HL Deb 22 July 1958 vol 211 cc97-118

4.12 p.m.

LORD GRANTCHESTER rose to move, That an Humble Address be presented to Her Majesty praying that the Control of Borrowing (Amendment) Order, 1958 (S.I. 1958 No. 1097), dated 2nd July, 1958, laid before the House on 3rd July, 1958, be annulled. The noble Lord said: My Lords, I apologise for the formidable form in which this Motion is worded. It is, I understand, the only way in which the important issues raised by this Order and the background against which it is set can be debated. I must also apologise in advance for the very technical provisions to which I shall have to refer. But, having made these apologies, I have no hesitation in saying that I am sure your Lordships would wish to consider and examine this new Order most carefully.

Together with the directives which have been given, the expressed intention is to secure the general control of credit. I would ask your Lordships to note carefully the words that are contained in a letter from the Governor of the Bank of England to the Chancellor of the Exchequer dated July 3. There he says this: The scheme will serve to reinforce the existing monetary instruments and would be employed as a general control of credit. It is, of course, a general control of credit in the private sector only, as the Chancellor of the Exchequer made clear in answer to a question which was put to him when he announced this Order in another place. It is significant, I think, that at this time the Government should consider it necessary to bring in more and tighter controls. This, I suppose, is an admission that all is not yet well on the inflation front. This may well be so. But I shall seek to show that this is not the way to hold inflation at bay. Strange as it may seem to some who do not remember the days when there was freedom, there are still some of us who believe that controls create evils rather than cure them, because they prevent the automatic checks of the market from operating.

My Lords, this Order is made under the authority conferred upon the Treasury by the Borrowing (Control and Guarantees) Act, 1946. That was one of the restrictive measures introduced by the Labour Government immediately after the war. I am sure that even the Labour Government intended the provisions of that Act to be temporary, and I think they must be surprised at the use which a Conservative Government is making of it after some twelve years. Let us examine for a moment what sort of measure is this Act of 1946. Briefly, it gave the Treasury power to control the borrowing of money in excess of £1 0,000. By an Order under the Act the figure of £10,000 was increased in 1947, by the Labour Government, to £50,000. The Act also controlled the raising of money by the issue of shares or debentures. The Labour Government clearly expressed their purpose when they passed this Act, in a White Paper which they issued at the same time in which these words appear: The planning of the investment programme as a whole must be continually guarded by the Government. These sentiments of "planning the investment programme as a whole" accord with Socialist thinking on this matter.

My first question to the noble Marquess who is to reply is, are these also the sentiments of the present Government? If so, I am surprised. If not, I would ask, why do they play with the poisoned barbs of Socialism? In practice, applications under this Act for consent to borrow are made to the Treasury who give or refuse permission to borrow without giving any reasons, on the advice of a body which is known as the Capital Issues Committee. I ask your Lordships to note that this is control without any reasons being given for refusal, and without any appeal if a citizen is refused permission to borrow. I would ask why the excellent decision to require reasons to be given, taken by Her Majesty's Government in considering the Tribunals and Inquiries Bill which is now before honourable Members in another place, cannot be adopted here? Why should that rule not be applied to the Capital Issues Committee? So I would put as my second question to the noble Marquess: if you intend to keep the Capital Issues Committee in being, is it not wrong to allow it to continue to exercise control without any reasons being given for refusing applications and without any right of appeal from its decisions?

I think no one will dispute that the decisions of the Capital Issues Committee have been quite unpredictable—that is putting it in polite language, which is not always current in the City when the decisions of the Capital Issues Committee are discussed. May I give one or two examples of the unpredictability of its decisions? On an application on behalf of a company called Worthington-Simpson, in December. 1956, consent was refused for the issue on capitalisation of reserves of one share for two. A year later, or rather less, permission was given for an issue of one share for one. In the meantime there had been no alteration in the directives in force. A similar result followed two applications made within eight months by Great Universal Stores. Instances such as these do not inspire confidence. There was a great deal of speculation about the reasons for the decision of the Capital Issues Committee in the case of Rhodesian Anglo-American Limited. If there was a reason behind that decision, why be so modest as to keep it in the dark? Our leading financial newspaper has commented upon the eccentricities of the Capital Issues Committee, and has gone so far as to say that there is apparently no limit to them.

