Lords Sitting of 22 November 1966

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

FREIGHT LINER TRAIN SERVICE
2.36 p.m.
LORD CONESFORD: 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 whether they can now inform Parliament of the date on which the freight liner train service will be operated on the basis of open terminals.]
THE MINISTER WITHOUT PORTFOLIO (LORD CHAMPION): My Lords, since the noble Lord last raised this subject on July 28, the trade unions concerned have agreed that the freight-liners on the London-Glasgow route should be served by British Road Services vehicles. Eighty-four containers were carried for British Road Services in the week ended November 12 out of a total number of 1,124 carried on all freight liner services. Her Majesty's Government are confident that this co-operation will be extended to other routes, and negotiations to this end are continuing with the unions.
LORD CONESFORD: My Lords, does the Minister agree that this is not an operation on the basis of open terminals, which the Prime Minister has stated is the determination of Her Majesty's Government? Does he recall that the last time I asked this question the answer he gave was, "Soon"? Does he further remember that negotiations with the trade unions have been proceeding. for over two and a half years? That being the case, can he forecast the date, to the nearest year?
LORD CHAMPION: My Lords, I remember all the things that the noble Lord has asked me, because in fact I have looked them up to see what I said
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last time, and I agree that I said, "Soon". My Lords, "soon" is a word which of course one has to define, and I am not going to define it here. What I am bound to say is that I agree completely with the noble Lord, Lord Conesford, that the sooner we can achieve this the better. There is no sudden, sharp action which the Government can take which will bring it about, but my right honourable friend the Minister of Transport is persisting in her efforts, and indeed met one of the important unions in this connection yesterday. I hope the result of this will become obvious to us in a couple of days. But we are genuinely trying to do this, always having regard to the fact that it is not quite so easy in a democracy as it might be in some other form of society.

RETRAINING IN WALES
2.38 p.m.
LORD ABERDARE: 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 what plans they have for the expansion of retraining facilities in Wales.]
LORD CHAMPION: My Lords, there are two Government training centres in Wales: one at Cardiff with 306 training places and the other at Llanelly with 189 training places. Under the current expansion programme a further 60 places will be provided at Cardiff by February, 1967, and a further 22 places will be provided at Llanelly next year—10 by February and 12 by mid-1967. My right honourable friend the Minister of Labour said on October 24 in another place that he is already considering a further programme of substantial expansion of the Government training centres.
LORD ABERDARE: My Lords, I am grateful for that Answer from the noble Lord, which is slightly encouraging, but I would ask him whether he is aware that the President of the Confederation of British Industry, who no doubt was aware of these forthcoming increases, recently said that these would not be able to meet future demands and that it was absolutely essential that these retraining facilities should be greatly increased. Would the noble Lord not agree that,

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with the further closing of the coalmines, the decline in manpower in the steel industry and the rising unemployment in Wales, it is extremely urgent that really radical increases should be made?
LORD CHAMPION: My Lords, I agree with the noble Lord. We certainly do want this fairly rapid expansion, and that is why the Minister of Labour answered in the terms that he did on October 24. But here again it is a matter of not being able to do things in a great hurry. Preparations have to be made, the buildings have to be there, the people have to be trained who are in turn to train others. So we cannot expect a rapid explosion in this expansion, but we certainly agree that we need it.
LORD BYERS: My Lords, does not what the noble Lord has said prove that there was no contingency planning in July of this year for such things as retraining which are absolutely basic to an incomes and prices policy?
LORD CHAMPION: My Lords, I would not agree with that. Perhaps I shall have to debate this with the noble Lord on his Motion which is down for December 7.
LORD BRECON: My Lords, would the noble Lord not agree that both Cardiff and Llanelly were provided for by the previous Administration and that since this Government have been in office there has been no dynamic action at all in providing more training centres, and in particular nothing has been done in North Wales?
LORD CHAMPION: My Lords, I agree about Llanelly, but I am not too sure about the centre at Cardiff, which has been in being since 1945. I am not too sure who was responsible for that, but I should imagine it was the Coalition Government.
LORD BRECON: My Lords, I would add that it was moved from where it was to a much larger and more extensive place under the last Administration.

