Lords Sitting of 12 April 1960

Preamble
The House met at half past two of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Salisbury

BRITISH ASSETS IN CUBA
2.35 p.m.
LORD BARNBY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government, with regard to Cuba and the almost daily reports of expropriation of alien property and without compensation, what is the extent to which this has yet occurred to British ownership assets.]
THE JOINT PARLIAMENTARY UNDER-SECRETARY OF STATE FOR FOREIGN AFFAIRS (THE MARQUESS OF LANSDOWNE): My Lords, so far as I am aware, no British property in Cuba has been expropriated.

SOUTHAMPTON CORPORATION BILL [H.L.]
Read 3a, and passed, and sent to the Commons.
LONDON COUNTY COUNCIL (GENERAL POWERS) BILL [H.L.]
Read 3a, and passed, and sent to the Commons.
BOURNEMOUTH CORPORATION BILL [H.L.]
Read 3a, and passed, and sent to the Commons.

HORTICULTURE IMPROVEMENT SCHEME, 1960
2.38 p.m.
THE JOINT PARLIAMENTARY SECRETARY, MINISTRY OF AGRICULTURE, FISHERIES AND FOOD (EARL WALDEGRAVE): My Lords, I beg to move that the Horticulture Improvement Scheme, 1960, a draft of which was laid before this House on March 23, be approved. This draft Scheme, which applies to the whole of the United Kingdom, is the first to be introduced under Part I of the Horticulture Act, 1960. It was laid before Parliament the day after the Act received the Royal Assent. Its main provisions were set out in the White Paper on Horticulture (Cmnd. 880) published in November last. The draft instrument now before us sets out the complete detailed provisions in legal form to enable the scheme to be carried out. These have already been the subject of considerable discussion during the passage of the Horticulture Bill through Parliament. Though I do not think that your Lordships would wish me to speak at length on the detailed provisions of the Scheme, I think there are some features on which a word of explanation would be helpful.
Your Lordships will recall that the Scheme is designed to help horticultural producers, either separately or through their co-operative marketing associations, to improve the efficiency of their businesses—with special emphasis on improved facilities for the storage and preparation for market of horticultural produce. The draft Scheme provides for grants for two kinds of business: first, horticultural production businesses, which may be run by growers as individuals, partnerships or companies; under the definition in the Act a "horticultural production business" includes not only a grower's production activities, but also the storage, preparation for market or transport of his produce; and horticultural producers' marketing businesses, run by co-operative associations. For certain facilities for horticultural production businesses, grants may be paid to growers or, in some cases, to their landlords. The conditions of eligibility for a horticultural production business are set out in paragraph 3 of the Draft Scheme.

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The first condition of eligibility is that the business must embrace at least four acres of "eligible land". To be "eligible", land must have been in horticultural use for at least two years. The four-acre limit is really a notional one since, as stated in the White Paper, adjustments will be made to the actual land area to take account of particular forms of production. The area of glasshouses will be multiplied by twenty; the area of movable lights by four—and so on. The details are in sub-paragraphs (2) and (3) of paragraph 3 of the Draft Scheme.
The second condition of eligibility is that the business, after the proposals have been carried out, would be capable of yielding an adequate return to any person carrying it on with reasonable efficiency and as a full-time occupation. Normally we should expect a business of four acres or more of "eligible land" to meet this requirement without difficulty. We may, however, get the odd case where even though, strictly speaking, there are four acres or more of "eligible land" it is quite clear that they could not be regarded as a horticultural business. If it is obvious that even after providing the proposed facilities there would not be a business that would provide a living for at least one man, we should be wrong in putting the taxpayers' money into the venture.
The third condition of eligibility relates to security of tenure of the land on which the grant-aided proposal is to be carried out. The intention is that there shall be a reasonable likelihood of a grant-aided facility remaining in horticultural use for long enough to make payment of grant worthwhile. This condition will, of course, be fulfilled automatically if the person carrying on the business is the freeholder or an occupier under an agricultural tenancy. If he is a tenant under a non-agricultural lease we shall want to be assured that the unexpired term is sufficient.
The conditions of eligibility for a horticultural producers' marketing business are set out in paragraph 4 of the Draft Scheme. The main requirement for a marketing business, of course, is the condition that the business must have a co-operative character. This is laid down in subsection (4) of Section 8 of the Act.
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Paragraph 6 of the Draft Scheme sets out the procedure for payment of grant by instalments in certain cases. We discussed this matter at length during the passage of the Bill, but there are a few points that I think deserve mention this afternoon. Your Lordships will recall that this is a safeguard which we propose to adopt where a grant-aided building, or similar work, does not form an integral part of a horticultural unit, so that its future use is not necessarily bound up with the use of the land it is erected to serve. In the light of views expressed in your Lordships' House while the Bill was under consideration, and of other representations which were made to us from various quarters, we have modified the procedure originally envisaged.
Our original idea was that, in this type of case, grant for a facility costing £200 or more would be payable by instalments. We have now decided not to insist on payment by instalments if the work costs less than £900. Again, we had originally intended that the first payment—upon completion of work—should be equal to one-third of the total grant. We have now decided to put this up to one-half, or £250 if that is more. Finally, instead of applying the instalment procedure wherever the site of the facility is in any way separated from other land used for the purpose of a production business, we have decided to allow a tolerance of 200 yards—so that, for example, separation simply by a lane or roadway will not be a reason for invoking the instalment procedure. These modifications go as far as we can by way of relaxation, while at the same time preserving the degree of safeguard for the Exchequer which we conceive to be essential.
The schedule of facilities for which grants will be payable corresponds closely to the Appendix to the White Paper. The only significant difference is that the Draft Scheme lists in detail the items of machinery and so forth that were described generally in the White Paper as
"plant and equipment necessary for the storage, preparation for market or transport of horticultural produce."
A word on the administration of the Scheme. In England and Wales applications will be received in the Ministry's Divisional Offices. Proposals will be considered from a technical standpoint

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in the first place, of course, by the qualified horticultural officers of the National Agricultural Advisory Service. These officers are already in touch with virtually all potential applicants, though they have not previously been concerned with the administration of a general grant scheme of this kind. This Scheme will give new point to many of these existing contacts. In many cases discussion of proposals under the Scheme will be combined with other advisory work.
My right honourable friend is looking to the county agricultural executive committees to make a valuable contribution to the successful operation of this Scheme, as they do under other schemes. Members of committees will be consulted in difficult or border-line cases, and will consider representations from persons aggrieved by official decisions. These functions of C.A.E.C.s are now a well-established feature of the administration of our grant and subsidy schemes. In Scotland applications will be dealt with by the headquarters of the Scottish Department of Agriculture at St. Andrew's House. Technical consideration of proposals will be in the hands of qualified inspectors, and in cases involving fixed equipment the Department will be advised by its own architects and surveyors.
Our aim all along has been to be ready to accept applications as from April 1. Since that date, therefore, we have accepted provisional applications, on the basis of the Draft Scheme now before the House. But no proposals have been approved, nor any grant paid, of course, in advance of Parliament's approval. This arrangement has made it possible for growers to start discussing their plans with our local officers and, in some cases, for detailed examination of applications to be put in hand. It is, of course, too early yet to assess the response, but it is clear that a lively interest is already being shown in the Scheme.
In a week so far as my own Ministry is concerned, up to last night over 1,200 inquiries and more than 80 applications had been received. Most growers are heeding our advice to think about their proposals carefully and discuss them with our local advisory staff before submitting formal applications.
This Scheme is the first to be designed specifically for horticulture. It presents
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new opportunities for the horticulture industry to equip itself to meet the demands of a market that is becoming increasingly discerning in its quest for produce of the right quality, in the right condition, and at the right price. The Scheme gives positive encouragement to the co-operative marketing of horticultural produce which, it is generally agreed, offers the best chance of improving the position of many of our growers, particularly smaller ones. I feel quite sure that the horticulture industry will make the most of the opportunities presented by this Scheme. I have much pleasure in commending this Scheme to your Lordships' House.
Moved, That the Horticulture Improvement Scheme, 1960, be approved.—(Earl Waldegrave.)
On Question, Motion agreed to.

CHARITIES BILL [H.L.]
2.48 p.m.
Order of the Day for the Third Reading read.
THE LORD CHANCELLOR (VISCOUNT KILMUIR): My Lords, I take it that your Lordships will desire to follow the procedure which we have followed in such cases; that is, that we should take the Third Reading formally, then deal with the Amendments, and have any discussion on general points in the Bill on the Motion "That the Bill do now pass". I beg to move that this Bill be now read a third time.
Moved, That the Bill be now read 3a.—(The Lord Chancellor.)
On Question, Bill read 3a.
LORD SILKIN LORD SILKIN moved to insert as a new Clause 1:
Definition of "charitable purpose"
". For the purposes of this Act a charitable purpose is either—

(i) one which exists for—

(a) the advancement of religion; or

(b) the advancement of education, learning, science or research; or

(c) the prevention or relief of poverty or distress; or

(d) the promotion and advancement of social welfare, including public recreation and sport;

(ii) one which otherwise than in paragraph (i) of this section benefits the public generally, whether with or without reference to or limitation within a locality, or within some group or section of the community:

Provided that where the beneficiaries of a trust for any of the objects specified in paragraphs (i) and (ii) of this section are identified by the tier of blood relationship the trust will not be one for a charitable purpose; and where the beneficiaries of a trust for any of the objects specified in paragraphs (i) and (ii) of this section are identified by some contractural or similar bond of a continuing character, whether as members of an association or as employees of a limited company or other similar organisation, the trust will be one for a charitable purpose; and provided further that the promotion of public recreation and sport shall not be for a charitable purpose unless it is for the benefit of persons who participate in it without financial remuneration.
Provided also that this Act shall not affect the validity of instruments executed before the coming into operation of this Act."
The noble Lord said: My Lords, I should like first of all to express my regret that I was not able to move my Amendments on the Report stage, and also my appreciation of the consideration of the noble and learned Viscount and of the House in enabling me to move them this afternoon. Perhaps I can best repay this kindness and consideration by being as short as I possibly can on all these Amendments, and in consideration of that it may be that the noble and learned Viscount will see his way to being equally helpful on these Amendments.
The Amendment which I am moving is the much vexed question of providing a definition of "charity". On the Committee stage I gave reasons which, while perhaps not conclusive, at any rate were strong reasons for incorporating a definition of "charity" in a Bill where we are consolidating the law of charity, where we are seeking to revise laws of charity which have been in existence for hundreds of years, and where the only existing definition is one contained in an Act of Parliament of the year 1601. I put forward my idea of what the definition of charity might be and it was based upon certain statements, obiter dicta, in the House of Lords, particularly by Lord Macnaghten, and also upon decisions of the House of Lords on what amounts to charity. Your Lordships would no doubt agree with me that if it were possible to provide a definition of charity in a Charities Bill it would be desirable to do so.
In the debate on the Committee stage a number of objections were taken by the noble and learned Viscount himself
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and by the noble and learned Lord, Lord Cohen, to the actual Amendment which I had put forward. I have endeavoured in the Amendment which is before your Lordships now to deal with most of the objections and see whether I could meet them. One objection that was taken by the noble and learned Viscount was that my Amendment as it stood said nothing about sickness or poverty, and so under paragraph (i) (c) I have included the provision that a charitable purpose is one which exists for "the prevention or relief of poverty or distress". Those words may not cover it, but if that were the only objection of course one could find adequate words.
It was also suggested that by defining the law of charity now it might throw the whole question of what is a charity into doubt: that there is a large body of Case Law upon which charities are acting; charities have been decided to be charities or otherwise on the basis of this Case Law, and it would be wrong to throw that into doubt. I agree, and so I have included a proviso that
"this Act shall not affect the validity of instruments executed before the coming into operation of this Act."
Any charity that was accepted as a charity before this came into operation will remain a charity, but in future charity will be dealt with on the basis of this definition.
I have no doubt that one can find detailed objection to the drafting. Of course one can. I suppose that if I put down the Ten Commandments for approval some noble Lords, particularly the noble and learned Viscount, Lord Simonds, would find something to comment on and say they were incorrectly drafted. Nevertheless, I hope it will be possible to accept this Amendment, in principle at any rate. I would not press it as being the last word in the way of definition, but if the noble and learned Viscount would see his way to give some encouragement to the idea, it could, of course, be pursued at the next stage in another place. I beg to move.
Amendment moved—
Before Clause 1 insert the said new clause.—(Lord Silkin.)
LORD SOM̃ERS: My Lords, while I do not want to question the spirit of this Amendment that the noble Lord, Lord Silkin, has advanced, I wonder whether

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he does not think that the inclusion of the word "Christian" before "religion" might be advisable. There are many religions in the world and some of them are definitely, in our view, anti-Christian, and whether they ought to be considered as charities to be supported in this country or not is a question that I leave to those who have more authority to speak on the subject. But there certainly are many peculiar religions. There is a certain body known as Jehovah's Witnesses, which I think had a peculiar reputation during the last war. There are also, of course, the Mormons. I do not know whether they have any adherents in this country. And there are certain others like that. So I wonder whether possibly the mere addition of the word "Christian" might be advisable.
LORD REA: My Lords, might I oppose very strenuously the suggestion which has been made? I am all in favour of the Christian religion and Christians, but surely your Lordships will agree that people who happen to believe in Mormonism or Buddhism and certainly any other good and established religion can certainly be charitable persons and should not be disbarred. For perhaps similar reasons we should not take exception to paragraph (d), which in theory advances the support of fox hunting although many people might think that that might not be a good thing to do. I think it should be taken on a broad and general position.
VISCOUNT SIMONDS: My Lords, it appeared to me that the noble Lord, Lord Silkin, was making a sort of appeal to me. I must say that it is a very interesting day for me, because more years ago than I care to think of I heard a very learned Lord say that a definition of legal charity is impossible. That has been repeated by great lawyers at intervals ever since. Finally it came before the Committee of the noble Lord, Lord Nathan, whom I am very glad to see here to-day, and he, with his Committee, many of whom were experts and having the assistance, no doubt, of other experts, came to precisely the same conclusion: that a definition of legal charity was impossible and that an attempt to do it could cause nothing but confusion. I heartily agree with the noble Lord.
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But now, my Lords—I make no invidious comparison—the noble Lord, Lord Silkin, has stepped in where angels fear to tread, and the result is this proposed definition of charity. I do not want to be unduly critical, but I venture to think that in almost every line of it there is some hole; in almost every line of it there is some word which will cause confusion in the courts when they have to interpret it. I could take many examples. Let me take one. But before doing so, may I say that I am in grave doubt whether this is meant to codify the law of charity or to alter it and improve it; I do not know which it is meant to be. At any rate, may I refer to one or two things in it which seem to me to cause uttermost confusion? Your Lordships will see that under paragraph (ii) the noble Lords includes any charity which
"otherwise than in paragraph (i) of this section benefits the public generally".
Who in the world is to say what benefits the public generally? Is it to be subjective? If a testator, however foolish, says, "I benefit the public generally by this gift I make," is that a good charity? Or is the court to decide what benefits the public generally? If so, how is the court to decide? Suppose a gift is for patriotic purposes; is that for the benefit of the public? A gift for the Fabian Society—is that for the benefit of the public? A gift for the Fascists—is that for the benefit of the public? So you can go on. You cannot by these general words really provide a fair and proper definition which will not cause endless confusion.
Then again, to look at these provisos—I do not want to be unduly critical—what does the noble Lord mean when he says:
"where the beneficiaries of a trust for any of the objects specified in paragraphs (i) and (ii) of this section are identified by some contractual or similar bond of a continuing character …"
What is a "similar bond?" What is a "continuing character"? Is it perpetual, or does it mean that it is not simply ephemeral? The proviso also says:
"whether as members of an association or as employees of a limited company"—
what sort of association?—
"or other similar organisation. …"
Nothing but difficulty would arise out of this Amendment. I hope that the noble