Before I leave the 1946 Act, from which the current Order springs, I must refer to the Schedule which contains the provisions as to enforcement and penalties. The Schedule provides that: Any person who contravenes any provision of any order made under this Act"— and I ask your Lordships to take particular notice of those words, so the new order is included—shall be liable (here I am abbreviating to save time) to heavy fines and imprisonment up to two years or to both imprisonment and fine.

But that is not the worst of this Act. It is not the kind of Act we in this country like. Paragraph 4 of the Schedule, which I think can properly be called iniquitous, provides that in the case of an offence committed by any company, any person who is a director, general manager or secretary or any other officer, or anyone who was purporting to act in any such capacity, shall be deemed to be guilty of the offence unless he proves, in short, that he is innocent That is not the kind of Statute we like to have on the Statute Book in this country. I hope the noble Marquess will not proudly assert the intention of Her Majesty's Government to uphold the rule of law and at the same time allow this Statute to remain unrepealed. A man is innocent, as we in this country like to think, until he is proved to be guilty. So I would ask that neither the noble Marquess nor his right honourable friend in another place will rest content until this offensive provision is removed from the law of this land.

In March last Mr. Butler gave to a Conservative meeting an undertaking that it was the intention of the Government to remove, during the lifetime of the present Parliament, all the remaining economic controls. I certainly should have expected this measure to be one of those which he would wish to remove. I shall reinforce this plea when I come to consider the language of the new Order. But with all these fearsome threats of heavy fines and imprisonment, I must admit that sometimes the opportunity is taken to introduce a little comedy. There was the case where, presumably on the advice of the Capital Issues Committee, the Treasury sanctioned the borrowing by a hopeful applicant of some £4 million. One day someone may tell the full story of that curious episode. If, after studying the file, the noble Marquess still wishes to defend this system which is being imposed upon us, I shall be surprised. The approval which was given for the borrowing of some £4 million held good until two months ago. I wonder how many applications were turned down while this credit was open in order to keep the authorisations to be allowed during the period within the limit fixed by the Treasury. I think that aspect is a serious one. I referred to this case as a comedy, but it is not really comical at all. This kind of fiddling with the economy brings the Treasury into disrepute and makes the institutions of the City look foolish and ridiculous.

I want to say a few words about the new Order, and first about the manner in which it was introduced by the Chancellor of the Exchequer. It was represented by him as a liberalising measure. The Chancellor of the Exchequer remarked [OFFICIAL REPORT, Commons, Vol. 590 (No. 134). col. 1599]: We can safely … make some limited relaxations in the control of borrowing. That was the emphasis placed upon the Order by the Chancellor when he introduced it. He probably had in mind the small retail trader and the individual who sometimes requires temporary accommodation at the bank and who, unlike some of the bigger companies, has been unable to arrange alternative facilities during the time this control has been on. The door of the bank manager's office may be open again to the small retail trader and the private individual—I hope so—but I fear their confidence has been rather badly shaken by the last interference by Her Majesty's Government, as between banker and customer, which I believe is a very bad thing.

I should like further to test how far this Order is the liberalising measure it was represented to be. I do not want to take up your Lordships' time by too detailed examination of the Order. It will perhaps be sufficient if I summarise the effect of the amendments which have been brought in by this Government Order. There are twelve amendments to four articles. One restores the right to borrow up to £50,000 without consent, which, as I have already said, was the limit from 1947 until 1958. There is no special reason to be proud of, or to take credit for, a reversion to a limit which was fixed by a Labour Government in 1947. One amendment permits the capitalisation of reserves by the issue of shares which are not redeemable. I shall have to refer again a little later to the question of redeemable shares. All the other amendments are designed to tighten control—not relax it. So I ask whether the emphasis in the statement made in another place by the Chancellor of the Exchequer was not wrongly placed upon relaxation.

I will return just for a minute, if I may, to the limitations imposed upon the issue of redeemable shares. Surely this is an unwarranted restriction. If the Treasury believe that in certain cases the issue of such shares is a matter which involves tax considerations, then surely that should be dealt with in a Finance Act and not under an Order of this kind. This is the first time, at any rate in an Order, that control has been introduced for taxation reasons and not far economic reasons.

