HL Deb 25 January 1955 vol 190 cc677-711

3.30 p.m.

THE EARL OF CROMER rose to ask Her Majesty's Government what action they propose to take on the recommendations of the Gedge Report on Shares of No Par Value (Cmd. 9112); and to move for Papers. The noble Earl said: My Lords, I think it may be accepted as a fact that no country in the world is more dependent on its manufacturing industries and its merchants for its mere survival, let alone its prosperity, than the United Kingdom. Owing to the vast aggregations of capital required to-day to provide the machinery for production and the working capital for merchanting, the joint stock company has almost entirely supplanted the individual capitalist. Although the joint stock companies have made their mark on our history for many centuries, it was probably the great railway building boom of the last century which really put them on the map as a means of providing finance for large-scale industrial enterprise. As this is relevant to the situation which has continued to the present day, I should like to remind your Lordships that in those days it was common practice in many cases for shares to be issued in a partly paid form. There were various reasons for this, not the least of which was the fact that creditors in those days, when companies were still looked upon as a hazardous experiment, used to look on the uncalled liability oil shares as their enforceable security in the event of the failure of the company. It was customary, therefore, to describe a share as, for instance, "a £10 share, £3 paid." But to-day, of course, a partly- paid share is a rarity except immediately after a new issue.

In view of our dependence on the successful operation of joint stock companies, it is essential that the relationship between the three main constituents—labour, management and capital—should be harmonious. Probably this can best be achieved by each party being kept as closely and as fully as possible informed of the activities and difficulties of the other parties, as it is only by mutual confidence that the three constituents can work effectively as one. Communication is one of the problems to be solved, and in particular the avoidance of the use of words which are ambiguous in their meaning. From the layman's point of view, there are many such words in company law and practice. The 1948 Companies Act was a great improvement on its predecessors from many points of view, not the least of which was the fact that it called for the publication of considerably more information. Some progressive companies have even gone further than the Act requires and I should like to see other companies following suit. However, the 1948 Companies Act still contains the words found in its predecessors, the heritage of the Railway Age, to the effect that the memorandum of a company with shares must state the amount of share capital and the division thereof into shares of a fixed amount.

In 1952 there was a debate in another place on a Private Member's Bill to introduce no par value shares. The aftermath of that debate was that a Committee under the chairmanship of Mr. Montagu Gedge was set up by the President of the Board of Trade to investigate the desirability of no par value shares. The Committee reported in January last year, having heard evidence from a large number of authoritative bodies and individuals, and the Majority Report of the Committee was strongly in favour of permissive legislation to allow the issue and use of no par value shares. There was one dissentient on the Committee—the representative of the T.U.C. The T.U.C. was the only responsible body which was definitely against the use of such shares.

Although I do not think the House would wish me on this occasion to go in detail into the technicalities of no par value shares, I should like to attempt to explain in very general terms the implications of the recommendations of the Gedge Committee. First of all, the nominal capital of a company—that is, the capital that appears in the company's balance sheet—may or may not represent the amount subscribed by the shareholders in cash in the first place or subsequently, together with such undistributed profits as have been formally transferred to capital account. What is perfectly certain is that at no time, except in the most unusual circumstances, does the nominal capital have any bearing on the capital employed in a business. In fact, the more forbearing shareholders are in not withdrawing the earnings to which they are entitled, the more unrealistic becomes the nominal capital.

As to all intents and purposes this nominal capital figure is meaningless, it must follow that any division of this figure into shares of a fixed amount is equally meaningless. An equity share bestows no specific right to any specified number of pounds, but merely bestows a potential right to a proportionate amount of the assets and earnings of a company after all debts have been met and after all prior-ranking securities have received their entitlement. The no par value system at least removes the main cause of misunderstanding of the nature of an equity share, the notional monetary label attached to a par value share which is quite unreal. The other principal criticism of par value shares is the method of declaring dividends as a percentage of nominal capital. Any figure expressed as a percentage of another figure which is meaningless must be meaningless itself. It would make just as much sense for the dividend to be declared as a percentage of the number of employees.

Another important criticism of par value shares is the misunderstanding which arises very generally when what otherwise would, in theory at any rate, be distributable profits are permanently frozen into the capital of a company by what is usually but misleadingly called a "bonus issue." Such issues are necessary from time to time under the present system in an attempt to bring the nominal capital more into line with the capital employed in the business, but unfortunately there seems to be a fairly widespread belief that in the circumstances the shareholders are getting some- thing for nothing free of tax and in perhaps a somewhat nefarious manner, whereas in fact the individual shareholder has exactly the same proportionate interest in the same assets and the same earnings as before.

What are the chief advantages claimed for no par value shares? First, the removal of the monetary label attached to a share would lead to simpler and more comprehensible balance sheets. As bonus issues will not be required, the inherent misconceptions which such issues evoke will not arise. The issue of further equity capital would be possible in circumstances which at present usually necessitate borrowing owing to the limitation on the issue of par value shares at a discount. The declaration of dividends as a percentage of nominal capital would be replaced by dividends of so many shillings and pence per share—and these would be real shillings and pounds and not notional ones.

It is true that various criticisms exist of the recommendation of the Gedge Committee, and in the debate in another place various objections were made to the issue of no par value shares. I contend, however, that these criticisms and objections are based on facts which do not happen to be true. The principal objection put forward by the Trades Union Congress at the hearings before the Committee was that the main purpose of the issue of such shares was to conceal what is happening inside a public company and, in particular, to camouflage the payment of excessive dividends. Of course, this is far from the truth. No doubt there are better ways in which this particular purpose could be achieved. But in the evidence of the T.U.C. before the Committee, one representative of the T.U.C. is reported as having said that if a dividend, for instance, of 2s. 6d. a share is declared on a no par value share, he could not explain what it was on. I take it to mean that if this dividend were declared on a share with a nominal value of £1 it would represent 12½ per cent., or if it were declared on a share with a nominal value of 10s., it would represent 25 per cent. To follow up the argument put forward by the T.U.C., this is apparently easy to explain; but I should not like to try to do it, because it does not mean anything.

The same point kept on coming up in the debate in another place, where there was stated to be a preference for a picture even though it was admitted that the picture might not be an accurate one. I believe this to be fallacious reasoning, because if one takes one of the leading companies in this country—which I have chosen not because it is an exaggerated case, but because the company is sufficiently far-sighted to publish its turnover figures—one finds that in 1953 they earned 46 per cent. on their nominal capital, and they paid a dividend of 18 per cent. on their nominal capital. If one takes the capital employed in a business from the balance sheet, and works out the earnings and dividends on this basis, one finds they come to 14½ per cent. and 5½ per cent.; and even these figures are probably still exaggeratedly high, because the balance sheet will almost certainly understate the value of the assets, owing to depreciation. As a matter of interest, if one works out the earnings on the gross turnover of this same company, one finds it is about 6½d. in every £1 of sales, which is a verb modest profit. If we read that a company has made 46 per cent, it may to some people sound high—that apparently is what some people would like to hear—but as a picture of what is actually happening in the company it is a travesty of the truth.

