HL Deb 13 December 1960 vol 227 cc392-412

3.45 p.m.

House again in Committee.

On Question, Whether Clause 3 shall stand part of the Bill?

LORD HAWKE

We have had an excellent and most valuable debate on the meaning of Clause 3 and we now know what Clause 3 is intended to mean. But, bereft of the OFFICIAL REPORT, any trustee being presented with Clause 3 is liable to have very serious difficulty in discovering for himself what it means. In fact, as it stands I would suggest that Clause 3 is just a form of National Assistance for the Chancery Bar, with the proviso that the money, instead of coming out of the taxpayers' pockets, will come from trustees or trusts. I wonder whether Her Majesty's Government could have a look at the whole clause again to see whether in some respects it could be made a little easier to understand.

One point which is particularly baffling to the more simple-minded is the apparent contradiction between Clause 2 (2) and Clause 3 (2). We now see that there is no contradiction at all, because the noble and learned Viscount has given us an example of the arithmetic involved. But they were quite definitely arithmetical gymnastics, and I do not think that any trustee, reading the Bill, could possibly guess that that is what he is supposed to do. I hone that some attempt can be made, possibly by putting in another subsection somewhere, to make this clause clearer, particularly concerning the exercise of special powers and the way they react on ordinary powers.

THE LORD CHANCELLOR

I should like to say this to my noble friend. He has been most kind and most helpful in putting to me the points that he had in mind, and I have tried to deal with them. The point which makes for the difficulty in drafting is my point number three. It is easy if you rely on your special powers it is easy if you rely on Bill powers. But if you use the powers under the Bill for wider-range investments, then any other investment other than narrower-range investments bought or held under a special power must be held only in the wider-range part of the fund. My third proposition is one which it is very difficult to provide for the interaction, without going into the subsections which we have just been discussing. Of course we will have another look. It may well be that what has been said in this House will provide us with fresh inspiration. But I must say to my noble friend that, judging by the amount of work that has gone into the problem in the earlier stages, I cannot make any promises on this point. I hope that when he examines what I have said, and then re-reads the clause in the light of that, he may find that the difficulties are not so great as he first imagined. Of course, we never weary in welldoing, and we will try our best. But I feel that, when one has the problem, and one's approach to the solution of the problem, clearly in mind, the clause, in turn, becomes clear. However, as I say, I am quite willing to look at it again, but I do pose to my noble friend the problem which must be solved, and no clause that does not solve that problem really carries out what we want to do.

Clause 3 agreed to.

Clause 4 agreed to.

Clause 5:

Duty of trustees in choosing investments

5.—(1) In the exercise of his powers of investment a trustee shall have regard—

to the need for securing that investments of the trust are, so far as circumstances allow, sufficiently diversified as respects the descriptions of investment and, where diversification within a particular description would he prudent, as respects investments within that description;

(3) So long as a trustee retains any investment made in the exercise of such a power as aforesaid, he shall obtain and consider such advice as aforesad at such intervals as appear to him appropriate, and in any case at intervals of not more than five years.

3.51 p.m.

LORD CONESFORD moved, in subsection (1), to add to paragraph (a): provided that, for the purposes of this paragraph, an investment in an Investment Trust Company or Unit Trust shall be deemed to he an investment in the underlying securities thereof ". The noble Lord said: My Amendment is not prompted by any objection at all to the policy embodied in Clause 5, subsection (1). I do not question in any way the object of that clause, but I have some doubts whether the words at present in the clause, without some amendment on the lines of my Amendment, will achieve the object which the Government have in mind. Let me explain to the Committee and to my noble friends, very briefly, what my doubt is.

In my speech on the Second Reading I took the example of a very small trust. By the nature of things, it would be unable to have many investments: no competent adviser would advise the trustees to have many investments. In such a case, the best actual diversification (to use the expression in subsection (1) of Clause 5) would be achieved by having perhaps a couple of holdings in investment trusts. By that method, an actual diversification would be achieved which would be greater than any that would be obtainable by a number of shares in individual companies. I doubt, however, whether two investments in the same description of investment—that is to say, an investment trust—would in fact be a diversification at all within the meaning of paragraph (a) of subsection (1) of Clause 5. I therefore propose in the Amendment to add to paragraph (a): provided that, for the purposes of this paragraph, an investment in an Investment Trust Company or Unit Trust shall be deemed to be an investment in the underlying securities thereof ".