I would ask those of your Lordships who are interested in official phraseology to look at paragraph 8, at the top of page 3 of this new Order. I think that anyone who does so will agree that it is quite beyond the comprehension of the ordinary businessman. And this, my Lords, is one of the provisions by which if contravened by him, he will go to prison, being deemed guilty unless he proves himself innocent! I hope that I have said sufficient, in drawing attention to the provisions of this Order, to show that on balance it should be more correctly described as a retrograde step in restriction rather than as a relaxation of control.

Before concluding, I should like to make three brief comments upon the directives which have been issued in conjunction with this Order. First, there is the provision for special deposits. What may be the effect in practice of releasing the banks from the requirement that they should keep their advances within an overall figure, while at the same time holding over them this new threat, only experience will tell. If the banks put themselves in a position to increase their advances the Bank of England can immobilise their cash resources by requiring them to deposit part of those resources with the Bank of England. In principle I think it is necessary to register the strongest objection to a power of this kind, the exercise of which is quite unpredictable. At least the banks knew where they were when they were restricted to an overall figure; but there is no indication of any rule by which this new idea of special deposits will be exercised.

It seems to me, that this goes back to that White Paper of the Labour Government in 1946. Her Majesty's Government are really trying to get—is it a general control of investment? Is that what they are after? Is one of the results of this Order likely to be a greater demand for Government securities in the market? If that is the intention behind it, or even if it is not the intention but if that proves to be the result, I say that it will strike a further blow at confidence in the gilt-edged market, which has been so badly shaken by the attempts of a former Government artificially to influence rates of interest.

The second matter in the directives to which I would refer is the favour shown to unit trusts, which is limited. They can have a little more money but they must not invest it in any substantial amount in foreign securities. As purchases of dollar securities have to be made in the dollar pool, it seems to me that the reason for this restriction is not quite obvious. Perhaps the noble Marquess can explain the purpose of that limitation.

The other matter upon which I should like to seek some clarification is the emphasis all through these directives upon the undesirability of lending for speculative purposes. The suggestion is that borrowing is not to be permitted for the purchase of materials—I will not refer to stocks and shares, but it is not to be permitted for the purchase of materials or for the development of land. I should very much like to know what is meant by the use of the words "speculative purposes" in these directives. As I understand it, all production or buying in anticipation of demand is speculative, the exception being production under contract. I do not know what is meant by this emphasis upon "speculative purposes". I do not know what interpretation will be placed upon it for those who deal in the commodity markets, but it seems to me that it may at times deprive our manufacturers of opportunities to buy raw materials when prices are considered advantageous and that this could be detrimental to our export trade.

Then I come to the restriction on the development of land, and the question I want to ask the noble Marquess is: Has the idea of a property-owning democracy been abandoned? The directive is being interpreted in some quarters as banning the lending of money, even "bridging" finance, for the building of houses for sale. If a small builder came along and wanted finance to help him build a dozen houses, in the days before the war that was called speculative building, because he had not sold the houses before he built them. Is the interpretation to which I have referred the intention of this directive? Perhaps the noble Marquess will make the position of Her Majesty's Government clear on this matter, because it is very important, particularly in the provision of houses by the development of land. In some quarters speculation is associated with making a profit. I wonder whether that is what the drafter of this paragraph had in mind. That might at least make some sense in some quarters. But how misleading and dangerous all this is! Abandon the test of profitability and you will bring down the market economy and destroy both the standard of living and the welfare services which have been built up out of private profit. I suggest that the time has come when Her Majesty's Government should abandon new and better attempts to indulge in more effective intervention. Surely they need not in this way anticipate the coming to power of a Socialist Government, but should be showing us a better way.

My Lords, what is this better way, and what does it involve? We would reply that it involves allowing the market to do the controlling—that is, the people who have the savings to invest. I should not use the word "controlling" at all. I would say: "Let the people who have the savings to invest do the choosing." It also means, I think, that the Government should allow the nationalised industries to submit their case to the discipline of the market: that they should secure the money required for the expansion of the nationalised industries out of savings, in exactly the same way as any other industry has to secure money for expansion.