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Lord will not think that I am unduly critical, but he is only exemplifying what I have said: that it is really impossible to get a satisfactory definition. I do not want to be didactic, but I speak on this matter with some fifty years of experience, and I venture to ask your Lordships not to embark on a definition which will indeed be a bounty to the members of Lincoln's Inn, but otherwise not a public benefit.
LORD DOUGLAS OF BARLOCH: My Lords, there is no one to whom we would listen with more respect than to the noble and learned Viscount who has just spoken, and I certainly would not disagree with the criticisms which he has made of the Amendment which my noble friend has put forward. But I wonder whether that entirely disposes of the matter. If it is true that, as matters stand at present, it is impossible to define what is and what is not a charity, it would appear that the law is already in a state of confusion and that something ought to be done about it. In the light of what the noble and learned Viscount has said, the effort of my noble friend Lord Silkin does not appear to provide a solution; but surely the ingenuity of lawyers—especially those who are specialists in this particular subject—could produce a definition of some kind which might reduce the area of uncertainty that exists at present. I am sure that the noble and learned Viscount, Lord Simonds, would agree that there is nothing so desirable in law as to try to achieve certainty, if by any means it can be achieved. After all, codification is not entirely unknown: it was first practised nearly 2,000 years ago, and I should have thought that at the present day it might be possible at any rate to codify the definition of a charity if no more.
3.4 p.m.
THE LORD CHANCELLOR: My Lords, I am sure that the whole House is grateful to the noble Lord, Lord Silkin, for posing this question, but after what my noble and learned friend Lord Simonds has said, I do not think that even Lord Silkin himself would say that he had found the answer. There is just one point, of which I reminded your Lordships when we were discussing this matter on the Committee stage—namely, that Lord Silkin has commenced this
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Amendment with the words
"For the purposes of this Act."
But he would agree with me that it would be an intolerable position to have one definition of charity for the purposes of this Act and the existing definition for the purposes of the Finance Acts and Rating Acts, which affect charities so deeply. What he really wants is a definition of charity for all the purposes of the law.
I am not going into the matter at length, and the examples I take I quote, as my noble and learned friend Lord Simonds did, simply for the purpose of illustrating the difficulties which confront anyone who attempts this honourable but difficult task. I take, for example, research, which the noble Lord, Lord Silkin, includes. It is difficult to imagine all forms of research being charitable in any conception of the word. To put it the other way round, it is easy to imagine forms of research that no one would seriously want to be charitable, and there are others which are in grave doubt. Let me take one of the most famous recent examples. I am sure that many would doubt the value of the research intended to be carried out under the terms of the will of the late George Bernard Shaw, into the time and money likely to be saved by the adoption of an alphabet of 40, instead of 26, symbols, which was held not to be charitable, although the case was settled on appeal. That only shows the beginning of the vista of objects in regard to which I think your Lordships would hesitate before giving the advantages of charity—that is, the ability to exist in perpetuity and freedom from tax.
Take the one which has been mentioned in the debate—the proposal to extend charities to include the promotion of amateur sport. It would certainly make charitable the promotion of fox-hunting, which might appeal to some of your Lordships. But I gather that the intention is that sport should be treated as including games. If cricket clubs and golf clubs are to be made charitable—subject, of course, to their satisfying the requirements of the proviso, which would not be too difficult—where is the matter to stop? If golf, why not whist or bridge? On that aspect, I think that, after very careful consideration, we went quite far enough

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in the Recreational Charities Act which I placed before your Lordships a year or two ago.
If I may take one or two practical matters which affect a number of very famous charities, the rating of charities is a grave problem at the moment. We have had the Report of the Pritchard Committee, which we shall have to discuss in due course; but that would really be stillborn as to its basic idea, however we are going to adapt it, if this were carried out. My noble and learned friend Lord Simonds has dealt with the point, and in his presence I hesitate to say much about a subject of which he is such a master. But I think that we are apt to be a little misled by the famous speech of Lord Macnaghten in Pemsel's case, to which reference has been made. I think that none of my noble and learned friends will contradict me when I say that that noble Lord was not attempting a definition of charities: he was making a classification, and nothing more. Even that was not original because (I have not checked it, but if I am wrong in my memory I shall be corrected) that classification goes back to an argument of Romilly's in the case of Morice v. The Bishop of Durham about 150 years ago; and so it is not as if we had a definition. We have had a classification which only opens the problem.
On the first proviso, if I may take one other example, it is obviously the intention of the author to reverse decisions in cases with the names of which I will not trouble your Lordships; but in these cases it was held that trusts for the benefit of the employees of commercial concerns could not be charitable, with the possible exception of trusts in relief of poverty. If commercial concerns are going to take the excellent course of having schemes and plans of that kind for the benefit of their own position and for keeping their employees, that is a commendable but commercial venture, and I believe there would be, to say the least, great argument on that point.
I come now to the difficulty which has been succinctly stated by the noble Lord, Lord Douglas of Barloch, a difficulty which has also worried the noble Lord, Lord Silkin. That is: would not almost
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anything—I would not go so far as to say just "anything" although that is implicit in the argument—be better than the present position? Or, to put it more modestly, is there not in the present position so much uncertainty that this definition would be bound to be some improvement? The nature of our legal system, however, is such that any definition of this kind contained in a Statute must inevitably become overlaid by the reported cases which place authoritative interpretations on the words used. And the only effect of a definition of this kind would be that the courts would have to start working anew in order that, at some time in the future, we may again arrive at a state of nearer-certainty—and I do not put it any higher—than we are in at present. That near-certainty is attributable to the large number of reported cases giving actual, practical examples of every sort and kind, of each kind of limits; and to start anew would be a matter of great difficulty unless we were absolutely certain that a heaven-born definition had sprung into our minds—and that certainly has not happened yet.
As I have said—and I mean this with complete sincerity—the noble Lord has raised an important problem, a problem which is a challenge to everyone who is anxious to improve the law. All that I can promise is consideration of that problem, without (and I must be frank with your Lordships) great hopes of attaining a true solution; but I do promise the noble Lord, Lord Silkin, that it will continue to be studied. I thank him again for having brought it up. I believe that I have said enough—and I have been very brief over the points—to show that we have not yet reached a solution, and therefore I would ask the noble Lord, after the recognition which I have given of the importance of the problem he has raised, not to press his Amendment.
LORD SILKIN: My Lords, of course I will not press this Amendment. If I had any doubts as to whether it was satisfactory in its terms, the noble and learned Viscount, Lord Simonds, has entirely removed them; and I am quite satisfied that it will not stand up. But in spite of what has been said, I am not satisfied that a definition is not both desirable and practicable. I believe that if I had, in the old days, given to the

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noble and learned Viscount, Lord Simonds, a brief instructing him to prepare a definition of "charity", with a nice fat fee, he would have produced one.
VISCOUNT SIMONDS: My Lords, I think the noble Lord would have hurled it back at me and asked me to try again.
LORD SILKIN: My Lords, I certainly do not accept that it is impossible to find a definition, and I do not believe that the noble and learned Viscount has satisfied the House that it is impossible to do so. Every one of the objections that has been made could be met. I am not going to try again—I shall not have the opportunity. But one could sit down again and, in the light of everything that has been said in this debate, revise the definition; and I believe that in the end one would get to something that would be satisfactory. Probably the best thing, in the stages that are ahead, would be to do what the noble and learned Viscount has proposed—to give the matter serious and objective consideration. If it is impossible then I should be most surprised, but in the meantime I will not take up any further time of the House and I beg leave to withdraw my Amendment.
Amendment, by leave, withdrawn.
Clause 5 [Effect of, and claims and objections to, registration]:
3.17 p.m.
LORD SILKIN LORD SILKIN moved, in subsection (2), after the second "or" to insert:
"may within three years from the date when the charity was entered on the register of charities"
The noble Lord said: My Lords, this is an Amendment which deals with the question of registration of charities under Clause 5. Subsection (2) provides that:
"Any person who is or may be affected by the registration"
has the right at any time to object to the registration of the charity, on the ground that it is not a charity. According to the wording of this subsection that is the only ground on which there can be objection to the registration. Yet, as the law stands, a person can object at any time—perhaps years afterwards. A charity may have been registered for 50 years, and a person can suddenly come along and object to registration on the ground that it is not a charity.
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In my view, there ought to be a time limit. A person should make up his mind whether or not a particular charity is a charity—although I know that, in the absence of a definition, he is going to have great difficulty in doing so. Under this Amendment a person would have to make up his mind upon that matter within three years. I feel that a charity should not be in peril or in suspense indefinitely or have its raison d'être liable to be challenged at any time, and the purpose of my Amendment is to give a charity some kind of assurance that at the end of a period, whether three years or some other, it should know that it is incapable of being challenged on the ground that it is not a charity. I beg to move.
Amendment moved—
Page 6, line 18, after ("or") insert ("may within three years from the date when the charity was entered on the register of charities").—(Lord Silkin.)
THE LORD CHANCELLOR: My Lords, we had a discussion on this Amendment on the Committee stage, and I promised that I would consider it. I have done so, but I am sorry to say that I cannot advise your Lordships to accept it. The register is, of course, supposed to be an accurate register, and it is the duty of the Commissioners to remove from the register something which they do not believe to be a charity. I think your Lordships can safely disregard the effect of frivolous or malicious complaints to the Commissioners. The Commissioners are well accustomed to dealing with them and to disregarding them in proper cases.
But one must face up to the result of accepting this Amendment, which would be to constitute a number and a category of statutory charities which were, ex hypothesi, not charities but had become so through an error continuing for a period of three years; and it would, I think, have two undesirable practical results. If it were to be the law, the Commissioners themselves would be required to have a very searching reconsideration of each case at the end of three years. Moreover, the effect would be that the Inland Revenue or a rating authority, who at present might be disposed not to argue the question of a smaller charity—because if the revenue or the rates were

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seriously affected later by a big charity, or by a large amount being left to it, they could always protect their rights—would be driven to fight every small charity about which there was a doubt. And although that may appear good logic, it will be a poor day for this country when we act entirely on logic and do not let common sense leave things alone when it is wise.
But on the general point, we are taking a very considerable step in making the register conclusive for all purposes, including Revenue purposes, while the institution is on the register; and I submit that to go further and create what I have called this class of artificial statutory charities would be a mistake. I am sorry that I have not been able to meet the noble Lord on this point—I have considered it—but I may tell him now, to cheer him up, that the unexpected happening which occurred to him in another stage of the Bill may yet happen again; so he need not be weary of well doing—but not on this Amendment.
LORD SILKIN: My Lords, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 9 [Exchange of information, etc.]:
LORD SILKIN: My Lords, this is a very simple Amendment, and it provides that where documents are open to public inspection the public may ask for copies of them as a matter of right, instead of if the Commissioners think fit. I do not think the point needs much arguing. These are copies that anybody can go and see for himself. If a person wants copies of them, why should not he have them, and why should they be provided only if the Commissioners "see fit" to provide them? I beg to move.
Amendment moved—
Page 10, line 17, leave out ("may, if they see fit,") and insert ("shall").—(Lord Silkin.)
THE LORD CHANCELLOR: My Lords, I have the greatest pleasure in accepting this Amendment, ipsissima verba.
On Question, Amendment agreed to.
Clause 13 [Occasions for applying property cy-près]:
LORD SILKIN LORD SILKIN moved, after subsection (4) to insert:
"() Where funds are raised by public appeal or public subscription for a charitable purpose, it shall be presumed that all contributions to such funds have been given with a general intention of benefiting charity unless the donor, at the time of making a contribution, has expressed an intention to benefit that charitable purpose only; and all sums contributed with an expressed intention to benefit that charitable purpose only shall be presumed to have been applied in fulfilment of that charitable purpose in priority to contributions given without limitation."
The noble Lord said: My Lords, my average has gone up. This is an Amendment which I put down, not to re-argue but to give the noble and learned Viscount an opportunity of saying what has been the result of the consideration which he promised to give to a similar Amendment which I put down on the Committee stage. I would just remind the House very briefly of what the point was. It was the question of charities which arise from public appeals. In my speech on the Committee stage I mentioned the Gillingham bus case and the disaster in North Devon and so on, and the different ways in which these funds have been dealt with. The common feature of them is that it became unnecessary to use the money that had been publicly collected, and the question arose as to what should be done with the money: should it be returned to the donors—that was a very difficult question because in many cases the funds were provided in shillings and pence; should it go to the Crown, or should it be dealt with by the cy-près doctrine? I admit that it is a very difficult question. I put down in this Amendment what I thought was a solution; but the noble and learned Viscount gave a promise. What he said was that he had great sympathy with the question, that it was a problem, and he would look at it and see what could be done. I have put down this Amendment again in the hope that he may be able to tell the House what the Government are proposing to do on this problem.
Amendment moved—
Page 13, line 29, at end insert the said subsection.—(Lord Silkin.)
LORD SALTOUN: My Lords, I hope that Her Majesty's Government will not

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accept this Amendment. I gave a reason, which was a very short one and which I will repeat, on the Committee stage. Following the Broughty Ferry lifeboat disaster, the Lord Provost of Dundee started a fund for the relief of the families affected, and the workpeople of the Dundee shipyard behaved very generously indeed. I am speaking only from memory, but I think they each gave a week's wages, or something very good like that, and they did not attach any strings to their gifts. When the fund reached a certain figure there was a certain amount of speculation in Dundee as to whether there would not be too much money, and whether it would not be a good thing to devote part of it to some cognate purpose. The people who had subscribed this money, without any conditions attached, were very indignant. They said they had subscribed the money to help the afflicted families, and they did not think, however much it was, even if it was £1 million, it should be used for any other purpose. I take that as being a fair expression of what I call the sterling honesty of the ordinary common man in the street, the ordinary private citizen. I myself take that as a very sound principle.
There is another question which occurs to me on this Amendment, and that is that when there is one of these national disasters I do not think there is any law that prevents any one of us from making a collection for the victims. Suppose there is more than one centre of collection, and that one has a perfectly good and attractive name—for example, that one collects for Gillingham at the same time as the Mayor of Gillingham collects: that he has a fund and I have a fund. And suppose I collect a lot of money and then find that it is not needed; that it is too much; that all the necessities are being looked after, and that there is no need for it. It seems to me that, under this Amendment, I might use that money for my cats' home or for some other charity in which I am interested. In every case of this kind, especially when subscriptions from the public are involved, it ought to be a matter for the courts. It does not happen often, but when it does I think it is a matter for the courts to decide. I therefore hope that Her Majesty's Government will not accept this Amendment.
VISCOUNT SIMONDS: My Lords, I hope the noble and learned Lord, Lord Silkin, will not have too much of a shock when I tell him that I sympathise very much with this Amendment. I do not like it in the least, because it means that the money a man contributes for one purpose may go to another; but it seems to me to be perhaps the best way out of a rather hopeless deadlock. Therefore, although it may be that the words are not exactly apt, I hope that the noble and learned Viscount on the Woolsack will give the matter consideration, and will have a clause introduced in another place substantially on these lines.
THE LORD CHANCELLOR: My Lords, I am really before your Lordships to report progress, because I said on Committee stage that I sympathised with the object of the Amendment and that I would report progress before the Bill left your Lordships' House. I should like the noble Lord, Lord Silkin, and my noble and learned friend Lord Simonds to know that there is good will towards the principle of the Amendment, and that the Government hope to introduce a suitable Amendment when the Bill is considered in another place. I might give one or two indications of how our minds are moving; because in doing so I hope that I shall alleviate the fears of my noble friend Lord Saltoun, who has taken such an immense and helpful interest in the Bill.
The first point is that I think it should not be limited to public appeals, because most appeals are carried out both publicly and privately; and the notion of a public appeal is difficult of definition although I think the principles are the same. Secondly, we consider that the matter which most needs attention is the case of money which, under the present law, may become bona vacantia upon the failure of a charitable object, or which may have to be paid into court to await the claim of an owner who will, in practice, never claim it. Another point (and in this I believe my noble friend Lord Saltoun will be interested) is that it is right to bear in mind, if I may give another example, that many appeals are begun by a handsome gift which becomes the nucleus of the fund—that is perhaps looking at it at a different point of time from that taken by my noble friend.

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We think it quite wrong that such gifts should be expropriated from the charities where there is a total failure of the purpose which they were intended to achieve; and we must take great care to do nothing which would make any such benefactor (and I think the same would apply to the example given by my noble friend) feel that he had been treated unfairly, or that there had been anything in the way of sharp practice.
These are the sort of lines along which we have been thinking. It obviously is a matter calling for great care in drafting if it is not going to give rise to difficulties and uncertainties on construction, but we think it is a sound and useful thing to attempt. As I say, we hope to be able to produce an Amendment in another place; and I am only sorry that, with the many other aspects of the Bill which I have had to consider, it has not been possible to have an Amendment in time for your Lordships' House. I very much hope that we shall be able to produce one in another place.
LORD SILKIN: My Lords, that is, of course, quite satisfactory, and I beg leave to withdraw my Amendment.
Amendment, by leave, withdrawn.
3.36 p.m.
LORD SILKIN LORD SILKIN moved after Clause 36 to insert the following new clause:
"Where—

(a) property is given on trust for purposes so described that, consistently with the terms of the trust, the property could all be used for charitable purposes, but could be used wholly or partly for purposes which are not charitable; and

(b) the trust is invalid (unless validated by this section), but would be valid if it had been for charitable purposes only; and

(c) the terms of the trust and the circumstances of the gift are such as to show a predominant intention to promote charitable purposes or a particular charitable purpose;

then the trust shall have effect as a valid trust for such charitable purposes as may be determined by a scheme legally established."
The noble Lord said: My Lords, this is the Amendment which seeks to deal with trusts which are defective because part of the trust is charitable and part is deemed to be not charitable. The result of that in law is that the whole trust becomes invalid; and, as I said on the Committee stage, the wishes of the testator or person creating the trust are
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entirely invalidated. The purpose of this Amendment is to secure that, where the charitable part of the gift is the predominant part, then that part of it should be valid, even if the non-charitable part is not valid. I hope that your Lordships will not quarrel with the drafting of this Amendment, because I have not drafted it myself, but, through the kindness of the noble and learned Viscount, have been able to get the help of the Parliamentary draftsman; and I have no doubt at all that the drafting is satisfactory.
I hope your Lordships will accept the principle of the Amendment. So far as we possibly can, we ought to try to give expression to the wishes of a donor, and to his intentions. When we last discussed this matter the noble and learned Viscount spoke of interfering with private rights, and I understood him to mean that this was interfering with the private rights of those people whom the testator had intended not to benefit but who did benefit because the will or the trust turned out to be invalid or defective because part of it is charitable and part is not. In those circumstances, the next of kin whom the testator had deliberately decided not to benefit would come in, and would benefit from the will. My Amendment would preclude that from happening, and, admittedly, in that sense, is an interference with private rights; but it is an interference which I am sure your Lordships would not regard as having great merit, assuming that we all desire that the wishes of a testator or donor should be carried out. I therefore put forward this revised clause with confidence, in the hope that your Lordships will see your way clear to accepting it. I beg to move.
Amendment moved—
After Clause 36 insert the said new clause.—(Lord Silkin.)
LORD SALTOUN: My Lords, I want to deal only with one argument that was raised on the Committee stage, and that was the argument of my noble and learned friend Lord Morton of Henryton. Your Lordships will remember that he said in Committee that the point that affected him about this Amendment was that, as the law stood now, a testator who had made a bequest to charity which was bad benefited the people whom he least of all wished to benefit—namely, his next of kin, because they got the legacy or bequest and not the charity.