The T.U.C. stated to the Committee that excessive dividends were those which would strike an average trade unionist as excessive in relation to the wages he was receiving and in relation to general remuneration of all kinds. For 1952 one particular company reported earnings of 437 per cent. on the nominal capital, and paid a dividend of 250 per cent. on the nominal capital. Again, if you work out the capital employed in the business from the balance sheet—which I have already pointed out is an inaccurate yardstick, because it still exaggerates the profits—you find that the figure of 437 per cent. comes down to 20.7 per cent., and the dividend of 250 per cent. comes down to 11.8 per cent. That the T.U.C. can say it is easy to explain this to workpeople surprises me greatly. I do not think that credence can be given to the argument that the task of the T.U.C. would be made more difficult by the removal of this most obnoxious red herring from the table of wage negotiations. My contention is borne out by a number of those who gave evidence before the Committee. What really matters to shareholders and workers alike is the amount of profits made by a company in pounds, shillings and pence, and it is only against this comparison that dividends or profits can be adjudged to be too high or too low.

The T.U.C. make a point with which I heartily agree, in complaining that some companies do not disclose enough information to allow for objective discussion. In particular, it is most helpful when companies publish their turnover figures. Discussion would be more objective if the main points at issue were not so often obscured by the present misleading connotation of the word "profits." On the question of bonus issues, the debate in another place and the Minority Report of the Committee both show such a misapprehension of the purpose served by such issues that it is highly desirable that the need for them be removed.

The Committee under the chairmanship of Mr. Montagu Gedge received more than adequate evidence that there is a desire for no par value shares. They were satisfied that there was substance in this desire, and also that the same protection as at present should be granted to the investing public against manipulation and other malpractices. They were also satisfied that such shares are a logical development of company law and practice, and that the objections put to them were either ill-founded or met by the recommendations of the Committee. I hope that Her Majesty's Government will be able to see their way to introduce permissive legislation to allow the use of no par value shares and thereby remove this most troublesome source of misunderstanding between capital and labour. I beg to move for Papers.

3.46 p.m.


My Lords, I rise with considerable diffidence to take part in this debate because I am aware that on the Benches of your Lordships' House there are many men who have far more expert knowledge of this question than I should for a moment claim for myself. At the same time, I have a certain amount of knowledge derived from my own personal experience, which is a family tradition, because my forbears were actively engaged in the City of London. Moreover, as a multi-trustee in many concerns, I have naturally had to deal in detail with investment in companies; and, in addition, I sat for many years in another place when the company laws were being amended.

It seems to me that those who are advocating a change have to establish three facts. The first is that the change they propose is intrinsically and substantially beneficial; the second is that there is a demand among those qualified to express it in favour of the proposed reform; and the third is that there are no disadvantages attaching to the change which are great enough to outweigh the advantages claimed. I venture to submit that this proposal fails on all those three grounds. Prior to my speech we had an admirable speech by the noble Earl, Lord Cromer, in introducing the Motion. I listened with the greatest care to see whether he put forward any substantial claim of advantage which would be effected by this change, and if your Lordships read his speech tomorrow I think you will find that I am not exaggerating when I say that he did not put forward a single argument of power in favour of the scheme. He put forward a number of answers to alleged objections, but he did not make any real case of what was greatly going to be gained by the proposal.

With regard to that, I should like to point out to your Lordships that the view put forward by the Incorporated Accountants, so far as I can understand it from the evidence which they gave, is that in order to make the scheme devoid of danger it would be necessary to safeguard it by a number of provisions. If those provisions were made, then the alleged advantages of the scheme would almost entirely disappear. That is the substance, as I read it, of the evidence tendered by the Society of Incorporated Accountants. I have come back, therefore, to try to discover what the advantages of this scheme really are supposed to be.

So far as I can make out, they amount to this: that as the actual discrepancy between the subscribed capital and the capital in the business, as represented by its balance sheet, is so great, it will be a great advantage to sweep away the conception altogether. That is, however, a rather hypothetical advantage. I entirely agree that a great many things in a company balance sheet tend to become notional: it is certainly true to a large extent in the case of subscribed capital—I do not think anybody would attempt to deny that. But whether there would be advantage in introducing in its place another notion, that of a share of no par value, I am exceedingly doubtful. In my view, it is an innovation which would not make a great deal of difference, and it would certainly tend to confuse a large number of ordinary people.

Now let me turn to the second point: is there any substantial demand for this charge? I noticed that in their memorandum the Institute of Chartered Accountants of England and Wales said that, in their opinion, no par value shares should be introduced only if the Gedge Committee received evidence of a general demand for it, and that the Council of the Chartered Accountants is not itself aware of a general demand of that nature. It is true that certain demands were put forward by the evidence of other bodies laid before the Gedge Committee, but I remain doubtful whether that demand is of such an extensive character as in any way to justify this considerable innovation.

Now I come to the third point of my criteria: whether there are disadvantages, and what they are. The noble Earl, Lord Cromer, quite good-temperedly, rather made fun of the T.U.C. and their objections to the scheme. I venture to suggest that we ought to pay considerable attention to the views of the T.U.C. in this matter, because they have a grave responsibility to perform. Your Lordships are aware, of course, as every ordinary citizen who thinks for himself must be—and your Lordships have a special knowledge of these things—that the whole social stability of this country depends upon the acceptance on all sides of the great British tradition of "fair do's." If you once threaten the acceptance of "fair do's" in any section of society you are in for trouble, because it is perfectly clear today that anything like a withholding of its services by any influential section of the population, or, on the other hand, any such reduction of incentives that those who have capital at their disposal are unwilling to invest in the enterprises of our own country, would produce a disequilibrium that would cause grave menace to the prosperity of this country in the days to come.

The T.U.C. take the view that it is their business to promote demands for reasonable accretions in wages. As your Lordships will be aware, in dealing not only with trade unionists and workers in industry but with large numbers of people, their ideas of what is reasonable are often far in excess of the views taken by other people. The Trades Union Congress today, with great difficulty, have to expound the position to many of their workers who want to press for claims which in the opinion of the T.U.C., as a whole are unreasonable. Let us take two illustrations. In the first case, suppose that a dividend is announced of 20, 30 or 40 per cent. The person who is not accustomed to understand company affairs says "Just fancy; this shareholder in this company has spent £1 and he is getting 5s. or 10s. on every pound he has put in." Of course, your Lordships know perfectly well that that is often far different from the fact. The shares, instead of being £1 at the time the investor bought them, might have been £7.

That is not easily understood by the ordinary man in the street, and not always understood by investors themselves. The T.U.C. have learned the technique of explaining these facts to the workers, and, I think your Lordships will admit, with a reasonable amount of success. Now it is proposed to take the chess board, turn the pieces off and start an entirely new method of estimating the dividends compared with the investment that is made. It means starting all over again with a new technique which large numbers of workpeople will regard as fictitious—because there is a fictitious element about these shares of no par value, as I think noble Lords on all sides must agree.

