§ 5.32 p.m.
§ LORD GRENFELL rose to ask Her Majesty's Government as to their policy on bearer shares in industry; and to move for Papers. The noble Lord said: My Lords, I should first like to thank your Lordships, as the noble Earl, Lord Winterton, did, for being in your places to-night; and I should like to do so especially because, although I have spoken in your Lordships' House several times in the last years, this is the first time that I have had the privilege of initiating a debate. I want to draw attention this evening to a subject which is vital not merely for the future prosperity of the nation but, to my mind, for the maintenance of our existing standard of living. There is no doubt whatever that we are at the beginning of a new industrial revolution in which the impact of the increasing spread of automation and the startling development of nuclear power for industrial purposes are bound to be dominating factors. We are again engaged in a hectic race for the international trading markets of the world, and it is obvious that unless we make full use of the new industrial techniques which are bound up with automation and 56 with atomic power, far from being able to enhance our position as a major commercial nation, we shall not be able to maintain the level which has to-day been achieved; nor shall we be able to contribute our appropriate share to the improvement of the underdeveloped areas in the world, upon which the real struggle between East and West ultimately depends.
§ I believe that we shall be able to find the managers, scientists, technicians and skilled workers, all of whom must play an essential part in our industrial progress. I am not so sure, however, that we shall be able to make the best use of our capital resources. It is these which we must regard as the lubricating force which will allow our national industrial machine to function with the required smoothness and efficiency. It is to these that we must look to provide the tools by which our managers, our scientists, our technicians and our skilled workmen will keep us in the van of the trading nations of the world.
§ I have said that I doubt whether we are going to make the best use of our capital. Let me explain to your Lordships what I mean. It appears to me that far too much of the capital attracted to British industry to-day is institutional, and because of its very character it is unsuitable for the risk-taking which must be a major part of any future development of British industry. It appears to me to be essential that, while nothing should be done to disturb the present institutional investment in industry, every effort should be made to attract to industry as great a part as possible of the individual savings of our community. Believe me, my Lords, industry will need all the capital it can possibly attract in the foreseeable future. That, from the point of view of the economics of the nation, is why we should commend any attempt to attract the savings of the ordinary man and woman of Britain to industrial investment, and we should do all in our power, for this reason alone, to encourage any carefully considered plan—and this plan has been carefully considered over two years—to bring this about.
§ But there is more to it than that. The problem of the wide dispersion of industrial investment throughout the whole of our community is not merely a problem of economics; it is also a social problem. 57 There is something hopelessly wrong in a system which, while being theoretically just, produces a practical barrier against the equal use of money by different sections of our society. It is true that in theory industrial investment is free to all who have the money and the inclination, but, in practice, that is not the truth. To by far the greater part of our nation industrial investment is a mysterious jungle which only the boldest of spirits dares to penetrate; and even to those who dare, if they are normally employed in industry their chances, because of their hours of work, of making contact either with a stockbroker or a banker are very limited. That is why we in this House should welcome in no uncertain terms the bold and imaginative plan produced in recent days by some enlightened industrialists through which that social barrier to which I have referred will once and for all be torn down.
§ The essence of this plan produced by Aims of Industry is to make a special kind of bearer share available to the ordinary industrial worker of the country. He will be able to buy or sell his share for cash in a shop set up specifically for the purpose in his own factory and in that shop in his own factory he will be able to buy shares of this kind not merely in his own firm but also in many other firms. In this way, the vast majority of workers in this country will be able to enjoy not merely the rights but also the responsibilities of ownership. This splendid conception has received general and spontaneous approval. Naturally, the bearer shares would be of companies whose shares are quoted on the Stock Exchange and who are willing to enter into the scheme.
§ I hold here a pamphlet which explains in detail, by question and answer, how the scheme would work, but I should like to give your Lordships the main details quite shortly. A company deciding to take advantage of this scheme would notify the Treasury, who would, after due consideration, give permission for a quota of its ordinary shares to be converted into bearer form. The company would then set up within its factory a private company called a shop company, which would always be prepared to buy from and sell to the employees its own shares and also the shares of other companies who had entered the scheme. 58 All shares would be sold and redeemed at the middle price reigning on that day and dividends would be dealt with by coupon and exchanges over the counter for cash.
§ Some may say that in advancing this scheme we are opening wide the door to the working man to dissipate his savings in a gamble on stocks and shares. Let us not be deluded over this matter. There are many ways in which any citizen can gamble—I need mention only football pools, horse racing, dog racing and—dare I suggest?—premium bonds. But there is at the moment little chance that the working man will invest his money with the company in which he is employed, or other companies in which he may be interested, and hence become a part owner in the great industrial expansion which is heralded by the new atomic age. I appeal to the Government to give this matter favourable consideration, and I look to industry not only to consider this scheme but to enter into it with enthusiasm. This is a child newly born of free enterprise and of common sense. I trust and believe that this child will flourish and bring our nation even closer together in our determination to meet the great challenge of the future. I beg to move for Papers.
§ 5.40 p.m.
§ LORD PETHICK-LAWRENCE
My Lords, I have listened with great interest to the speech of the noble Lord. Of course, I had some knowledge of the scheme before he spoke, but I am bound to say that I am not very clear precisely how it is going to work and I should not like to commit myself for or against it until I know a little more about it. To my way of thinking, there are a good many dangers in the scheme which the noble Lord has propounded, and I feel that they ought to be taken into full consideration. In the first place I would ask: has this scheme any great advantage? There are unit trusts of all kinds in the country, and I should have thought that a person who had only a small amount to invest would be much safer investing it in a unit trust than in the kind of bearer bonds to which the noble Lord has referred.