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It has been my fortune to deal with a great many legacies in the past five or ten years, and in many cases they did cut out the family. I had to deal with one only this morning, and the cause of it was sheer senility. It was the case of a man who in his old age was being looked after by his family. He had announced his intention of leaving his property to his family; but time went on and, like some other old men, he did not make another will and the whole of his property was left to charity. That, I think, is not a common cause of such a bequest, although it is a serious one.
In my opinion, one of the great causes of people cutting out their families—and they are often poor people who do this—and leaving their property to charity is morphia. People who get cancer and are are under morphia for a long time become quarrelsome and malicious—I have had experience of this, and I know—and often make wills cutting out their family and the people nearest and dearest to them, leaving their money to charity. That is all very well if it is a good bequest, and it is up to the charity to decide how to deal with the matter. But if it is a bad bequest, it can never be a bad thing, I think, for the money, which cannot properly and legally go to charity, to go back to the next of kin. That is the kind of solution which seems normal and quite proper to the ordinary common man like myself.
3.42 p.m.
LORD DENNING: My Lords, perhaps I may say a word or two on this Amendment. I believe that what my noble and learned friend Lord Morton of Henryton had in mind were such cases as the Diplock case, where the solicitor or someone made a mistake and put "charitable or benevolent". As a result of that the money had previously been distributed to charities in Sussex; but because that was held to be invalid, the money went to a person in Australia who was the first cousin once removed of the testator, of whom I verily believe the testator had not even heard and certainly did not intend to benefit. It is such cases as that that my noble and learned friend had in mind. The testator wants his money to go to charities of some kind, but instead it goes perhaps to the next of kin of whom he has never heard and knows nothing.
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The object is to deal with those cases, and cases where even the legal profession make mistakes. I ask your Lordships to consider the difference of "and" and "or". There is a case where money was left for the "promotion of Conservative principles and learning and religion," and because it was "and" each time it was charitable; but if it had been "or", everything would have been bad. All these mistakes have been remedied for before 1952. I am sure that the great weight of well-informed opinion would be that we should allow even lawyers' mistakes to be remedied when they happen in cases like this. Let it be confined to charitable objects properly so called and not to non-charitable ones. I hope that this House will approve the principle of the Amendment.
THE EARL OF CRAVEN: My Lords, I rise to support this Amendment on behalf of the Roman Catholics; indeed, I do not think it will be only Roman Catholics, but many of your Lordships here belonging to other bodies and other denominations, who will support it. The noble and learned Lord, Lord Denning, has mentioned the Diplock case, and that to me is part of the mystique of the lawyer. I am not a lawyer, but I have one particular point which I should like to put before my noble and learned friend on the Woolsack. I hope he will consider some way to amend this, if possible, to preserve the right of the person who would become entitled to property if the trust is invalid to waive his right and so allow the trust to be performed without the obligation of getting the scheme legally established. I am sure that all those here who are legally-minded will understand what I am aiming at. It is a long and complicated process if you have to refer to the Royal Commission every time and go through all the legalities. We want to simplify that.
THE LORD CHANCELLOR: My Lords, on the Committee stage your Lordships showed considerable interest in this point, and I have given it careful consideration. I ask your Lordships to note that this was not in the original Bill, although of course it may be none the worse for that. It involves an amendment of the Long Title and it makes an important change which will have considerable consequences which I feel it is my duty to put before your Lordships.

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I mentioned on the Committee stage, as the noble and learned Lord, Lord Silkin, has recalled, that it affected the rights of private persons over property. Your Lordships will realise the dilemma.
Noble Lords who sympathise with this Amendment are, I am sure, feeling at the moment: why not carry out the testator's intention? But it follows that this Amendment—and this is inherent in its principle—will cause a disposition of property for charitable purposes, however ill expressed, to prevail over alternative purposes which are not charitable but may well have been within the intention of the testator. It would also defeat the claims which the residuary legatee or the next of kin may assert to property which a testator has willed away from him to purposes which are in part—and again this is part of the hypothesis of which we are thinking—purposes for which it is impossible to make a valid gift. I do not want to be dogmatic on the matter: it is possible that that view, which is supported by many Members of your Lordships' House of great eminence, is right; but it is certainly something that wants consideration.
I said that it has been the general practice before one interferes with private rights to get the advice of an independent Commission of Inquiry. That cannot be driven too far, because the Government must retain some discretion as to how far it adopts and how far it rejects the recommendations of a Committee of Inquiry, and so must any Legislature such as your Lordships' House. But it is interesting that this very point was referred to an independent Committee of Inquiry, and the Committee, under the noble Lord, Lord Nathan, recommended a validation of trust instruments then in existence which had been acted upon as valid but turned out to be defective as a result of a decision by the courts, but did not consider that there was a case for validating defective instruments which might come into existence in the future. It is true that they were not unanimous on this point, but that simply underlines my point that this is a subject upon which opinion is likely to be divided.
I want to be entirely frank with your Lordships, and I ought not to withhold from the House that two of the Chancery Judges whom I have consulted, and the
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Chancery Bar Association, have expressed themselves in favour of some change. On the other hand, I believe that other interests may be opposed to it. We have heard from noble Lords, both in Committee and this afternoon, the case for giving effect to a testator's wishes which fail, it is said, because of some technical defect in the wording so that his property goes to some distant relative of whom perhaps he has never heard. But there is more to it than that, both in merits and in law, and before we come to a decision I feel I ought to put some of these considerations on the opposite side.
I said that the Amendment raised points of great importance, and there are three aspects of this matter to which I would recommend the attention of the House. The first is the effect on testamentary power. My noble and learned friend Lord Simonds drew attention to this aspect during the Committee stage, and I want to emphasise to your Lordships again that the remarkable freedom of testamentary power accorded by the English law—a greater freedom than any other system of law with which I am familiar—is subject to one condition, and that, I would suggest, is not an unreasonable one. The condition is that the will must be validly made according to the law. If this condition is not observed, the consequence is that the wishes of the testator are made conditional upon the good will of the persons who will take upon the failure of the gift. That is the point which my noble friend Lord Saltoun had in mind.
What your Lordships must consider is whether or not that is an unreasonable penalty to impose. The effect of this Amendment will necessarily be that the discipline imposed by the present law will be removed, and the Amendment will place a premium upon incompetent and uninformed will making. It is not, after all, as if the existing law were difficult to understand; it is an elementary principle of our law that it will not tolerate a trust that it is in nobody's power or interest to enforce. The courts will not tolerate what one might call a "masterless man", a trustee who is in a position to put the money into his own pocket because there is nobody with a sufficient interest under the gift to be able to come to the court and complain that the trust is not being performed.

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Those of your Lordships who are bred to the law will find that principle expounded at length in the opening pages of most students' textbooks. I want your Lordships now to look at the effect on executors.
LORD SILKIN: My Lords, before the noble and learned Viscount leaves that point, I wish he could explain more clearly how this Amendment would be putting a premium on incompetent draftsmen or lawyers. Surely, as this Amendment stands a part of the gift would become invalid—that part which is not valid would not be a charity and, therefore, they would have no encouragement.
THE LORD CHANCELLOR: My Lords, the noble Lord's hypothesis is that somebody makes a will and, in making his will, constitutes an imperfect trust, to use a term of art. That is, he has signed a document which has been put before him on which he has been fully advised. Ex hypothesi, it must have been badly advised, because he has been advised to constitute a trust in perpetuity for a purpose which is not charitable and, therefore, which will not carry such a trust. The effect is that one is going to validate part of his wishes and not the whole of his wishes. That also falls from the hypothesis, because his wishes have been to benefit a wider field. The whole of the money will go to the charity, and what has been bad advice will be given some legal effect. We are dealing with the future. In the Trusts Validation Act we were dealing with the past. We looked backwards and corrected what people had done up to a decision. Now we are going to look forward and abstain from—if I may put it in a more moderate form, because I do not think what I said is any the less true—demanding that good advice shall have been given and a proper effective trust created as the condition of giving effect to it. That is what I meant, and I want your Lordships to look at it from the effect on executors. It is all very well to look at the testator, but it is right and, at any rate, it is my duty as Lord Chancellor, to put before your Lordships the difficulty in which executors may be.
The Amendment will substitute a new rule which would have the effect of
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placing the responsibility for knowing the law exclusively upon the testator's executors. As my noble and learned friend Lord Denning stated on the Committee stage, the relevant rule in its starkest form is that no man may plead ignorance of the law as his excuse. Under this Amendment, if the money is applied according to the terms of the will and not for charitable purposes only—I hope I am taking your Lordships with me—the executors will be liable at the suit of the Attorney General to replace out of their own pockets every penny which is applied for a non-charitable purpose.
It may be said (I want to deal with the point fairly) that that position is no worse than at present; their ignorance of the principle I have mentioned cost the Diplock executors dear. This is true, and it cannot be regarded as a happy position. I ask your Lordships to consider long before you aid testators at such a cost and give free rein to the number of cases in which that unhappy predicament is likely to arise in practice. This Amendment is tantamount to saying, "Let testators say what they like; let them sail as close to the outer limits of legal charity as they please, and those who come after them shall have the duty, at their peril, of setting all to rights."
I ask the House seriously to consider whether it is in the interests of anybody that, to use my old phrase, this premium should be placed upon the slack and incompetent drafting of philanthropic gifts. Since the persons who would be entitled upon a failure of the gift will have no interest in the matter, they will not trouble themselves to inquire whether a gift is exclusively charitable or not, and in consequence the risk of the money being applied according to the tenor of the gift—that is, to non-charitable purposes—will be increased. They will not wait to go for a scheme. There will be nobody who could ultimately contest the matter. The tendency is to say, "Let's apply it", and they will apply it to the non-charitable purposes. The executors may even be tempted, out of loyalty to their testator, to implement his gift according to its terms in the hope and expectation that the matter will never come to the ears of the Attorney General, whose duty it would be to bring proceedings.

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I have tried to give this Amendment consideration. I asked my right honourable and learned friend the Attorney-General for his views, and it seemed to him that in a great many cases the trustees of a trust containing a charitable element will have to take counsel's opinion on the question whether paragraph (c) of the clause applies, and that counsel will frequently advise an application to the court. He thought your Lordships ought to have that in mind.
I now ask your Lordships to look at the third point, and that is the effect on trusts of imperfect obligation. If a testator makes a philanthropic gift which cannot be enforced in the courts and is therefore invalid, it is none the less open to the executors to give effect to that bequest, if the residuary legatees or next of kin sufficiently respect the wishes of the testator to permit that to be done. The effect of the Amendment will be that such a gift cannot in any circumstances be implemented according to its terms. I am now approaching the difficulty which my noble friend Lord Craven had in mind, and, if I may say so with the utmost respect, it is one which particularly affects the Church for which he was speaking. I was glad that he said he was speaking only in principle, with I think this particular difficulty in mind.
It is true that the Amendment has sought to limit this to cases where there appears a predominant intention to benefit charity. Where the Amendment takes effect, however, the whole of the money comprised in the bequest will have to be applied not according to the terms of the bequest but for charitable purposes only. This is a result which the executors and the persons interested in default will be powerless to avert. Let me take a case which I am sure my noble friend Lord Craven had in mind. It is not uncommon for members of his Church to leave a bequest either to the bishop or to the parish priest. It might well be that the purposes for which it was left included, or certainly included, it may be entirely, non-charitable purposes; but let me take one where they included them, because that is nearest to the problem we are discussing. It might be that they included, for example, a contemplative Order, which has been held to be non-charitable. It might be
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that it was for parish purposes, part of which were charitable and part of which were not. Or it might be a specific gift to someone who worked in the parish although that person was not poor or being educated or coming within the charitable grounds.
What your Lordships have to consider is that at the present moment in many cases, as the noble Lord, Lord Saltoun, said, those who would take if the gift failed would say, "All right; go ahead", and the testator's intentions would be followed. Under this Amendment—and, believe me, this is not criticism of the drafting; I am not criticising the drafting; I am dealing with the principle—it would have to be limited to the charitable purposes. You would have to rule out the contemplative Order; probably you would have to rule out some of the parish work and the other example which I gave. That is something we have to consider, because in many cases I am told that the residuary legatee or the next of kin do not try to stand in the way, and it is really a matter which one has to balance.
I am sorry to have spoken so long, but I have felt it my duty as Lord Chancellor to point out to your Lordships a number of aspects of this problem upon which, in my respectful submission, we should be well advised to ponder further before agreeing to enact this clause. Personally, I have considerable sympathy with the intentions of the movers; I think everyone must have, because they are so full with one side of the problem, and that is trying to get nearer to the testator's intentions. I know the layman's strongly held feeling that lawyers are inclined to use technical defects in an excessive way. But, for all that, my advice to your Lordships is not to put this clause into the Bill this afternoon.
I hope that I have made clear, perhaps at too great length, that I have given the matter, with the help of my advisers, very deep consideration. I have been engaged on this Bill. I do not think that opinion, and particularly professional opinion, has yet had time to clarify. I have not had the opportunity so far of consulting the Law Society, who speak for the solicitors' profession. Nor have I really got the views of the Church for which my noble friend Lord Craven speaks; he has given a general view, but

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I think he had anticipated almost the very point which I have developed in my speech; he would not feel himself able to accept this Amendment unless it dealt with that point in some way. I have not myself been able to ascertain so far the views of other Churches on the matter.
I put it to your Lordships in this way: that it is the tradition and, in my view, the pride of your Lordships' House that in general you are not ready to allow ill-digested legislation containing an immediate answer to a very difficult problem to be rushed, and therefore I should ask your Lordships not to accept this clause this afternoon. We will consider the point again. I am not at all sure that this point in itself should not be re-studied by another independent body. It has been considered on a number of other points by Lord Nathan's Committee; but your Lordships are being asked to go against the view of that Committee. Therefore there is something to be said for its being reconsidered. But I think there is everything to be said for postponing a decision, so that both Parliament and other bodies may have a chance of considering the matter before the change is made. I apologise to your Lordships for taking so much time, but your Lordships were obviously interested in the point when it arose in Committee, and I hope that I have shown your Lordships that I at any rate have given it full consideration.
4.11 p.m.
VISCOUNT SIMONDS: My Lords, I hope I shall not be straining your Lordships' indulgence unduly if I ask to be allowed to say a few words on this subject. It is indeed a very important principle that is at stake, though not of paramount importance except in this case, because I believe that there are not a great many cases in which the proposed clause, if passed, would be applicable. After all, there are not so many cases where wills of this kind are made. Therefore, I suppose one ought not to be prepared to go to the stake for it one way or the other. But it raises an important principle, because what this Amendment proposes is that a will solemnly made by the testator, expressing his wishes, shall, at any rate in part, be torn up. That is something quite new in our law.
There is no doubt what the testator means. He says that he gives his
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property to his trustees or executors for such charitable or benevolent purposes or objects as they shall think fit. What does this clause propose? It proposes that you shall cut out all the benevolent objects, and that you shall cut out what the executors or trustees wish. Your Lordships' attention has not been called to the last words of this proposed clause, that
"the trust shall have effect as a valid trust for such charitable purposes as may be determined by a scheme legally established."
Not only is there cut out that part of the testator's intention and declared wish that his property shall go either to charitable or benevolent objects, but his executors and trustees are not to have a choice at all: the destination is to be settled by a scheme to be made by the Charity Commissioners or by the court. Whether they choose to adopt what the trustees or executors think and wish is anybody's guess. Therefore, on every aspect you are defeating the intention of the testator.
I object altogether in principle to the alteration of a man's will, solemnly made, and I object to it not less if it is intended that charity shall benefit by that alteration. No man is opposed—I am not opposed—to any benevolence or charity that any man may choose to indulge in. But I am impressed by this fact—I have seen it too often, and I think my noble friend Lord Silkin must have often seen it too: that charity by will is an apology for lack of charity in life; and too often you will find (I am sure the noble Lord has found it), not such a case as Diplock, where a distant next of kin fortuitously comes in for a benefit that he does not deserve, but the defeat of the legitimate hopes of the immediate next of kin of the testator by his disposing of his property for charitable purposes.
May I for a moment indulge in a personal reminiscence? I remember, when I was a very young man at the Bar, one case that came before me. A testator, an old man, who had lived for some fifty years in perfect amity with his wife, made his will. By his will he left to his widow, who had no private means of her own, an annuity of £20. To add insult to injury, he added to that annuity of £20 the gift of a palette. The rest of his property he left to charity. How one would have welcomed his making a