Take another example. The noble Earl quite rightly said that when bonus shares are issued, theoretically the equity shareholder owns no more than he did before. If there were 1,000 shares of £1 for every share he had, it means that there are now 2,000 shares. As the holders of these 2,000 shares own between them the whole business, and they cannot own any more, theoretically the shareholder gains nothing by the bonus distribution. But no noble Lord who has had experience of bones shares can be deluded into imagining that in all practical cases, or nearly all (I think there was one in the opposite direction the other day), when there is a distribution of bonus shares the net result to an individual shareholder is other than that he finds himself with assets that have risen considerably. The Gedge Committee, in one paragraph of their Report, gave a perfectly valid reason for that, but the fact remains; so the workman is not so very misguided when he thinks that, by the distribution of bonus shares, the shareholders are becoming considerably more wealthy. It is quite commonly held to-day that a large number of people who get a tax-free bonus have more money to spend than another person who methodically has earned a wage of a certain amount. I quite recognise the reason for that, and it remains theoretically true that the shareholder does not have any more after the transaction than he did before. I quote that as another thing that has to be explained to the ordinary person. Until it is explained, he does not understand it at all, and when it has been explained to him he probably thinks there is a catch in it somewhere.

The long and short of all this is that the Trades Union Congress fear, and I think with some justification, that if you make an entirely new arrangement and create shares of no par value it will place in their way the fresh difficulty of getting the ordinary trade unionist to understand that in this considerable change you are not taking some means to hide the facts from the workmen in the business. What it really comes down to is this—and here I agree wholeheartedly with the noble Earl who put forward this proposal: the great thing is to insist that more information is given than has been given in the days gone by. That is one of the results of the last Companies Act, and, in so far as that was so, I think it was thoroughly good.

If I felt—and I should like not to be misunderstood in this matter—that the introduction of this change, the permission to create shares of no par value, was intrinsically of great benefit to the country (and, incidentally, to the companies themselves), I should not think that the difficulty put forward by the T.U.C. ought to override that consideration. If there were a very large demand on a general scale for the introduction of this proposal, even though the intrinsic good that it would do might not be very great, I should not think that what the T.U.C. said ought necessarily to prevail. But as in my view, and in the view of the London Chamber of Commerce, the advantages of this new scheme are largely theoretical, I do not feel that there is sufficient ground for making the change, having regard to the Trades Union Congress objections to it.

Perhaps I may quote to your Lordships what the London Chamber of Commerce representatives said in their evidence. One said this: I think that in certain sets of circumstances the results might become gravely misleading in the course of time. In another place they said: Individual members"— that is, of their body— have shown no interest at all in these proposals. I have already quoted to your Lordships the views of the Institute of Chartered Accountants of England and Wales and of the Society of Incorporated Accountants—bodies, I submit to your Lordships, of very considerable importance in this matter: the two leading bodies of accountants—and the London Chamber of Commerce, by no means an unimportant body in the City of London.

Therefore, I suggest that we should not necessarily be motivated by the decision of the Gedge Committee, which, your Lordships will not forget, reverses the views and the decisions taken by two important Committees not so very long ago—the Committee of Lord Greene, formerly Master of the Rolls, published on May 8, 1926 (that is almost thirty years ago), and the Committee under the Chairmanship of Mr. Justice Cohen (now Lord Cohen), which reported on June 11, 1945–that is only ten years ago. Moreover, although the Gedge Committee have reported in favour of this change, the evidence of intrinsic advantage to be gained from it has not been very strong, and there is no adequate public demand for it. I venture to say, therefore, that we should not rush into this innovation and I hope that the Government will say that they are not prepared to do so.

4.5 p.m.


My Lords, we have had a somewhat varied menu before us this afternoon. We spent the first hour arguing, as it were, about who was to provide the drinks, albeit non-alcoholic. I think that most of your Lordships will probably regard this debate as a somewhat indigestible hors d' œuvre to precede the succulent and substantial dish which the noble Viscount, Lord Samuel, has in store for us shortly; but I would assure your Lordships that to those of us whose work is among financial matters it is real caviare. May I congratulate the noble Earl, Lord Cromer, for rescuing this valuable Report from the pigeonhole in which it appears to have been lying since its publication some months ago? No less do I congratulate the Committee on the clarity with which they set out the arguments on a very complicated subject.

The mover of the Motion has explained the nature of the subject in great detail and very clearly. I do not propose to enlarge upon the arguments in favour of the introduction of shares of no par value. I should like to try to counter some of these objections which have been raised to the proposal, and in particular to deal with the points raised by the noble Lord, Lord Pethick-Lawrence. First of all, he said that we must be convinced that there is a good reason for this change in the existing law. He himself is not convinced that there is a good reason. Surely, anything that clears away the mystery and uncertainty that surrounds any institution must be welcome. Surely, it is desirable that these things should be brought out into the open and that as many people as possible should understand them. On that ground alone there is every reason to permit the introduction of this type of share.

From my own experience, though it is only a fraction of the length of that of the noble Lord opposite, I am convinced that it would be good from every point of view. For the private investor it would sweep away a great deal of uncertainty and misunderstanding about the nature of investments. For his advisers, and for those institutions whose job is mainly to invest the small man's savings for him, it would save a great deal of unnecessary and unproductive work. For those of us who are concerned with the production and audit of company accounts I believe that it would ensure that the true and fair view of the companies' affairs which we have to certify was, in fact, made also clear and obvious.

One of the arguments brought up in favour of the proposal before the Committee was the widespread use of this device in the United States and Canada. To that argument two objections were raised. The first was that recently in the United States there has been a trend away from shares of no par value. That is indeed the case, and I have taken the trouble to inquire into the reason. It appears that it is solely due to a quite arbitrary rate of tax on share transfers which weighs more heavily on shares of no par value than on certain others. I do not think there is any evidence that that taxation is for any reason designed to discourage the use of these shares, although it has had that effect.

The second objection raised is that conditions across the Atlantic are different from those here and that we should not blindly follow in their steps. Of course I agree that we should not blindly follow in their steps, but I think there is no doubt that they have developed a system of public company finance more widely and to a more advanced stage than we have here. Then there is this point. Recently there has been a great increase in mutual investment between the two countries—that is, in British investors putting their money into American concerns, and, I am glad to say, in American investors putting their money into companies over here. I believe that that is wholly desirable, and I believe that practical ties of that sort are worth any amount of talk about mutual good will between the two countries. Surely, anything that is going to enable us to understand each other's systems of shares and investment is all to the good. There is no doubt that Americans have been greatly puzzled by some of the perhaps rather archaic terms and practices surrounding our company practice.

To come to the question of the demand for this reform, the noble Lord, Lord Pethick-Lawrence, said that he did not think the demand was very impressive; and he quoted in aid the evidence of certain august bodies—among them what he described as the two leading organisations of accountants in the country. With great respect, I would point out, with regard to the Institute of Chartered Accountants in England and Wales, that that august body's elder brother, the Institute of Chartered Accountants in Scotland, of which I have the honour to be a member, reported wholeheartedly in favour of the proposal; and, if the noble Lord wishes I shall be glad to show him their evidence. I hardly think that your Lordships will be likely to consider the attitude of that body less cautious in regard to financial conduct and safeguards than its neighbour South of the Border.