There are, however, measures which Her Majesty's Government should take if the credit position is not to get out of hand: but this is not controlling the private citizen in his borrowing—it is restraining the actions of the Government themselves. I suggest, as I have said on a number of occasions before, that they must put a limit to the currency issue, which has been going up and up all the time; and they must refrain from increasing the number of Treasury Bills by which they pay for their overspending. This Order, which seeks to cure the symptoms of the malaise from which this country has been suffering, is in itselt a confession of failure on the part of the Government to restrain the overspending for which they are responsible, for to enable them to continue that overspending they have had to create credit—and they are the only people who can create credit. That has led to the most dishonest of all results—the debasement of our currency.

My Lords, I suggest that we must bestir ourselves with this new Order before us. We must sound the alarm again. The danger to which the Government were aroused a year ago is not yet past, as this Order proves—otherwise, we should not have it. That danger will not be surmounted until the facilities which the Government have to expand credit to meet their own overspending are limited. The Government must not be allowed to evade the issue. They must not he allowed to pretend that the control of the citizen is the remedy, when the root of the trouble in the economy lies in their own failure. I beg to move.

Moved, That an Humble Address be presented to Her Majesty praying that-the Control of Borrowing (Amendment) Order, 1958 (S.I. 1958 No. 1097), dated 2nd July, 1958, laid before the House on 3rd July, 1958, be annulled.—(Lord Grantchester.)

4.44 p.m.


My Lords, we have listened to a very forceful speech from the noble Lord, Lord Grantchester. There is just one question I should like to ask in regard to this Order. In paragraph 4 of the Schedule to the Act of 1946 there is what I consider to be a most objectionable method of dealing with directors, general managers, secretaries, and anybody connected with any business. I should like my noble friend who is to reply to say, if he can, whether this is embodied in the Order which we are now asked to consider. I will not trouble the House by reading out the passage, because it is rather lengthy; but it is a terrible threat to anybody who is a director of any company or connected with any business. I was not aware of it until this moment. But it makes me shake in my shoes, to think that, without my knowledge, certain things may happen to businesses of which I am a director and that I may suddenly find myself under the punishment suggested in this Schedule to the Act of 1946. I hope that my noble friend will be able to say that that has been eliminated in this new Order. That is all I wish to say on the subject, but it is something I feel sure all of us would like to see removed.

4.46 p.m.


My Lords, we have listened to a most erudite speech from the noble Lord, Lord Grantchester, who has moved this Prayer, and I think that anyone who attempted, without the great knowledge which he evidently has, to deal with this subject without expert advice would be a very brave and a very bold man. I certainly do not claim the knowledge that would enable me to deal in detail with any of the questions which the noble Lord has so skilfully raised. I cannot say that I envy the noble Marquess who has to reply, because it seems to me that if he were to attempt to reply adequately to all the remarks made by the noble Lord, Lord Grantchester, we should be here well into the hours of the night. However, there are just one or two points that I should like to make.

I am quite sure your Lordships will not be surprised when I say that I am not rising in order to support the Prayer which the noble Lord wishes us to raise. Equally, I am not here to defend in detail all the minute clauses and sub-clauses of this order, and I propose to address myself to one or two wider considerations. The noble Lord speaking from the Benches of the Liberal Party has put forward what I gather is the attitude of his Party to the financial control of this country. We are glad to have that, because we are rather accustomed to a great deal of criticism from the Liberal Party, both of the actions of the present Government and of the various proposals of the Labour Party, and we always want to know what the Liberal Party would actually do themselves.

The noble Lord who has moved this Prayer told us what his own attitude, at any rate, was, and I think we are entitled to gather that it is what the attitude of his Party would be. As I understand it, his object would be to remove all controls and to let everyone go his own way, and to hope that out of that chaos really good government of this country and a good economic position would evolve. But I am not quite sure whether, in fact, he really would go as far as that, because there is one control which I believe (he will corrrect me if I am wrong) he would wish to maintain, and that is the control of the bank rate. But so long as that remains the final sanction of the economics of this country it is idle, futile and incorrect to consider that the Liberal Party really desire to remove all financial control from persons in this country; because (I have said in this House before, and I shall say it again) the most deadly control, the most potent control, and the control which has the greatest power to work evil, is the control of the bank rate, improperly used. Therefore, when the noble Lord comes to this House and says that his Party stand for having no controls, I do not believe that that is really correct.