Do I understand that these bonds will not be registered in any way whatever—that there will not be any name attached to them? I understand that they will be transferable from hand to hand. It seems 59 to me quite possible that there might be a trade in these bonds which it would be extremely difficult to control. The noble Lord seems to assume that the person who buys a bond for the first time is going to keep it until he dies. But he may want a little money and sell it to somebody else. You will have a miscellaneous market in these bits of paper which I should have thought was a very risky proceeding.
In the second place, I can understand a workman's having the opportunity of buying shares in the company in which he works. He knows something about it, and probably he knows whether it is a good deal or not. But if these companies are going to be set up to sell shares of other companies who like to subscribe, what is there to prevent a lot of bogus companies of a most undesirable kind from getting a place in a shop where these things are going to be sold and palming off on to working people a lot of unsatisfactory pieces of paper which will be practically worthless? I am speaking only from what I understand. It may be that all these point have been taken into account. If they have, I think we ought to be told what safeguards there are going to be to prevent the working man from being cheated, as I think he is liable to be unless we take great care in this matter.
I look at it from the point of view of the Government. I think it will add great difficulties to those of the Government in securing the proper running of taxation. One of our great safeguards at the present time is that investments are properly registered and the Government have some control over them. But if a miscellaneous number of people all over the country are going to have bits of paper which presumably are going to enable them to obtain small dividends, I should have thought the Government would lose control over the income of the people of the country to a degree which might, if it were extensive, seriously affect the revenue.
Finally with regard to that point, it seems to me that the Government will have little control over the export of these articles to overseas, which again may be a dangerous thing and prevent the Government from controlling the reserves. Until all those points are carefully considered and provided for, I consider that this is a most adventurous and dangerous 60 proposal to adopt. The noble Lord did not explain how these people were going to get their dividends. As I understand it there is no register.
My Lords, may I interrupt the noble Lord? I did say that they would get their dividends by coupon over the counter.
§ LORD PETHICK-LAWRENCE
I remember the case of some bearer bonds that my guardian had. There was a big sheet, and one cut off little coupons on each quarter day. Is that what the noble Lord is proposing? That is a very complicated thing. It is all right when you have a great number, but if you are going to have just a few, as the noble Lord contemplates, it seems to me a most difficult procedure. You have to cut off these little coupons and take them along to the bank. If you have a bank account you can hand them over the counter in your own bank, who will go to the bank of issue and cash them. But I do not think it is going to be a great advantage for a working man to have a bit of paper. Suppose he buys £10 worth, and suppose the dividend is 5 per cent. so that he gets 2½ per cent, half yearly. He will have to get this little bit of paper, take it to his bank and cash it, and it will bring him in about 10s. or something of that kind. I cannot think that that is a great advantage to the working man. If he is going to invest £50 or £100, then there is no reason why he should not use the more authorised and better organised means of investing his money.
I think we want to know a great deal more about this scheme before accepting it. Nothing the noble Lord has said to-day has suggested to me that these grave difficulties have been thought out and provided against, and until that is so my instinct is entirely to reject. I hope the Government will show that if they are at all inclined to consider the matter, they will not do so until much greater safeguards are brought forward.
§ 5.47 p.m.
§ LORD AMWELL
My Lords, I think the answer to some of the questions raised by the noble Lord, Lord Pethick-Lawrence, can be found in the pamphlet referred to by the noble Lord, Lord Grenfell, but I agree with the noble Lord, Lord Pethick-Lawrence, on his question as to the exchange of bearer 61 shares between people outside as an ordinary personal transaction. I think it would be wise if the noble Lord, Lord Grenfell, could put the House right on that point. Do I understand rightly that the shares could not be exchanged except by being realised at the shop?
My Lords, I am delighted that the noble Lord has put that question to me. That is in fact completely true. When I said a special kind of bearer shares, I meant that these will be bought and sold in the factory in the shop, and they have to be returned to the shop for cashing in. They are not "bits of paper" as the noble Lord has said; they are actual shares in that company, and although they are bearer shares they are still ordinary shares and have voting power. They have to be redeemed in the shop in the factory.
§ LORD PETHICK-LAWRENCE
In what sense are they bearer shares? They seem to be bearer shares and not bearer shares.
They are a special kind of bearer share, the object of the scheme being to allow the working man to have an interest in his own factory or his own business. There will be a great deal more information coming out about this proposal soon, but I can assure your Lordships that there is nothing bogus about it whatsoever.
§ LORD AMWELL
My Lords, what I feel about the question is that it is one which ought to be considered carefully, and that is what the noble Lord, Lord Pethick-Lawrence, has said. I do not turn it down so definitely as he did. I do not want to turn it down at all. I want to know more about it, and I think the public would want to know more about it.