I do not set much store by this argument that there is not much demand. For one thing, the City is by nature a conservative institution, and it is, of course, largely due to that fact that it earns the respect that it does. But surely no reform will come about unless the facilities for it are provided. Provide the facilities, and I believe that the demand will come. There will be a first flight of progressive companies which will take advantage of this proposal, and I believe that once it has been put into action, it will be widely followed.

As to the noble Lord's objection regarding the attitude of the worker and the general public, with great respect I do not think my noble friend Lord Cromer poured scorn on, or laughed at, the report of the T.U.C. I personally do not consider it a laughing matter; I think it is deadly serious, and a matter for considerable concern. Frankly, what their objection boils down to is that, because the workers (by which presumably they mean their members) cannot understand the present system of share capital with percentage dividends, they would be suspicious of any change. Surely that is merely saying that it is better to mislead the public than to remove the cause that is misleading them. Incidentally, that is in rather striking contrast to the attitude of the representatives of the T.U.C. when giving evidence before the Cohen Committee on Company Reform. It was quite clear at that time that those representatives themselves understood the nature of share capital and dividends, and they showed themselves anxious that their members should understand it, but they complained that they were unable to do so. Surely that is rather a strange argument. The deplorable part about it is that it shows a readiness to continue to perpetuate this rift in understanding between labour and capital, when of course they should regard themselves as partners in the enterprise, as indeed they are.

I apologise for again mentioning the United States, but I think it is a fact that over there the trade unions appreciate that what is good for the shareholders of a company is also good for them; they realise that a prosperous company which is making profits means higher earnings, as well as more security, for themselves. I only wish that that attitude could become more widespread over here. Indeed, I cannot believe that our own workers are all that much behind the workers in America in their intelligence. Of course, there are mysteries about this matter of company finance. For those who are not expert it is not easy to follow; and for this, as my noble friend said, managements must bear a good deal of the responsibility—they must make greater efforts to explain these things to their employees. But I must say that the trade unions also bear some responsibility for this situation. If they cannot explain to their workers the present system, surely it is much better to introduce a system which they can explain to them.

As I have said, however, I do not think that the employees of this country are so ignorant. Some of your Lordships may have seen last week headlines about the success of an issue of shares to the public of a steel company which was formerly nationalised. Your Lordships may not have noticed that among the applicants for shares were 1,200 present employees of the company, who between them applied for an average of about £100 worth of shares. I do not think that those men entered into that undertaking without some sense of responsibility or some understanding of what they were doing; nor do I think that they would object if the company were to pay them a higher dividend than the one which is forecast. No doubt I should be ruled out of order if I were to attempt to draw from that any conclusion with regard to the employees' views on the nationalised ownership of industry.

In conclusion, I hope that I have done something to show that there is a demand for these shares, that they can be hedged about by safeguards, and that the objections are not of sufficient weight to justify the Government's maintaining a barrier to prevent those companies who wish to do so from issuing shares of no par value. I realise that the subject is largely a tech- nical one, and I agree with my colleagues who gave evidence for the Scottish Institute of Chartered Accountants—that it is not one that should be given a high degree of priority in Parliamentary time. At the same time, I feel that the Government should declare that they are not opposed to the principle of the introduction of such shares, and that if a further Private Member's Bill were introduced they would be willing to give it their support.

4.18 p.m.


My Lords, after the informative speeches from both sides of the House to which your Lordships have listened, I am sure you do not want any more information about the nature of shares of no par value. I should like to sum up my point of view by saying that it seems to me an extremely logical form in which company capital should be arranged. If we cast our minds back to the days before companies became so common, and if we see what great complications of company finance there are, and the extraordinary disparities in the value of ordinary shares, I cannot help feeling that if anyone had been clever enough to think of no par shares in the early days it would have made things much easier, and would have been a much better arrangement.

I listened with great interest to the speech of the noble Lord, Lord Pethick-Lawrence. I understood him to bring three points against this proposal. What the noble Lord said was that those who favoured this proposal must show three things: first, that the effects of the change will be intrinsically beneficial; secondly, that there is a demand from qualified people; and thirdly, that there are in the present system disadvantages which outweigh the advantages to be had from that which is proposed.


The noble Lord has put it very well, but the last one is not quite correct. It is that the disadvantages in the change would not outweigh any alleged advantages. That is the third one.


I do not think there is much between us: it comes to nearly, but not quite, the same thing—that the disadvantages in the change would not outweigh the advantages of the change. On the first point, that the effect would not be intrinsically beneficial, the noble Lord opposite said that my noble friend who introduced the Motion had made no substantial claim for any advantage at all. That is not quite correct, for I understood my noble friend to claim the great advantage that it would make company accounts very much easier to understand. That is a very important point.

Then the noble Lord quoted an accountant society on some technical points, and summed up that part of his argument by saying that he did not consider it would be advantageous to introduce another notion, the notion of shares of no par value. My answer to that objection is that it would be introducing not a notion but reality, because that is what these shares are. They have no fixed value, and it would be advantageous to get rid of what might be considered notional things and to introduce reality. The extent of the demand from qualified opinion is largely a matter of opinion. I feel that there is a strong demand among those persons best qualified. The noble Lord opposite is entitled to his opinion, but I believe that City opinion and accountancy and commercial opinion generally is in favour. The two Committees to which the noble Lord referred were Lord Greene's Committee which took evidence thirty years ago, and to which we cannot nowadays attach much importance, and the Committee presided over by Mr. Justice Cohen (as he then was) which took evidence in 1943 and 1944, when many very important witnesses were not available. I believe that if the noble and learned Lord, Lord Cohen, were to take evidence to-day he would ,get evidence to different effect; but that is a matter for speculation.

Coming to the most important of the noble Lord's objections, he said the disadvantages would not outweigh the advantages; and in putting forward that view he rightly attaches great importance to the views of the T.U.C. The noble Lord said that the T.U.C. had grave responsibility in this matter, which is true. He also said that our social stability depends on the acceptance of "fair do's"—and I could not agree more. The noble Lord also said something which I am delighted to hear from that side of the House, that anything which discouraged the investor would cause grave disability. I am not quite sure whether I heard the noble Lord rightly, but if so that is a very important admission, coming from that side of the House, because it is a view not commonly held among members of the Socialist Party.

The noble Lord also said that it is the duty of the T.U.C. to demand reasonable accretion of wages. Once again I agree with the noble Lord, and I quite understand that the T.U.C. may have difficulty in explaining company finance to their members. It is not only the T.U.C. who have difficulty in explaining company finance to those whom they seek to enlighten. Where I differ so strongly from the noble Lord opposite is when he complains that there is a fictitious element in shares of no par value. I believe the precise contrary to be true: that if there is a fictitious element at all it is in a 10s. share nominal which is worth £4 on the Stock Exchange, or a £1 share which is worth nothing because the company is bankrupt. That is much more fictitious than a share of no par value, the price of which on the market will correspond exactly to what it is worth in money yield.