I maintain that the controls in these Orders, in principle, are less injurious than the blind, "bludgeon" control which is involved in the indiscriminate use of the bank rate. Though I would not eliminate the right to use the bank rate, because in certain circumstances that might be absolutely essential, I have always maintained that this blind force should be mitigated by some selective control—though it will interfere, as all control must do, with the liberty of the individual—such as has been found from time to time in these Orders. The Party opposite, who believe in the principle of a "free-for-all" economy, have found it necessary to keep on some of these Orders, most of which existed during the war and some of which were retained by the Labour Government. On the other hand, we on this side do not claim that we stand for a "free-for-all" economy; but we do not wish to have any control which we do not think is required by the necessities of the time. So much for the principle.

There are a great many points in the noble Lord's speech which need a considerable amount of thought. No doubt we shall be having a financial debate on the Second Reading of the Finance Bill next Tuesday, and some of the points with which he has dealt I shall hope to deal with in the course of that debate. I would only say now that I think that we are much safer with some of these deliberately created selective controls than with one single control of the bank rate which, even if it be necessary, can, and always does, cause great hardship to individuals and work great havoc with the economy as a whole. There is one point, however, which the noble Lord made, which I should like in some way to support, and I would ask the noble Marquess who is going to reply to give his attention to this.

On March 25 of this year, arising on a Question put by the noble Lord, Lord Conesford, and answered by the noble Earl, Lord Selkirk, we had an exchange of views on the Capital Issues Committee, upon which the noble Lord, Lord Grantchester, has spoken. It was pointed out [OFFICIAL REPORT, Vol. 208 (No. 49), col. 390] that: A White Paper was published in May, 1945, giving the broad principles on which the Committee would give its advice to the Chancellor of the Exchequer. The Committee referred to was, of course, the Capital Issues Committee. I would just remind your Lordships that May, 1945, was a time when not the Labour Government but either the Coalition or the Caretaker Government were in office and Sir Winston Churchill was Prime Minister. The noble Earl, Lord Selkirk, added: These principles have been changed from time to time to meet current economic requirements and the terms of letters to the Chairman have been published in Answers to Questions in Parliament. Then there were some further cross-remarks, and my noble friend Lord Wilmot of Selmeston said this: My Lords, would it not be wise, in view of the length of time that has elapsed since the publication of the White Paper and the numerous modifications which have been made by way of correspondence, to publish a new White Paper giving those principles as they are now? The noble Earl replied: My Lords, I will certainly see that my right honourable friend bears that point in mind, which I think has a certain force. I would ask the noble Marquess whether he shares that view of his noble friend and thinks that there is some force in the point that was put forward by my noble friend, that a statement, not detailed but of the general principles which guide the Capital Issues Committee, might with advantage be given publicity. With that one exception, I am afraid that I disagree almost in toto with the noble Lord, Lord Grantchester. I hope that the noble Marquess will give your Lordships as much information as he can, but I hope that he will not keep us until eleven or twelve o'clock, because I think that by that time we shall be getting rather tired.

4.58 p.m.


My Lords, I think your Lordships will all appreciate that this is certainly not the terrain which I would have selected on which to attempt to act as an interpreter of the law for the noble and learned Lord, Lord Grantchester. For him, with his experience of the City, of banking and of the law, the course which he has been pursuing this afternoon has been along old familiar paths. I must confess that for me, until very recently, much of the country traversed by the noble Lord was in a large measure terra incognita. The noble Lord was good enough to let me know last night of the general line of the argument which he would develop to-day and also to enumerate some of the specific points upon which he would call for clarification. I have done my best to study the somewhat recondite and complicated points and I am most grateful for the intervention of the noble Lord, Lord Pethick-Lawrence, who has warned me of how complicated they are, but I shall do my best to deal at least with some of them.

With your Lordships' permission, I will first turn to the specific points and then in rather more general terms give your Lordships the point of view of Her Majesty's Government in support of the Control of Borrowing (Amendment) Order, which is, I must remind your Lordships, the subject of the noble Lord's Prayer this afternoon. With great respect, I think that his extremely interesting speech ranged somewhat beyond the limits one might perhaps impose in the terms of this Motion. The noble Lord referred to the increasing complexity of this branch of legislation, and on that point at least I am in complete agreement with him. The 1958 Amending Order which we are discussing to-day is, in fact, the fourth instrument amending the original Control of Borrowing Order of 1947, and it has now reached such a state of complexity that it is extremely difficult to discover the current state of the law.