I think the object which I seek to secure by those words is quite clear. I do not think that that object conflicts with any object the Government have in mind, but they may take the view that my Amendment is unnecessary; that the matter is sufficiently provided for by the words as they stand. If they can give me any reason in support of the view that the words are satisfactory as they stand, and that the position of the small trust will be met—that is to say, that, in such a case as I have described, a trustee will be able to invest the whole fund in a couple of investment trusts—by the words as they stand, and that they therefore take the view that my Amendment is unnecessary, I shall, of course, be most happy to withdraw it. I beg to move.

Amendment moved—

Page 5, line 27, at end insert the said words. —(Lord Conesford.)

THE EARL OF DUNDEE

My noble friend Lord Conesford raised this point on Second Reading. He was not quite sure whether a couple of investment trusts would be a "diversification" within the meaning of Clause 5 (1). I replied that, with regard to the point of definition, I would prefer to leave it until later. I am advised that two investment trusts, or even one investment trust, might be regarded as a sufficient diversification, so far as the actual distribution of investments is concerned, though perhaps not with regard to the management. The word "diversification" does not signify numbers, but only, I think, width. If I tell my noble friend that I think he is a man of diverse and brilliant character, I do not mean that my noble friend is more than one man; that he is two or three men, or that he has two or three characters. I mean that he has one character which is rich in variety and free from monopoly; and I think that the same applies to an investment trust, which has a wide distribution of investments under this clause.

There is, however, another factor which a trustee should take into account. He should not only have regard to whether it is in one investment trust, or over how many different securities the investment trust has distributed its funds; he should also have regard to the size and management of the company or unit trust when reaching his decision as to the proportion of his funds which he might properly invest in this way. The Bill leaves this to the judgment of the trustees. It does not require that a trustee either shall or shall not treat an investment trust company or a unit trust as a single entity for the purpose of deciding whether or not it provides sufficient diversification. If there is any further doubt as to the meaning of the word" 'descriptions' of investment", I will certainly look into that again. I do not think that there is any doubt about it, but I see my noble friend's point: that there may be a difference between the distribution of investment and the descriptions of investment. I will make quite sure about that.

LORD CONESFORD

I think that in the last words of my noble friend he has got my point clear. My doubt is this. The actual words in the paragraph are: …sufficiently diversified as respects the descriptions of investment… If the description of investment is investment trusts, and if nothing else except two investment trusts is held, it is rather difficult to see that the investments can be described as "sufficiently diversified as respects the description of investment". That is precisely my doubt. But, on the undertaking of my noble friend, which I take to cover a consideration by my noble and learned friend the Lord Chancellor also, I shall be most happy to withdraw my Amendment.

Amendment, by leave, withdrawn.

3.59 p.m.

LORD HAWKE

This is really an Amendment suggested by my noble friend Lord Polwarth, who has had to go abroad, and who telephoned it to me from Scotland. Naturally, we were not able to discuss at great length the reasons for this particular period of two years rather than five, but I think your Lordships would agree that no conscientious trustee would allow his trust to lie unattended by good advice for as long as five years. In fact, he would probably take advice annually. For that reason, it seems reasonable that the term of two years should be inserted. I know some people would say that one year is the appropriate period but such a provision would sometimes provide unnecessary rigidity. It means one cannot extend the time for an extra month if the usual adviser is away, or something of that sort therefore I think two years is better than one year. Also two years is a great deal better than five years, so I hope Her Majesty's Government will agree to the Amendment. I beg to move.

Amendment moved—

Page 5, line 41, leave out ("five") and insert ("two").—(Lord Hawke.)

LORD KINNAIRD

I should like to say a word or two in support of my noble friend Lord Hawke. I have been a trustee probably longer than most Members of your Lordships' House, but I am sure that most of your Lordships who are trustees were surprised to see the term of five years in the Bill, and I trust the Government will remove it. If there are any lazy trustees, they can probably justify themselves in that the Government's advice to them is that once in five years is often enough. But I think that is very undesirable, and, as Lord Hawke says, that two years is better than five years.