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foolish mistake and giving his property to such charitable or benevolent purposes as his trustees should think fit! Unfortunately, he did not—it all went to charity. I am open to this criticism: that under the Family Inheritances Act, which was passed since the day that I am speaking of, the law does make provision, though ungenerous provision, for the widow and young children of a man who dies without making ample provision for them. But do not let us be misled by such a case as Diplock, to which my noble and learned friend Lord Denning more or less accurately referred. That is one aspect of the matter. The other aspect is the case I am putting. I respectfully suggest to the House that it would be a great pity to embark upon an alteration of a man s solemnly declared will and testament because charity may thereby benefit. Therefore, upon principle I object altogether, as I understood did the noble and learned Viscount on the Woolsack, to the principle of this Amendment.
But now I come to the words of the Amendment—and here let me say at once that I know the words are the work of a Parliamentary draftsman, for whose work I have great admiration. But not even a Parliamentary draftsman, not even the best of Parliamentary draftsman, can make good sense of a suggestion of this kind. I ask your Lordships to forgive me in order just to look at the words of the proposed new clause. I need not trouble with paragraphs (a) and (b), but I would call attention to paragraph (c). The clause says:
"Where …
(c) the terms of the trust and the circumstances of the gift are such as to show a predominant intention to promote charitable purposes …"
and so on. How do you show a "predominant intention"? What language, what terms, will show a "predominant intention" to benefit charity? Let me go back to the example that I gave upon the other Amendment upon which I spoke. Suppose the words were, "for such patriotic purposes as my trustees or executors shall think fit"? I pose the question: is there a predominant charitable intention there or not? Your Lordships may answer, "Yes" or you may answer, "No"; and I believe that
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if I took a vote the result might be about equal. What, then, would be the result of accepting this Amendment?—simply to cause confusion. As I say, I do not in any way criticise the draftsman; I think he was set an impossible task.
May I refer for one moment to what the noble Lord, Lord Silkin, said, either in Committee or on Second Reading. It is true that in some States of Australia, in Victoria and in New South Wales, and also in the Dominion of New Zealand, legislation comparable to this has been passed—not, indeed, in these words; but Lord Silkin referred to them as an example that we should follow. I do not think that the noble Lord can have been aware of the amount of judicial discussion and litigation that has arisen upon just such provisions as these. Therefore, apart altogether from the principle, I suggest that the wording should again be carefully thought over. I endorse what the noble and learned Viscount on the Woolsack has said: that this Amendment should not be pressed to a Division to-day, but that further consideration should be given to it. What would be the result of further consideration, I do not know. But I do, with great respect, deplore a clause which imposes upon the court (because that it what it comes to: the executors in the first place, and the court in the second place) the responsibility of saying what is the "predominant intention" in the words that have been used.
I am going to forestall criticism. Those words—"predominant intention"—occurred in a judgment of one for whom I have a boundless admiration—I believe the greatest judicial mind in the Commonwealth: Sir Owen Dixon, Chief Justice of Australia. He used those words in an advice which Her Majesty's Judicial Committee gave to Her Majesty in an appeal from New South Wales. At the same time the caution was uttered that their Lordships could not attempt to define the meaning and scope of the words "predominant intention". But those words are embodied in this Amendment, and once again I respectfully submit that they will cause confusion.
I would ask, therefore, that this Amendment should not be pressed to a Division but that time should be given for further consideration. It is such an

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important matter that it ought not to be resolved by bandying words across the House. It is a matter for the consideration of an expert Committee, and if it is to be pursued further that is the course I venture to think should be taken.
LORD SILKIN: My Lords, of course I will not press this Amendment to a Division. The noble and learned Viscount has promised that it will receive further consideration and I should just like to be clear in what form that will be. If it were a matter of setting up another Committee, I would strongly oppose that. If, as I believe the noble and learned Viscount indicated, it is a matter of discussing it with bodies like the Churches, the Law Society, the Bar Council and other organisations of that kind, in the course of the passage of this Bill through another place, I am all in favour of it. On that understanding, for which I should be grateful, but not on the understanding that it is going to be pushed round for further inquiries, I should be glad to withdraw my Amendment. There is only one other point I wish to make in answer to the noble and learned Viscount. I thought he was saying that the purpose of this Amendment was to tear up the wishes of the testator—
VISCOUNT SIMONDS: My Lords, may I explain? Where the testator wished his executors to give to such charitable or benevolent purposes as they thought fit, the result, if the Amendment were accepted, would be that a scheme would be made by the court or the Charity Commissioners, who may or may not pay any attention to the wishes and choice of the executors; and therefore the testator's intention is wholly destroyed.
LORD SILKIN: My Lords, this arises only in a case where otherwise the whole of the will would be invalidated. In the normal case, where a testator leaves his money to charity, no question arises. This Amendment is designed to deal with the difficult case where a testator leaves his money partly to charity and partly to something which turns out not to be a charity: and in such case the effect is that even the charitable part is disregarded and the whole will is invalidated. The whole purpose of this Amendment is to prevent the wishes of the testator from being torn up, and is just the contrary of what is suggested.
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The noble and learned Viscount has quite rightly drawn attention to the position where a scheme is legally established, and that is a point which could be met and dealt with in some other way. That is what is to happen as regards that part of the bequest which is held not to be a charity. What we definitely want is that that part which definitely is a charity should not be invalidated. As to the rest, we can discuss how that should be dealt with—and this Amendment is one of the suggestions made for that purpose. I hope that it was not in the mind of the noble and learned Viscount to pass this matter off by setting up further Committees. We have had a Committee. They were divided but the majority of them took certain action. They recognised that something had to be done about this matter but they validated bequests up to 1952. We want to continue that. But I do not think we shall get any further assistance from another Committee. If, however, the noble and learned Viscount is prepared to deal with the matter in the way he has indicated, by having consultations and discussions with those bodies who are in a position to offer wise counsel, I am perfectly willing to withdraw my Amendment.
THE LORD CHANCELLOR: My Lords, if your Lordships will give me leave to speak again, may I put it in this way. These consultations, what I might call "short-term consultations", will have to take place. It is not for me to prophesy what will happen in another place, but I think it is extremely unlikely that the Bill will go through another place without this point being discussed. Therefore it will be necessary to consider the matters I have mentioned, on the short term. I should not like to rule out the possibility of a Committee, because, frankly, I do not know what may come in. But I do not think the noble Lord need fear that the matter will be shelved in that way, because it is as certain as one ever can be about the future of a Bill that this matter will be raised and discussed in another place, and we must be prepared for that. If it should turn out that the more discussion there was, the more difficult the position became, then I should not like to be rash enough to promise your Lordships that the possibility of a Committee would be ruled out, But

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we will certainly make short-term inquiries in order to be able to deal with the matter when the Bill conies to another place.
LORD SILKIN: My Lords, in those circumstances I beg leave to withdraw my Amendment.
Amendment, by leave, withdrawn.
An Amendment (Privilege) made.
THE LORD CHANCELLOR: My Lords, I beg to move that this Bill do now pass. I believe that it will be for the general convenience of the House if I limit my remarks on this Motion to expressing my most sincere thanks to your Lordships for the assistance I have had from all quarters of the House while the Bill has been going through your Lordships' House. Then, after these few words, if your Lordships will allow me I shall be most happy, in my speech in reply, to deal with any points that are raised in the debate. I hope your Lordships will not think I am treating the House with any discourtesy in doing that. I beg to move.
Moved, that the Bill do now pass.—(The Lord Chancellor.)
4.28 p.m.
LORD SILKIN: My Lords, I do not rise for the purpose of raising any additional points on this Bill, for I believe that I have raised all those which I thought it was proper I should raise. I rise only for the purpose of expressing my own appreciation of the way in which this Bill has been dealt with, both in Committee and in the House. We have had full and, on the whole, good-tempered and reasonable discussions; and I believe that the Bill is to-day a better Bill than it was. I am quite certain that our discussions, even where they have not been finalised, will be of very great value to those who have to consider the Bill in another place. It may be that one of the most valid functions of this House is to have just this kind of discussion, without necessarily coming to conclusions. On a great many of the most important issues of the Bill we have not reached conclusions, but I think we have cleared our minds. We have heard both sides of the question, and I think we have facilitated the task of another place in arriving at a proper
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conclusion. So I hope that, without any self-conceit, one may say that this House has done a good job in the passage of this Bill here.
4.30 p.m.
LORD HAWKE: My Lords, this Bill leaves this House, I think, better than it arrived, and our thanks are due, I believe, primarily to my noble and learned friend on the Woolsack for his wisdom and understanding and, I need hardly add, his patience. There are still two points which are of interest to me and which I regard as still in a formative stage. The first is the composition of the register; and the second is who shall be allowed to sell land without the intervention of the Charity Commissioners. Both points are bound up, to my mind, with the future of the Charity Commission. Some increase in its size is inevitable, but we must try to keep it to the minimum. The record of the Conservative Government of decreasing the size of Government Departments is a good one, and we do not want to spoil it; and it would be very easy to spoil it over this particular matter.
The enormous register, if it were coupled with rigid rules over land dealing and power over an almost unlimited field to call for submission of accounts, could, with or without Parkinson's Law, lead to the creation of a very large Department. We do not want the Charity Commissioners to be "Big Brethren"; we want them to be "Trouble-shooters". I continue to have grave doubts about the purpose of the register. If it is designed to prevent small charities from getting lost, and it is really worthwhile setting up a Government Department to prevent that happening, is it really wise to omit the charities that are most likely to get lost, which are the small ones that are already exempted under the Bill? If it is designed to help testators and beneficiaries on a national scale, then clearly the exemption limit is much too low to produce a register which is at all wieldy in its size; while if it is designed to do the work which the Inland Revenue are doing at the moment, I do not think that is to be recommended.
For these reasons I moved an Amendment in Committee seeking to increase the exemption limit, and if I had chosen to take the matter to a Division I think

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several noble Lords would have followed me—noble Lords whose judgment is greatly respected in this House. But I do not think it right to divide the House on a Bill of this nature which is in its formative stage. I have the greatest confidence that all these points will be considered in another place by my right honourable friend the Home Secretary, in whose wisdom and judgment I have always had the greatest possible confidence. For the more flexible approach to the control of dealing in property, we are greatly indebted to my noble and learned friend on the Woolsack. The Church of England has particular reason to be grateful to him. Nevertheless, I think that Clause 28 needs further thought. If we are to increase the burden on the Charity Commissioners in some directions we should do our utmost to relieve them in others, and I should hope that the officials advising the Home Secretary will search their hearts to see where they can get rid of burden where-ever it seems that the burden fulfils no very great or useful purpose.
We have already seen that the Government are prepared to except some religious bodies, and it looks as if they will do the same for some nationwide collecting charities. I believe that there are more cases than these—for instance, the following, in which I must declare an interest, because in both cases I am a member. The diocesan boards of finance are very responsible bodies, with much expert professional advice. They are free to win or lose thousands of pounds in the gilt-edged market; yet if they want to sell a curate's house they have to obtain the consent of the Charity Commissioners. It hardly makes sense. Then the Church of England Pensions Board is a statutory body, responsible to the Church Assembly, and in some respects subject to the direction of the Church Commission. Here again it would seem quite unnecessary for this body to be supervised in any of its property dealings by the Charity Commissioners. In addition to these two bodies, of course, there must be many more of a similar nature. I hope that it will be possible to take bodies such as these right out of the Bill, and thus to relieve the burden on the Charity Commissioners.
The Charity Commissioners may argue—and it is always possible to argue by
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picking one's case and showing one side of it—that the only system which produces the best return to charity on property dealings is that under the auspices of the Charity Commission. But, my Lords, they have no copyright of such a scheme: anybody can adopt exactly the same methods if they believe that is the best way of doing things. Apart from the bodies I have mentioned, where there seems an almost overwhelming case for total exclusion, there will be others where the Home Secretary may be a little doubtful. I wonder whether it would help him, in the case of such bodies, if he would consider giving them provisional release; in other words, they could be exempted by regulation, say for five years, or perhaps seven years, and at the end of that period come back for renewal. If there had been any allegations of bad trusteeship or inefficient working during that time it would be open to the Commissioners to refuse an extension. I believe, my Lords, that we are gradually whittling away the bad parts of the Bill and that, after another place has dealt with it, a very useful measure will eventually emerge and find its place in the Statute Book. I again thank the noble and learned Viscount on the Woolsack for his inestimable patience in the matter.
4.38 p.m.
VISCOUNT GAGE: My Lords, I am afraid that I want to raise one point which has not been raised. I apologise for having been unable to draft an Amendment and have it considered for the appropriate part of the Bill. In a sentence, before the Bill is passed I want to make a plea to my noble and learned friend the Lord Chancellor and ask whether he will satisfy himself that the Bill gives sufficient discretion to the courts to vary a trust, particularly where the founder is living. I am prompted to make this request because I have been concerned recently with a particular case. To illustrate my point, perhaps I could say that this is a case where the founder desired to make provision for housing the aged and, in view of his age and state of health, he was most anxious for a deed to be drawn with the minimum of delay, and he was afraid that otherwise the estate would disappear in estate duty.
Fortunately the founder has survived, and he and all the trustees, after further

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thought, now want to make a variation of the trust, solely with a view to benefiting from all the provisions which Parliament, in its wisdom, has made for the encouragement and assistance of certain charitable bodies. But that is not so at all. When we consult counsel as to how we should fare under this Bill, the answer is that we should probably be able to get certain points, but not others. One wonders what public advantage there is in limiting the court on the question of allowing a man who is using his own money, to vary a trust in a direction which Parliament entirely approved and which apparently would not affect anybody else's interest. At present, as I see it, if counsel is right, we shall be forced to operate inferior schemes for a considerable time, at any rate.
It is no doubt a serious thing if mistakes are made in drawing up these trust deeds. The noble and learned Viscount referred to this matter, and I heard my noble and learned friend Lord Denning make a plea for even lawyers to be excused for making certain mistakes; but I really find it a very difficult matter to draw up these trust deeds so as to make the most effective use of money in this Welfare State. In the matter of housing, apart from the technical difficulties, one is up against the position that Parliament has laid an obligation on statutory authorities to supply all the accommodation needs of the aged, whether it be hospital beds or homes or other such places. If performance had kept up with theory, there would not be any need for charity at all; but, as we all know, performance has not matched theory, although much has been done and much is being done.
For the same reason—because of this gap—Parliament has deliberately encouraged the work of the voluntary bodies; but there is no exact line of demarcation between the work done by statutory bodies and the work done by voluntary bodies. That means that if you do not make an effective scheme you must have quite an amount of consultation to find out not only what the local authority are doing but what they are likely to do, and that all takes a good deal of time. So it seems to me that the founder of a trust to-day has to decide whether to draw up a trust deed in the widest possible terms, giving a
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great deal of discretion to his trustees (which sometimes founders object to doing), or to have a long period of investigation and consultation before attempting to draw up a trust deed at all—and that, certainly in this case, occasionally has risks.
The other possibility is that Parliament might make it a little easier for a founder to vary his trust, with the consent of the courts. Is that a great deal to ask if this is a joint attack by local authorities and by charitable bodies on a social evil? I must say that, as a layman, I am impressed by the difference of approach on the two sides. In the case of a Parliamentary Bill, a Minister accounts to this House, and thereafter it is the commonest thing in the world to find him submitting scores, perhaps, of Amendments—and after the Bill is passed he may well introduce an amending Bill. It seems to me, by Lords, that if in the case of Ministers the principle of second thoughts is considered right, proper and sensible, when you come to founders of trusts—who are, after all, dealing with their own money—the position should be the same.
I said I would try to draft an Amendment, but I have failed; and perhaps it is not surprising that a layman should fail, because I am told by legal friends that charity is one of the most complex and recondite branches of the law. All I can do, therefore, is to put this point to my noble and learned friend, who has had a long experience, not only of the law but of administration as well. If he thinks that there is any substance in it, I hope that perhaps he may convey his views to his right honourable friend the Home Secretary, so that something may be done about it in another place. I hope that that may be possible, because I feel that if you want to encourage, as apparently the Government do, the co-operation of a charity with the work of statutory bodies in tackling this problem, it might be made a little easier than it is at the moment for a founder to produce a really effective scheme.
4.45 p.m.
LORD DENNING: My Lords, may I say a word in support of what my noble friend Lord Gage has said? In regard to private trusts, we have recently had the Variation of Trusts Act, which has enabled the court to give consent to