There are one or two points to which I should like to refer. It is recalled in Punch that when Max Beerbohm first heard Henry Wallace's phrase:This is the century of the common manhe remarked:Let us therefore be thankful that it is only a century.My comment is that when the same truth dawned upon Lord Monckton and his committee of clearing house bankers, the answer was, "Let us make him a customer of the bank." Opening a bank 62 account by the common man would be an idea if the facilities were equal to the bearer share scheme, and it would, of course, be a thoroughly sound investment practice among the current ideas of—shall we say?—low finance as distinguished from high finance, and calculated to turn unthrifty proletarians into thrifty bourgeoisie. And there is a suggestion about amending the Truck Acts so as to make it possible for wages to be paid by cheque. Proposals of that kind all have the same trend as this one—namely, the accepted desirability of getting capital, not of an institutional character but from the reserves among the vast population of the country which sometimes are encouraged to be used wastefully upon such things as pools, dog racing and I do not know what.
That is all very well, but the basis is one of wage-earner investment. It cannot be much. It may be true that we have some people who can put down more than ten pounds and open a bank account. Of course there are some such people, but they do not represent the majority of the workers of this country. A lot of nonsense is talked about the prosperity of the country in that respect. It is rather an artificial, inflationary prosperity, and it does not apply to all, especially when we consider that much of it is not a basis of prosperity at all but is in the form of fancy wages, awards, bonuses, and so on. In the majority of cases the basic wage of the worker in this country would not allow for the opening of a bank account.
Nevertheless, on the question of wage-earner investment in industry in the form of bearer shares, it is important to realise that the proposal is that it shall not be confined to the company by whom the purchaser is employed. There must be a pretty good reason for that. It will include any other company willing to participate in the scheme. I understand that it is desired to preserve the identity of the investment; that is held to be important. That is why any form of unit trust is ruled out. Shares over the counter will not he confined to those of the firms employing the purchaser, and can range over all participating units. That is the important aspect of this proposal.
In the ordinary way, as the Labour Party pamphlet Industry and Society 63 points out, for all its great attractions to wealthy people or to the more wealthy people, the scheme has possible drawbacks for the worker. Shares in any one firm are subject to short-time fluctuations in value. To a man of wealth, who is able to spread his investments over a number of different firms and who may have other assets, such risks are of small consequence. To the worker with few other resources and having the need to sell shares, sometimes at short notice, fluctuations and risk of loss are crucial. This scheme facilitates some spread of small investments for even the humblest individual, and so far does not insist on putting all the eggs into one basket; so this disadvantage may, to some substantial extent, be overcome.
The key advantage of bearer shares, it is alleged, is, first, the ease with which they can be bought and sold, and secondly, freedom from stamp duty on transfer. I see that the Government is making some move in that direction at present. I think it would be useful if we knew from the Government something more about that. Then this is important: that holders have exactly the same rights, with the Board of Trade agreeing (so the promotors point out), including voting rights, as other shareholders, whether shareholders of the sponsoring company or other companies on the list, according to the designation of the shares bought. Thus, the interests of the share-bearers are not limited to the fortunes of the firms that employ these persons. A varied appeal might be desired.
The introduction of bearer shares does not, I understand—I am really putting this in question form—involve the creation of new share capital, but only the conversion or exchange of existing registered shares into bearer form. That is unlike the principle employed in schemes of profit-sharing—namely, the tie-up is not employer-employee. As I have said and as Lord Grenfell has pointed out, there is no compulsion in this matter; the transaction is worker and industry at large. Whether workers should have a financial concern in industry is a large question. How far it will go, and what will be the economic effects, I must leave the experts to decide. This is obviously not a "get-rich-quick" device to benefit workers—you must 64 leave that kind of lure to the pools. Nor is it one for stopping strikes. Presuming it is a success, one imagines it should imply an added sense of responsibility so far as it goes.
To sum up, I think it is important that the public should understand that it is really another form of saving rather than an idea to turn workers into capitalists, rentiers, parasites or whatever you may like to call them. It is more like a simplified widening of ordinary shareholding. In that sense I do not see any particular reason for opposing it from the point of view of this side. I notice that it has had an extremely good reception from the Press—a very generous reception, the motives for which I do not altogether understand because I am not an expert upon the subject—but with one notable exception; that is, the Daily Herald. That paper says:Our captains of industry have had a smashing idea. The 'Let's all be owners' scheme is beguiling and extremely ingenious. I can tell them that this wonderful idea is dead before it starts.I do not understand why there should be that emphasis and enthusiasm in the opposition to the bearer share scheme. It is in the category of the hearty proletarian criticism that we should expect from the Daily Herald, but I cannot see what it is that the captains of industry who are running the Daily Herald can fear from their fellow captains of industry.
I am afraid that some sections of Labour suffer frequently from a Freudian complex. Here is a scheme to give every worker "roped in" or "inveigled", whichever way one puts it—because it is voluntary in any case—the right to stand up at any company meeting and to criticise directors until further orders, and to have full voting powers and participation in the management. On that account the Communist Party might think it is a godsend as of value for propaganda purposes. But conspiracy must be scented by the Daily Herald. I have discussed this matter with quite a number of people and I know that there is that old feeling that existed against profit-sharing, the feeling that it is a trick on the part of the capitalist class to fix the chains of slavery still more upon the working class. Conspiracy! Like the implied conspiracy of the Tories and big industrialists to fall down on their job in order to "dish" Labour, of which we 65 hear—the wicked against the pure, the goats divided from the sheep.