I would suggest that one year is better than two. I do not think that Lord Hawke's problem about rigidity would really make things difficult. The intention is to have something like an annual report. I happen to be a trustee in Scotland as well, and if anyone wonders whether there is any precedent for an annual report I can say that in my country it is a very usual custom. I have made inquiries here, and I think the Public: Trustee will examine accounts annually or oftener. I believe particular institutions will examine their appointed trusts at least once in a year or oftener. To leave a term of two years in the Bill might be unfortunate, as well as leaving one of five years, as I hope the Government will agree. I think my noble friend Lord Hawke has difficulty in accepting my Amendment because the noble Lord, Lord Polwarth, is away; but I would appeal to the Government, if I am in order, and to my noble friend Lord Dundee, and to the noble and learned Viscount the Lord Chancellor, to think about the matter again and to accept one year instead of two.

Might I also just mention a matter which is on the same point. There is a sentence in Lord Dundee's speech yesterday which bears on this point and on the question of an annual report being too rigid. The noble Earl said [OFFICIAL REPORT, Vol. 227 (No. 21), col. 281]: …this Bill is designed to cater primarily for smaller trusts and the many trustees whom it affects will not have access to expert advice of high quality. I have been a banker, or have been connected with banks, for most of my life, and I should have thought one would query that remark. It is not totally true, is it? Most trustees or executors, when a will is made, will have a banking account, or they should have a banking account. Having got that account, they have the same manager, the same advice and expert opinion, as any larger trust has. I should have thought that all somebody need do to fulfil the obligations of this clause is to ask his bank manager to send him, at least once a year, a report and expert opinion. That can give rise to no difficulty of dates or holding meetings within the Government, and the bank would be responsible to give the trustee, free of charge, expert opinion annually, hope this Amendment will be considered.

LORD SILKIN

I should like to support, very briefly, what the noble Lord, Lord Kinnaird, has just said. I certainly agree that two years is a more appropriate period for review of holdings than once in five years. Indeed, I can see no safeguard for those on whose behalf a trust is held in having a review once in five years. All sorts of things can happen in the intermediate period, and there ought to be an obligation on the part of trustees to have a far more frequent review.

However, I am wholly in support of Lord Kinnaird that even two years is too infrequent, and that a yearly review is a reasonable period, especially as that can be done without putting any excessive burden on the trustees. Banks are usually prepared to give such a report as that required under the Bill. Indeed, the Bill requires very little that is onerous; it merely requires a trustee to obtain and consider proper advice. It does not even define what that advice is, but obviously, a bank would be quite adequate to give such advice. I believe that in the White Paper it was more closely defined as to whom one ought to go for advice; but I see that that has been rather widened, and it merely states "proper advice", and I think that is quite satisfactory. I think the Amendment is an improvement to the Bill, and I myself would have gone further and supported the noble Lord, Lord Kinnaird, in making it one year instead of two.

4.7 p.m.

THE EARL OF DUNDEE

I am very sorry that Lord Polwarth cannot be here to move this Amendment, but I am grateful to the noble Lords, Lord Hawke, Lord Kinnaird and Lord Silkin, for their advice. On the Second Reading of the Bill, I said that on any trust for which I was responsible I should certainly have a review much more often than once in five years. I think my noble friend Lord Hawke said that all good trustees should insist on a review at least every two years. I would agree that most good trustees on most trusts should; but if you try to apply it to all trusts, you may have some difficulties. For example, the Charity Commissioners have reminded us that there are many small perpetual trusts where the only consideration is the maintenance of income, for which frequent review would be little more than a formality and would involve the trust in unnecessary expense.

Of course, in some ways, the less likely they are to change their investments, the more likely they are to have to pay a fee for professional advice. If it were a trust which was always changing its investments, naturally the broker would give his advice free; but if it were merely a question of looking over the thing and saying, "We do not recommend any changes", possibly a fee might be charged. Besides the small charity trusts, as probably we all know, there are very small private trusts, too, whose only purpose is to see that Aunt Mary gets her£400 a year from the Canadian Pacific Railway, or whatever it may be. It might be an unnecessary burden on them to compel them every so often to consult professional advisers as to the condition of the investments.