TELEPHONE TAPPING AND PARLIAMENTARY PRIVILEGE
2.41 p.m.
LORD BALFOUR OF INCHRYE: 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 whether the administrative decision announced by the Prime Minister extending Parliamentary privilege of Members of the House of Commons by exemption from any properly authorised telephone tapping extends also to Members of the House of Lords.]
THE LORD PRIVY SEAL (THE EARL OF LONGFORD): My Lords, as my right honourable friend the Prime Minister made clear in another place on November 17 the Answers he then gave to Questions on this matter did not, nor could they, affect the privileges of Parliament. The House will also recall that on that occasion my right honourable friend made it clear that the answering of Questions on this subject was most exceptional and in no way detracted from the normal practice whereby Ministers are unable to answer Questions relating to these matters. I am, however, authorised to say, exceptionally, that the statement the Prime Minister then made extends to your Lordships' House.
LORD BALFOUR OF INCHRYE: My Lords, may I ask the Leader of the House to accept my thanks for that Answer, and add that if privilege goes to one House it should go to the other, but in my own view it would be far better if neither House had this particular privilege?
THE EARL OF LONGFORD: My Lords, I suppose I must regard that as a qualified vote of gratitude.
THE EARL OF SWINTON: My Lords, may I ask the Leader of the House to treat this matter a little more seriously? Is it not an established rule that neither House, the Members of neither House, can claim new privileges? And would it not be an entirely new privilege, whether claimed, as I am sure it would not be by any Member of this House or by a Member of the House of Commons,

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or not claimed, that they should not be subject to the ordinary law of the land?
THE EARL OF LONGFORD: My Lords, I am afraid I cannot agree with the noble Earl that this is an extension of Parliamentary privilege.
LORD HAWKE: My Lords, may I ask the noble Earl the Leader of the House whether, looking at the history of the last 700 years, he would not agree that it would be most unwise to give Parliament this particular privilege?
THE EARL OF LONGFORD: My Lords, I have not had time since luncheon to look at that.

PRICES AND INCOMES WHITE PAPER
LORD SHEPHERD: My Lords, at a suitable moment after 3.30 I shall be making a Statement on the Prices and Incomes White Paper.
HOUSING (SCOTLAND) BILL [H.L.]
Read 3a (according to Order), and passed, and sent to the Commons.

COMPANIES BILL [H.L.]
2.45 p.m.
Order of the Day for the Second Reading read.
THE LORD CHANCELLOR (LORD GARDINER): My Lords, I beg to move that this Bill be read a second time. In so moving, I think that my first words must be words of thanks to Lord Jenkins and the members of the Company Law Committee. We are all very indebted to them for the considerable amount of work which they did in this field and of which, in a sense, this Bill is a child. Of course, as economic and social conditions change so the law has to change to meet them. Our Company Law has always been elaborate, and the Jenkins Committee, in the introduction to their Report, say:
"This elaboration of the law can generally speaking he fairly justified as having been found necessary in order to keep effective control over the growing and changing uses of the company system as an instrument of business and finance and the possibilities of abuse inherent in that system."
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The same point was put slightly differently by my noble friend Lord Chorley in a chapter on Company Law in a book called Law Reform Now, when he said:
"Limitation of liability, in its inception a convenient method of joining a number of small investors with a common interest in a particular venture and insulating them from the risks of the venture and the travails of management, became a means to defraud investors, bilk creditors and evade taxation."
From our main Companies Act, originally of 1908, after a lapse of 21 years the time had come for a radical revision of our Company Law, and so we had the Act of 1929. Another 18 years passed, and then again, in the Act of 1947, consolidated in 1948, we had another major revision. Since then another 18 years have passed and the time has come for us to see what revisions are necessary in our Company Law in consequence of changes which have taken place meanwhile. To my mind this should not be a question of Party politics. We are revising a piece of our law as a whole. There will always be room for differences of opinion. For example, so far as directors are concerned the Institute of Directors consider, I rather think, that we have gone too far, while the City as a whole think we have not gone far enough.
The Bill is in four Parts, of which the first Part deals in the main with duties of disclosure, the second Part deals with insurance companies, the third Part deals with banking and money-lending companies, and the fourth Part with miscellaneous provisions. I think that nearly all the points on which there may be differences of opinion are in substance contained in the first Part, and I should like, if I may, to take the less contentious Parts first. This means taking the Bill from back to front; but at any rate it will make a change.
I do not think that in the five clauses of Part IV there is anything to which, for the purpose of Second Reading, I need draw your Lordships' attention. They relate almost wholly to repeals or amendments of detail which are consequent upon the provisions contained in the first three Parts. Part III deals with the distinction between banking companies and money-lending companies, Section 6(d) of the Money-lenders Act 1900 having exempted from the provisions of the Act persons bona fide carrying on the business of banking. We all know

