do nothing with that money at all. You cannot make money by investing a sum of, say, £100 for six weeks. It is true that he would get some small sum out of the investments if dividends were payable during that time, but on the other hand there is the cost of investment. You buy at a figure which is higher than that which you get when you sell unless there has been a fluctuation during the weeks you hold the investment, and it would not be found a remunerative transaction. The only thing that the ordinary trustee does is to put the money on deposit, and there again he has to give so many days' notice—I think fourteen—before he can get the money out again. Accordingly, in March, 1918, which is already a long time ago, the Public Trustee thought, in the interests of all these trusts, that he should form with regard to the various sums of that character—that is, nothing like the whole of the trust funds he has, but simply those funds awaiting distribution or disposal in the way I have mentioned—what I may call an omnibus trust fund. That total fund was of a substantial character, amounting to a good many thousands of pounds.

With regard to these funds—and here he did something which I must admit at once was a technical breach of trust—he invested a large part of them in investments, and as regards the balance, the smaller part, he placed it on deposit, with the result that the sums he invested, which he had invested in 5 per cent. war loan stock, gave him a return of 5 per cent., and on the sums on deposit he got 2 per cent. Your Lordships will note that as this related to a large number of funds he kept on having to pay out of that omnibus fund, so far as it was invested or placed on deposit, the sums which had to be paid from separate trusts, and at the same time other sums were coming in in respect of other trusts, so that really the transaction rather resembled a water cistern into which water is continually coming from a number of sources and at the other end is going out as required for the purposes for which water is used. You could not say, with regard to the fund with which we are dealing, that any particular part of it belonged to any particular trust because they were all mixed up together in that way.

The result was twofold. In the first place, the Public Trustee ran the risk of the value of the securities going down, because he had to pay definite sums out to his beneficiaries and if the securities diminished in value the Treasury would have ultimately to make good the loss. The other consideration is this—and this I think justified, from the moral point of view, at any rate, what the Public Trustee did—the beneficiaries got substantially more, a great deal more, in the way of interest than they could possibly have got had he strictly complied with his duties and kept the separate trust funds entirely separate and been precluded from earning the 5 per cent. interest which, as a matter of fact, he earned on the greater part of his funds. The result was that from March 15, 1918, to a later date mentioned in the Bill, he made a sum of £28,178 15s. 4d. not in interest, but by reason of the fact that in 1932, as your Lordships will see if you turn to the top of page 2 of the Bill, there was an appreciation of his investments to that extent. That sum was treated by the Public Trustee, with the consent of the Treasury, as fees earned by the Public Trustee in respect of dealings with the fund, and, therefore, it had gone into the Treasury and went there as long ago as the year 1932. After that the Public Trustee made some other investments, and those investments were not subject to any further realisation until the year 1936, and in July, 1936—that is three years ago—he received, as you will see in the second recital on page 2, by way of appreciation on these funds, a profit or gain of £117,569.

That having been made, the matter was brought to the attention, I think, of certain people who were investigating public accounts. They raised some objection to the propriety of the arrangement because there was no way of distributing the £117,569 between this great number of trust funds, and it was thought undesirable to continue the practice. Therefore I can tell your Lordships at once that since 1936—I may protect myself from any blame or merit by saying that it was before my time—nothing of the sort has been done. The omnibus fund has been partly deposited in banks, and partly paid into the Post Office Savings Bank, with the result that there can be neither appreciation nor depreciation, and the whole of the interest, subject to deduction for fees, has been given to the various benefactions. That being so, it was thought by the Treasury and others that it was very desirable to put this matter right, and to pay into the Treasury the remaining funds which existed, as I have told your Lordships, as the result of the appreciation of certain securities during the years in question relating to a very large number of trust funds.

