§ 3.13 p.m.
§ Order of the Day for the Second Reading read.
§ THE LORD CHANCELLOR
My Lords, in rising to move the Second Reading of this Bill, may I inform your Lordships that the Bill now confers the necessary powers to enable a new system of fees to be introduced in the Public Trustee's Office. It is just over fifty years since my predecessor, Lord Lore-burn, moved the Second Reading of the Public Trustee Bill which led to the establishment of the Public Trustee's Office. It is interesting to recall that Lord Loreburn was supported in this House by Lord Halsbury, who had occupied the Woolsack immediately before Lord Loreburn himself. The Public Trustee was needed because of the difficulty of finding private trustees, particularly for small trusts, and because, as was emphasised during the passage of the 1906 Act, enormous losses had been suffered, largely by the poorer classes of the community, owing to the dishonesty of some individual trustees.
Events soon justified the creation of the Public Trustee's Office, and his business grew rapidly in an era when trusts were fashionable and taxation low. In recent years, however, the situation has radically altered: higher taxation and reduced opportunities of handing down private fortunes have contributed to a decline in the number of trusts created. Moreover, the banks and other corporate trustees have, during the last thirty years, become competitors for this business. The Public Trustee's business has, in consequence, declined during a period when 177 the expenses of his office have largely increased.
He is required by Statute to be financially self-supporting, and it was because of the unfavourable trend in recent years that my noble and learned predecessor, Lord Simonds, appointed a Committee, under the chairmanship of Sir Maurice Holmes, in March, 1954,to consider the work of the Public Trustee and to advise whether any changes should be made in his functions or methods of business, in the organisation of his office or in the financial conditions under which he operatesIn their Report, which was published in May of last year, the Committee stated that by the quality of the services which he has rendered the Public Trustee had been able to establish a substantial body of good will with the public and the legal profession. Assisted by an experienced staff, including professional advisers, the Public Trustee has justly earned a reputation as a skilful trustee, and I am sure that many people have reason to be grateful for his conduct of their affairs. The Holmes Committee concluded that the demand for the Public Trustee's services would continue, and the Government fully share that view.
It will, I think, be of convenience to your Lordships if I refer briefly to the Committee's main conclusions, even though they do not all bear directly on this Bill. Following their recommendations, first, the Public Trustee's Manchester Office has already been amalgamated with the London Office; secondly, the regulations governing the audit of trust accounts have been modified; and, thirdly, surplus accommodation in the London Office has been let. Each of these changes has been made to economise. On the other hand, the Committee recommended that the Public Trustee should have an Exchequer grant to cover the loss incurred in administering estates of low value which, by Statute, he, unlike his competitors, is not entitled to refuse. As was announced in another place last May, the Government cannot agree with that proposal.
One of the Committee's most important recommendations is that the method of charging fees in the Public Trustee's Office should be improved, first, by ensuring that the burden of fees is more equitably distributed, and secondly, by ensuring that the administrative work is simplified by eliminating fees which are 178 complicated and expensive to assess and collect. The Committee proposed that there should be a composite management fee, payable out of capital, which would be fixed annually at a rate sufficient to meet the estimated expenses of the Office for the financial year. I have given very careful consideration to this proposal, and I am satisfied that this type of fee would be fair to beneficiaries as a whole and would result in substantial economies in administration.
At present, the fees charged by the Public Trustee are paid out of capital or income, and this is determined by him according to settled legal principles. If a fee such as the Committee recommend were now introduced under the existing statutory powers it would be necessary, as the law row stands, for the Public Trustee to determine its incidence as between capital and income in each individual case. He could not, as the Committee suggested, charge this fee to capital. The remedy which this Bill provides is to amplify the power of the Lords Commissioners of the Treasury, with the sanction of the Lord Chancellor, to fix the fees payable in the Public Trustee's Office. The Bill will enable a new Fees Order to be made authorising the imposition of a fee, payable out of capital, as contemplated by the Committee.
If your Lordships care to look at the Bill itself, you will see that Clause 1, which effects the main object of the Bill, provides that every Fees Order made after the passing of this Act must show whether each fee is payable out of capital or out of income. It also allows the Public Trustee, where a fee is payable out of capital, to direct that it shall, nevertheless, be paid out of income, with the consent of the beneficiary entitled to the income, if he is of full age. This power is necessary in a variety of circumstances with which I need not trouble your Lordships. Clause 2 (2) is transitional and requires the Public Trustee to continue to charge the existing fees in certain cases. This will be necessary, for instance, where the matter is governed by an Order of the court or the Public Trustee has entered into some agreement about the payment of fees.