The noble Lord makes the point that this innovation would create fresh difficulties for the T.U.C.—or that that is what they say. I am sorry if the T.U.C. think so, for if they really tackled this question they would find the converse to be true. Reluctantly I must touch on a rather unworthy argument in the T.U.C. evidence, that one of the purposes of the issue of shares of no par value is to conceal what is happening inside public companies and, in particular, to camouflage the payment of excessive dividends. I acquit the noble Lord of saying anything of the sort. I hope that I know him well enough to know that he would say no such thing. I am glad that the Majority Report did not make the obvious rejoinder, which would be fair. That would be to say that one of the objects of those who oppose shares of no par value is to permit large dividends to be misrepresented as excessive profits. I am not going to bandy arguments of that sort, but as it is there to be read in the Report we must be conscious of the other side. The noble Lord said that more information should be given. I agree, and that appears in the Majority and Minority Reports. The noble Lord said he felt it would help, or that if there were a large demand he would favour it. I welcome his open-mindedness and hope that when he reads his speech and my own tomorrow he will find more in favour of the proposal than at first he thought.

I will venture now to stray a little outside what would be the Rules of Order in another place and to refer to perhaps the most important thing which emerges from the T.U.C. evidence and the Minority Report—that is, that I believe both reflect regrettable ignorance. I am in no way impugning the sincerity of anybody concerned. I am perfectly certain that the signatory of the Minority Report only signed what he believed to be true and correct. Nevertheless sincerity, unfortunately, is very compatible with ignorance. One of Her Majesty's Judges once said: "Nothing is more conducive to false judgments than ignorance of the facts"; and, indeed, in arguing I have often found that to be the case.

The Minority Report disregards a fact which I consider to be fundamental: that the interests of workers and shareholders are fundamentally identical. For support I appeal to the opening sentence of the informative speech of my noble friend behind me: that no country in the world is mote dependent on industry and commerce for its survival than ours. The fundamental identity of interest between the workers and shareholders is, in that respect, complete. There may be a difference of opinion about the division of such profit as may emerge, but it is the expectation of a profit that makes the wheels of industry turn, and I deplore the way in which noble Lords opposite, or their Party, so often represent profits as being something which is really immoral.

If it is not too far outside the Motion I should like to stress the importance of the equity shareholder's function. He has to provide capital for new industry and capital to make industry expand and prosper. In doing so he runs risks. Just the other day Mr. Herbert Morrison said in another place: As regards the bulk of the recipients of dividends, they have done little or nothing to earn them. It is a pity that opinions of that sort should be expressed by important people on the other side of either House. To give an example of the risk which an equity shareholder runs I have turned up the Industrial Share Index in the Financial Times. There was a period of a few months in 1951–52 when they showed a global loss of 23 per cent. Textiles, in particular, showed a capital loss on the overall list of 40 per cent., and tea shares at one time of 41 per cent. Tea shares have all gone up again, but that fact does not help the man who had to sell them when they were down. It represents a loss of his capital. At the risk of labouring the point, may I stress that this conflict of interests between workers and shareholders is a mistaken idea? That industry should make profits is equally important to both. The whole Welfare State is dependent upon the profits of a healthy industry.

At the risk of boring your Lordships, I will give just two more figures. In the five years from 1949 to 1953, companies paid more than £4,000 million in taxation. Including tax on their distributed dividends and interest, they provided £6,000 million. I cannot give the comparative figure for dividends, but that it is very much smaller is proved by the fact that a figure of £2,000 million represents over the same period not only dividends on ordinary shares but dividends on preference shares, interest on debentures and interest of all kinds including building society interest, both to shareholders and depositors, all, of course, net of tax. The whole structure of the Welfare State is dependent on the profits which derive from taxation. And the workers' interest in profits is even more direct. I understand that the Miners' Welfare Fund is a very large holder of equities. Then there are the great insurance companies, with millions of policy holders. The workers' interest is inextricably involved in their welfare.

One word more. It may be argued that Socialist policy is hostile not to profits but to dividends—I think some Socialists realise that they are wiser to attack dividends. Though I do not think they are wise to attack either, they do attack dividends rather than profits. The point is, of course, that dividends are essential to secure the flow of risk capital for industry. Savings will not be attracted to industry unless there are proper dividends. Large profits, I maintain, are equally in the interest of the worker and of the shareholder. They are equally important whether ploughed back into industry or distributed as dividends. It is an utterly false conception that the worker is the man who only works, while the shareholder is a man who only draws profits.

I have already detained your Lordships too long and I will not deal with the question of what are excessive profits. But I suppose the extreme Socialist view is that anything that is left over after payment of wages, overheads and cost of material, if regarded as profit, is excessive. I should prefer, if I were asked to define excessive profits, to say that they are profits which result from the exploitation of the consumer, whether by pressure of monopoly or whatever it might be. I wish we could devise better means of making more obvious what I consider the obvious identity of interest of worker and shareholder. The best way to do that is to make the worker himself a shareholder. And that is happening.

Lord Polwarth quoted the case of the recent steel issue. That is very valuable in the case of established companies. I have spoken about the risk attaching to equities, and therefore equities in single companies are not altogether so suitable, in my opinion, for the worker, because that means that his interest in the success of an industry is doubly engaged. If an industry fails he may lose his job, and, if he is a shareholder, he loses his capital as well. I would rather see an extension of small savings invested in, say, investment trust companies. I think that trust companies afford a very good example. I should like to see something in the nature of hire purchase shares in trust companies—always assuming, that such a scheme had the blessing of the Chancellor of the Exchequer, for, of course, hire purchase has risks. In this connection, something is being done in the United States, and I will conclude by saying that I hope more will be done in this country. I am sure the banks would be receptive to the idea—some of them at all events—and would be willing to help.

I would emphasise the importance of more information being given by management to their men. I think they should keep the men fully informed on these matters. I could not be more enthusiastic about that—indeed, I am as enthusiastic about it as the noble Lord opposite. But I think, too, that if only the leaders of the Party opposite will try to remove some of these misconceptions about profits they can do a great deal of good. It is they who have to do it. It is no use my making speeches about it. Not only am I a Member of your Lordships' House, on the wrong side, but I have been connected with the City. Altogether, my record is far too black in the eyes of the Party opposite for anything I say to carry any weight. If noble Lords opposite think there is anything in what I say, I beg them to try, to spread the truth about these matters, instead of allowing false impressions to be disseminated and supported by colleagues of theirs in high places.

4.36 p.m.


My Lords, every man who reads a balance sheet with a view to ascertaining the value of a business does, in fact, disregard the nominal value of share capital and, whether he works it out with pencil and paper or by mental arithmetic, estimates the value of that business as if in shares of no par value. That is true of myself and of the noble Lord, Lord Pethick-Lawrence. Therefore, if accounts are to show at any given time the true nature and state of a business this proposal which is now before your Lordships' House ought to receive universal assent.

4.37 p.m.


My Lords, this subject, as we have heard, is a very technical one, and the issue should, I believe, be decided on its technical merits. Unfortunately it has become, in a sense, what I would call a matter of Party dispute. When I read the conclusions of the Minority Report, I note that a demand for a change exists among "some professional investors and speculators"; and there is an equally strong, or even stronger, opposition from the trade union movement. It is a little unfortunate that there should be that characterisation of "some professional investors and speculators" as being those who want the change.