I should like to add that as soon as I heard of this proposal, I investigated as far as I could the question whether it was possible for any of the beneficiaries interested in those trust funds in any practical measure, by any proceeding known at any rate to me—and it would, of course, be a proceeding in Chancery with regard to which I can claim to have some knowledge—to recover any part of the funds, and after considerable thought I came to the conclusion that it was really quite impracticable to achieve such a result. Your Lordships will observe in the first place that it would be practically impossible to find out how much of the balance due in respect of any particular fund had been applied to it in the form of any investment in the securities I have mentioned; nor could you tell exactly when it went in and when it came out. In any case, a claim in respect of any particular trust would be really of a small character and could not, I think, be sufficient to result in a sum which, having regard to the enormous cost of any such proceeding, could by any possibility result in anything being paid to the beneficiaries.

And, of course, your Lordships will remember that the claimant in question has received a rate of interest on his money which he could never have obtained had the money been treated separately. The average of the separate sums concerned would perhaps be between £500 and £600, held for not more than six weeks, and the amount claimable would be negligible, especially when you bear in mind that the Public Trustee would be entitled to claim the necessary expenses notionally attributable to the separation of that portion of the fund which any claimant had if he could show what that portion was. Then you have to remember that during the period in which a particular claimant would be interested it might be that the securities which were then invested for the omnibus fund would show losses, although, in fact, there have been substantial gains considered over the whole period with which I am dealing. As the average period was six weeks, it would be quite impossible, as I think, to make any claim at all. Having so satisfied myself, I am fortified in my views by the circumstance that when the matter was being considered by the Select Committee—and it was very carefully considered—no Petition was lodged by any private interests against the Bill, and no claim has ever been made by any beneficiary to be paid any amount in respect of the profits which have been made by reason of an appreciation of the fund. In those circumstances the position, I think, may be said to be this. There has been what I would describe as a technical breach of trust. It is technical because it is a breach of trust committed in the interests of beneficiaries, and it is a pure accident that there has been this profit. Had there been a loss Parliament would have had to provide for it. On the other hand, as I say, nobody has any real prospect of ever recovering any portion of the fund in question.

We propose by Clause (1) of the Bill that these dealings by the Public Trustee with the trust moneys aforesaid—the dealings being those stated in the Preamble—shall be deemed always to have been lawful, and by subsection (2) it is provided that the sum of £117,000 odd which I have mentioned, together with any interest accrued to the Public Trustee in respect of it, shall be paid into the Exchequer. By subsection (3) it is provided that the Public Trustee may continue to maintain the said general fund and to include therein such trust moneys as he thinks fit, being moneys awaiting investment or distribution and to deal with that fund and the interest received in the manner in which, stated shortly, he has dealt with it since the beginning of August, 1936, and not otherwise. I would remind your Lordships that the way in which he has dealt with it is by placing it on deposit in certain banks or in the Post Office Savings Bank so that the accidental windfall we are dealing with here never again will be the subject of a Bill to be brought before your Lordships.

The only other thing I have to mention is that since 1936 the Public Trustee has credited interest to the various beneficiaries after a deduction for expenses which is set out in a rather elaborate formula which you will find on page 2 in paragraph (a) and on page 3 in paragraph (b). The formula is one which is a little difficult to follow and in order that your Lordships may know exactly what is the substance of it I should perhaps tell your Lordships that the formula works in this way. It deals with the highest exact multiple of one quarter per cent. in one case and of one sixteenth per cent. in another. Suppose the fund was £100 and the total income accruing in respect of the assets in any one year represented interest at the rate of £3 18s. 2d. per cent. on the whole fund. One quarter per cent. below that rate is £3 13s. 2d. per cent. and the highest exact multiple of one quarter per cent. below £3 13s. 2d. per £100 is £3 10s. That is accordingly the rate at which interest was credited to the various trusts. A rate of £3 10s. per cent. was very much more than could be obtained on deposit.

Since 1936 there has been some slight alteration. Supposing again the fund is £100, if the total income accruing in respect of the assets of the fund in any one year since August, 1936—that is since the Public Trustee gave up investing in Government securities—represented interest at the rate of £2 3s. per £100, then interest at the rate of £2 2s. 6d. per cent. per annum (that being the highest exact multiple of one sixteenth per cent. below £2 3s.) would be credited to the several funds. The balance between the total interest sum and the amount credited to the various trusts, which is quite small, is not in fact sufficient to pay the Public Trustee for the cost of administering this portion of the omnibus fund. I have told your Lordships the facts of this rather singular case, and I hope I have made it clear, but I know the matter is somewhat complicated and if any of your Lordships want any further explanation I shall be very happy to supply it as far as I can. I beg to move that the Bill be now read a second time.