I should like to do what I can to consider whether the present position can in any way be improved. Of course, the five years in the Bill is intended to be a maximum, a kind of long stop. What we felt was that if we had a period such as two years, there might be more danger of that being regarded as the minimum period at which it was desirable to review investments, whereas it might be desirable to review them every six months. We thought nobody could possibly imagine that five years was anything more than an extreme precaution. But I should like to look at the matter again, with your Lordships' advice.

Possibly the best course might be to omit any mention of a specific period and lay the onus of deciding when to obtain advice fairly and squarely upon the trustees. After all, trustees are not compelled to accept any advice which they get. They are required under the Bill to take advice, without being compelled to accept it. Maybe it would be more reasonable to lay upon trustees the duty of obtaining and considering this advice at such intervals as appear to them to be appropriate, without laying down any period at which they should exercise that duty. But I shall be glad to consider the matter further and hear any further representations from those noble Lords who are familiar with the management of trusts. It is not at all a question of compelling the trustees to do anything. What we want to do in this Bill is to try to persuade trustees to take advice at reasonably frequent intervals. I shall be glad to consider any improvements which noble Lords think may be made.

LORD SILKIN

Would the noble Earl consider the suggestion of having both in the Bill—namely, at such periods as the trustees think right and in any case not less often that a period of two or three years. This would not mislead any trustees into thinking that three years, or whatever period is put in the Bill, is the right period, but it would give an indication to them that they must have this review as often as they think necessary.

THE EARL of DUNDEE

But that is in the Bill now. The words such advice as aforesaid at such intervals as appear to him appropriate, are followed by and in any case at intervals of not more than five years. The question is whether we should put any maximum and, if so, what the maximum should be.

LORD SALTOUN

There is one thing I do not quite understand and should like the noble Earl to explain. Would this period be limited to those trustees who adopt the Act? Surely trustees who put their money into fixed-interest securities, probably irredeemable ones, would not have to adopt this Bill in any case.

LORD HAWKE

I am grateful to my noble friend for his sympathetic reply and because he is going to look into this matter. I think I am justified in pointing out that it is not necessarily a stockbroker who may be asked to give the advice which is required but anybody who is reasonably believed by the trustees to be able to give advice. I would regard many of your Lordships as qualified and able to give such services for nothing. Moreover it seems that one of the trustees can be one of the persons giving advice to his fellow trustees.

The one argument which I did not bring closely enough against the period of one year is that in a small trust it is probably likely to happen that the appearance of the annual accounts is going to be the time for the review of investments. These accounts may be audited by a spare-time auditor or by a very busy firm when it can find a little time to spare and often the accounts come out at irregular intervals. I should not like to put the onus of having an annual review on a trust whose accounts perhaps come out thirteen or fourteen months after the previous accounts. At any rate, I beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 5 shall be agreed to?

LORD CONESFORD

I only wish to raise one question, having regard to something which has just been said. I should like to hear from Her Majesty's Government whether they agree with the suggestion that the provisions of Clause 5 (1) are not a general addition to the law of the land. I see nothing whatever to confine the words to those who are making use of the particular powers conferred by this measure. It seems to me that the words of the first subsection are not confined in any way to those using the special powers conferred by the Bill. Obviously, this is a question of some importance and I think that we should know what the answer is at some stage.

THE EARL OF DUNDEE

I agree with my noble friend's reading; indeed, it had never occurred to me to consider that there might be any other interpretation. But I will certainly make sure that we are right.

LORD PETHICK-LAWRENCE

I should like to be clear on this point. It would be absurd for the trustees of trusts whose funds are put into gilt-edged securities to go into the investments every two or three years to see whether the portfolio was ample. I should think that what the noble Earl said applies only to cases where the trustees are using this double schedule. Otherwise, I should be strongly opposed to it.

LORD CONESFORD

May I say, in answer to the noble Lord who has just intervened, that I completely agree with him as regards subsections (2), (3) and (4), which are expressly limited to those using the powers conferred by this Bill? What I said was that the duty of trustees in subsection (1) was of general importance.