If your Lordships look at the list of those who have, in fact, shown themselves in favour of the change, as set out in Clause 22 of the Report, you will find a very impressive and responsible number of bodies, including such organisations as the Federation of British Industries, the Association of British Chambers of Commerce, the National Union of Manufacturers, the Issuing Houses Association, the Association of Investment Trusts, and the British Insurance Association. It is true, as we have heard, that one or two are less certain about it. But it is just that sort of characterisation as is made in the Minority Report, or that sort of point, which I think is unfortunate. However, I do not wish to make a Party speech or a debating speech; nor do I want to go over technical points which have been so admirably developed and expressed by other speakers. Rather should I like to explore why the demand for no par value shares has developed, particularly over the last few years, and, if Her Majesty's Government decide not to introduce permissive legislation at the present time, what can be done under the present system to make things better.

First, why has this demand for no par value shares arisen in the last few years, quite apart from any technical merits which may be inherent in these shares? As we all know, there are two main reasons. One is the rise in prices that has occurred since the beginning of the war. The second one is related to this: that when these rises took place, and when company directors and managements wanted to give effect to the change in the value of their companies, there was imposed, most unfortunately, a ban on so-called bonus share issues. What was the result? The result, very often, was that we found that apparently excessive dividends were being paid on shares because companies were not in a position to give the true value of the shares—the bonus ban forbade it. That naturally led to misunderstanding and suspicion on the part of the workers, and so was a bad thing. Then what happened? The ban on bonuses was, broadly, removed. The result was that many company directors properly performed their duty and issued these free shares; and many of them did it all at once. Again a flood of so-called bonus issues caused suspicion and created bad feeling among some of the workers in the trade union movement. If there had been no control, the whole process would have been a much more orderly one and would not have led to this apprehension and agitation against such happenings. So much for why the demand arose.

If the Government decide not to introduce at this time legislation permitting no par value shares—and when I hear the noble Lord, Lord Pethick-Lawrence, speaking about the attitude of the trade union movement and when I read the Minority Report of the Committee I am confirmed in thinking that they will not do so—none the less I think that there are some things which can be done which will remove some of the difficulties which we are facing at the present time. There are three main steps which can be taken. One is to find another name instead of "bonus" share, although this is a minor point. A bonus, as Webster says, is "something given beyond what is usual or strictly due." I think we all know that in this case the giving of a bonus share is, properly, giving nothing at all. We ought to try to find a different name, because the name it has to-day perpetuates the misconception which surely we want to avoid.

Secondly—and this is more important—I ask the Government whether they will remove the need for companies to get the permission of the Capital Issues Committee before they make a free bonus share issue. I think that requirement is really an anachronism and a nonsense. If I may give an analogy, although I know analogies are often imperfect, I would point out that there may be a number of citizens who own valuable pictures which are covered with dirt, and which are badly framed and badly lit. Imagine the position if they had to get the permission of a committee appointed by the Government before they could remove the dirt from those pictures and place them in a proper light, so that their value might be appreciated by the public. That is not a very far-fetched analogy with the position of those who have to get permission from the Capital Issues Committee before they can make a bonus share issue. While on this point, I would appeal to noble Lords opposite, when, or if, they next come into power, not to reintroduce this ban on bonuses or to make it a penal matter to issue bonuses. It is a misconception and something which leads to misunderstanding, and it should not be.

This brings me to my last point, which is much the most important and which has been touched on by everybody in the debate to-day—namely, that company directors and managements must go to much greater pains to try to explain to the workers the whys and wherefores of capital changes. They may say that they have tried to do this very often, but when one reads the Report it is clear that they have failed. I only hope that what we have heard to-day will be studied by all concerned and interested, and that a determined attempt will be made to put this particular point right. If these three steps are taken, and above all if the unfounded suspicions about capital changes which to-day affect the workers can be removed, then I think the work of the Committee which did the study on no par value shares will not have been in vain.

4.45 p.m.


My Lords, of all those who have risen to address your Lordships this afternoon, I am the least qualified to do so. Neither by education nor by training nor by experience am I able to instruct your Lordships on these high matters. Any misgiving I have had has only been emphasised by the opening comments of the noble Earl, Lord Perth, who said that this was a technical matter to be decided only by technicians. I do not agree with the noble Earl on that point. Though clearly it is a highly technical and complicated matter, it is one which is of the greatest concern to everybody in the community, and I think it might be fitting that I should give what I consider to be a layman's view of this question. The noble Lord, Lord Pethick-Lawrence, made an extremely fair speech, as he always does. He said that this issue must be submitted to three tests: whether there were great advantages to be derived from the change, whether there was a demand for it, and whether there were any disadvantages which could be invoked which would outweigh such advantages as there might be. I do not think it is necessary to concern ourselves with one of these tests. So far as the existence or not of the demand is concerned, I should be prepared to accept the evidence of the Committee's Report. The other two tests seem to me much more important and I should like to address myself to them for a few moments.

There is one overwhelming advantage in the substitution of no par value shares, not only from the point of view of the shareholder but also from the point of view of British industry as a whole. On either side of the House we have differing views about the effectiveness of a profit-making economy, but we are agreed on one thing, namely, that over by far the greater part of the field—some would say 60 per cent., others 80 per cent., I myself should prefer it to be 100 per cent.—we have to rely on a profit-making economy. I do not think there is anybody who disputes that—not the Conservative Party nor the Liberal Party, nor the Socialist Party. It is of the essence of a profit-making economy that it should be enabled to earn profits freely. We are often told by noble Lords opposite of the far greater efficiency of the American industrial machine. We are told that it has three, four and five times as much horse-power per industrial worker as the industrial machine in this country. Surely one of the reasons for that, as the noble Lord, Lord Balfour of Burleigh, pointed out earlier, is that in the United States it is respectable to make profits. In this country over a wide field it is regarded as disreputable to make profits.




I am not suggesting that the noble and learned Earl, Lord Jowitt, shares that view, but I am saying that over a wide field that view is held, and that is one of the reasons why the industrial machine works more effectively and provides a higher standard of living in the United States than it does here.

There is no doubt whatever that the existing system of calculating dividends does mislead the man in the street. I do not think there is any Member of your Lordships' House who would be prepared seriously to deny that. It tends to make the man in the street, and particularly the worker, resist profits even when they are doing him good as well as the shareholder, the management and the consumer. Therefore, anything that can convey to him the real truth of the picture must surely be to the good, not only of the shareholder, but of British industry as a whole.