Although a new fees structure is clearly required, my colleagues and I do not accept the recommendation to abolish the so-called withdrawal fee. Such a fee is, I believe, found by many other corporate 179 trustees to be desirable, and it is proposed to retain this fee, but at a reduced rate, when the new fees structure is created. I see that the noble Lord, Lord Silkin, is here. He will observe that on this occasion we have not allowed a great deal of time to pass after the recommendations of the Committee, and I hope that he will note that we have taken due account of their proposals and brought them forward in a reasonable time for legislative approval. I beg to move.
§ Moved, That the Bill be now read 2a.—(The Lord Chancellor.)
§ 3.20 p.m.
§ LORD SILKIN
My Lords, the noble and learned Viscount on the Woolsack has almost appealed to me to congratulate him on the speed with which this particular Report has been implemented, and I have the greatest pleasure in doing so. As I have often said in this House, the normal period between the date of publication of a Report and its implementation is something like seven to eight years. In this case, the period has been curtailed to one year and seven months, and I think that is a remarkable achievement. The Bill itself is quite unexceptionable. It was necessary to inquire into the working of the Public Trustee Office. The investigation has been done with great skill and efficiency, and the Committee, under the chairmanship of Sir Maurice Holmes, are entitled to be congratulated upon the work they have done and upon its outcome. I am sure they will not resent the fact that the Government have seen fit not to implement every one of their recommendations.
The noble and learned Viscount the Lord Chancellor was quite right to pay tribute to the Public Trustee Office. It is rendering a great service, particularly in cases where it is sometimes difficult to find a trustee, or where people are reluctant, possibly for good reasons, to entrust their affairs to one of the other institutions. I think we should all desire that the work of the Public Trustee should be continued. I fully agree that the Public Trustee does his work with great skill, ability and promptness, and also with sympathy for those on whose behalf he acts.
I should deplore any step that might be taken to reduce the importance of the 180 Public Trustee Office or its efficacy. The noble and learned Viscount on the Woolsack has not given any details as to how the fees are to be calculated, but I should like an assurance from him that they will not be in the nature of a deterrent. I do not know if he can say this afternoon whether the fees that will be charged by the Public Trustee for administering an estate will be compatible with, say, what one of the big banks would charge, or whether by means of this reorganisation of fees it is contemplated that they will be higher. If they were to be higher, it would be a great pity, because it would detract from the amount of work they would get and would deter people from appointing the Public Trustee. If the noble and learned Viscount can give an assurance that the fees will be compatible with, and no higher than, those which other institutions would charge, then I think the whole House will be grateful for the introduction of this Bill.
§ 3.26 p.m.
My Lords, I have been connected with banks and insurance companies all my days, and I would ask your Lordships' leave to make a few comments, not as a banker or on behalf of banks but from the point of view of the public for whom the Public Trustee acts. There are two points which the noble and learned Viscount on the Woolsack mentioned that I think we must bear in mind. The first is the assurance given in 1906, when the Bill was brought in. that there would be no charge on the public funds, and secondly, that the Public Trustee is forbidden to decline any trust because of the small value of the estate.
I base my remarks mainly on the Report, and the first thing the Report refers to is the financial experience. The Report of the Public Trustee in 1954 says that in the first forty-eight years of the existence of the Public Trustee Office it has shown a net loss of £187,145, which is a considerable sum. They go on to refer to the fact that under the Administration of Justice Act, 1920, the Court was empowered to grant probate to banks and insurance companies. The Report of the Committee of Inquiry makes the gloomiest statement as to the future of the Office that I have ever 181 read. They say that the competition with the banks is something the Office cannot face; and that this competition with the banks, with their thousands of offices all over the country, and their close touch with clients and solicitors, will increase. I think that is correct. The Committee point out that the Public Trustee Office have no control over the cost of salaries or overheads, and draw attention to the fact that, from now on, the Office will be saddled with the cost of having to pay equal wages to men and women. It is very hard on a body that has to compete with the banks and insurance companies, which have found as a matter of experience that this is not just, because they train vast numbers of women who, in a few years' time, leave them. It must be a great expense, and it does not seem just that these women should receive the same wage as men. Yet this body, the Public Trustee Office, are asked to compete on equal terms. They say that they have to produce their estimate of costs in an atmosphere of complete uncertainty as to what the future will bring forth.
I agree with what has been said about the value of the Public Trustee Office. find it difficult to believe that they are wise to try to increase their business for private trustees. The Committee come in paragraph 20 to a brighter side of the business. Here they mention that the Public Trustee acts for friendly societies' funds, trade union funds, national disaster funds and for the Government in various activities. They say that they think that side of the business can increase; and that, I feel, is something at which they should definitely aim.