THE EARL OF DUNDEE

That was the question my noble friend asked just now, and I have verified that he is correct. In the other subsections, of course, it is stated that: they apply only to trustees exercising the powers of the Act.

LORD SALTOUN

Subsection (2) says: Before exercising any power conferred by section one of this Act to invest in a manner specified in Part II or III of the First Schedule to this Act, a trustee shall obtain and consider proper advice… and subsection (3) states: So long as a trustee retains any investment made in the exercise of such a power… I submit that this should go back to subsection (2) and not to subsection (1).

THE EARL OF DUNDEE

I think that it does only go back to subsection (2) and not to subsection (1).

LORD SALTOUN

I thank the noble Earl very much.

LORD HAWKE

Presumably that does not stop the Bill putting a general direction on trustees of all trusts to secure that their investments are diversified and suitable.

THE EARL OF DUNDEE

Subsection (1) applies to all trusts, not only to those which exercise their powers under the Bill.

On Question, Clause 5 agreed to.

Remaining clauses agreed to.

First Schedule:

Manner of Investment

PART II

NARROWER-RANGE INVESTMENTS REQUIRING ADVICE

6. In debentures issued in the United Kingdom by a company incorporated in the United Kingdom, being debentures registered in the United Kingdom and not being debentures, which, under their terms of issue, may be converted into shares.

4.20 p.m.

LORD HAWKE moved, in paragraph 6, to leave out, "and not being debentures which, under their terms of issue, may be converted into shares". The noble Lord said: I have heard a rumour that Her Majesty's Government might accept this Amendment, and therefore I will postpone wasting your Lordships' time and merely move formally. I beg to move.

Amendment moved—

Page 9, line 38, leave out the said words.— (Lord Hawke.)

THE EARL OF DUNDEE

It would not have been at all a waste of time if my noble friend had given his reasons for moving this Amendment, because the result of his self-denying ordinance is that I shall now have to give them instead; and I am sure that I shall not do it nearly so well. Convertible debentures are fixed-interest securities which give the holder the option of converting at some future date into equity shares. In view of the ultimate character of the investment it was considered that convertible debentures were more appropriate to the wider-range part of the fund. But whilst they exist as debentures it is not unreasonable to classify them as a narrower-range investment, provided it is clearly understood that when they are converted into equities they must either be sold or be transferred to the wider-range part of the fund. In the latter event a compensating transfer of property would have to be made from the wider-range to the narrower-range part of the fund. Provision for a transfer of this kind has been proposed in an Amendment I moved at our last sitting. Whilst Clause 2 (2) of the Bill will ensure that the understanding mentioned above is implemented, I agree that, subject to that, my noble friend's Amendment is justified, and, as he anticipated, I am willing to advise your Lordships to accept it.

LORD HAWKE

I thank my noble friend.

On Question, Amendment agreed to.

LORD CONESFORD moved to add to Part II: 15. In the stocks or shares of Investment Trust Companies incorporated in the United Kingdom and quoted on the London Stock Exchange.

The noble Lord said: I beg to move the Amendment that we should add a final paragraph at the end of Part II of the First Schedule to provide an additional class of investment that may be made in the narrower-range. The principal defect of the Bill, as it stands, is that what is intended to be the safest of all the funds, that is, those that are put into fixed-interest bearing securities, are actually endangered by What every member of this Committee knows to be a real danger in the modern world—namely, the decline of the currency. If, through rapid inflation, the value of our currency should be threatened, then the whole of the investments invested in the securities at present set out in Part II of the First Schedule would decline in value, and their value could vanish altogether. That is the worst defect of the Bill as it stands.

What is necessary in order to abolish what I submit is a fatal defect is to provide at least one class of equity investment in which trustees can lawfully invest the funds even in the narrower range. Investment trusts seem to me the most suitable of all such classes for this purpose. As I think all noble Lords know, they have these, among other, advantages: an excellent record of achievement over the years diversification—and generally a double diversification; a spread of risk that is both qualitative—various different industries—and geographical—interests in various parts of the world; diversification, again, in classes of securities—they hold some fixed-interest bearing securities and some equities—with, of course, complete freedom to manage their funds in the ordinary way as may seem best to their very skilled advisers. Then, again, they have highly skilled and expert managers. Equally important, they have the protection of ample reserves as a buffer against bad times. These reserves result from various features of these companies. In the first place, it is their general practice not to distribute all their earnings. Again, they have the further protection of the reserves held by the companies whose stocks and shares they hold. Lastly, they do not distribute the profits made by the appreciation of their investments, but retain them.