I do not think that this is a matter which should or need be made a Party matter, certainly not in an ideological way at all. It is really nothing more than a new method of saving with the idea of directing working-class saving into the industrial market. That is practically what it is, and I do not, for the life of me, see any disadvantages in it from the point of view of any fundamental economic principles that I possess. But the Freudian censor is always at hand, although the subconscious urge must be disguised before entering the upper world of consciousness.
Labour, or some sections of it, is sometimes the victim of suppressed class war. It will not accept openly the principle of class war which, of course, is the basis of Communism; but there is just that subconscious, suppressed idea—and we know what suppression does to mind and character. "Shareholdings are dirty things; it is the way workers are robbed; therefore let shareholding be restricted to the robbers." I know that the classic objection to the capitalist system is that of sharing as a matter of fundamental principle, but it is a common objection of mine, not only to the capitalist system but to the whole of modern civilisation; because I do not believe in the trend towards the mechanisation of the human soul or the mechanisation of the economy of any nation, or of the world. But I am not going to discuss that.
This scheme is not going to upset or support the capitalist system. In class-war terminology, the interests of the workers are opposite to the interests of the capitalists; but that, of course, wants interpretation. It is no part of Labour's official policy, as I should like to point out to noble Lords on the Labour Benches who are taking part in this debate, to refuse co-operation, to oppose negotiation or to decline to admit that capitalism must be allowed to work. The real point of criticism—and there may be many radical points of criticism—should be not ideological but practical. But why so readily assume a trick?
Organised labour in one way or another is up to its neck in capital investment. Though I do not want to offend anyone by what I say, I would point out 66 that the Co-operative Wholesale Society has quite a portfolio of industrial securities and sinks a vast amount of money in such firms as Tate and Lyle. And Tate and Lyle's workers are not to be allowed to invest for themselves because it might undermine the trade union movement! That is the type of idea that I have met in connection with even this practical little policy of investment for the workers. The Miners' Pension Fund at the end of 1957 had £33 million, of which nearly £26½ million was invested in industrial equities, from banks to tobacco. Why should that investment idea be confined just to organisations and trade unions? Why should it not be extended to the individual worker? There is no sense or logic in regarding this as a trick and advising the workers, as the Daily Herald practically does, to "Get behind me, Satan" for individual investment, and to talk, as it does in a whole pamphlet among the new political pamphlets which were passed at the last Labour Party Conference, of the necessity to find ways and means of directing investment into industry. It is not as if investment, as such, was officially condemned. On the contrary all Parties agree that a higher rate of investment is desirable, just as all accept commercial competition as a guiding principle.
The capitalist machine, in the ironical description of George Schwartz, is a lovely one needing only proper care and maintenance. We must get rid of the old firm and put some new directors there. That is really what it amounts to. The oil of capital investment is more and more essential for Labour; expansion means more and better commercialism—nothing else. Measures to increase our competitive position against the rest of the world are essentially capitalistic and not socialistic at all. I will give your Lordships one or two quotations from the policy of the Labour Party, accepted unanimously at the Party Conference:We must plan to achieve higher investment on a basis of full employment, stable prices and a strong balance of payments…first and foremost.And, most emphatically,we must turn our attention to a higher level of investment as central to our hopes of achieving expansion…incentives to industrial investment would have to be used much more vigorously.Why all the objection? I am not saying that it has been expressed in this 67 debate so far, but there is a feeling, as I know—and I have quoted the Daily Herald to that particular effect—that we live in a capitalist world. That is the line I take in this whole matter; and while we do so, it is absurd not to allow the capitalist system to work efficiently. It is accepted, whether we like it or not, that only a successful, high-powered capitalistically-financed industrialism—more successful, of course, than the Tories would contemplate—can sustain a Welfare State and guarantee adequate wages. There is no Socialism in any of that. I am not arguing against it. I am not saying that it is wrong. While we have a capitalist system we should be sensible about it and not just throw sabots or monkey-wrenches into the machinery. Therefore I do not see why we should not, with unbiased minds, consider this proposal of Aims of Industry.
Our system rests on private investment. What is the logic in taking a "holy of holiest" position? I say that it is rubbish to talk about undermining trade unionism and the power of the workers by suborning them, as it were, with this invitation to purchase, with their savings, industrial shares. The question is not an abstract one of whether profit-making by shareholding is moral or immoral: I have my own views about that, but they are views which I should have to discuss at another time. What I criticise is this running with the hare and hunting with the hounds. I cannot see any good reason to oppose the line that the noble Lord, Lord Grenfell, has taken. I am not supporting it, because I cannot profess to be any expert upon the financial and economic expediencies involved, but I say that it is worth careful and non-Party examination.
§ 6.11 p.m.
My Lords, if one is living in a capitalist world, as we in the free world are, we must all agree that it is desirable that everybody should know as much as possible about the details of how it works, because enlightened capitalism has nothing to hide. On the other hand, it is a target for all sorts of misrepresentations and untruths; and though it tries to combat these, it does not succeed very often simply because of the apathy of the people it wants to get at: the people who work in industry. Undoubtedly, if there were investment by 68 the workers there would be bound to be more interest in it, and from that point of view investment would, I believe, be desirable. It is absolutely essential, however, that the investment should be suitable and proper for the state of life and finance of the people who are concerned. Some people, of course, might say that they cannot understand this sort of thing; but I think that that is absolute nonsense. The British workman who can work out his most complicated mathematics for football pools is perfectly capable of understanding any form of company finance if he really sets his mind to it and wants to do so.