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what is the difference between a bank and a moneylender. A moneylender is a man who lends his own money, usually at some risk, because if you have securities you go to a bank and not to a moneylender. But if he sees that the would-be borrower is in a responsible position, earning a settled income he is prepared to take his risk. A bank, on the other hand, is an institution into which you put your money for safe keeping, and, quite naturally, they charge you for it. Then, the moment your back is turned, so far from keeping it in safe keeping they go and lend it out to somebody else, out of which they make some money, and they do not usually take any risk because they lend money only on good security. This is primarily why, whether there is a slump or a boom, whether times are good or bad, almost the only people who are never affected are the banks.
The result of all this, for some reason that I have never quite understood, is that everybody agrees that banks are frightfully respectable people and moneylenders are frightfully disrespectable people. In consequence, great difficulties are put in the way of moneylenders who are not banks. They have to get a licence. Their contracts all have to be in a particular form, and if they move a foot wrong the whole thing is illegal and they cannot recover the loan. So it is important to distinguish between the two.
In former limes there was no difficulty, but in later times we have had merchant banks, finance houses, discount houses, and hire-purchase companies. If you want to buy a car and have not the money to do so, what you do in fact is to go to a hire-purchase company and borrow the money from them, on terms that you repay it by installments, they having the right, if you default in your payment of instalments, to come and take the car away. I said "in fact", because that is not at all the view which your Lordships' House formed some years ago, as a matter of law, and it is now too late to alter it. The law on the subject is that instead of being, as it plainly is, a contract for sale on credit terms, you are really only hiring the car from the company, they having never seen the car at all, and it is not until you have paid the final shilling that you can be said to be buying it.
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Whether, in those circumstances, hire-purchase companies are moneylenders or not might, I suppose, be open to some controversy. In February, a case came before the Court of Appeal and it was contended that the United Dominions Trust (an old, most able and respectable hire-purchase company), who were the plaintiffs, were moneylenders. In the course of his judgment, the learned Master of the Rolls, Lord Denning, said:
"It is very desirable that the public should be able to distinguish between bankers and moneylenders. The UDT have only succeeded in this case because of their reputation and standing in the City of London as hankers. If any other concern should wish to be regarded by the courts as bankers, they ought to ask the Board of Trade for a certificate that they should be treated as bankers".
The Board of Trade, in fact, have no such powers. They can give a company the equivalent of a certificate when they are satisfied that it should be treated as a banking company for the purposes of the Eighth Schedule to the Companies Act, 1948; that is to say, as to accounts. But the Board of Trade have no other power to issue a certificate of the kind suggested by the learned Master of the Rolls.
However, it is extremely important that there should not be any uncertainty in this field. If any bona fide hire-purchase company were to be held to be a money-lending company, all of their loans outstanding would be illegal and they would be unable to recover any of them. The purpose of Clause 81, therefore, is to end the present uncertainty by stating that a person is exempted from the provisions of the Money-lenders Acts if he has satisfied the Board of Trade that, as a person carrying on his business of banking, he ought to be so exempted. The clause provides for such an exemption being retrospective. It would be possible, in, say, August, 1967. to exempt a person from an earlier date. If that were not possible, it would leave room for doubt as to whether, in the period before the exemption was given, the company was not, after all, a money-lending company. That is what Clause 81 does. It also improves the definition of companies carrying on a banking business which is contained in the Act of 1900. Clause 82 repeals Section 1 of the Moneylenders Act, 1911. This was a provision which related only to loans under agreements made before January 1, 1928. We do