All this gives their securities a value which is likely to be maintained better than the values of most securities in bad times. That is why I think, if we have to select a single class of equity investments, investment trusts have the best claim to be a suitable investment for this purpose. But the main aim that I have in mind is to provide some security in this list which enables a prudent trustee, competently advised, to protect the trust funds in the event of inflation. At present there is none. What every one of us knows to be one of the principal risks to an investment in the modern world is a risk that this Bill, as it now stands, makes it compulsory for the trustees to face without having any weapon whatever against it. They simply have to see that part of their funds vanish. In the protection of our own affairs none of us would subject ourselves to such a limitation. Have we any right to do so in the case of trust funds which are of great importance to a lot of people not very well able to protect themselves? Testators and settlors desire to give additional security for the beneficiaries of their trust. It seems to me really immoral that, as regards half the trust fund, we should deny all security against what we all know to be a real risk—namely, that over the years there may be a serious depreciation, and sometimes a rapid depreciation, in the value of the currency.

In case it is objected that this introduction of a whole class is too wide, I would remind the Committee of two things. First, it is, of course, necessary as regards this investment, just as any other, that the trustees should seek advice. But further, if this Amendment: were accepted and the Government thought that it let in too wide a class, there would he no difficulty in amending the Bill further, as I indicated in my speech on Second Reading, enabling an advisory committee to be sot up (I suggested the membership) to advise the Treasury, and the Treasury to prescribe the equity investments to be added in this narrower-range.

So far as I know there are only two ways in which over the years it has been possible to protect trust investments. One of them is, in some such way as I have suggested, by investment in ordinary shares. The other one, of immense importance to this country historically, is by the holding of land. My noble friend the Lord Chancellor, in dealing with an earlier clause, explained why Her Majesty's Government had not included the holding of freehold land as a narrower-range investment. But historically landowning has been the great protection against inflation. Our great educational charities, our schools, our colleges, our universities have been able to expand their activities and functions to meet modern needs only because, on the whole, their investments have in the past been in land and, notwithstanding the long-term tendency of currencies to depreciate, the holdings in land retained or increased their value.

But we are denying to trustees this protection from inflation—namely, the holding of freehold land. That makes it all the more necessary that we should provide some escape, and I suggest that the addition of an appropriate category in this Part of the Schedule will enable us to look with comparative equanimity on what would otherwise be the unfortunate effect of this division under the Bill into these two classes. We ought not to have any class in which the trustees are compelled, against their better judgment and against the advice of their advisers, to watch their funds simply disappear because that is the obligation of the law. I beg to move.

Amendment moved—

Page 10, line 36, at end insert the said paragraph.— (Lord Conesford.)

THE EARL OF DUNDEE

In the first Amendment which my noble friend moved to this Bill last week, he proposed that the trustees should be allowed to invest seven-eighths or 87½ per cent. of their funds in equities and only 12½ per cent. in narrower-range investments. This Amendment in effect would enable the trustees to invest not 87½ per cent., but 100 per cent. of their trust funds in equities and a fortiori if we could not accept my noble friend's first Amendment, which I was sorry not to be able to do, we clearly cannot accept his second Amendment, which goes even further in the same direction.

The arguments of my noble friend on every occasion, as I have tried to indicate, nearly amount to saying that trustees ought to be prohibited from putting any of their money at all into trustee stocks. It is indeed an interesting commentary on the investment pattern of the present age that this contention can seriously be put forward. My noble friend said just now that it was a scandalous injury on the beneficiaries of a trust that we should not rescue them from the ruin which they would suffer by having any money in trustee stocks. I think my noble friend said that it was a very wrong thing, and that we had no moral right not to rescue them. Of course, having regard to the change in relative value between trustee stocks and other investments, one can quite see that point. On the other hand, there have been periods, such as the '30s, in which the value of investment stocks went down nearly to nothing, even though they were well spread, and possibly some trustees who had established these trusts might not have wished the whole of the funds to be put into equities.