When they come to remedies, in paragraphs 33 to 37, the first suggestion of the Committee is that the Public Trustee should advertise in the Press. It is interesting to note what they suggest should be spent on advertising. They suggest that the Office should advertise on comparable lines with their competitors. They do not say what the amount is, and in paragraph 37 they make the rather astonishing statement that the information as to the amount their competitors spend on Press advertising is not known to them. Yet they recommend that the Office should spend a sum that is limited only by what the banks and insurance companies spend on Press 182 advertising. What would be the result of that sort of advertising? I cannot help thinking—as they have already found from experience—that it would attract a large number of small accounts. They tell us that any accounts up to £5,000 involve loss, and the one thing this must do is to increase the number of small accounts.
Who will pay the cost of all these small accounts? The people for whom the Public Trustee is working—the beneficiaries, the life tenants, the trust accounts. They will have to bear the cost of the advertising and the loss which is created. In the case of the bank and the insurance company, the position is quite different: if they make a loss on advertising, it is one of the losses made in business and comes in the profit and loss account. That loss is borne by the shareholder, and not by the people for whom they act as trustees. On that point, therefore, one should consider very carefully whether the Public Trustee is wise to advertise for this private trust business. With great respect, I should like to ask the noble and learned Viscount on the Woolsack whether he approves of these charges for advertising. If he does, may I suggest that the advertising should be limited to the second class of business, the friendly societies, and so on? That is where a profit will be, and if the advertising is taken by them they could well bear the cost; but no cost should be put on to the private trustees.
The noble and learned Viscount mentioned the withdrawal fee. The remark in the Report is astonishing, because in Paragraph 65 the Committee say:Finally—and perhaps most important of all—the Withdrawal Fee is in our view inequitable.They say that it operates harshly against existing trusts which were brought into the Office before the higher rates were imposed. I should like to mention one fact about this subject. The withdrawal, or the winding up of, a trust, must be an important part of the work. From our experience I can say that a great deal of the work arises when the trust is wound up. The fees that are recommended in this Report must be based on a charge to cover that work of withdrawal, because the Committee suggest that no specific charge should be made for it. Therefore, in the scale of fees which they recommended they must have provided for covering this cost.
183 If your Lordships look at Paragraph 78 (c), you will see that they also recommend that after thirty years the Public Trustee shall have the right not to make any further charges, including withdrawal fees. If they make that rather astonishing suggestion, the Public Trustee must have made such profits beforehand that it is not necessary for him to go on charging after thirty years. With great respect, I would ask the Lord Chancellor whether he will consider this suggestion. I think the public would much rather have a smaller annual fee year after year, and pay for the withdrawal work when it comes along. The fees must be so based—if I have made my point clear—as to cover withdrawal fees in the earlier years.
I entirely agree with the noble and learned Viscount that the withdrawal fee is not inequitable, and I think we should put that on record. The point that it is referred to in Paragraph 65, where the Committee say it is inequitable, I think really refers to the paragraph that goes before. Paragraph 65 points out that the fee has been increased from ½ per cent. to 1 per cent., and from 1 per cent. to 2 per cent. on the capital value of the trust. I think that that is what they meant was inequitable, and that happened under the existing system. That seems to me to be grossly unfair. With great respect, I would say to the Lord Chancellor that I hope he will be able to say that in future a limit is to be put on the withdrawal fee, and that it will not be quadrupled by the recommendation of the internal finance committee. I am sure that in future the Lord Chancellor will control the fees so that that cannot happen again.
I have only one other point, which is with regard to Paragraph 88 to which the noble and learned Viscount has referred. That says:We therefore recommend that a subvention"—that is, a State subsidy—should be given to the Public Trustee … to cover the losses … on the administration of all estates up to £3,000 in value.I think that that is at variance with the Public Trustee Act, as the Lord Chancellor said at the start there was to be no charge on the public funds. He said they did not agree—I think those were his words—with this subvention. I 184 think we could go further, and say that it is entirely a wrong suggestion. Some future Government may say that it was a unanimous recommendation of the Committee. I hoped the Lord Chancellor would say, and that this House would agree, that this recommendation should not be accepted.
§ 3.37 p.m.
§ LORD DERWENT
My Lords, as one who has been for a good many years in the insurance business, may I say a word in support of one point made by my noble friend Lord Kinnaird on the question of money spent on advertising and trying to increase private trusts—because they are likely to be the small ones, the ones which are not profitable. What must be borne in mind is that where, for example, an insurance company takes a trust that is not in itself, perhaps, very profitable but is likely only to pay its way, profit may nevertheless be made because, through that trustee business, other insurance business is brought into the company. The Public Trustee, who is in competition with other trust organisations, cannot do other business of that type. For that reason, business that may be just profitable for an insurance company or a bank—I am referring to private business—is likely to be a loss to the Public Trustee. Therefore, to spend money on advertising for business that is likely to show a loss, seems particularly unwise.