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not think there are many loans outstanding now which were made before January 1, 1928. If the moneylender has not got his money back in forty years he probably will not get it back now.
Part II of the Bill relates to insurance companies. As your Lordships know, in the case of the Fire Auto and Marine Insurance Company, and one or two others, we have recently found that our citizens have been led to insure in companies which, when a loss arises, are found not to have the means to pay. Not only is this a great hardship on the person who is insured, but it may also, particularly in road traffic cases, be an even greater hardship on the unfortunate plaintiff who has been awarded damages, if he cannot get the damages which he has been awarded. There are few other Western countries in which insurance companies do not have to be authorised before they start business, and accordingly Clauses 44 and 45 provide that, while existing companies will be automatically authorised in relation to their existing classes of business, new companies can start in the insurance world only at the discretion of the Board of Trade. Clause 46 provides that their assets must exceed their liabilities by £50,000, and that if they have a share capital at least £100,000 of the share capital must be paid up.
Clause 47 provides for suitable reinsurance arrangements; Clause 48 that only persons who are fit and proper persons to start insurance companies will be allowed to do so. Clause 49 is one under which the Board of Trade may impose conditions on the investments in which an insurance company's money may be held during its first five years. Clause 50 provides that if the Board of Trade is doubtful about the affairs of an insurance company it can order the company not to undertake new business of a specified class or classes.
Clauses 52 to 57 deal with the accounts of insurance companies. Clause 58 doubles what may be called the solvency margin, and Clause 59deals with the methods of seeing that that margin is maintained. Clause 60 removes the present position by which the Board of Trade cannot petition for the winding-up of an insurance company without the leave of the court. Clauses 61 to 64
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give the Board of Trade the same powers of investigation of insurance companies as they have under the Protection of Depositors Act 1963. Clauses 65 to 72 deal with the enforcement of the previous provisions, and Clauses 73 to 79 with minor miscellaneous matters. It is in the belief that there is really nothing in all this on which there is likely to be any dissent of principle, and in order to leave myself time to deal more fully with Part that I have passed over the clauses to which I have referred without going into matters of detail upon them.
Now I come to Part I, which perhaps raises the only question that is likely to be controversial. It deals in the main with what limited companies ought to disclose. Your Lordships may know that in February a Second Reading was given to a Companies Bill in another place, but then came the General Election as a result of which that Bill fell. Complaints were made during the discussions on that Bill that it did not go far enough. It was said there was nothing about directors' share dealings. Well, there is now, in this Bill. Then it was said that the Bill dealt only partially with the subject of contracts in which directors were interested. This Bill deals with that subject fully. Then it was said that the earlier Bill said nothing about directors' contracts of service. This Bill does.
Another criticism of the earlier Bill was that, so far as insurance companies were concerned, it dealt only with the form of accounts which they ought to keep. This Bill deals with them fully. Further, there was nothing in that earlier Bill relating to businesses akin to the business of banking, whereas Part III of this Bill now deals with that subject. Then it was said that that Bill had not dealt with the exemption of shipping companies from the other provisions. This Bill does so. Another criticism voiced on that Bill was: you have not dealt with the fact that a partnership cannot consist of more than 20 members. This Bill deals with that subject. Then it was said: you have not dealt with the question of nominee shareholdings. The Government said that that was a very difficult question and that any clause which was to provide for disclosure of nominee shareholdings would necessarily have to be a very complicated one. In this Bill we have done our best to cope with that matter also. The result

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is that while the earlier Bill was a Bill in 45 clauses, this is a Bill of very nearly double the length, with 87 clauses and 6 Schedules.
The first matter is that which is the subject matter of Clause 2. If some companies ought to file their accounts at Somerset House, which companies ought to have this obligation? Clause 2 says all of them. As your Lordships will remember, this matter has something of a history to it. Originally, in 1908, Parliament said:" Well, it is really quite simple. There are public companies and there are private companies. The private companies are just small family businesses, and we need not trouble with them." They said that public companies must file their accounts, but private companies need not do so. Subsequent experience showed that the view that private companies would merely be small family businesses was quite wrong, and that a lot of very funny things were going on under the hat of the private company. As a result, in 1947, Parliament had another look at this matter and said, "We will split them into three: public companies, private companies and exempt private companies. Public and private companies should file their accounts, but on our definition of exempt private companies they will be only small family businesses, so we do not have to worry about them.
After a further period of time, the Jenkins Committee went into the matter and found that a lot of funny things were going on in exempt private companies, and that, so far from their being small family businesses, about 75 per cent. of all limited companies were exempt private companies. The Committee recommended, and the Government agree, that all limited companies should now have to file their accounts. The accounts of all companies are, of course, of interest to shareholders, to customers and to employees who may find themselves left with nothing but a claim for their wages in a winding-up.
The principle of the matter, it seems to me, is this. Although limited companies have undoubtedly been of the greatest use in the development of our economy, they are, nevertheless, an enormous privilege. You are saying to
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people: "You lot can get together; you can start a business, and you can engage in trade. If the result of the whole thing is that you have got a lot of creditors whom you cannot pay, don't worry. Nobody is going to take away your house, nobody is going to rummage about in your bank account. You will be quite all right. All you have to do is to start another limited company." It is because this great privilege is given to people who operate limited companies that it is only right that one thing, at least, they can do in return is to file their accounts. All companies must have an annual account. All they are being asked to do is to send a copy of their annual account to the Registrar of Companies. Unlimited companies will be under no such obligation, and the Bill contains provisions at the end enabling registered limited companies to become unlimited companies, and unlimited companies to become limited companies. Those provisions are in Clauses 31 to 33; but if people want to have this great privilege it is not, I suggest, too much to put a duty on all companies to file their accounts.
I think that most lawyers and accountants would agree that, apart from any other factor, the exempt private company has really been the backbone of all the most successful tax frauds and tax evasions that there are. I remember a colleague of mine telling me that he had just had a conference with a client whom he was advising about something or other. At the end of the conference, he said to his client, "Now the conference is over, and I know you are paying me to advise you, and I am not paying you. But as a matter of interest I should be very concerned to know this. I see that your income is almost exactly the same as mine"—I think it was about £20,000 a year—"By the time we have paid income tax and surtax, that is £15,000, we have £5,000 left, and we both know what can be done with it to-day. I have a Rover car, and I am all right, but when I look at your expenses I see that you have a Rolls Royce and a Bentley, as well as a yacht. How on earth do you do that on this income?" The client replied: "Well, I have the best accountant in London, and I do what he says. He has provided me with twelve exempt private companies, and the whole thing is frightfully involved. The yacht belongs to