The question is: what is proper investment? The discussion to-night has revolved around the question of equity shares, ordinary shares; and as the noble Lord, Lord Amwell, has said, most workers' pension funds already have large quantities of these. But the question is the proportion. I am speaking from memory now, but I believe that we of the Church Commissioners hold roughly one-third of our money in fixed-interest securities, one-third in property and one-third in industrial equity shares; and it is on that money that seven-eighths of the stipends of the clergy in the country depend. So one can assume that that proportion is a fair balance between risk and safety. But for the small man I would suggest—and in making this suggestion I have the support of a prominent financial writer—that the first priority is property and fixed interests and the last priority is equities; in other words, his national savings, his house and, after that, equities.
Of course, in this scheme of Aims of Industry no mention has been made of shares or debentures other than ordinary shares. I see no reason why anybody should not own a preference share in industry, or a debenture. I think it would be most unwise to confine such investment to the place of work of the investor, because he stands to be "shot at" both ways if something happens to his particular industry. I do not particularly like the idea of bearer shares. The noble Lord, Lord Pethick-Lawrence, has detailed all sorts of complicated things that might happen to them. I know that there is nothing to prevent their being sold over the counter of any "pub." in the country, and one knows that a man's judgment when he has had one or 69 two drinks is not quite so good as when he has not; and I can see the possibility of sonic of these bearer shares being sold at unduly low prices to some sharper citizens.
Another objection to bearer shares is the lack of facilities for their safe custody. The substantial citizen can go to a hank and have his things held by the bank, but the working man's cottage or his house is very prone to burglary, and he has no safe place for these things at all. I have no doubt that some arrangement could be made for these so-called "shops" to hold these securities in safe custody for the buyers, in which case my objection to bearer shares would largely vanish. I do not believe there is anything in the fear of the noble Lord, Lord Pethick-Lawrence, that sonic completely bogus company could enter the ring. I do not think it could happen; the others would not have it in.
The only point I can see in favour of the bearer share is that it dodges the stamp duty of 2 per cent. But the company has to pay 6 per cent. to the Exchequer out of its own pocket to convert its registered stock into bearers, so the Exchequer get a substantial sum in any event. I should have thought that some arrangement could be made whereby ordinary registered stock of this special type, perhaps by payment of a once-and-for-all 6 per cent., could afterwards be dealt in free of stamp duty in these particular "shops", in consideration of the fact that payment had been made equivalent to what would take place at the moment.
Another point one must impress on the citizens who are going to buy these things is that shares go down. Those who do not own shares have a habit of assuming that they always go up; but we all know, to our cost, that they have long periods when they go steadily downwards. It is only too easy to buy them when they are expensive and to see them go steadily down; and if one needs the money suddenly, one has to realise them when they are down and so make a loss. So there must be no undue advertising or that sort of thing. Every man must be fully aware that he is definitely taking a risk.
All the same, I think that this would be tapping a new source of savings. There are many households in this country—I repeat "households"—where a 70 very large income is coming in every week, and, because there are very small commitments, it goes mostly on consumer goods of one sort or another—some of which, I suggest, are not necessary. I have heard of a working-class household being persuaded to buy a cocktail cabinet when they have never drunk a cocktail, and that sort of thing. Therefore, if these monies could be drawn into some form of savings it would be a good thing from the national point of view. At the same time it would ensure for these people some security from inflation for at any rate a portion of their savings. If, as I suggest, they had one-third so secured, one-third of their savings would have security against inflation.
Another effect—though it would not occur in the very near future: it would take many years to work out—is that over the course of time a considerable voting power of workers would be built up in the shares of some of these companies, and that voting power could have a decisive influence if used at annual general meetings, and so on. In that event, of course, we should see workers coming a great deal nearer to guiding their own industries than they ever have done through the nationalisation of industry. To sum up, my Lords, I believe that it is a good idea to look into this proposal. I think there are certain defects which could be ironed out, with the help of the Treasury and of the Inland Revenue, and if such a scheme was a success it could be very useful to the country.
§ 6.22 p.m.
§ LORD CONESFORD
My Lords, if the sole subject of our discussion to-night were the desirability of there being more saving and of the workers putting some of that saving into industry, I think there would be (as indeed there is) a very wide measure of agreement in this House; and I think we are all grateful to my noble friend Lord Grenfell for giving the Government an opportunity of stating their views on this matter. What we are invited to consider, however, is not so much whether men should be encouraged to put their savings into industry but whether the investment should take this new form of bearer shares. Like the noble Lord. Lord Pethick-Lawrence, I desire more information on many of these points, but let me say at Once that I am very much impressed by the fact that Lord Grenfell 71 and Aims of Industry have come to the conclusion that this would be a very useful step to take. That, by itself, would incline me to the view that there is prima facie something in it. Further, I was very glad indeed that Lord Amwell made it clear that there was no need, for any Party political reason, for anybody to take an a priori objection to the scheme.
I hope that my noble friend, when he comes to reply for the Government, will remind some of us who may have a little forgotten it what is the present law on the subject. The noble Lord, Lord Pethick-Lawrence, spoke once or twice of bearer bonds; but, of course, the position of bearer bonds is quite different. I think I am right in saying that if we own, or any of us owns, a bearer bond, we are not allowed to keep it ourselves: we must hand it over to our banker or to some other authorised depository. I am quoting from memory, and I may have the actual phrase slightly wrong, but I think that that is the position. That is under the Exchange Control Act. Now, these bearer shares, I understand, are not in that position at all. The owner can hold them himself and can keep them wherever he wishes.