It is no secret that we have received a number of complaints from City solicitors and others on this score. But when changes are made it is desirable that they should take the form of Amendments to the existing law, so that everybody concerned can see at once just what has been done. In time, however, these superimposed piles of amendments tend to form an almost impenetrable mass of deletions and additions. Your Lordships will, I feel sure, be pleased to know that it is intended to make a Consolidated Order in the very near future which will set out the existing law in one single and intelligible instrument.

The noble Lord, Lord Grantchester, referred to certain other specific points, and to the best of my ability I will attempt at least to clarify those points and try to put the view of the Government. He referred to the original White Paper of January, 1946. The purpose of that White Paper was shortly this: that it was the policy of His Majesty's Government of that day to keep the balance between the economic resources of the community and the demands made upon those resources. As the noble Lord said, it was further stated therein: That the planning of the investment programme must be continuously guided by the Government. It stated also: That the Capital Issues Committee would be continued and that an investment council would be set up to assist the Government in organising investment to promote full employment. It is still the policy of Her Majesty's Government to keep the balance between the economic resources of the community and the demands made upon those resources, and it is for this reason that the C.I.C. is being retained in existence.

The noble Lord also referred to the Borrowing Control Guarantees Act, 1946. Under that Act two things were done. The Act enabled the Treasury to make orders controlling borrowing as strictly defined by the Act, or the raising of money by issues of shares. It also enabled the Treasury to make loans for the development of industries or parts of industries. The Schedule contains particulars of the penalties to which the noble Lord, Lord Grantchester, has referred with such horror, including fines up to £500 or three months' imprisonment or both, which may be incurred by contravening any order made under that Act. Here I think is where some explanation is required. That Act was certainly intended as a permanent piece of economic legislation to enable the Government to deal with either booms or slumps. The purpose of having the power to make orders is that flexible policy can be pursued which accords with changing economic conditions. It is not the policy of the present Government to favour detailed control—there are other detailed methods for controlling investment—but we have kept the monetary control, as the noble Lord, Lord Pethick-Lawrence said, through the bank rate and through restriction on bank advances, and also the selective control through the Capital Issues Committee to which the noble Lord referred.

The noble Lord, Lord Grantchester, then spoke, I thought with some vehemence, about the manner in which decisions were taken and the method used by the Capital Issues Committee. The practice of the C.I.C. is perfectly simple and is as follows. Applicants reply to a detailed questionnaire designed to elicit from them all the material facts, and if more information is then needed the staff of the Capital Issues Committee make further inquiries from the applicant. A summary of each application is then prepared which sets out all the relevant facts. This is sent to all the members of the Committee a few days before the weekly meeting at which the Committee decides on its recommendations, and in reaching its decision in each case the Committee has regard to the principles laid down by the Chancellor of the Exchequer.

Perhaps it would be convenient if I here refer to the question put to me by the noble Lord, Lord Pethick-Lawrence, arising out of the discussion we had in your Lordships' House on March 25. The noble Lord called the attention of your Lordships to the reply made by my noble friend Lord Selkirk. In fact what was suggested by the noble Lord, Lord Wilmot of Selmeston, has taken place, for the letter written by the Chancellor of the Exchequer to the Chairman of the Capital Issues Committee amounts to being the new White Paper. It was written on July 1; it was alluded to on July 3 and it was published in the Hansard of that day. That directive has been published and is available for everyone to see. Therefore I think the question raised by the noble Lord, Lord Wilmot of Selmeston, has been answered, and we are in possession of a perfectly up-to-date White Paper which gives in complete detail what the directive of the Chancellor of the Exchequer is.


May I ask whether all previous directives were annulled by the recent one?


I do not want to weary your Lordships by going into too much detail, although I am in possession of the facts, but, broadly speaking, the answer to that question is that it supersedes everything that went before.