My noble friend's Amendment accepts shares or stocks of investment trust companies incorporated in the United Kingdom to be included in the narrower-range half of the investment. The obvious question arises: how are you to distinguish between one investment trust from another, or are you to put them all in the narrower range, whatever their merits may be? My noble friend's solution of that, which he gave on Second Reading and has partly repeated now, is that he would have an advisory committee on which there might be representatives of such bodies as the Bank of England, the Stock Exchange, the Public Trustee, the Investment Trusts Association and one or two other bodies. But I wonder whether your Lordships do not consider that the Treasury, and all those represented on the advisory committee, might be placed in rather an invidious position in having to distinguish between the merits of different companies. Do your Lordships think it would be desirable for the Government to lend itself to a scheme which would involve a continuous review by such a committee of the affairs of all kinds of companies in the United Kingdom? It seems to me it would come very near to the Government giving market tips.

I would go as far as this in agreement with my noble friend. I will frankly admit that, if I were creating a trust now, I would most certainly give the trustees power, if they thought right, to put all the funds into investment trust companies, and I would not mind preventing their putting any into gilt-edged. But that is my opinion only, and I do not think we can assume that people whose trusts we are now altering, contrary to their express intentions, would have wished us to go quite so far as that. We have assumed that they would wish us to do something, and we have done something. We have released one half of the trust funds from the limitation of the 1925 Act, and in regard to the other half, although we have kept them in the narrower-range securities, we have somewhat limited the kind of investments which are defined in the First Schedule into which they can be put. But I am afraid that to accept this Amendment would undermine the whole basis upon which the Bill is drawn up.

LORD CONESFORD

My noble friend is, of course, right that the problem with which I attempted to deal in the first Amendment which stood in my name is not dissimilar to the problem with which I am attempting to deal now. I do not think he is right in saying that the effect of this is even mare extensive than the other, because, of course, investment trusts themselves contain a great many fixed-interest bearing securities. However, I shall not inflict myself for long upon the Committee at this stage. I wish merely to correct what is, although I know that it is unintentional, a complete misrepresentation of my attitude. I am not in the least against gilt-edged investments always and at all times. If I had any trust funds to invest at the present moment, I should do my best to get my fellow trustees to agree that the best investment into which the funds could be put would be a British Government security standing well below par and due to be paid off at par in a few years' time. I am not in the least against gilt-edged securities at all times and in all circumstances. What I do say is morally wrong is not that people should invest in gilt-edged securities, but that trustees should ever be compelled by law to invest their funds in something that is depreciating before their eyes, and that they may believe will lose its value altogether.

If we leave this Part of the First Schedule as it stands, there is no protection whatsoever for this part of the trust funds in the event of a depreciation of the currency. We all know that over the next 36 years, or whatever time elapses before there is another Bill of this kind (that is the period since the last Bill of this kind), there may be a depreciation of our currency. I say that it is morally wrong for Parliament solemnly to ordain, as it will be ordaining by the Bill in its present form, that what is half the trust fund at the time of the division shall be irrevocably lost in such circumstances, whatever the trustees and their advisers may do, by the simple operation of the law, and a law passed in 1961 by a British Parliament.

THE EARL OF DUNDEE

I quite appreciate the distinction which my noble friend has just drawn between his attitude towards gilt-edged stocks and that which I perhaps unthinkingly attributed to him. I entirely see the reasoning which has prompted that distinction.

LORD PETHICK-LAWRENCE

May I ask one question of the noble Earl? Does he really consider that the Government are prepared to do what the noble Lord, Lord Conesford, suggests—namely, allow Government stocks, even if they are undated, to go down in the words of the noble Lord, Lord Conesford, to practically nothing? Do the Government consider that they have no obligations? If the noble Lord, Lord Conesford, is to be believed, he anticipates that it is quite likely Government stocks will go down to absolutely nothing. Will not the noble Earl say that in no circumstances will the Government accept a suggestion of that kind?