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variations of trust—for instance, when consent was needed on behalf of children under age, or of unborn children—so as to enable schemes to be made for the avoidance of death duties. In regard to founders of charities while they are still living, when perhaps a mistake has been made in the formulation of the trust, or the trust may not meet the needs after five or ten years, why should there not be something similar—a power to vary the trust, in conformity with the founder's intentions, subject always to the sanction of the court? I would suggest that it is a matter, not for determination to-day, but for consideration in the course of the proceedings on this Bill.
4.47 p.m.
LORD SALTOUN: My Lords, I should like to thank the noble and learned Viscount on the Woolsack very sincerely, both on my own behalf and, far more, on behalf of those great bodies with which I have had the honour and pleasure of consulting, for the way in which he met me on what I frankly acknowledge were very difficult questions in connection with this Bill. I cannot express too warmly my thanks on that account. On the rest of what I have to say, I shall be very short, and I will not delay your Lordships long.
On Report stage it became clear that there is a frank difference of opinion between myself and Her Majesty's Government about this Bill. I do not think—and I know that many people who are interested in charity agree with me, because I have consulted them—that this Bill will encourage the formation of small charities, at any rate. I will say why. Clause 13 was not very much discussed when the Bill went through this House, and I am told (and I believe it to be true) that it only embodies existing law. But when the existing law is put in such clear terms into an Act, it eventually gets known to people. And my experience, small as it is, leads me to believe that people who are founding a charity are, perhaps quite unaccountably, nervous that funds which they are bestowing on charity may be diverted from the purpose they had in mind at the time. I know that there are safeguards in this Bill on that subject, but I rather wish that Clause 13, if it does embody the existing law, could have been omitted.
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The other preoccupation that I have is about the small charities which now exist, and which will in future have to deal very much more than they have done in the past with the reconstituted and extremely powerful Charity Commissioners. It is always a disadvantage when you are dealing with a Government Department and not a court of law, because in dealing with a Government Department you have to prove yourself innocent—at least, that has been my experience; and sometimes it is not easy. That is why I put down an Amendment on the last stage which would enable exasperated trustees to do what the fisherman once did in the old days on a burn in Scotland where he had been fishing all day, trying fly after fly without success. Eventually he flung his flybook into the stream and said, "Choose for yourself." I felt that charity trustees ought, in the last resort, to be able to take that line with the Charity Commissioners, because, after all, they are doing their work for nothing.
The real point, however, is Clause 28. Clause 28 is the most maddening and exasperating of the whole lot, and I believe that if the Government could see their way to sweeping that away altogether the amount lost to charity would be very small, and the result would be to invigorate the management of charities to a degree that is hardly possible for me to describe. Even between the last stage of this Bill and this afternoon I have come across another case where the procedure under Clause 28 (1) has proved absolutely maddeningly frustrating to a very important and responsible trustee. Therefore I do ask the Government to think again about Clause 28 and about the position of trustees who may be so frustrated and exasperated. I feel that they deserve some consideration.
4.53 p.m.
THE LORD CHANCELLOR: My Lords, I have only three things to do, and the first is to thank noble Lords who have spoken for the kind terms they have used regarding myself. As the noble Lord, Lord Silkin, indicated, this is the sort of Bill in which your Lordships' House can play a great part, and we have had the most careful consideration, which I do not think has been a minute too long, of the various points raised. We have not only improved the

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Bill, in my view, but have shown the problems quite clearly and in a way which will prove helpful.
I should like to say a word or two with regard to what my noble friend Lord Hawke has said. I am not going to deal with his general arguments, but in regard to the interesting point he raised about the Church of England Clergy Pensions Board, I should like him to consider this fact. By the terms of Section 60 of the Clergy Pensions Measure, 1948, the pensions authority and its funds are exempted from the jurisdiction of the Charity Commissioners under the Charitable Trusts Acts, except as regards funds established under Sections 42 and 43 of the Measure—which relate to the establishment of augmentation funds consisting of testamentary or other gifts to the pensions authority—which may be subject to any conditions imposed by the testators and donors. I think that is an important point. My noble friend will remember what I may call the Exeter case. It is a matter which I should like him, and those for whom he has spoken so ably, to consider. It is a difficult matter for us in that what he asks in this regard is that we should override a Church Assembly Measure.
My noble friend Lord Gage has raised a most important point, on which he has had the support of my noble and learned friend Lord Denning. I say at once that I should like to give it consideration, and I shall certainly comply with his request to convey to my right honourable friend the Home Secretary his views and the importance that he attaches to them. It is always a difficult matter as to how far one should go when money has been given to trustees and the beneficiaries under the trust have certain rights in that way to reorganising (if I may put it neutrally) these rights. What interested me was that my noble friend's speech was full of what I hope is the real purpose of this Bill; that is, to find the best method of co-operation between those who set up voluntary trusts and seek to put them into practice and Government agencies and local authorities in carrying out their statutory duties. That is what we are seeking to do, and therefore a suggestion like that made by my noble friend is entitled to the most careful consideration, which I promise him it will receive.
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As I said earlier, my noble friend Lord Saltoun has been of the utmost help in these proceedings. I will not fight old battles over again, but I will certainly ask my right honourable friend to bear in mind my noble friend's troubles on Clauses 13 and 28. I am sure the House will accept that our desire in this Bill is to improve the working of charities, and it is because it has been so improved by its passage in this House that I thank your Lordships again and ask your Lordships now to allow it to pass.
On Question, Bill passed, and sent to the Commons.

BUILDING SOCIETIES BILL [H.L.]
4.58 p.m.
Order of the Day for the Second Reading read.
THE LORD PRIVY SEAL AND MINISTER FOR SCIENCE (VISCOUNT HAILSHAM): My Lords, at a comparatively late hour I must confess that this is a comparatively substantial Bill: it has, indeed, 65 clauses and 5 Schedules. Nevertheless, it is not so formidable, I hope, as it appears at first sight, and though I cannot, I am afraid, much as I should like to do so, promise to be brief, I have at least some ambition not to be obscure. It is more than 20 years since Parliament passed any legislation on building societies and 20 years since this House even staged a major debate upon them. It is, I would say, therefore, timely that the Government have introduced a major Bill upon this topic. The Bill itself is a fulfilment of an Election pledge which I made myself at a moment of the campaign when the affairs of one building society threatened to become an Election issue. The possibility of legislation had been adumbrated in the last Parliament rather more than a year ago by the Economic Secretary to the Treasury and it was foreshadowed in the Queen's Speech.
It seems to have been towards the end of the eighteenth century that working men first saw the advantages of co-operating to help each other financially—and sometimes physically, as well—to build their own house. The early societies started by being, in effect, syndicates of perhaps no more than a few dozen people. They paid monthly subscriptions, and the

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subscriptions were used to pay for the building of a house for each member, one after the other in turn, the order in which the members obtained their houses being determined in some cases by drawing lots, in others by the payment of a premium in order to secure priority. When every member had had his house, which might take ten or fifteen years, the Society had achieved its purpose and was wound up. This early type of society is now called, in the technical language of the movement, a "terminating society". The original pattern changed, as time passed, in two main ways. In the first place, it was quickly recognised that it was not necessary to confine the payment of monthly subscriptions to people who wished to buy a house. By accepting subscriptions from people with savings to invest, a society could shorten the time for which members had to wait before they obtained their houses and could, at the same time, provide a safe and reasonably profitable investment for the increasing savings of the working people. Thus, from the beginning of the nineteenth century right until the present day, there have been two classes of members, the borrowers and the investors.
The other development followed between the 'forties and the 'fifties of the last century. This was the discovery that a building society need not be wound up or terminated when the original members have all built their houses. As the societies grew in scale and the proportion of investors grew, it became more sensible to regard a building society as a permanent institution. This is, indeed, the explanation why the word "permanent" appears so frequently in the names of some of the oldest and best loved of the building societies to-day. There are over 100 flourishing building societies, including many, of course, that are household names, which were established round about the middle of the last century and which have celebrated their centenaries since the last war.
Such, then, were the origins of the movement. It was very much a child of its time, a time of industrial revolution, growing wealth, steady widening of the ownership of property as of other forms of capital—features of the pre-Victorian and early Victorian age which we are a little inclined to forget in our recollection of the squalor, exploitation
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and poverty which characterised the same years. In the last century the societies have kept their character, but there have been changes in particular, changes in number and scale, rather than in essential structure. It was natural that the number of building societies should fall as the permanent societies gradually replaced the terminating societies and as the practical advantages of large-scale organisation and management made themselves felt. In 1890 there were almost 3,000 building societies. By the 1930s this had fallen to about 1,000, and there are now about 750. During the same period the size and strength of the societies were growing very fast. By 1919 assets had reached a total of about £70 million. By 1945 they were £800 million. But now they have reached nearly £3,000 million. That is nearly £60 for every man, woman and child in Great Britain. Five societies have assets of over £100 million each, and 46 of over £10 million There are over 4 million investors in the societies and over 2 million borrowers are buying their houses through them. This is the present scale of their operation. These are institutions which are playing a conspicuous part in the life of the British people.
I now come to the existing legislation. At first, each society adopted its own rules and appointed its own trustees to act for it. But so long ago as 1836 an Act of that year, still for some purposes in force, recognised the right to establish building societies and applied to them the provisions of existing legislation relating to friendly societies. The most important effect of this legislation was to provide that the rules of a building society should be certified by a central authority appointed by the Government. This authority was originally called the Certifying Barrister, but this rather peculiar name was changed in 1846 to the Registrar of Friendly Societies, by which name he is still called, and in 1874 he was given the additional and appropriate title of Registrar of Building Societies. It is interesting to note that there are still eight societies unincorporated, and operating, therefore, under the Act of 1836. They will do so still under this Bill, though, of course, they will have to observe the provisions of the Bill in their operation. Thus, more than a hundred years ago the rules of building societies already came under

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central supervision in order to see that they were conducive to the proper conduct of the society and that the interests of the members were properly safeguarded.
The most important change, and the next change, was made by the Act of 1874, which is referred to in this Bill as "the principal Act". This is still in force, and it is a remarkable tribute to the legislative capacity of our forefathers that they should have passed an Act the greater part of which remains to this day, and which has stood up so well to 86 years during which the country has undergone so many, so rapid and so extensive social and economic changes. The most important provision of the principal Act was to grant the societies a right of incorporation so as to make them corporate bodies enjoying legal personality and so relieve them of the necessity of appointing trustees. All societies registered under the 1836 Act were given this right and all the certified societies took it, except the eight to which I have already referred, and these are relatively small with assets in total of about £5 million.
The principal Act was then followed by two decades of rapid advance. But this same period saw a series of failures both among the smaller societies and, finally, in 1892, in one of the largest—which had been engaged in highly speculative building ventures, and several of whose directors and officers were afterwards convicted of fraud and other offences. Largely as a result of this a Parliamentary Inquiry led to the passing of the second of the more important Building Societies Acts, that of 1894, which tightened up the rules on the auditing and presentation of accounts, the rendering of information to the Chief Registrar, subjects to be included and covered by the societies' rules, and so forth. This is the second of the two Acts which still form the foundations upon which the present Bill is built. Indeed, they have been very little modified. There was a short Act in 1939 which resulted from a lawsuit known as the Borders case, which might be remembered by some of your Lordships, and in the same year the Chief Registrar was given certain additional powers by the Prevention of Fraud (Investments) Act which will become relevant as I come to
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develop the provisions of some of the clauses here. But otherwise the building societies legislation is still, in the main, what it was in 1874 and 1894.
This leads me to the need for the present Bill. After three quarters of a century it is inevitable that even the best-framed Act should need bringing up to date. Conditions change, and they are in fact quite different from those of 1894. In many respects the Acts are behind the comparable, if not parallel, company legislation. Techniques of accounting and auditing have undergone far-reaching development. Clauses 33 to 37 and certain later clauses of the Bill bring the statutory requirements up to date, partly by new and more exacting and effective provisions for the auditing of accounts, and partly by introducing provisions derived from the comparable Companies Act provisions. The societies themselves have changed, at least in scale and organisation, if not in their basic character. It is only to be expected that the provisions thought adequate 70 or 80 years ago, when the assets of the largest society in existence were less than £2 million, should be in need of some alteration when the largest societies have assets of hundreds of millions, and have members in every part of the country. I should say, therefore, that there was in any event a case for giving the Victorian legislation a more contemporary look.
But a more pressing need has arisen from the fact that a small number of societies have been undertaking business of a kind quite different from the traditional business of a building society. Here I must be careful not to refer to any cases pending before courts of law. Perhaps the best way I can approach the subject is to start by quoting this passage from the Chief Registrar's Report for 1956. In that Report the Chief Registrar said:
"There have been several cases in recent years where shareholders of an old-established building society have been repaid their investments by persons who wished to obtain control of the society for the purpose of using its name and date of establishment to encourage investment by the public on a much wider scale …"
Then he went on
"The new directors of some of these societies authorise advances on mortgage to companies in which they have financial interests and also advances to themselves. In

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one such society comparatively large sums were spent on advertising and within a period of three years the amount of the assets of the society was increased over 400 times. There is nothing in the Building Societies Acts"—
this was the Chief Registrar's comment—
"to interfere with this kind of transaction but prospective investors would be well advised to consider carefully the general financial and reserve position before investing in a society that has shown exceptionally rapid expansion after a long period of comparative inactivity."
That is the end of the quotation from the Report, and it illustrates, I hope with propriety, the point I am seeking to make.
It is not, of course, that advances of the kind referred to are intrinsically wrong or even that they ought to be illegal. The provision of risk capital is a perfectly legitimate business which provides perfectly legitimate rewards. But it is wrong, at least in the opinion of the Government, that people who wish to raise capital for that sort of purpose should do so by trading on the good will and prestige which has grown up around the building societies, and bringing to those societies investors who may think that they are putting their money into a much less speculative kind of venture. We believe that if the practice were allowed to continue unchecked two consequences would be likely to follow.
In the first place a number of people who were under the impression that they had put their savings into an institution engaged in the business of lending money to owner-occupiers on mortgage, which should offer them a very large measure of security, would find from time to time that they had lost some, or all, of their investments. In the second place—and in the long run I would say far more serious—if there were, as we believe there would be, a series of events of this kind, it might be expected that a general loss of confidence might be engendered in building societies generally. This, I think it will be agreed, would be highly damaging to the public interest, and it would certainly be extremely unfair to the great majority of societies who are carrying on their traditional functions with great skill and with what I am told Sir Winston Churchill once characteristically and aptly described as "a happy blend of caution and enthusiasm." It was this consideration which
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led the Economic Secretary to the Treasury to announce in February, 1959, that the Government were considering the need for legislation. And it is largely to check the growth of such practices as I have described that we have brought forward this Bill to-day.
I now turn to the provisions of the individual clauses. Clause 1 is designed to secure that building societies, while not limited to the business of advancing money on the security of owner-occupied property, their traditional business, should at least concentrate upon it. I realise that the clause may look at first sight a trifle formidable. I think this is because it has not been found possible, either as a matter of law or as a matter of administration, to define satisfactorily an owner-occupier or owner-occupied property. This has made it necessary for the draftsmen of the clause to achieve their object by reference to what are called "special advances". But I believe that the House will find the clause really quite simple. The object of the clause is to provide that not more than a certain proportion of the advances made by a building society should be made in certain forms, which are designed in practice to exclude the normal advances to owner-occupiers.
These forms which are subjected to special treatment are: first, advances of more than £5,000 in amount; secondly, advances to persons who would as a result of a fresh loan owe the society, either directly or through nominees, more than £5,000 in total; thirdly, advances to a body corporate such as a company. These advances, as I have said, are described in the Bill as "special advances"; and in simple language what the clause does is to provide that at the end of each financial year a building society shall calculate the proportion which such special advances bear to the total outstanding advances of any kind. If the proportion is less than 10 per cent. then in the next financial year the society may make not more than 10 per cent. of its total advances in the form of special advances. If the proportion is between 10 per cent. and 25 per cent. then the permissible proportion in the following year is reduced from 10 per cent. to 2½ per cent. If the proportion is more than 25 per cent., then in the following year the society can make no special advances at all. At the end of the following year

1011
the calculation is made again for the next year; and so on indefinitely.
There is one exception to this procedure: this is when the building society desires to lend money to an individual or institution such as a housing association for the purpose of constructing houses or flats for letting. This is a form of enterprise which the Government wish specially to encourage in appropriate circumstances, whether it is carried out commercially or by housing associations or other non-profit-making bodies. The clause accordingly gives the Registrar power to raise the annual limits of 10 per cent. and 2½ per cent. which I have described for particular societies if and when he is satisfied that it is desirable to do so in the circumstances of that particular society and in order to facilitate the building of dwellings for letting.
I hope that I have given a tolerably clear description of the purpose of Clause 1, and of the way in which it is intended to work. There is, of course, a sense in which the proposed limits are arbitrary. There is no particular magic in the percentages prescribed. Our object has been to leave building societies with sufficient scope to make some proportion of their advances on commercial properties, as some of them find it desirable to do; but we wish to prevent societies from making this a major part of their total business. We think that few societies will, in fact, be hampered by this restriction. Recently published figures suggest that very few societies have less than 95 per cent. of their mortgage advances on the security of anything other than owner-occupied properties. This, of course, is well within the lower limit of 10 per cent. There are a few whose percentage is between 90 and 95 per cent., and even fewer below the 90 per cent. level. But, broadly speaking, we can claim that societies are not going to find themselves hampered by this clause from pursuing their business in the way in which they have found most suited to their traditional character.
My Lords, I come now to a group of two clauses, Clauses 2 and 3, which deal with the conditions which it is necessary to fulfil to set up a new building society. These are being tightened up. At present it requires no more than three persons and £20 to get a new society registered.
1012
We do not wish to make the conditions too stiff, but we think that these hurdles are too low and we propose to increase to ten the number of people who must get together to found a new society, and to require a minimum joint subscription of not less than £5,000, which must remain in shares of the society for five years.
Clause 4 prohibits a new society from starting to advertise until it has the Registrar's approval to do so. This is intended to protect investors. Perhaps I might mention in the same connection Clause 25, which gives the Registrar power to disapprove of a proposed name for a new society. There may be importance in this, as those of your Lordships who have been following recent cases may well judge. Most societies are, of course, named after the town or area where they were founded and conduct their business. A few of them acquired in our grandfathers' days rather more romantic names, which, if somewhat old-fashioned, are for the most part harmless, and may even be rather pleasing to modern ears. But there is, or at least there may be, a danger that a new society may be given a name likely to mislead the public into assuming, wrongly, either that it has some official status or that it is in some way connected with another well-known and respected financial or other institution. In our view, it is desirable that the public should be protected against misunderstandings of this sort, or even tricks, if tricks they be.
I would also draw attention to Clause 8. I quoted earlier from one of the Chief Registrar's Annual Reports in which he commented on cases when the shell of a building society carrying on little or no business had been used by a new management to expand rapidly a quite different type of business. In order to prevent evasion of the provisions relating to new societies, Clause 8 authorises the Chief Registrar to apply rather similar provisions to existing small societies, where it appears to him that such a course is in the public interest.
My Lords, I now come to two clauses which give the Chief Registrar power to take action if a building society appears to be running into difficulties. These clauses are intended to take the place of an existing provision, to which I referred earlier, contained in Section 11 of the Prevention of Fraud Act, which empowers the Chief Registrar to make