Moved, That the Bill be now read 2a.—(The Lord Chancellor.)

3.35 p.m.


My Lords, I do not rise to ask for any further explanations or further elucidation because I must most respectfully congratulate the noble and learned Lord on his very clear explanation of a rather complicated matter. I want, however, to make one or two observations about this Bill and the circumstances which have made its introduction necessary. I have a kind of family interest in the Public Trustee because my late father-in-law was one of those who in another place initiated the legislation which, after the most bitter opposition from the Party which the noble and learned Lord on the Woolsack adorns, passed into law. It was denounced as State Socialism of the worst order. It was said these unfortunate people would be put in charge of the Public Trustee, that their money would be frittered away by incompetent civil servants, and worse. The Public Trustee began in a very small way, as your Lordships are aware, but the work has now grown enormously and has been of the greatest benefit. One result of the manipulations of the small deposits in the hands of the Public Trustee is this very pleasant windfall for the Treasury of £117,000 odd, which windfall the Treasury does not deserve. What really has happened, if I may attempt to paraphrase the very technical and interesting account given by the Lord Chancellor, is that the Public Trustee has acted as a banker for these small trust accounts and in so doing has made a large profit.

I should have thought that it would have been in the public interest, for reasons which I will explain briefly in a moment, to have attempted to find some way of paying some bonus or dividend to these wards or beneficiaries, in order further to commend the whole organisation of the Public Trustee to the general public. I know there are practical difficulties, but I should not have thought they were insuperable. However, the Government have decided otherwise and there it is. But I want to take this opportunity of saying in your Lordships' House, which is the most public place in the world, that the work of the Public Trustee has been of very great benefit, and that it ought to be more widely known. I myself always recommend any relatives or friends of mine with trusts to establish to go to the Public Trustee. I have had a good deal of experience of the work of the Public Trustee, and I know that he is most helpful. The smaller the estate, the more careful he is. I would rather have such affairs in the hands of the Public Trustee than in the hands of the most capable firm of lawyers in the country, with every respect for the head of the legal profession who now sits on the Woolsack. I saw recently that the Law Society had attempted to compute the sums lost through fraudulent solicitors in the last four or five years. Speaking from memory, I think it came to over £500,000. If that money had been in the hands of the Public Trustee nothing would have been lost but the windfall under this Bill would have been greater.

I would like to express the hope that the Government themselves will take some step to make the work of the Public Trustee better known for the benefit of all concerned. As I say, although the office is staffed by civil servants their attitude to poor wards is most sympathetic and helpful. In fact the office of the Public Trustee is an excellent example of State Socialism. I am sorry its future operations are to be restricted to deposits in banks and the Post Office Savings Bank. Why should not the Public Trustee continue to invest in gilt-edged securities and so improve the assets of his wards as he did prior to 1936? I do not see why similar results should not be looked for in the future. My Party has not offered any opposition to the Bill, and I offer no opposition, but have taken this opportunity of making the remarks that I felt it my duty to make.

3.40 p.m.


My Lords, the noble Lord opposite has dealt closely with the clauses of the Bill, and I have no doubt that he has studied all its details carefully and fully understands it. I think he was quite justified in saying that we were much obliged to the noble and learned Lord Chancellor for explaining the clauses of this Bill. The Lord Chancellor was also quite justified in describing it as a complicated Bill. I am very glad that this Bill has been introduced. The noble and learned Lord on the Woolsack has mentioned the Public Accounts Committee. I remember quite well the points which the noble and learned Lord Chancellor set forth being brought up before us. I think I was privileged to be the Chairman—if not I was certainly a member—of the Public Accounts Committee. It puzzled us how to deal with these numerous ragged, small accounts. The problem came to our notice when the Public Trustee was before us, and I formed the opinion that sooner or later we should have to have a Bill to regularise the position. This is that Bill; I am glad it has been brought in. This has been a difficult problem to handle, because breaches of trust, however slight, are always to be avoided if possible. They should never be condoned, and if a breach of trust has been made in the smallest degree it should at once be put right if possible; and this Bill puts breaches of trust right.