THE EARL OF DUNDEE

When my noble friend said they might go down to nothing I took it he was indulging in hyperbole, without meaning your Lordships to accept it literally. Of course, if you take undated stocks, when prevailing rates of interest are 5 per cent. they may be at one figure, and if the rates of interest go down to 4 per cent. Government stocks are bound to go up, and if the prevailing rates of interest go up to 6 per cent. Government stocks are bound to go down. It would be an enormous, quite unimaginable change that their value should go down to nothing. I think what my noble friend meant was that not only do they sometimes go down but their value in relation to other stocks gets relatively less, owing to the fact that the value of money has declined in this country during the last twenty years. I am sure he did not mean to say that the value of Government stocks might literally go to nil; but that is something that could happen in the case of equities.

LORD PETHICK-LAWRENCE

We have seen Government stocks going down and down, and I have constantly pointed out to the Government that this has been due to their own policy of high bank rate. Now we have the suggestion that the figure at which they are standing at the present time may be a high-water mark, and that things will be going down and down in the future. I think it is about time the Government gave some hope to holders of Government stocks, who invested in them patriotically, at the request of the Government, that they are not going to be treated in the appalling way the noble Lord suggested. If the noble Earl is not going to make some greater protest against that possibility I think it is a very serious accusation against the Government, of which he is a leading figure.

LORD CONESFORD

Needless to say, that was not my point at all. I was not referring to the market price of stock, a matter on which the noble Lord, Lord Pethick-Lawrence, has so admirably explained his attitude on previous occasions; and I must say that with a good deal of what he has said I had myself the greatest sympathy. I was not referring to the value of Government stocks as measured in their market quotation. What I was referring to was the value of the pound. I am quite certain that any Government which I support, such as Her Majesty's present advisers, will do their best to protect the currency. I am quite certain that would be the intention of any Government the noble Lord opposite would support; I take that for granted. But it still remains a serious thing to enact by law something that makes trustees quite helpless in the event of some future Government behaving less well than he or I would like, and if there were a threat to the currency there ought to be some wise action that trustees could lawfully take.

LORD PETHICK-LAWRENCE

With all due respect to the noble Lord—I am sorry to interrupt again, and I will not press the matter further—the logic of his argument is something quite contrary to what he suggests. This Bill is not forbidding trustees to do anything they have had the right to do, anything they could do before. Whether he is dealing with the fall in the value of the pound or with the fall in the value of the market terms of Government securities, the effect is the same. He is inviting persons in the country who have invested their trust stocks in Government securities to consider that they are liable to lose the whole value—not literally, but going down to practically nothing, whether from inflation or depreciation of the stock market value; and I suggest that is a deplorable suggestion to come from any Member of your Lordships' House.

On Question, Amendment negatived.

First Schedule, as amended, agreed to.

Second Schedule agreed to.

Third Schedule [Repeals]:

THE EARL OF DUNDEE

Section 11 of the Trusts (Scotland) Act 1921, defines colonial stocks in which trustees may invest. That section is being repealed and re-enacted in the present Bill, for reasons which I explained to your Lordships on Second Reading. Section 2 (3) of the Colonial Stock Act, 1948, makes provision for extending the definition of colonial stocks in the Trusts (Scotland) Act to include stock issued by authorities established for controlling or administering matters of common interest. That is no longer necessary, as stock of this kind is now covered by paragraph 4 of Part II of the First Schedule to the present Bill. Subsection (3) of Section 2 of the Colonial Stock Act, 1948, can therefore be repealed, which is done by this Amendment. I beg to move.

Amendment moved—

Page 14, line 37, at end insert—

("12, 13 & 14 Geo. 6. c. 1. The Colonial Stock Act,1948. In section two, subsection (3).")
— (The Earl of Dundee.)

On Question, Amendment agreed to.

THE EARL OF DUNDEE

The effect of this Amendment is to repeal paragraph 9 (1) of the Schedule to the Cyprus Act, 1960, for reasons which I mentioned on Second Reading. I beg to move.

Amendment moved—

Page 14, line 57, column 3, at end insert ("(1)").—(The Earl of Dundee.)

On Question, Amendment agreed to.

Third Schedule, as amended, agreed to.

House resumed.