I think that my noble friend Lord Grenfell made one slip, in answering a noble Lord on the other side, when he said that value could be received for one of these bearer shares only from the shop company, as I think it is called. I think that is not so. I think that my noble friend Lord Hawke is right in saying that these shares could quite lawfully be handed over, under any bargain which the owner chooses to make, to anybody outside. It is perfectly true, no doubt, that the obligation of the shop company to give value for it depends entirely on its being presented to them, but I hope that my noble friend, when he comes to reply, will tell me whether I am right in those assumptions. I share many of the views expressed in the last speech by my noble friend Lord Hawke. Though it is entirely legal and possible for these new shares to be held by the man himself or kept in his home, I should have thought it was extraordinarily desirable that he should do nothing of the kind. He should hand them over to the shop company or to some suitable depository.
72 That leaves me with two further questions that I should like to put. If it is desirable, for the sake of ease of transfer and ease of holding a small share in a company, that there should be a special form of bearer shares, should they be confined entirely to these shops? Should they not be made more widely available? I do not know. No doubt it may be a good start to do what was advocated by my noble friend Lord Grenfell.
I should like one further matter to be considered. If this scheme is adopted and becomes general, and it becomes possible for the worker in a factory to buy fairly easily shares in his own industry and in various other businesses, would it not be a good idea that he should also be able to buy from the shop company another form of investment? Many noble Lords have spoken about the desirability of spreading risk. Now, I quite see, and sympathise with, the view of the Aims of Industry that such things as the unit trust should not he the sole method of investment in industry by the worker. The worker may well wish to share in the fortunes of a particular business which he himself has chosen. I entirely agree with those noble Lords who have already spoken that it is absurd to adopt this patronising attitude to the ordinary workman, who is able to do what I think a great many of us could not do—namely, understand the conditions of football pools, and the rest of it. The idea that he cannot pick and choose where he wishes to put his money is, I think, insulting to him.
I entirely agree with many of the remarks made from the other side by the noble Lord, Lord Amwell. I think a worker may well wish to put his money into the shares of a particular business—and that is, of course, the object that my noble friend has in mind. But may he not also wish to put some of his money into something that spreads the risk? I have in mind the ordinary stock or shares of investment trusts. I am not now speaking of unit trusts, but of investment trusts. Let me say at once that I have no knowledge at all whether any of these excellent English or Scottish investment trusts would be willing to convert any part of their capital into bearer shares of the kind now suggested, but if they were. I should like my noble friend and others to consider whether, among the bearer shares dealt with, the shop companies could 73 not perhaps deal also with some bearer shares in investment trusts. Their investments are so well spread that the risk of the owner would be spread over a great many of the greatest industries in the country and, indeed, in the world.
Like the noble Lord, Lord Pethick-Lawrence, I have sought for further information, but I am convinced that the Government, who desire that there should be more ownership by the ordinary man, will not give a discouraging reply to this debate. I have no doubt that there are various dangers against which the Government must guard, but I think that the noble Lord, Lord Pethick-Lawrence, was wrong in thinking that there was any risk to taxation revenue, because obligation to deduct income tax would exist exactly as if the shares were registered. I think that that particular fear is not a real one. I apologise for the disjointed nature of the questions I have put. So far as this scheme is one for encouraging ordinary workers to save and invest in British industry, I think it is to be encouraged. So far as there may be dangers, I think that they have probably been foreseen and guarded against by those who devised the scheme. But, if they have not, and the Government have any suggestions, I am sure that the Aims of Industry will give them consideration.
LORD RITCHIE OF DUNDEE
My Lords, I wonder if I may intervene to make one point which I do not think was made clear by the noble Lord, Lord Grenfell. If the scheme comes into being, the shares purchased will be shares of companies which are quoted on the Stock Exchange, but I do not think that the noble Lord made it clear that the bearer shares themselves will not be quoted on the Stock Exchange, nor will dealings in them be permitted in any circumstances.
§ 6.32 p.m.
My Lords, may I be allowed to say a word or two on this subject before the Minister replies? Opinion is by no means unanimous on the point. The staff association of one of the industries with which I am connected recently approached the managing director and said that the staff would like to invest in the shares of the company but did not know how to set about it, and could he advise them. That shows that in that industry there was a feeling towards taking an equity interest in the 74 fortunes of the concern. On the other hand, the staff association of another industry with which I am connected, where there was a staff sharing scheme of many years' duration, came to the general manager and asked that the sharing scheme should be terminated and an appropriate addition should be made to their salaries instead. This shows that staffs are not unanimous on this subject.
I think that the natural saving of a working man is, in the first place, towards the purchase of his home, and, after that or along with it, the purchase of his furniture, then the amenities of a home, like refrigerators and washing machines, and, after those, the luxuries of the home. He is rather inclined to save for these things before turning his mind to stocks and shares, of which he knows nothing at all. He may be clever about football pools and such like calculations, but his mind has been devoted to those from the earliest time. He has not given the same consideration to stocks and shares and has been taught by his political environment to regard them with definite suspicion. Therefore I am doubtful about the wisdom of executives of companies in encouraging the workers to invest in their concerns. I should not think of encouraging the workers in any concern with which I am connected to invest in that concern.