§ 3.40 p.m.
§ THE LORD CHANCELLOR
My Lords, I am grateful to the noble Lords who have spoken, and particularly to the noble Lord, Lord Silkin, for his tribute to the work of the Public Trustee, and also for his tribute to the work done in the Committee under Sir Maurice Holmes, in which I most warmly join him. With regard to his third point, about ensuring that fees were not in the nature of a deterrent, may I make it perfectly clear—and I hope this will fulfil what he wanted—that, of course, the Public Trustee must carry out his statutory duty by making both ends meet, but, so far as the Treasury and I myself are concerned, we will do our utmost to see that the fees are on a reasonable basis and also that every possible economy is put into effect (I mentioned two or three, the noble Lord will remember) so that there will not be a burden on fees. By that 185 means we hope that the fees will be as low as possible. I cannot give an undertaking on the exact question of their being competitive, because, as I say, there is an overriding statutory duty which I have to carry out but, short of that, I assure the noble Lord that every step will be taken to make the fees as low as they possibly can be made.
My noble friend Lord Kinnaird raised a number of interesting points. There is only one to which I should like to draw the attention of your Lordships. The noble Lord referred to the first sentence of paragraph 14 of the Report, in which it is stated thatThe net result of the somewhat abrupt alternations of profit and loss experienced by the Public Trustee is a deficit throughout the years of £187,145".But, as the noble Lord will see, the Report goes on to say that that ignores two matters: one is that in the First World War under the Trading with the Enemy (Amendment) Act, the Public Trustee was made Custodian of Enemy Property, and his accounts in that regard showed a surplus of over half a million pounds. Also, if my noble friend will look at paragraph 16, he will see thatThe Public Trustee's cash transactions with the Exchequer during the 47 years of his existence show a balance in his favour of approximately £380,000.That includes £126,000 representing capital appreciation, but it does not include the value of the office, which was paid for by money earned by the Public Trustee, and for which, as I say, the present value is half a million pounds. So, taking it on balance over the fifty years that I mentioned, the Public Trustee is in credit, if I may put it that way. But, of course, he must always try to keep the fees down so that he is not making a profit out of the matter, which might drive business away.
My Lords, I fully realise that a profit of £531,000 was made. I meant to mention it but I forgot. But I did say that that was the part of the business where the profit is made. They say themselves that they see further profits there. But I do not think that money should be spent on advertisement on the private part of the business. The loss is on the private part.
§ THE LORD CHANCELLOR
I was going to deal with the question of advertising 186 in a moment, if the noble Lord would allow me. The only point is that I wanted the House to have the full picture, because I think that is fair to the distinguished men who have been Public Trustees, with many of whom I have had to deal in the course of my ministerial duties. Over the fifty years they have not lost the public's money, and, at the same time, they have not made an excessive profit. That is the way the business should be run. With regard to advertising, which was my noble friend's next point, he will appreciate that the Committee said that there should be no question of public advertising. I think that meets the point which the noble Lord, Lord Derwent, had in mind, too. With that eliminated, it is a difficult matter which requires careful consideration, because this is a public service which some people, for reasons which the noble Lord, Lord Silkin, mentioned and other noble Lords had in mind, desire to use. Therefore, people should know that the public service exists.
I agree with the noble Lord, Lord Derwent, that if one were to over-advertise (if that is a verb) then the effect would be to bring in probably a greater number of small trusts which would not pay the Public Trustee from the commercial point of view. But I think the noble Lord will agree that, while not advertising commercially, there is a certain duty to keep this service before the public in case anyone needs it. I think that is a matter of considerable difficulty on which expert advice should be given and taken.
Having dealt with advertising, I turn to the only other question raised by my noble friend Lord Kinnaird—that with regard to the withdrawal fee. I should like to tell him in general that I have listened carefully to what he said, and that it will be read carefully and examined again. There were two points with regard to the withdrawal fee that affected my mind. The first was that, unless the withdrawal fee was retained, it would otherwise be impracticable fairly to distribute the burden of fees. The second is—and I am sure my noble friend will appreciate this difficulty—that trusts which are managed by the Public Trustee for only a short time would, if only acceptance and management fees were paid, be unremunerative to the Public Trustee. That is one of the ordinary 187 incidents of business life when a thing is taken for a short period. But, as I say, having put these points for his consideration, I shall pay close attention to what he was good enough to say. I think I have dealt briefly with the points that have been raised in the debate, but, as always when a matter of a technical nature comes before me, if any noble Lord on reading the debate has any more detailed points on which I can give further information, I shall be delighted to give it if he cares to come and see me at any time. With that, I hope that your Lordships will give a Second Reading to the Bill.
§ On Question, Bill read 2a; and committed to a Committee of the Whole House.