The noble Lord, Lord Grantchester, referred to certain specific cases. As noble Lords will be aware, it would be quite improper for me to disclose the reasons for or against approval given by the C.I.C. One of the regulations is that the cases of the applicants are not disclosed, and this, as the noble Lord will realise, is certainly in the interests of the applicants themselves. I could, perhaps, suggest reasons in general terms. Certainly in the case of Mr. Roth there is an explanation which I think it is proper to make. It is not the duty of the Treasury or the C.I.C. to decide on the substance of the individual himself who makes the application. What they have to decide on is what the application is for. It is certainly not the function of the Treasury or the C.I.C. to go into what I might call the credentials of particular applicants.

I think, if I understood him aright, the noble Lord, Lord Grantchester, suggested that by allowing some £4 million and more to be raised by Mr. Roth, perhaps other people were kept out of the queue. This, I must explain at once, is a misconception, because there is no limit to the amount that may be raised, and, therefore, the fact that this particular gentleman was able to raise that sum of money had no effect on the general picture whatsoever. I hope that answers that question satisfactorily.

There is also a point which perhaps the noble Lord would care to bear in mind, and that is that one of the directives given which may perhaps have a certain bearing on cases he has considered, was that the Committee were asked to see that bonus issues were made only as a single operation in the capitalisation of true reserves. I do not want to have to go into that in detail, but I am sure the noble Lord will appreciate that it may have some bearing in certain cases which he has laid before us this afternoon.


Does that exclude reserves from a revaluation of capital assets?


That is rather difficult; I should like to have notice of that question. A reference was made to special deposits. In fact—and I hope the noble Lord will not object to my saying this—that is quite irrelevant to the subject of his Motion. But perhaps I might say this in passing. As the noble Lord knows, on July 1 the Chancellor of the Exchequer wrote to the Governor of the Bank of England announcing his decision to remove the limit on bank advances which Mr. Thorneycroft had asked the banks to observe, and asking the Governor to prepare an alternative scheme for restraining any increase in total advances. The letters referring to that are again public, and were published in Hansard on July 3, 1958. The technique for operating this scheme is still under discussion, so there is nothing that can be added at the present time to these letters.

I have tried, I am afraid perhaps not altogether successfully, to deal at least with some of the points that have been raised in the extremely interesting and learned speech of the noble Lord, Lord Grantchester, and I think I have replied to the one question put to me by the noble Lord, Lord Pethick-Lawrence. As to the question asked me by my noble friend, Lord Teviot, I am afraid I must explain to him that, interesting though this question is, it does not apply to the Order under discussion. It applies to the Act of 1946, and so is not relevant to this Motion. As it is an extremely difficult and complicated question, I suggest that the noble Lord should ask it another time.


My Lords, I do not want to interrupt the noble Marquess, but surely that is not so. The Act governs all the orders that are made under it, and so it governs the present Order.


With all respect to the noble Lord, it is very presumptuous of me to argue with him on a matter of this sort, but I understood his Motion was a Prayer for the annulment of a specific Order.


It is an Order made under the Act of 1946. That is the authority for making it and, surely, the penal provisions of the Act of 1946 expressly provide that those penalties apply to any Order which is issued under the Act. I do not want to press the noble Marquess, but perhaps he will look into it.


I shall be pleased to look into the matter further, but I still maintain that what the noble Lord is really asking for is the annulment of the Act of 1946, whereas the Motion he has put down is for the annulment of the Order of 1958.

I have dealt to the best of my ability with a number of the points that have been raised, and I should like now to put before your Lordships the case against this Motion. Your Lordships will have seen that this Order, in fact, does three things. First, it raises to £50,000 the limit of the value of transactions which are exempt from control, and thus restores the position which was in force from 1947 until March, 1956, when the limit, as your Lordships know, was reduced to £10,000. In the view of the Government, the economic situation now justifies this cautious relaxation of some of the credit restrictions and the resumption of some measures to encourage investment.