1013
an order, with the consent of the Treasury, prohibiting a building society from advertising or otherwise inviting deposits from the public. This power has proved fairly effective, although it has never, fortunately, been necessary to use it on a wide scale. Since 1939, when Parliament first entrusted the Chief Registrar with this power, orders have been imposed against 24 societies, most of them quite small. Such orders have usually been imposed where the accounts show an unsatisfactory financial position, or where funds have been lent on doubtful or inadequate security, or to finance undertakings in which directors of the society have themselves an interest. Since 1956, I am told, there have been 21 investigations which have resulted in eight orders being imposed and two orders being revoked.
While the existing powers have proved valuable, experience has shown that their use presents certain difficulties. One is that although the Chief Registrar can use them to stop a society from advertising, he has no power to prevent the society from receiving investments. Another difficulty is that the Chief Registrar is obliged to give not less than a month's warning of his intention to make an order, during which time, of course, the society is at liberty to make its own representations. In a serious case, however, a great deal of damage can be done in the space of a month. Finally, the making of an order under this clause has to be announced publicly. This is, or may be, a salutary warning to potential investors, but it is also likely to alarm existing investors who may wish to withdraw their funds on a scale which the society cannot meet. The imposition of such an order is therefore a drastic step which may have severe consequences both for a society and its members.
We propose in this Bill to replace the single power by two separate powers. The first, in Clause 1, is similar to, but goes a little further than, the present Section 11 procedure by empowering the Chief Registrar, with the consent of the Treasury, to prohibit a society from accepting further investments. It also enables him to petition the Court for the winding up of the society, if it seems to pay too little attention to the interests of existing investors after an order has been made. As at present it is provided
1014
that the Chief Registrar should give the society notice before he makes the order, and should receive and consider any representations which are made on the society's behalf. But it is proposed that the period should be reduced to a fortnight, since experience suggests that this period is adequate to enable a society to put forward its views, and it is thought that this will lessen the risk to potential or actual investors. Clause 5 also provides that the Order should be announced in the London Gazette. I would say that, in general, none of this differs greatly in substance from what is done at present.
My Lords, Clause 6, however, introduces a new, less severe, but swifter procedure, which is for use in cases where the making of an order under Clause 5 might be thought too drastic. It gives the Chief Registrar power, again with the consent of the Treasury, either to prohibit a society from advertising altogether or from including in its advertisements items which are considered undesirable or misleading. For instance, it might be disclosed after investigation that a society, while not insolvent, has been expanding so fast or has such a low level of reserves that it needs to consolidate its position before it can safely solicit more funds from the public. In such a case a Clause 5 order might well be harmful to the investors and to the society. Yet to take no action at all would be to put the general public at risk. In a case of this sort the appropriate course might well be to stop the society from advertising until its position had improved.
It is not intended that a Clause 6 order should be published, for the reason that it might be damaging to the interests of the society or its members. But it will, of course, be open to a society against whom a Class 6 order has been made, to announce of its own accord that it has been made. Again in this case it is the Chief Registrar who is required to give notice; but since the essence of the procedure is speed of application, the minimum period is one week. Another kind of case which might call for action under Clause 6 would be that of an old but recently revived society which is found to be laying undue emphasis in its advertisements on its original date of incorporation which, as your Lordships will now know, might be as long ago

1015
as the 1860s. In order to protect depositors from misleading advertisements of this kind, it might be as well to make an order directing the society not to refer in their advertising matter to their date of incorporation.
In this group the last clause is Clause 9, which empowers the Chief Registrar to make regulations of general application governing the contents of advertisements issued by societies. The proposed power extends equally to information which is to be included in advertisements and information which is to be included only in a certain form on certain conditions. I cannot this afternoon give your Lordships precise particulars of what may eventually be prescribed in regulations made under this clause, for they will have to be considered in due course. We have every intention of consulting representatives of the societies in the preparation of such regulations. But, by way of illustration, I would say that it might be desirable to require, in any advertisement which states the size of a society's assets, that the size of the reserves should also be stated, and vice versa.
I come next to Clause 10. This deals with investments. Under the present law a building society may invest such of its funds as are not immediately required for its business in any manner authorised under the Trustee Act, 1925. This effectively limits investment to gilt-edged securities and a limited range of fixed-interest securities issued by public bodies. This provision was never really much more than a matter of convenient statutory shorthand. I think it must be realised that the relationship of a building society to its members is in very many respects different from that of a trustee to a beneficiary, and the powers of investment granted to one may, but equally of course, may not, be appropriate to the other.
Your Lordships will remember that Her Majesty's Government have recently announced their intention of introducing legislation, probably in our next Session, to amend the Trustee Act and to replace the present Trustee List by a new and different concept of the powers and responsibilities of a trustee. Your Lordships may think we have been right, in these circumstances, to provide that we
1016
should bring to an end the statutory connection between the investment powers of building societies and of trustees and to provide, as we have done in Clause 10, for the making of an order prescribing the forms in which a building society may invest such funds as are not immediately required for carrying on the society's business.
Naturally, the preparation of the order must wait for some little time, since it cannot be made until Parliament has examined this Bill and it has received the Royal Assent; but, equally naturally, societies will want to know as soon as possible what we have in mind. It might be helpful, therefore, if I said that the broad intention is to prescribe the following forms of investment: first, National Savings securities, other than Premum Bonds. Secondly, deposits with local authorities at not more than seven days' notice where coupled with an undertaking to grant a mortgage if required. Thirdly, short-dated fixed interest securities (including local authority loans and mortgages) issued in the United Kngdom by Her Majesty's Government or by a public authority, nationalised industry or undertaking, or guaranteed as to principal and interest by Her Majesty's Government. Fourthly, short-dated fixed-interest securities issued in the United Kingdom by a Commonwealth Government or public authority or by the International Bank for Reconstruction and Development.
It is not the intention of Her Majesty's Government to authorise building societies to invest in equities, since this is clearly foreign to their proper business and is not in any case a suitable form of short-term investment. I have been told that a number of leading figures in the movement have expressed agreement with this point of view.
The second part of Clause 10 is designed to meet the possibility that a building society might try to circumvent the limitation of its powers, both of making advances to commercial bodies and of investment, by depositing its spare cash with a financial institution with which the society or its own directors might in some way be associated. Clearly, a building society must be able to hold money in a bank; but, equally clearly, it cannot be free to set up a colourable bank of its own in order to outflank the

1017
law on advances or investment. The clause accordingly provides that the banks in which funds are authorised shall be designated by the Chief Registrar with the consent of the Treasury. I need hardly say that there is no intention of using this power to disturb the normal relationship which exists between societies and their bankers.
It is perhaps not necessary to take your Lordships through all the remaining clauses, but possibly I should draw attention to Clause 11 which permits other societies to come to the assistance of a building society which is in financial difficulty by making loans to it; and to Clause 19 which enables a society to contribute to a mutual guarantee fund or to enter into a similar type of arrangement with an insurance company to protect investors. Both these clauses reflect the spirit of mutual assistance and co-operation which is deeply imprinted on the movement.
Then there is a series of clauses which make useful but minor changes in the law of mortgage as it relates to building societies; and after that we come to a group of clauses—most of those between Clauses 20 and 32—which are designed to strengthen the rights of members and depositors. For example, they are to be entitled in certain circumstances to inspect a register of members' names and addresses, their rights in relation to meetings are to be strengthened by the right to vote by proxy, and so forth. These reflect the fact that many building societies to-day have millions of members in all parts of the kingdom whose physical presence at meetings of the society would be as embarrassing as it would be surprising, but whose right to a say in the conduct of the society must be upheld.
Clauses 33 to 46 bring up to date and in many respects improve the requirements for keeping books and making up and presenting returns and accounts, and for their audit. The general scheme for the published accounts will not be very different from the present arrangements, but now societies will produce two documents: the first, a simple annual balance sheet and revenue and appropriation account, which they will be required to circulate to all members with a shareholding of £25 or more, accompanied by the directors' and auditors' reports; and the second, a more detailed annual
1018
return to the Registrar. This will also be available to members of the society on demand.
The annual return to the Chief Registrar, which in the past has included the annual accounts and balance sheet, has of course been in existence for many years, its form being prescribed by the Registrar under the Act of 1894. The purpose of the present clauses, which, as your Lordships will realise, in some respects follow the Companies Act, 1948, is to bring all these provisions into line with modern accounting methods and practice. Clauses 47 to 49 are intended to ensure that directors should not abuse their position for their personal advantage.
This brings me to the end of the Bill, since the remaining clauses are of a nature which would enable me to discuss them more profitably, if at all necessary, at another stage. But by way of rounding off my remarks, I should like to say that we believe that this is a well-conceived Bill. It is in no sense a panic measure, but we think it is needed in order to maintain public confidence in the building society movement. I do not believe that there is a single provision in it which will cause a normally well-conducted society any serious difficulty or inconvenience whatever. On the other hand, I hope that there are a number of provisions which will make it possible to thwart attempts to trade on the prestige which rightly attaches to the name "building society" in order to carry on some quite different kind of business in which the risks of loss are very much greater.
It may be said—I have already seen the suggestion in the Press—that this Bill puts a great deal of power into the hands of the Chief Registrar. I think that that is a fair comment, and it is a comment which requires careful examination. But ever since the days of the Certifying Barrister in the 1830s, experience has shown that control over bodies of this sort must, if it is to be effective without being unduly burdensome, include a certain—perhaps a large—element of discretion. Given the wide range of circumstance, with societies at one end of the scale, for example, with assets of £200 million or £300 million, and, at the other end of the scale, socie

1019
ties with assets of only a few hundred pounds, it is not surprising that it is not easy—and we should think it was impossible—to write all the necessary rules into an Act of Parliament. What we have done instead—and the system has, after all, proved its worth over more than a century—is to appoint a highly experienced individual with a competent staff and to give him wide discretionary powers within the general framework laid down by Parliament and subject to the approval, in his most important discretionary acts, of a Minister of the Crown: in this case, the Treasury acting on behalf of the Chancellor of the Exchequer. In this way a check is provided in a form which can be made the subject of public questioning or debate in Parliament. The fact that the Chief Registrar's decisions have over the past century in fact very rarely been questioned, and that he has proved in practice a friend and adviser as well as a watchdog on behalf of the public, suggest to us that this system, though it may be open on theoretical grounds to criticism, has the virtue which tends to appeal to the British people more than any other: it has worked well after experience and practice.
My Lords, I should only like to say in conclusion that while this is the Government's Bill, for which the Government must take full responsibility, it would be, I think, churlish on our part to conceal the fact that in its preparation we have had a great deal of assistance in the form of suggestions and advice from the bodies interested. I should like in particular to mention the Building Societies Association, the Halifax Building Society, the Building Societies' Institute, the Scottish Association of Building Societies and the Institute of Chartered Accountants. In one way or another, all these bodies have helped. We have not, of course, been able to accept all the suggestions which reached us, but the Bill is undoubtedly the better for the considerable amount of trouble which these bodies have taken to put their ideas forward. I must thank your Lordships for your kindness in listening to this somewhat lengthy account at this hour, and in the circumstances I now beg to move the Second Reading of this Bill.
Moved, That the Bill be now read 2a.—(Viscount Hailsham.)
5.44 p.m.
LORD MILNER OF LEEDS: My Lords, the House is greatly indebted to the noble Viscount the Lord Privy Seal, first for the valuable historical account he has given the House as to the origin of the building society movement and the various Acts of Parliament and other steps which have been taken during the last 100 years. We are also greatly indebted to him for his clear exposition of the contents, or some of the contents, of the Bill now before the House. I would venture to say to the noble Viscount that it is not easy at first glance to comprehend the full consequences of the Bill, and we on this side therefore venture to hope that the Committee stage and further stages will not be hurried, in order that full consideration may be given by all concerned to the contents of the Bill and its consequences.
This is particularly desirable because, whilst the Bill has had a long period of incubation, noble Lords have had only a very few days in which to consider it; and of course, no comparable Bill on the subject has been before the House since what is known as the principal Act of 1874. If sufficient time is given, that will also give the Government the opportunity of having the consultations they propose. If I may say so, I speak as one with a lifelong professional and personal interest in building societies and also as a Vice-President of the Building Societies' Association, to which, along with other bodies, the noble Viscount gave some very proper credit for the help they had given in the preparation of this Bill. I have no special authority to speak for that Association, which of course represents almost half of all the societies in the country, and more than 80 per cent., I believe, of the assets of all the building societies; that is to say, 80 per cent. of the assets of all building societies are held by members of the Building Societies' Association. It is, of course, a purely voluntary body, having no mandatory powers, but the Association endeavours to bring about high standards of management and conduct. That is not to say that some societies outside the Association have not equally high standards—they have! I believe that the

1021
Association and its members and the great majority of building societies will undoubtedly welcome the Bill.
It is regrettable that the Bill was not brought in a long time ago; it ought to have been. And it is regrettable that it is brought in now, as we know, in the main—the matter has been brought to a head, at any rate—by reason of alleged malpractices on the part of a very small minority of building societies. I think that all of us who have an interest in building societies and speak on this Bill should emphasise that the great majority of societies are most efficiently conducted and carry on their business with the utmost probity and fairness to both investors and borrowers.
The noble Viscount has made a reference to the name "building society". Of course, nowadays—and it is probably too late to alter it—that is really a misnomer. Whereas, in the first instance, building societies would build houses for their various members on the basis of mutuality, that is no longer the case, and their principal function nowadays is, on the one hand, to act as a means whereby persons may invest comparatively small sums at interest, and whereby those sums may be advanced, principally to owner-occupiers, at interest and with the advantage to borrowers of repaying interest and principal by instalments extending over sometimes as much as 30 years. One would have liked to consider perhaps a change in the name "building societies," but that name has become so well known—and possibly their functions are equally well known—that I am afraid it is too late to consider that now. But certainly at times the name does lead the uninitiated to some misunderstanding.
My Lords, there is one curious feature with which to some extent the noble Viscount dealt; that is, that whereas some 50 or 60 years ago there were some 3,000 societies, there are now only some 740. That arises very largely, of course, by terminating societies passing out of existence; by small societies being taken over by larger societies or by amalgamations—frequently, though not necessarily in all cases, I think, a desirable practice. But the result has been a vast development of the building society movement,
1022
in size and strength; and, of course, considerable competition.
It has been said—it was said certainly up to a few years ago—that most of the monies invested in building societies came from the North of England and were lent out in the South. I am not sure how far that is the case to-day, but it was true some years ago. It was, I think, a tribute to the acumen and thrift of the Northerner. All the larger building societies, of course, have branches: the Southern societies have expanded northwards, and the Northern societies have expanded southwards. One wonders sometimes whether that expansion, and the competition thereby engendered, is really economic. However, I understand that in fact building societies do think it worth while. They feel that, by reason of the general spread of interest in building societies, the better living standards, the amount of money available for investment and so forth, it does pay them to have all these branches, even in the midst of competitors' camps.
I do not propose to detain your Lordships long; but, as we have heard, the principle of the Bill is to lay down conditions under which the undoubtedly beneficial work carried on by building societies can be continued, and to enable some control to be exercised over the formation of new societies—not, I think, a very frequent process in the present day—as well as over existing societies. In order to carry out that object with the continued full confidence of the public and of the building society movement (which I was glad to hear the noble Viscount say had made something like 95 per cent. of its total advances to house owners; which, of course, was the original object of building societies), and in order to ensure that building societies are wholly carried on in the public interest, it is necessary that extensive powers, as we have heard them to be, should be given to the Chief Registrar. Some of these powers he can exercise of his own volition; some of them he can exercise, apparently, by regulations which have to be approved; and some of them he can exercise only with Treasury sanction. There has long been a necessity for some such power to be conferred upon someone, and undoubtedly the Chief Registrar—whose office, as the noble Viscount has said,