Here are a large number of ragged, small accounts which have quite unexpectedly, by the skilful way in which the Public Trustee officials have handled the matter, shown a good profit. It would be impossible to divide up the benefit to the individual persons who might be claimants. As for giving a dividend to the wards, it sounds all right but it is not possible. The most that one person could get on the average would be shillings and pence. I do not suppose that the majority of the possible beneficiaries could obtain the benefit of a cab fare, if these sums were divided up, as they should be, meticulously and legally. Therefore the best way out of the whole difficulty is for the Treasury to take the money which has been so unexpectedly earned. No one at all would be hurt thereby.

But this also must be remembered: that if, when these moneys were accumulated a loss had been made by the investments or by the handlings of the Public Trustee, the Treasury would have had to make the loss good. It was therefore only fair—I felt this at the time, though I cannot speak for my colleagues, when the matter came before the Public Accounts Committee—that the money which had been unexpectedly earned should go back to the Treasury. I felt that that was so because if there had been a loss the Treasury would have had to pay. I am therefore very glad that this Bill has been introduced.

It is not often that I agree with the views of my noble friend, Lord Strabolgi, opposite, but I think he was perfectly right in drawing attention to the benefit of the Public Trustee. In the other House, when I had the privilege of being a member, I saw the accounts of the Public Trustee year after year before the Public Accounts Committee. For many years the office made no profit; for many years it made a loss. That is right, I think; I am speaking without looking the figures up. Then it gradually made a profit. It has been gradually put into the position that it does not cost the State anything and indeed may have earned money for the State, though not much. There is no doubt, however, that it has conferred incalculable benefits on a certain class of persons. It may well be called a protector of the poor. The more we can induce the small person in a provincial town, for example, the widow or the small tradesman, who does not understand having a trust, to go to the Public Trustee, the better. In the long run it is cheaper for them, whatever small fees they have to pay—and the fees are not very great. I have great pleasure in supporting this Bill, and I am very glad it has been introduced.


My Lords, I speak without any documentary evidence, but I think the Post Office only accepts deposits which are less than £500; and I should like to know why the Public Trustee should be treated as a privileged depositor.

3.45 p.m.


My Lord, in regard to that question, I do not know the answer. I do not think there is a privilege but I think there are special circumstances in which the Post Office are willing to accept quite large sums on deposit, as for example from a Department, or an institution such as the Public Trustee. I do not, however, speak with real knowledge and I will find out for the benefit of the noble Lord before the matter comes before the House again. In regard to what my noble friend Lord Strabolgi said, I gladly agree with him in his encomiums on the Public Trustee and the way in which his office has been administered. If it is to be said that the Public Trustee Act was a measure of State Socialism, I would observe that if State Socialism never does anything more obnoxious to the public feeling than the Act of 1906 did, we shall all sleep quite happily in our beds in the future. In other words, I think that is a measure, however you describe it, which was greatly for the benefit of a large class of the community. But I would say that I cannot think that Lord Strabolgi's recollection of the way in which the Bill was passed into law can be quite accurate. My information is that the two persons who were really responsible for this Bill being passed, Lord Halsbury in this House, who occupied, as your Lordships know, the position of Lord Chancellor for so many years, and Sir Edward Carson in the House of Commons—


Was it not Colonel Howard Vincent?


That is the information I have received from a source which I know to be accurate. I have only to add that I also welcome the observations of Lord Mancroft. I was not aware at the moment that he was a member of the Public Accounts Committee which dealt with this matter when it came before that Committee, and this curious windfall was discovered to have caused some difficulty and the opinion was expressed that these ragged accounts, if they may be so described, should be cleared up. I am glad to find that he agrees with the view, which is that of the Government, that this Bill represents the proper way of dealing with a rather curious problem.

On Question, Bill read 2a, and committed.