I agree very much with my noble friend Lord Hawke when he said that those who know nothing about stocks and shares are apt to think that they always go up. A great many industries have adverse experiences. Some of our greatest industries have been obliged, or are now obliged, to make some decrease in their dividends, and their shares do not stand at as high a price as they did. Of course, capitalist industry, competitive industry, is always liable to slumps and recessions. So it is not impossible that a working man, if he has been encouraged to invest in a concern in the confident belief that its fortunes will always go up, would suffer a very definite shock if they went down, and might feel a great deal of resentment. Therefore, I am doubtful about the idea of forming a shop company which embodies the idea of encouraging the workers to buy shares. Presumably, the shop company would have some sort of manager who would want his company to be successful and would propagand in favour of his company and 75 so forth. That all involves the idea of encouraging the workers.
Even in this debate I have heard phrases like, "We can tap a new source of saving." That sort of phrase denotes the idea of trying to get the workers into this scheme. I am against that. If workers were to come up of their own free will and join any scheme, I would say, "I am pleased to show you how you can do it and I will facilitate your action, if you do it by such and such a means, which can be discussed later; but I do not encourage you to do it. You do it entirely of your own free will, and, if you make a mistake, do not blame me. You will have only yourselves to blame. If, with your eyes open, you wish to invest in my industry in which you are employed, I shall be pleased to help you, but do not say I encouraged you to do it."
§ 6.38 p.m.
§ THE MINISTER WITHOUT PORTFOLIO (THE EARL OF DUNDEE)
My Lords, I have listened with the greatest possible interest to all that has been said by your Lordships in discussing the merits and possible dangers or drawbacks of the scheme which has been explained by the noble Lord, Lord Grenfell, to help small investors to acquire industrial equities by means of issuing bearer shares disposed of through the agency of shop companies. I hope that your Lordships will not think that I am uninterested in the argument if I do not enter into the argument itself but confine myself rather strictly to the primary interest of the Government in this matter, which is that any scheme of this kind should, in general, be in conformity with the Companies Acts, and, in particular, not facilitate the illegal export of capital contrary to the Exchange Control Act.
As your Lordships are aware, there was never any restriction on the issue of bearer shares until 1940. Bearer shares may sometimes be convenient and useful, and sometimes not. But there is not the slightest reason why everybody should not have perfect freedom to issue bearer shares if he wants to do so, except for the special reasons for which bearer shares were prohibited in 1940, and which we all hope may, in the long run, be only temporary. It was during the war, because of our exchange difficulties and war-time needs, that we had to prohibit 76 the export of capital; and since bearer bonds and bearer securities are a particularly easy means of enabling money to be illegally exported, their issue was prohibited under the Emergency Powers Act in 1940. After the war, unfortunately, although it was in time of peace, our exchange difficulties continued, and therefore it was necessary to pass the Exchange Control Act, 1947. Under Section 10 of that Act the issue of bearer bonds is prohibited except with Treasury consent; and under succeeding sections—I think Sections 15 and 16, about which my noble friend Lord Conesford asked—if and when the Treasury do consent to the issue of bearer shares, these have to be placed with what is called an "authorised depository", which might be a hank or a finance company or a solicitor, who would be responsible for seeing that the bearer bonds were not illegally exported.
We all hope that exchange difficulties will not last for ever and that these laws which we have passed to safeguard our position will not be necessary for all time. They are necessary now. But we want to relax them as much as possible, consistently with our present necessity of preserving the exchange control which we now have. The Chancellor of the Exchequer was asked in another place on November 13 whether he could relax the present exchange control rules (which the Treasury have power to do under the Act of 1947) in the case of schemes such as have been described by the noble Lord, Lord Grenfell, and he replied [OFFICIAL REPORT, Commons, Vol. 595 (No. 13), col. 62]:I think that it would he reasonable to allow a company to convert its registered shares into bearer form if it could show good reason for this, if the hearer share warrants would be of small denomination, and provided that the arrangements would be such as to ensure that capital could not be exported from this country without Treasury consent.The Treasury have felt it right to impose a double safeguard in allowing the issue of these bearer shares. First they say that they should be of small denominations; and the maximum denomination which will be allowed is £5. So that if they were illegally exported it would still not be possible for a man to take out of the country a very large sum of money on a very small piece of paper. But the other safeguard is a more important one. It is that these bearer shares should be 77 marked so that they will not be what is called "good delivery"—that is, not acceptable as good tender—on any stock exchange. That makes it unnecessary for the requirement that they shall be placed with an "authorised depository"; and that is what I think my noble friend Lord Conesford wanted to know. It means that it will not be worth while anybody exporting them illegally, because if they are not legal tender on any stock exchange the man who did so would probably not succeed in getting any money from them when he got abroad.
I do not think that necessarily means that they could not be privately bought and sold outside the shop company, which was another question asked by my noble friend Lord Conesford. I think that perhaps what my noble friend Lord Grenfell meant when he said that they could be dealt with only inside the shop company was that that would be the normal and usual method of doing it. I think that in fact they could be dealt with outside the shop company privately and that there is no legal reason against that. But they could not be quoted and sold to any person on the Stock Exchange; nor could they be profitably exported abroad. It is not really the concern of the Government whether they are sold privately outside the shop company or whether they are only sold within the shop company. The only concern of the Government is to protect our exchange control position: subject to that, we want to allow as much freedom as possible.