1023
has for long had some control over building societies—is obviously the right person; and I have no doubt that he will be able quite adequately to carry out the powers conferred upon him by Parliament.
My Lords, the immense growth of the movement is also another reason for altering the law. It has been rendered necessary, having regard to the many complications which modern life engenders, to bring building societies into line with modern principles, as was done in regard to limited companies by the Companies Act of 1948. In pursuance of those various objects, this Bill imposes restrictions on lending; lays down minimum requirements on the establishment of new societies; gives new and somewhat revolutionary powers to the Chief Registrar, and makes new provision for the investment of surplus funds, together with a number of other rather more minor requirements. I was glad to hear the noble Viscount say that equities would not be included in the list of investments open to building societies. I should have thought that that was not the sort of investment which ought to be approved, in view of their constitution and their purpose. The control of advertisements is obviously a very desirable object, and there are very wide provisions as to the steps to be taken by the Chief Registrar in that regard. Most of the powers conferred upon the Chief Registrar are, of course, for the protection of the investor, and are made to avoid the speculative element which has existed in some recent instances in some forms of advance.
I do not propose to go into detail, for that can be done on Committee stage, but there are one or two other comparatively minor, though still important, matters on which I should like to comment. Some of the provisions in the Bill give additional rights, and rightly so, to investors. Inspection of the register is one very important right. In the rules of some societies I think that can already be done at the discretion of the directors; but, as I understand it, there will be a rather more direct right on the part of members to inspect, and presumably obtain or take copies of, lists of members of building societies. I know that objection is taken in some quarters to that, though I never quite
1024
know why. One tries to think of building societies as democratic institutions. I am afraid, however, that many of them are to a very large extent close corporations. One has heard of cases where a candidate has been put up for election as a director but has had no access to lists of members. He has been unable to communicate with them, whereas the existing board has had full opportunity, of which it has taken advantage in some instances, to communicate with members, which has of course ensured the election of the Board's nominee. Apart from other considerations, therefore, I think that that right conferred upon members will be of advantage, and it will at any rate give societies a rather more democratic look than some of them may have to-day.
Another valuable provision is that notices of meetings must be sent to members in writing. That has not always been the case, and still is not the case with some societies. Their rules provide that notice is adequately given by advertisement in the local paper. The movement is now large enough, important enough and wealthy enough to be able to do as the Bill requires and to send to members copies of the accounts, the directors' report and notice of meetings. It will be interesting to see, as the noble Viscount mentioned, whether that will result in greater interest and a larger attendance at building society meetings than has hitherto been the case.
Then there are valuable provisions with regard to the survey of properties—and I think this is a very useful and necessary provision indeed—whereby the directors, manager and secretary are prohibited from themselves formally surveying the property which is the subject of an application for a mortgage. As your Lordships know, when you ask for a mortgage the first thing you have to do is to pay a survey fee to the building society, who then employ a surveyor to survey the property and report to the board. There are societies whose directors are no doubt qualified surveyors and who, under the present law, are permitted to make those surveys. It would appear that that is not really desirable, and the Bill therefore provides that a survey should not take place by any of the directors, or by the manager or the sec

1025
retary, but should be carried out by an independent surveyor. I hope that will be insisted upon. That does not, of course, free the board from the final responsibility of accepting the individual's integrity and ability to pay the instalments and so forth, but it is undoubtedly a desirable provision.
Then the question has been put to us—and it is a serious question—as to whether building societies could not do more than is at present the case to protect purchasers, and as to whether a copy of the survey to which I have referred, which is obtained at the expense of the mortgagor, might not be given to him. I appreciate there may be legal consequences, but the present situation, where an applicant pays for a survey and the report is retained by the building society without the applicant being given the advantage of knowing what the survey has said in regard to the quality, standard or construction of the house which he is proposing to buy, is not altogether satisfactory. That is a matter which I think should receive consideration. I ought to mention perhaps that most reputable builders are members of the National Housebuilders' Registration Council and obtain a certificate to the effect that they abide by certain standards. Nevertheless, the question does arise as to whether some further protection might not be given to a purchaser.
This next matter is perhaps small in one sense, but not in another. One has read in the Press of complaints of discrimination by some building societies against, for example, married women, in some cases, and coloured applicants, in others. I doubt whether anything can be done in this Bill with regard to those questions, but one hopes that the building societies will bear them in mind.
As I have said, great responsibilities are placed on the building societies and, of course, not least on the Chief Registrar, but I feel that they are fully capable of carrying them out; and, as the noble Viscount said, any normal and properly conducted society will have no trouble in abiding by what is laid down. The public can be assured that most building societies are well conducted: their finances are sound, they render an extremely valuable social service to the community and to both investors and borrowers. Whilst one must reserve consideration of details and possible
1026
Amendments to the Bill, I believe that the building societies will welcome the Bill. They will recollect, one hopes, that they are receiving substantial privileges in the matter of income tax, in the conferment of trustee status—a matter in which I have taken an interest for some years—and in the recent provision by the Government of Exchequer grants to enable advances to be made in the case of pre-1919 houses. In return it would seem to be right that the conditions under which they operate should be modernised; that the management of the small minority who do not abide by the highest standards should do so, and that the interests of both investors and borrowers should be fully considered and protected wherever possible. Only so, in my submission, can the movement go forward to greater prosperity and usefulness and continue to enjoy the full confidence of the people of this country which it undoubtedly enjoys at the present time. We support the Second Reading.
6.5 p.m.
LORD ELTON: My Lords, I wish to say a few words in support of this measure, perhaps from a somewhat different angle both to that of the noble Lord who has just made such an interesting speech and also to that of the noble Viscount who introduced the measure with all the lucidity and sparkle to which we are accustomed from him and which we so much enjoy, and on this occasion with an interesting and concise survey of early 19th century history in which I seemed to trace certain vestiges of the Greats School of which the noble Viscount was once a distinguished ornament. I should be the last to speak of the noble Viscount, or even to think of him, as prejudiced, but I suppose it is just possible that as a Minister he may be faintly predisposed to think with indulgence of a Government measure, and hope, therefore, that he may welcome a few detached words of support spoken on behalf of the building societies themselves.
I have the honour to be President of the Metropolitan Association of Building Societies, and since the noble Duke, the Duke of Devonshire, who is President of the parent Building Societies Association, has unfortunately been prevented from attending this afternoon, I have been asked by the Building Societies Association to convey to your Lordships

1027
the general support which it extends to this measure, which it regards as both timely and valuable. Indeed, the Building Societies Association has already given a good deal more than general support both to this embryo measure and to the legislation which has preceded it. The Act of 1874 to which the noble Viscount, Lord Hailsham, referred in a most interesting passage, has always been regarded by building societies as their Magna Charta, and although amended since then I believe on some six occasions it remains, as the noble Viscount reminded us, the principal Act. That Act of 1874 was itself largely founded on a draft Bill prepared by the Building Societies Association of that day, and I understand that there are some provisions in the measure we are now considering, as indeed the noble Viscount himself assured us in his final passage, which are based on suggestions which have been made from time to time to the Government by the Association.
This leads me to say at once that, although we can all recall certain unfortunate incidents, to which the noble Viscount, Lord Hailsham, referred with a lawyer's discretion—and I hope that as a layman I shall not be saying anything injudicious—nevertheless this Bill certainly does not represent hastily improvised wisdom after the event. It is not one of those measures, of which we can all remember examples, which elaborately enact the compulsory closing of stable doors some while after the horses have departed for an unknown destination. On the contrary many of the provisions of this Bill have been carefully thought out over several years and have, I understand, only been waiting on the exigencies of Parliamentary time for their enactment. It is the activities of a few building societies which have made the restrictive clauses in this Bill necessary. I dare say some of your Lordships may have noticed a leader in The Times newspaper of March 26 last which was headed "Restraint of the Right Kind"; and I think that no one connected with the Building Societies Association would quarrel with the comment on the Bill implied in that heading. The article continued:
"Societies which are members of the Building Societies Association have for long accepted a code which rules out excessive speculative activities. Not all Societies are in the Associa
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tion, however, and a few of those outside it appear to have regarded these self-denying ordinances as unduly restrictive."
That puts the situation in a nutshell.
The societies which since 1945 have been lending a substantial proportion of their funds at high rates of interest to property companies have been few; they have either been new societies or old societies in new hands, and they have none of them been members of the Building Societies Association. If they must be regarded as wolves they have, at any rate, been, so to say, relatively lone wolves. They have been able to acquire considerable quantities of capital, partly by the high interest rates which their methods have enabled them to offer, but largely, I would say, by exploiting the touching confidence which the public reposes in the very title "Building Society", which it has come to regard as virtually a guarantee of safety.
As, I think, the noble Viscount who introduced the measure reminded your Lordships, there are 740 building societies, of which some 340 are members of the Building Societies Association. But, as the noble Lord, Lord Milner of Leeds, has just told us, the members of the Building Societies Association represent no less than 80 per cent. of the total assets of all building societies. Since the main purpose and function of the Association is to impose high standards of practice on its membership, your Lordships can readily realise how creative and how central a rôle in the spectacular and salutary development of building societies since 1874 must have been played by a society representing no less than 80 per cent. of their assets. I say "spectacular" because, as your Lordships probably remember, the assets which in 1874 totalled £18 million totalled at the end of last year no less than £2,900 million. I say "salutary" because, as your Lordships will also remember, not only have the building societies made an immense and invaluable contribution to national savings, but they have long since become the main agency for enabling ordinary men and women to become owners of their own homes. I am old-fashioned enough to believe—and I am sure many of your Lordships also believe—that in this age of rapid change, shifting standards and shallow roots, the wide extension of home ownership must make an invaluable contribution not only to

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the economic, but to the moral, stability of the nation.
Naturally the Association desires this spectacular and salutary progress to continue, and it welcomes the clauses in this Bill which are designed to ensure that the high standards adopted by the great majority of building societies should be extended to the minority which have so far not yet lived up to them. It also welcomes that section of the Bill which is designed to bring the law into line with the best modern practice. As has been clear from both the previous speeches, the clause of paramount importance is Clause 1, which sets limits on what the clause—for reasons which the noble Viscount explained to us—has had to call by the somewhat cumbrous title of "special advances".
We have heard the clause clearly expounded, and it is only necessary, therefore, for me to remind your Lordships that it sets out to put an end to the activities of that minority of building societies of which I spoke just now as lone wolves, and to restrict building societies in the main to the pursuit of what is their traditional as well as their proper function, which is, of course, the making of relatively small advances to men and women who wish to own their own homes. This restriction will not in any way affect the activities of the great majority of building societies, which already consistently devote more than 90 per cent. of their funds to precisely this end. When I tell your Lordships that the average advance made by building societies is £1,750, you will, I am sure, recognise that this is convincing evidence that building societies do already overwhelmingly concentrate on serving the man of moderate means.
All the provisions of Clause 1, therefore, are warmly accepted by the Building Societies Association, although some misgiving has been expressed as to the wisdom of enacting for an indefinite period this precise figure of £5,000. It has, after all, to be recalled that the figure of £5,000 dates back (I believe I am right in saying) to the Act of 1894, in which it was provided that mortgages of over £5,000 must be published in a special schedule in a building society's accounts. That is 66 years ago, and the value of money, as well as the size of building societies, has altered greatly since that time. I suppose it is just
1030
possible that the value of money may change somewhat in the next 66 years, so that it might be worth while considering at a later stage whether it would be well to insert some statutory machinery for altering this figure of £5,000 at some future date, if it should be found to be desirable.
There follow a number of clauses designed to confer new powers, and I think we must say sweeping new powers, on the Chief Registrar. These powers will not affect the activities of members of the Association, but in the opinion of the Association they are desirable for the protection of the public, since the public to which the building societies specially appeal has not much experience or skill in the art—or, as an earlier age would have put it, in the mystery—of investment. Therefore, the Association does not in any way oppose—in fact it welcomes—the extensive additional powers which are proposed for the Chief Registrar. But it does consider—and it has asked me to tell your Lordships this—that in some instances there might be some statutory right of appeal, and this is felt particularly in respect of Clauses 5 and 6. That may be a matter as to which your Lordships' opinion might be tested at a later stage. The Association particularly welcomes Clause 11, which the noble Viscount fully explained to us, the clause which gives power to a society to help another society which may have got into financial difficulties through circumstances over which it has no control and which may prove to be of a purely temporary nature. Finally there follow a number of clauses designed to bring the law into line with the best modern practice, and in general these are fully supported by the Association.
I have been asked, however, to say that it views with considerable concern Clause 24; that is the clause which provides that in certain circumstances the register of members' names and addresses may be inspected. Your Lordships may feel that there is little reason to object to that clause because, if I understand it aright, you cannot obtain leave to inspect this register of names and addresses unless you can show that you wish to do so in order to correspond with your fellow members on some subject of importance. But I am told that this is a small-town difficulty. I am told that the secretaries

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of building societies in a number of small towns have represented very warmly that if once it comes to be believed that the tradition of secrecy of building society membership is at an end, and that in certain circumstances you may be able to find out whether Aunt Jane or Cousin Tom have a holding in a building society, then Aunt Jane and Cousin Tom will either not take up a holding or will dispose of their holdings as rapidly as they can. The secrecy of the membership has been compared to the highly valued secrecy of a Post Office savings book. It is the view of the Association that there should be a right of inspection only if a member is unable to exercise his right of withdrawing his holding, or if a society appears to be in difficulties, or if it seems likely to be taken over by another society.
I have tried as briefly as I could to convey the warm general support which the Association extends to this Bill, subject to a few minor reservations, most of which I have indicated; and I think I could not perhaps do better than quote the first sentence in a little periodical leaflet issued by the Association, which I happened to see this morning:
"This is a good Bill. It is a pity it was not introduced before".
Finally, for myself, I would only say that although, or more probably because, I am an Independent in politics I believe most deeply in a property-owning democracy, for a property-owning democracy is the surest safeguard against oppression, whether from the Left or the Right. I have always understood that belief in the virtues of a property-owning democracy has been one of the cardinal tenets of the Conservative creed from the days of Disraeli to those of Churchill, and I am therefore very glad to have been able to congratulate a Conservative Government on introducing a measure which seems likely to do much to safeguard that most salutary principle.
6.25 p.m.
VISCOUNT RIDLEY: My Lords, while speaking on this Bill I think I should, as is the custom of the House, declare my interest in the matter as having been for some years chairman of a moderate-sized building society. For that reason I have some larger interest in the Bill, and I would join with the noble Lord
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who has just spoken on behalf of the Association in giving it their complete welcome—perhaps more complete than he has suggested. A lot of people who have been concerned with building societies have for many years been very unhappy at some of the events about which we have heard, and would, as has been said, have welcomed the introduction of this Bill some time ago, for the reason that some things tend to give a bad name to the whole collection of building societies when they have been done largely only by a very few members. It is the good name of the building societies which is their main asset. A building society, we like to say, is run in a very businesslike way. It is not, I think, to be compared with a business. The customers are looked upon as members, whether borrowing members or investing members, and there is a genuine interest in what happens among the members. There is a wish to help in the provision of small houses by finding the money for them, and one has entirely different feelings than one would have in an organisation such as was engaged entirely on commercial matters.
This Bill has for its objects almost entirely the protection of members who invest in building societies' shares. Those who borrow are protected by the terms of the mortgages and by the ordinary law of the land. Societies, I think, spend a good deal of their time and thought in trying to find the best way of protecting the investment of the members who lend money to them. One of the inherent safeguards, from their point of view, is the small size of the average loan, which has been referred to and the large number of borrowers of small sums; and that is where I think the "special advances" proviso in Clause 1 is very valuable. Another one, paradoxically perhaps, is that the small size of the average loan is very important. Many societies do not like to take large sums as investments, because very often these large sums can go out in times of fluctuations of markets, and there may be a draw on the liquid resources of the society. And I think it is wise policy to restrict the amount of each investment as much as it is practical to do. The main protection the society can provide for its investors is by its accumulation of reserves, and there at once is another

1033
difficulty, because the liquidity I have referred to means keeping a good deal of money fairly short. That could not earn perhaps so much interest as the interest paid on the borrowing of it, and the more money is kept liquid for the needs of investors who wish to withdraw at any time, the less that money is working to accumulate surpluses to keep reserves; so it is rather a balancing act to decide between the two.
The principle of operation of building societies is perhaps rather peculiar, because they borrow short and lend long, which I think in the textbooks one is always advised never to do. But in the case of building societies it seems to have been working satisfactorily for a long period. Most loans are for twenty years, and borrowing is normally repayable in six months. I think that in most societies, at any rate in practice, money borrowed is repaid whenever the investor asks for it. So that again we come to the fact that the thing that matters most to a building society is that it should keep the confidence of the public and of its investors. In order to maintain its funds it must be able to offer the investing member a high enough rate of interest to make his investment attractive, and again to achieve stability and to give confidence. There are often times when other forms of investment appear to be more remunerative, and there are times when the amount of investment which accrues to building societies goes slower and there are times when investments come in faster. Here again is a need to keep a certain amount of liquidity.
On the matter of building up reserves, which I think is the really important thing that a society does for stability, there are one or two points on which this Bill has some effect, though not a substantial effect, and not, I think, enough to warrant serious criticism. The first point is on Clause 1, which deals with special advances. Societies have a standard advertised rate at which they will lend on mortgage. It is usually the rate recommended by the Association, but some societies, in fact, have different rates at which they will lend. On the other hand, it is common practice that advances which are not made to owner-occupiers are at a higher rate. In proper cases that is a salutary thing, because it is one of the means by which a small
1034
increase in reserves can be built up. There are a number of cases in which this is done, such as where a man who wants to borrow has a shop over a house. That is partly an owner-occupied house, but it is partly a shop, which is in a different category. It is proper that he should pay a higher rate. Then there are cases where it is advantageous to all parties that the society should lend to a builder on the security of his land. He can then sell the houses when they are complete and repay his loan. That is done by quite a number of societies. So there are a number of things properly belonging and appertaining to typically owner-occupier loans which have meant business for a society, and which could, and do, properly attract a higher rate of interest.
There are, of course, entirely different types of business, such as those which have been referred to earlier. These are not the sort of things which one would wish to encourage. But I should not like it to be thought that it is totally wrong for a building society to lend any of its money at a higher rate of interest. As to the limitation in Clause 1, it seems to me that the figure of £5,000 is about right, but I have some doubt whether there is any real validity in adding not only the condition of the £5,000 but the alternative one of the corporate body. I think that in fact the 10 per cent. proportion makes that point all right, but I do not feel quite so convinced that it is as much wrong, or, should I say, unwise or unethical, to lend to a number of corporate bodies who may be building houses for people to rent, as it is to lend a series of large sums.
There are other things which tend to make it difficult for societies to accumulate the reserve to which I have referred. One of them is the taxation problem. The noble Lord, Lord Milner of Leeds, said that societies had the privilege of a lower rate of income tax. It is the investors who have that lower rate of income tax; it is a special rate. The societies themselves pay the normal rate on the balance of their surplus and get no advantage in that way; and, unfortunately, they have the disadvantage of a 2½ per cent. increase in profits tax coming. There are also various items which will add, not greatly but slightly, to expenses and which tend to reduce