That brings me to the other test of the noble Lord, Lord Pethick-Lawrence: that of the disadvantage. He told your Lordships that the evidence of the T.U.C. before the Committee established the fact that there was the overwhelming disadvantage that the introduction of no par value shares would tend to confuse and befog the ordinary member of a trade union, and, in consequence, the T.U.C. would have far more difficulty in restraining unreasonable wage demands—I think that, broadly speaking, was the argument of the noble Lord. If that argument could be sustained, I would certainly support the noble Lord; but I do not believe that it can be sustained. Indeed, more than one of your Lordships who has already addressed the House has made it clear that all the confusion and the deception arises from the existing system of calculating dividend rates. I think there can be no doubt that if there is a case such as the noble Earl, Lord Cromer, cited, of a firm apparently making profits of over 400 per cent. and paying a dividend of 250 per cent., two things must happen: one is that the worker in that industry will feel that he is being treated unfairly; and the other is that I, and no doubt others of your Lordships, will feel that this is a field of industry in which we ought to be getting busy. But when those profits are really 20 per cent., and the dividend is really 10 per cent., surely that is something that can be easily explained to the trade union member.

The noble Lord, Lord Pethick-Lawrence, said that one of the essential characteristics of the British people, as a whole, is their insistence on "fair do's." Surely, a working man who sees a dividend of 250 per cent. being paid cannot think it is fair. But a working man who is fair-minded—and, as the noble Lord said, by far the greater part of the British people are fair-minded—when he sees that it is not 250 per cent., but 10 per cent., will say: "After all, that is not so unfair. I have a good job and I am well paid. The business is doing well. Let us make it do better." I cannot speak for the T.U.C., but I have had some experience in dealing with the working man, both in industry and as a Member for a working-class constituency, and I should have thought that the apprehensions expressed by the T.U.C. were groundless and that we ought not to pay too much attention to them.

4.55 p.m.


My Lords, when I was at school we used to be given a holiday task, which would usually take the form of a book to read during the school holidays. As a result, it was invariably read in the train going back from Waterloo to school at the end of the holidays. As an equally invariable fact, one desired never to read a work by that author again, who became one's private literary "Enemy number one." My noble friend, Lord Cromer, set us a stiff holiday task to read when he gave us the Gedge Report on Shares of No Par Value as the first item on the Order Paper when we returned from the holidays. But I must say, in justice to my former colleague at the Chancery Bar, Mr. Montagu Gedge, that I have read his work, and I think your Lordships have, too, with much pleasure and profit; and I think we owe to him and his Committee our warm thanks for the skill, care and impartiality with which they tackled their task. We are grateful to them for a valuable, useful and authoritative Report.

I am sure that we are also grateful to my noble friend Lord Cromer for having raised this matter, and particularly for having done it in such a lucid and fair speech. The debate which has followed has really been most remarkable—and I do not mean remarkable only by the fact that it has produced the astonishing co-incidence of four Scottish Representative Peers speaking one after the other, but of what has arisen out of the subject. The debate has extended far beyond the superficial issue of shares of no par value. We have discussed this afternoon some of the fundamental political issues that divide now but may one day, I hope, unite the two Parties on either side of the House. We have discussed them calmly and fairly in a debate which would have produced uproar at any public political meeting.

I turn now to the Report—or, put more exactly, the two Reports, because there are two completely conflicting but equally lucid Reports. I think that comparing the two Reports one must admit straight away that the majority have had the better of the argument; and the debate today has supported strongly the majority view. I hope that the noble Lord, Lord Pethick-Lawrence, who as usual made a calm, fair and good-tempered speech, will not mind if I say that most of his points have already been answered by noble Lords who sit behind me. I should like first to echo the remarks of the noble Earl, Lord Perth, when he pointed out that this Report was supported by a striking consensus of professional and commercial advice, including, I believe, that of most of the bodies who really matter in our commercial and industrial life. For the minority view, Mr. Beard of the T.U.C. gives a vigorous counter to this; but I submit that his arguments really fly in the face of the evidence. May I quote in support of this the Economist of April 3 of last year, which said: The reason is with the majority but the vehemence is with the minority. I should like to add this. The majority Report had a most favourable reception in the national, the professional and the technical press. The almost universal comment in the press, so far as I have been able to follow it, was that the majority had amply proved their case and that the minority arguments did not really bear serious examination. The obvious dissentient minority was the Daily Herald, and their argument seemed to be based principally upon a fallacious point of view which has been disposed of by my noble friend Lord Polwarth in his excellent speech. It is the point concerning the incidence of Federal issue and stock transfer tax in America and is not relevant to the argument really at issue. I should like to add, in mentioning the American point of view, that it is interesting to note that, on the subject of shares of no par value in America, the American trade unions so far have expressed no opposition.

It seems to me that the present position is this. From the standpoint of logic and common sense Her Majesty's Government are satisfied that a strong case has been made out for the alteration of our company law so as to allow companies to issue ordinary shares of no par value if they wish to do so. The present nominal value system seems to the Government to be fundamentally illogical and that, I think, is the gravamen of the point made by my noble friend, Lord Cromer, in his opening speech. Nominal value, I think the House must by now be convinced, is not a true indication of the value of the share. Even if the nominal capital did originally correspond with the real worth of the undertaking—and this, of course, is not always so—it quickly ceases to do so. This is because the value of the assets have changed, because profits have been ploughed back, and because of the revolutionary changes in the value of money. This leads inevitably to misconceptions about dividends.

If I have correctly followed this debate, and if my elementary economics are right, profits are earned on the capital employed in the company; but under the present system dividends are related to nominal value, which is usually quite out of date. The expression of the dividend as a percentage of this out-of-date capital is misleading as an indication of the shareholder's return on the money he has invested, and still more misleading as describing the proportion of the company's receipts which goes to shareholders. That, I think, was the point made by my noble friend Lord Balfour of Burleigh. It the directors are to pursue a policy of dividend restraint over a long period, ploughing back a large proportion of the profits so that the capital employed in the company considerably exceeds the nominal capital, a dividend of, say, 40 or 50 per cent. may be quite moderate. That, as the debate has shown, is difficult for the man in the street to understand, and he often forgets, I think, that it is not only the millionaires or the speculators who are interested in these matters. It is the little man who invests his money in small sums, which, added together amount to a great deal of money, who is just as interested in this matter; and, of course, the Trades Union Congress themselves must be big investors.

There is one point, however, where the minority and the majority are strongly in agreement—where Mr. Beard and the Majority Report are at one. That is the point which has been raised by every speaker this afternoon. That is not going to stop me from raising it, because it is a point upon which I am personally interested and have previously wearied your Lordships in many a speech. It is this question of industrial consultation—of management explaining to workers what is really going on. I had this point strongly borne home to me in the four or five years in which I had the honour to be the independent chairman of the joint advisory council of one of our bigger craft industries. I became more and more convinced of the importance of management explaining to their workers, in language which they could understand, what was really happening. The difficulty is that to understand what is really happening in a company you have to look at the balance sheet and be able to read it. I spent a year in a chartered accountant's office before I was called to the Bar, but I certainly would not guarantee to make head or tail of nine-tenths of the balance sheets that I see in the newspapers.

Mr. Beard emphasised the difficulty of educating the working people, and he is absolutely right. On the day I started to prepare the notes for the speech with which I am now wearying your Lordships, I happened to look at The Times, and in that edition there were the annual reports of nine different companies. Of those nine, four gave no indication whatever of the goods which they manufactured or the services they had to offer to the public. It was impossible to tell whether those four companies made ships, shoes or sealing wax. That cannot be right. I am certain that that gives rise to the doubts and misconceptions to which Mr. Beard draws attention.