The noble Lord, Lord Pethick-Lawrence, raised the question of possible avoidance of income tax on the dividends from these bearer shares. Under Section 234 of the Income Tax Act, 1952, the Special Commissioners of Income Tax have power to require any person or any company through whom bearer shares have been issued to give him a return of all the persons to whom dividends have been paid on the coupons of these bearer shares. That is, I think, a reasonable safeguard against evasion of tax, which in this case of course would be due from people whose identity was not immediately known to the Revenue.
The noble Lord also suggested that these shop companies might be used for fraudulent purposes in order to rob the investors. I suppose that any company of any kind which was run by wicked people might be used for a fraudulent 78 purpose, and the safeguard against that, apart from the Common Law, is the Companies Acts and the Prevention of Fraud Act. It seems to me that if the Government were to prohibit people from issuing bearer shares and forming a shop company merely because of the fear that the company might turn out to be fraudulent, it would be rather like prohibiting an ordinary householder from keeping a poker in the fireplace of his living room for fear that he might use it to beat his wife. People sometimes do use pokers to beat their wives, but that is not the proper use of pokers; and fraud is not the proper use of companies.
§ LORD PETHICK-LAWRENCE
May I put this point to the noble Earl? This particular industrial company opens its room for the sale of all these things and puts in the shop window, as I understand it, all sorts of other shares of all sorts of other companies. To some extent, my point has been met by my being told that they must be quoted on the Stock Exchange. But, even so, a great many securities are quoted on the Stock Exchange in which probably other noble Lords as well as myself would not care to invest. A company—I should not say "bogus" company: that probably overstates the position, but a company whose shares are not very good and are likely to go down, such as the noble Lord, Lord Hawke referred to—comes along to this company which has the shop and says, "Would you mind putting some of my shares on the market for your investors in bearer bonds?" So this company sells a number of these and, as most people expect, they go down a great deal. I think you want some protection against that kind of thing. The only point I rose to ask was: Does the noble Earl think that the Treasury, in sanctioning these shops, as I understand is the intention, will insist upon certain safeguards to prevent the shops from being used improperly for the sale of miscellaneous shares, and ensure that they make no guarantee that the shares are going up and do not give a guarantee that they will not go down.
§ THE EARL OF DUNDEE
My Lords, I am sure the Treasury will insist that it should comply with the Companies Act, and that it should not act as a bucket shop. I do not think the Treasury or anybody else can prevent people from 79 making unwise investments. As the noble Lord, Lord Hawke, and the noble Lord, Lord Blackford, rightly pointed out, some investments sometimes and, indeed, fairly often, go down. Of course, that does not always apply exclusively to equity shares. People who put their money in the Post Office Savings Bank may find that after ten years inflation has halved the value of their money, and people who invested it in Doctor Dalton's Loan find, to their dismay, that they have lost one-third of their nominal capital, and a much larger proportion now, if you allow for inflation.
The Government do not propose to advise people to invest in this particular way, but I think we must, in this modern age, regard the small investor not as a child who has to be looked after and led by the hand, but as a responsible person who is as good a judge as anybody else of the way in which he wishes to invest his own money. Not only the Government but, I am sure, noble Lords in all parts of the House, are strongly in favour of a better distribution of property and a far greater amount of small ownership, and we are also in favour of doing anything we can to increase industrial investment. The Government cannot commit themselves at present to the proposition that this scheme which has been described by the noble Lord, Lord Grenfell, is the best way of doing that. But so long as it does not facilitate—and we think we have taken reasonable precautions against it— the illegal export of money, and so long as it does not defeat our present exchange control system, we see no reason to place any unnecessary obstructions in its way, nor do we see any reason to do other than wish it every success.
§ 6.53 p.m.
My Lords, I shall say only a few words. First of all, I should like to thank the noble Earl, Lord Dundee, for putting me right on the question of the shop company obligations. What my noble friend Lord Conesford said is absolutely correct. As these shares are not going to be quoted on the Stock Exchange or dealt with on the Stock Exchange, the normal place to which they will find their way back will be the shop 80 company, because that will be the easiest place to redeem them.
§ LORD PETHICK-LAWRENCE
Do I understand that the workman, or the person who has bought one of these shares, can sell it to his lodger or anybody upstairs, and that he can sell it to anybody else? That is what I understood was possible with a bearer bond. I had understood from the noble Lord that that was not possible with these bearer shares, but it seems to me that he has now gone back entirely upon that statement.
The noble Lord is quite correct, and I apologise to the House for a slip of the tongue. He can sell it to anybody, but as it is not quoted on the Stock Exchange the normal place for it to come back to would be the shop company.
There is nothing much more to say, except that I think we must not delude ourselves that the working man is a person who is completely incapable of looking after himself. That has been hinted at in some places. I am quite sure that the shop company would arrange to retain the custody of the shares if so wished. With regard to the risk of the shares going down, we must also remember that dogs and horses lose races, and it is just a question of whether you would rather have the money going into industry or into football pools or dog racing. Personally, I should like to see the money going into the industries. I am most grateful to noble Lords who have spoken in this debate, and I am most grateful to the Government and the noble Earl, Lord Dundee, for his reply. I beg leave to withdraw my Motion.
§ Motion for Papers, by leave, withdrawn.