1035
the surplus accumulated every year. The keeping of the register and having it available; providing notices of meetings and giving copies of accounts to investors, and so on, are not big items, but they are worth noticing, because societies are not in the position of being able to save much and thereby to accumulate their reserves. The inflationary problem of the last few years since the war has not made that any easier.
Of course, another matter which appeared in the Budget is a little discouraging. In the national sense it is a good thing that the attractiveness of national savings has been increased, but for the building societies it happens to be unfortunate. I have often tried to analyse the reasons why investments in building societies fluctuate, as they do all the time. The only conclusion I have been able to come to is that they have varied relative to the attractiveness of various forms of national savings—so much so that a year ago the Government, having attracted a lot of money to national savings, found it necessary to pass a Bill by which they could lend money to building societies to be lent out on the older houses. If I may again refer to what the noble Lord opposite said, I would point out that that is not a grant; it is a loan, and it is repayable. Of course that does not affect this Bill at all. I was most interested to hear what the noble Viscount who introduced the Bill said about investment powers. I had hoped that the Bill would be able to specify what they were to be. From what he says, I think he is entirely right. I would say, however, that in the past the limitation of investment powers has meant that a number of societies have been in Government stocks and are showing, at any rate on their book values, considerable losses; so that it is natural for societies to think that it would be attractive to be able to go into equities and to make much more noticeable profits. I agree that it would be unwise to do so.
Many of the provisions which have been referred to in this Bill really bring the building societies' position much into line with that of companies under the Companies Act. I find no reason to criticise that. I do not think that it gives too much power to the Chief
1036
Registrar. The relations between individual societies and the Registrar and his office have for many years been cordial and satisfactory. I think that the way the office is run gives us cause to believe that we can expect it to be equally reasonable in the future. Under this Bill there are no extreme powers that I think need frighten anybody at all.
I should like to make one brief reference to Clause 13, which deals with the fact that directors, managers and secretaries are no longer to be able to provide a valuation on which a mortgage advance is made. I think it only fair to say that there are a large number of societies in which professional men qualified for the purpose are directors and do make valuations. I think that one ought to say that, while appreciating the importance of this clause, in many cases of which one knows there is not, and could not be, any criticism of those people who have done an entirely honest and straightforward job. But I think that the principle that there should be an independent valuation is right. After all, the directors of a society who authorise the loan must have a valuation by a professional man of independence. They must also make their own assessment of what the valuation is. They will not go above what the valuer says, but they may well be wise to, and often do, go below what he says. I think the important point there is that there should be an independent valuation, but that we should be careful to recognise that a professional valuation has for many years been done in many societies, with complete honesty and success, by their own people. There should not be any misunderstanding on that point, which applies to a large number of societies, particularly the smaller ones.
Clause 49 discusses the directors' duties. It says that directors must declare an interest; that they must behave in a certain way when matters arise concerning them. It says also that a return must be made showing loans which are made to directors or to companies or other organisations in which they are interested. I think that is a sound provision. I myself should not have minded something rather stronger than that, because I believe the recent troubles of which we have heard hinged largely on

1037
the fact that directors of those societies were personally concerned in these transactions. I should like to know whether it has ever been suggested that it should be ultra vires for building societies to make a loan to their own directors. I know that that is frequently done and is perfectly straightforward and all right. But as a means of avoiding disasters such as have happened on occasion, perhaps it might not be a bad thing to have such a provision. After all, building societies are very friendly with each other, and if a director of a society wanted a loan he could happily go to the end of the street in the town in which he lives and get a loan from some other society. I do not press that point, but I believe there would be little hardship if such a provision were included in the Bill. In general, I believe that this is an excellent Bill. As so often happens, it is a case of trying to legislate against transgressors without doing harm to those behaving properly; and in this case we seem to have been very much more successful than we are in many Bills.
6.41 p.m.
LORD AUCKLAND: My Lords, I do not declare a direct interest in this Bill, but as a Vice-President of the National Union of Ratepayers' Associations, who guard some of the interests of those who use building societies for the purchase of houses, I should like to crave your Lordships' indulgence and say just a few words on the Bill. I think, in general, it is an intelligently conceived and very necessary Bill, and I agree with those who contend that it might well have been introduced earlier.
Building societies form much of the life-blood of a country's resources and they are among some of the oldest and most established institutions; and the fact that the general public must have a great deal of faith in those societies is surely borne out by the fact that in 1959 advances to the tune of £382,430,000 were made to purchasers by building societies, as against £260 million in 1958. Indeed, the recent events which have centred around one certain society do not seem to have discouraged persons from using this medium.
Most of the criticism I have seen of the Bill centres around the purpose of Clause 1, which limits to £5,000 the
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amount which can be advanced to any one person wishing to use a building society for the purchase of property. The Stock Exchange Gazette of April 1 makes this comment:
"The limit on the loans to individuals has almost certainly been fixed at too low a level. The £5,000 maximum means that a high percentage of loans on higher-priced private dwelling houses, shops with living accommodation, boarding houses, small dwellings and other similar types of commercial property will be unnecessarily restricted."
As I see it, purely from the layman's point of view, with no specific legal knowledge, there is some substance in this argument; but I can see that by limiting the amount to £5,000, building societies will be enabled to lend money to a larger number of people wishing to purchase houses costing between, say, £3,000 and £4,000; and, after all, those people are perhaps the prime, users of building societies—for example, the young married couples. Speaking as one who bought his first house through a building society, I can vouch for the fact that, generally speaking, they give very fair treatment; and the comment which we sometimes see, that building societies do not bring their rates down enough, is, I believe, largely spurious, because with the number of people who are borrowing, this becomes very difficult.
I am particularly glad to see Clause 11 incorporated in the Bill, but it seems to me to need some elaboration. How long will there be a maximum period over which the loan must be repaid, and will the rates of interest be fixed? It also seems to me that there should be a certain amount of restriction to local societies. For example, if the Hastings and Thanet Building Society got into difficulties it could, perhaps, turn to the Eastbourne Mutual Society or vice versa, because they are societies which have a very friendly relationship one with another. This is an excellent clause, but it seems to me to need that little safeguard. The Chief Registrar, whom I have the privilege of knowing personally, and for whose ability anyone who knows him must have the highest regard, will, I am sure, keep an eye on this matter.
Clause 25, regarding advertisement, is another very necessary clause. Some of the less scrupulous societies which have set up as building societies—and they are very few and far between—have

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made some use of this kind of advertising. For example, it would hardly seem right if there were a society called the Cheddar Building Society that it should have a picture of a cheese on its printed material. I can see that if this clause was not applied, that kind of thing could happen and might cause havoc. I would agree with the sentiments of the noble Lord, Lord Milner of Leeds, who referred to the fact that the Bill does not concentrate sufficiently on the purchaser. After all, if it were not for purchasers, building societies would not exist; and those who invest in building societies must be dependent on their purchasers.
Generally speaking, I believe that surveyors do their job extremely well, but I would agree that there is a certain amount of secrecy. Why should not a person who has been turned down for a mortgage be entitled to gather from the surveyor what is wrong? There seems to be some difficulty in gleaning this information. Similarly there seems to be some discrimination against purchasers. The noble Lord, Lord Milner of Leeds, referred to women who wish to purchase houses. Here, again, I believe the limit of £5,000 to a purchaser may well help societies to be less discriminating in these days of relative prosperity. I think building societies could well afford to be more generous to that type of purchaser. But I would conclude by saying that this is a very well-conceived Bill and I would certainly support its Second Reading.
6.50 p.m.
LORD MESTON: My Lords, I think that, on the whole, this is a good Bill, and I hope that Her Majesty's Government will get all the support which they require. Having said that, may I be allowed to criticise one clause in the Bill—namely, Clause 13? I must begin by declaring an interest. I am a director of a small but, I hope, thoroughly respectable building society on which trustee status has been conferred. Clause 13, in effect, prohibits a director from making a valuation of any property on which the society make a loan. I agree that no unqualified or inexperienced person, whether a director or otherwise, should ever make a valuation. I agree that no
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director should make a valuation of any property in which he has an interest.
Having said those things, I would then make a distinction in other cases. I have myself three co-directors who are very qualified and experienced surveyors and are held in the highest regard in their profession. They carry out the majority of the valuations of the property on which the society make advances. They know the district thoroughly in which they make the valuation, and their advice on these matters, which they eventually lay before the board, is most helpful in every way. There is no conflict of interest between their duties as directors and duties as valuers. In fact, their knowledge of the financial position and capacity of the building society is opposed to making excessive or unnecessary or undesirable valuations. I will not hammer that point any further, but I should like to propose an Amendment to Clause 13 on the Committee stage of the Bill. The Amendment is to the effect that a director may make valuations on which the society may advance money if he is authorised to do so by special resolution passed at the annual general meeting of the society, such resolution to last for a period not exceeding fifteen months, and the resolution to be reported to the Registrar of Friendly Societies. I hope that that is a reasonably good Amendment, and only modesty precludes my saying who has concocted it.
The only other matter to which I would refer is the meaning of "owner occupier". Many societies, including my own, make advances of money to a purchaser of a building which is divided into two self-contained flats. There is only one mortgage, but the purchaser occupies one flat himself and quite openly lets the other flat to a tenant; and we are in the habit of describing those properties as "owner-occupied". If we are wrong in doing so, I hope that the Government will tell us so, because we want to do only the proper thing. Having said that, I should like to thank the noble Viscount the Lord Privy Seal for the clear and fair way in which he has explained this Bill. I have been told that people go a long way to hear the noble Viscount talk. I was told the other day a perfectly true story of somebody who walked seven miles to church every Sunday in order to hear

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him read the lesson. I am not surprised. Personally, I should walk that distance, and a great deal more, to hear him explain this Bill, which I trust will, subject to my Amendment, soon be an Act of Parliament.
6.55 p.m.
LORD SALTOUN: My Lords, I was very glad to hear my noble friend Lord Ridley say what he did about the Registrar; and if I may very humbly be allowed to, I should like to concur. The only point I want to raise is on Clause 13. I should like to point out that it depends on Section 12 of the principal Act, where it says:
"The duties of every director or member of the committee of management of a society shall include the duty of satisfying himself that the arrangements made for assessing the adequacy of the security … are such as may reasonably be expected to ensure … the adequacy of any security".
And it goes on to say:
"Nothing in this section shall be construed as precluding a director or member of the committee of management of a society from approving such arrangements … for the assessment of the adequacy of such security by himself or any other director".
Nothing is more convincing than personal knowledge. I want to assume that I am a director of a building society, which I am not, and I should like also to assume that I am a qualified surveyor and valuer, which I very nearly was at one time but which I now am certainly not. In those circumstances I read this Bill and I see that
"… a director or the manager or secretary of the building society shall not be qualified to assess the adequacy of security to be taken.
Then it goes on to say:
"If a director of a building society fails to carry out his duty under … subsection (1) of section twelve"—
that is the section I read first of all; it says he must take every step to satisfy himself the security is adequate—
"he shall be guilty of an offence".
Of course, the obvious thing for him to do, if this Bill passes into law, is to do exactly what my noble friend Lord Ridley gave us a very good picture of. The society must employ an independent valuer of whose qualifications they are satisfied, and he values the property and presents them with a report. The best way in which a person in my supposed
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position can satisfy himself of that report is by going and valuing the property himself and seeing the thing with his own eyes and using his own professional qualifications, and then perhaps coming back and saying to his board that he thinks that their official valuer has taken too rosy a view of the property and he advises something a little less.
But observe what happens if he does. Subsection (4) goes on to say:
"or if any person who is disqualified under the foregoing provisions of this section takes any part in assessing the adequacy of any security to be taken for an advance by a building society, he shall be guilty of an offence".
So under subsection (4), if he fails to take the best means of satisfying himself on the adequacy of the security it is an offence; and if he does take the best means—which is to go and see the property and read the official surveyor's report—again he has committed an offence. I do not think that those two things go together; I think they cut each other's throat. I hope that either we shall get a very lucid explanation or that the Government will consider re-wording that clause, if they do not feel inclined to accept the Amendment of the noble Lord, Lord Meston.
6.59 p.m.
VISCOUNT HAILSHAM: My Lords, I think I shall be showing poor thanks for the very kind reception this Bill has had if I reply at length to the various speeches which have been made. But I should like to say to all the noble Lords who have taken part in the debate how much I welcome their contributions and the expressions of support which have come from every quarter of the House and from those Members of it who are particularly well qualified to give their opinions. I should also like to thank both the noble Lord, Lord Meston, and the noble Lord, Lord Elton, for their kindly references to myself. I can imagine that there are much better reasons for going to church than to hear me read the Lessons, but I was very grateful to the noble Lord, Lord Meston, for telling me the touching story of somebody who does go for this purpose.
My Lords, I think that really the Bill may be said to have escaped criticism except for the figure of £5,000 in Clause 1 and except for Clause 13. As my noble friend Lord Elton indicated, the figure

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of £5,000 in Clause 1 may one day become obsolete. I will draw my right honourable friend's attention to the question of making it possible under the Bill to increase that figure; but, on the whole, the policy of the Government is not to put too much discretion into Acts of Parliament where it is possible to write the terms more rigidly—and there is already a very great element of discretion in the Bill, which has already given rise to criticism. But I shall certainly and only too gladly draw that point to my right honourable friend's attention.
My noble friend Lord Ridley thought that, if the £5,000 limit (which he thought was about right) was kept, it was perhaps a work of supererogation to add the class of special advance which relates to advances to a corporation or company. That might very well be so in a large number of cases, but my noble friend had particularly in mind advances to companies for the purpose of building houses. That was the very reason which motivated the Government to introduce the exception to Clause 1, which gives the Registrar a discretion to raise the limit where the object is to build dwellinghouses—and that may be a justification for keeping in both categories.
Clause 13 has come in for both praise and blame, and I should think that probably it would be convenient to leave discussion on the policy of that clause until the Committee stage. The noble Lord, Lord Meston, has said that he would kindly introduce an Amendment and it can be considered then. I think it is right to say that not everybody in the building society movement takes the same view as the noble Lord, Lord Meston. I believe that is not the view of the Association with which the noble Lord, Lord Milner of Leeds, is connected and with which the noble Lord, Lord Elton, is connected. Moreover, I have received a private notice from at least one other noble Lord asking me, on behalf of the Government, to keep the clause in its present form. At all events, we will not prejudge that question: we will take notice of the expressed intention of the noble Lord, Lord Meston; and I will be sure to arm myself, not only to give a considered reply on behalf of the Government, but also to
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deal with the ingenious dilemma in which my noble friend Lord Saltoun sought to place me, but from which I shall not attempt to escape at the moment.
With those comments I should like again to thank those noble Lords who have taken part in the debate. I can assure my noble friend Lord Elton that expressions of support coming from outside the Government are doubly welcome. I do not claim to speak as a disinterested party in such things; and when we know that we have given a little pleasure and won a little approval, we are willing to bear with fortitude the criticism, which has also been expressed, that our action could have come earlier.
On Question, Bill read 2a, and committed to a Committee of the Whole House.

IRON AND STEEL (FINANCIAL PROVISIONS) BILL
7.4 p.m.
Read 3a (according to Order), and passed.

GAS BILL
Read 3a (according to Order), and passed.
LEGAL AID BILL
Read 3a (according to Order), and passed.

FILMS BILL [H.L.]
7.6 p.m.
Order of the Day for the Second Reading read.
THE LORD CHANCELLOR: My Lords, I beg to move that this Consolidation Bill be now read a second time.
Moved, That the Bill be now read 2a.—(The Lord Chancellor.)
On Question, Bill read 2a, and referred to the Joint Committee on Consolidation Bills.

MEXBOROUGH AND SWINTON TRACTION BILL [H.L.]
Reported from the Select Committee, with Amendments.
MANCHESTER SHIP CANAL BILL [H.L.]
Reported from the Select Committee, with Amendments.