I am also certain that it is necessary that explanations should be in plain language. I think it was our late friend, the noble Lord, Lord Lyle of Westbourne, who first popularised the idea of putting forward his annual statement of affairs in very simple, almost childishly simple, pictorial form. One or two companies have followed suit by using diagrams representing wages, taxation, dividends, reserves, profits and so on, all in the form of a cake with segments. Until you do it in that way, you cannot expect work-people to understand who gets what share of the cake. I sometimes think that it would be simpler to explain such things if words like "rent," "dividends," "profits" and "landlords" were not so festooned around with the rags and tatters of Party politics. We should then be able to understand these things a great deal more clearly.

Therefore, I hope very much that the plea which has been put forward by every noble Lord speaking to-day for a plainer exposition of the affairs of our industrial and commercial concerns to those who earn their daily bread therein will not fall on deaf ears. I hope that I shall not be considered unkind if I suggest that a little further commercial education, or education of the elementary ABC of economics, is possibly needed by Mr. Beard and those who share some of the views which he put forward in the Minority Report. His principal line of argument against no par value is that its main purpose is to camouflage the payment of excessive dividends. He did not produce any evidence for that. I would submit, on the contrary, that the no par value system, by abolishing misleading percentages, must surely help to remove misunderstanding and misrepresentation.

I call in aid the Manchester Guardian of the day on which the Report was published, March 31. This is what that newspaper said: Clearly the business of explaining how capitalism works is going to be a long job. No wonder the President of the Board of Trade says the Report calls for careful study and that it will be some time before he can make a statement on it. The reason for its being a long job is hinted at by another newspaper on the same day, the Glasgow Herald, which said: A patient reading of the statement of the dissentient member, Mr. W. B. Beard, General Secretary of the United Pattern Makers' Association and member of the T.U.C. Economic Committee, which occupies one-third of the Report, suggests that his real objection to the Majority Report is that, while it overstates the advantages to be expected from the introduction of N.P.V. shares, it takes insufficient account of the fact that objections to the change by such bodies as the T.U.C. would have effects so harmful to the public interest that the change ought not to be made. If this a fair reading of the objection it amounts to no more than a surrender to ignorance. That, I think, is putting that point of view very plainly indeed.

The brand of ignorance to which the Glasgow Herald is suggesting that a surrender is contemplated is, I think, shown most clearly of all in the News Chronicle of the same day. I am glad to see the noble Lord, Lord Layton, in his place—he is not unconnected with that newspaper. Whether he was personally responsible for this or whether it was Sir Oscar Hobson I do not know, but I should like your Lordships to listen to this point of view: Essentially, there is no difference between nominal value and N.P.V. shares. Both represent 'a fraction or an aliquot part of the equity' of a business, but the nominal value share has a 'label of value' attached to it and confers 'a suggestion of value which is untrue and unreal.' In logic this argument is incontrovertible, but the T.U.C. representatives who gave evidence were not concerned with logic but with the suspicion that N.P.V. is a plot 'to conceal what is happening inside public companies and in particular to camouflage the payment of excessive dividends.' 'Excessive dividends' is, of course in the eyes of the T.U.C. the rub, though its representatives could only define an 'excessive' dividend as one 'which would strike the average trade unionist as being excessive in relation to the wage he is receiving' 'Excessive' in this submission is what the average untutored worker thinks to be excessive and any step, however desirable otherwise, which made him less inclined to think dividends too high might take the edge off his hatred of capitalism—and that would never do. That is the view of the newspaper with which the noble Lord, Lord Layton, is associated, and I would ask your Lordships to bear that last remark in mind. Nobody has yet explained to us, of course, what this excessive dividend is, and I can only think of Humpty Dumpty, who said. "When I use a word it means just what I choose it to mean—neither more nor less."

On this vexed question of excessive dividends, whilst agreeing entirely with the argument put forward that excessive dividends, if they are really excessive, may have the unfortunate results that certain noble Lords have suggested. I should like to add this. Comparing 1953 with 1938–I have taken two years far apart because a year-to-year basis is not fair for this purpose—dividends have risen by only 50 per cent. while prices have risen by 100 per cent. and wages by 200 per cent. I believe that the editor of the Economist is right when he says: So far from attempting to conceal the truth, the reform would in our opinion enable companies to appear before the public in their true guise with a true expression of what they are in fact doing. I think the Trades Union Congress have got the argument upside down. That really is what divides us, if anything divides us, this afternoon. We neither of us want to deceive, on either side of the House. We all, I hope, want to make the situation perfectly clear, and particularly to those who earn their daily bread in industry and who are entitled to have that industry's fortunes made clear to them. We who support the majority finding of this Report think that what is proposed will make for more clarity and helpfulness. We think the weight of opinion and evidence is predominantly on our side, and I must confess that I have heard nothing this afternoon to shake my own opinion on this.

This is my last point. The procedure for putting these recommendations into law is going to be much more complicated than I first realised when I looked at the Report, and I even expect a bit more complicated than Mr. Gedge and his colleagues themselves thought. The introduction of a no par value system would necessitate adaptations of our taxation law. The coming into force of the necessary Companies Amendment Act would have to be postponed to an appointed day to allow the taxation adaptations to be enacted in the Finance Bill. The companies capital duty, which is now charged on nominal capital, would probably have to be replaced (both for par value companies and for no par value companies) by a charge on the total issued price or consideration for shares, and on increases of capital.

I ought in duty bound to draw your Lordships' attention to this point. Under the Acts dealing with income tax, surtax, profits tax and estate duties, various questions, none of which I myself understand, turn on the proportion of a company's share capital which is owned or could be acquired by particular individuals or other companies. These Acts would need to be amended to bring them into line with a no par value system. Your Lordships will see from this admittedly vague and unprofessional reference which I have made to the complications involved that it is not going to be quite so plain sailing as some people think. My noble friend, Lord Cromer, will no doubt have heard the note of regret that has crept into my voice, and I think the next remark I have to make will not surprise him. It is this. The Government are, in principle, favourably disposed to legislation on the lines recommended in the Majority Report of the Gedge Committee. However, as I have, I think, now indicated, the legislation would involve not only amendments of the Companies Act, some of which may have some degree of complexity, but also substantial and complicated amendments of existing taxation provisions in a subsequent Finance Bill, the discussion of which would inevitably take up a considerable amount of Parliamentary time—and we are not very flush with Parliamentary time at the moment.

For these reasons, I am sorry to say that the Government cannot hold out any hope of legislation during the present Session. If I have not given the noble Earl, Lord Cromer, the satisfaction he wanted in that respect, I hope at least I have given him the satisfaction of a clear indication of what Her Majesty's Government's views are on this important and technical subject.


My Lords, I rise to give thanks to the noble Lord, Lord Mancroft, and at this stage in the debate all I wish to say is that I hope that his evident enthusiasm for no par value shares will act as a spur to overcome the many difficulties which apparently lie ahead. By leave of the House, I beg to withdraw the Motion.

Motion for Papers, by leave, withdrawn.