Secondly, this Order exempts from control most issues made to capitalise profits or reserves, which are commonly called bonus issues. As your Lordships will appreciate, no new money is raised by the issue of bonus shares and no wealth is brought either to a company or to its shareholders. The purpose of such an issue is usually only to bring the capital structure of the company more into line with its real assets. A company is thus able to present a more realistic balance sheet. But it is still necessary to keep the control over bonus issues of redeemable securities, because some of these issues are designed to reduce tax liabilities. Nevertheless, it would not have been right simply to prohibit bonus issues of redeemable shares. In some cases these issues are used, as your Lordships will know, as a convenient method by which shareholders of family companies can ensure that cash is available to pay estate duty due on the death of a substantial shareholder, and so avoid the need to sell vote-carrying shares and the risk of allowing the control of the company to pass out of the hands of the family. The Order therefore provides that issues of redeemable bonus shares should not be prohibited but should require Treasury consent—I say deliberately, "Treasury consent", because it is taken outside the ambit of the powers of the Capital Issues Committee.

The third effect of this Order is to bring some classes of transactions under control. Most of these transactions are those which were exempted by the amending Order made in April, 1955, which was designed to let out transactions, such as those between associated companies, by which no new money was raised. But by a combination of transactions, each in itself exempt from control, companies have found three main ways of raising capital: by carrying out operations which have the same effect as if property were charged by way of mortgage; by acquiring in return for the issue of shares the shares or the undertaking or the assets of another company whose assets consist largely of cash or of securities that can readily be sold for cash; and by borrowing money temporarily without security and then converting such borrowings into permanent capital by the issue of shares in satisfaction of the indebtedness. Each of these operations will once again require consent.

The Order, however, still leaves a wide range of normal transactions exempt from control, of which some of the most important are: borrowing from a bank in the ordinary course of the borrower's business; borrowing temporarily—and I emphasise the word "temporarily"—without security; issuing shares as consideration for the acquisition of property on the incorporation of a private company; issuing shares for conversion or redemption of existing issues. I hope that your Lordships will see from this brief outline that the general effect of this Order is to make two modest relaxations in the control of credits while at the same time preventing the main evasions of the control, and this with as little interference as possible in normal commercial operations.

I feel sure that it will have been appreciated by your Lordships that although this Motion has served a valuable purpose in enabling these matters to be debated, if it were to be passed we should not be proceeding to a happy state of perfect freedom; we should only be returning to the more onerous but also relatively less effective restrictions that were in force up to three weeks ago. That would be the effect of annulling this present Order. In these circumstances, I most sincerely hope that the noble Lord, Lord Grantchester, will not wish to press his Motion.

5.22 p.m.


My Lords, I think the patience of the House has already been sorely tried so I will not say more than a few words. I should like to thank the noble Lord, Lord PethickLawrence, for his intervention and to say how honoured I am that he should have intervened in the manner he did. If I may reply to the question that he raised, speaking for myself I do not believe that bank rate should be regulated by the Chancellor of the Exchequer. I think bank rate is a reflection of conditions in the money market and should be fixed by the monetary authorities. That is my personal view, but I will not argue that now.

I should like to thank the noble Marquess for the gallant and courteous way in which he has grappled with this very complicated matter. I gather from what he said that he excludes from speculative purposes any transaction which is in the ordinary course of business, whether the money is borrowed temporarily from the bank or whether it is borrowed as a "bridging" operation for the building of houses by a building society or an insurance company. If so, I think that ought to be made clear. The only objection I have to the remarks made by the noble Marquess was when he questioned the inclusion of the directives in my comments. I look upon these as part of the Order, because they are really intended to interpret the Order. That was why I thought I was entitled to refer to the directives in discussing the Order. I did not expect that he would be able to say that Her Majesty's Government would at once repeal the Act of 1946 and all the Orders that go with it; but I did expect that he might say at least that they would give second thoughts to this matter. That is what I hope they will do. After all, quite simply, all I am asking is that the Government should practise in their legislation the principles that they profess. I recognise their preoccupation at the moment with more important matters in the international field, but I hope that the noble Marquess will consult with his right honourable friends as soon as convenient to ensure that this matter is not overlooked for action.

There are a great number of supporters of Her Majesty's Government who have great experience—greater than I have—on this subject in the City, and I ask whether it is not significant that no one has come here this afternoon to defend this Order. The waste of time and of ability, the sense of frustration engendered by these procedures, is notorious. Having ventilated this matter, I think time should be given to Her Majesty's Government to have second thoughts. If they do not, I should like to have your Lordships' permission to raise the matter again. At the moment all I can do is to ask your Lordships' leave to withdraw the Motion.

Motion, by leave, withdrawn.