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an exploration company, and it is all so complicated that the Inland Revenue do not seem to be able to puzzle it out. As a matter of fact I have not paid any tax for six years, and my accountant tells me that as long as there is a letter on the file to answer the Inland Revenue seem quite happy."
The next group of clauses, Clauses 3 to 14, and Schedule 1, deal with disclosure in the accounts of the company and also with the qualification of auditors. It was always one of the problems with the exempt private company that the auditor did not need to have any qualification or to be independent of the company. Clauses 3 and 4 relate to disclosure of subsidiary and associated companies, and by Clause 5 a subsidiary company must say which is its ultimate holding company. Clauses 6 to 8 deal with the remuneration of directors and provide that the chairman, or anybody who is paid more than the chairman, must state what his income is, and that others, as well as employees earning over £10,000 a year, can be put in bands of remuneration. The system of bands is, in fact, what is done in the nationalised industries: one finds the chairman's remuneration, and then that of the other directors in different bands.
A director must also say if he has waived his remuneration. This is of some importance, because otherwise somebody looking at the accounts may say, "Well, the directors are not being paid very much", entirely ignorant of the fact that, whereas he would think that next year their remuneration would be the same, of course if they waived a large part of their remuneration this year their remuneration next year would be very different.
I do not know why this has become controversial. We live in days when there is an incomes policy, and everybody's income is very interesting to everybody else. Why not'? The vast majority of our people are weekly wage-earners and they know what their income is and. for that matter, what their take-home pay is. This can he seen in the reports of the Ministry of Labour and as a result of trade union organisation. Everybody knows what everybody in the Armed Forces is paid, from the private to the
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Field Marshal. Nobody thinks it is infra dig. for people to know what the Field Marshal is paid. Everybody knows what everybody in the Civil Service is paid. Many a wife, I expect, has been grateful to Whitaker's Almanack. Everybody knows what the Lord Chancellor is paid.
Why, then, should we have this privileged group of people, company directors, who are so extraordinarily shy about people knowing what they earn? I believe I am right in thinking that in America the remuneration of every company director has always been published for the last thirty years, and I cannot myself see any reason—we seem to have been very accommodating about the bands; and, of course, one should always be accommodating—why whatever remuneration any director gets should not in fact be known.
Matters of detail as to the accounts are now contained in the Eighth Schedule to the 1948 Act. Clause 9 and Schedule 1 to this Bill propose certain changes in that Schedule, and Schedule 2 to this Bill is a Keeling Schedule; that is to say, Schedule 2 shows what Schedule 8 would look like if the Amendments proposed in Schedule 1 were carried. Schedule 1 also contains an exemption for shipping companies. This was considered by the Jenkins Committee in relation to the exemptions which exist regarding matters to be contained in accounts for shipping companies. The Jenkins Committee were of the opinion that these exemptions should be abolished. The Government are not sure about that. They are not sure that there may not he one or two shipping companies which, for good reasons and in the national interest, ought perhaps not to have to disclose certain matters in their accounts, and accordingly, in Clause 9 and Schedule 1, the question is left to the good sense of the Board of Trade.
Clauses 10 to 14 contain miscellaneous matters—dealing in particular with the qualifications of auditors—and Clause 12 deals with the subject of whether banking and discount companies should also be exempt from some of the provisions which apply to others in relation to their accounts. This was a matter on which the Jenkins Committee were divided in opinion. The majority were in favour

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of retaining the exemption, with some reserved discretion on the part of the Board of Trade. Under the Bill it is left to the Board of Trade, who, frankly, have not yet made up their minds. Discussions on the point have taken place, and are still taking place, between the Board of Trade and banking and discount companies.
I come to the group of clauses, Clauses 15 to 23, which deal with disclosure which is to be made, not in the accounts but in the directors' report. Clause 16 deals with contracts in which directors are interested, and with directors' dealings in the shares of their companies. Clause 17 provides that the directors' report should state what is the turnover of the company in each class of business, and I shall come back to this in a moment.
Clause 18 provides that any contributions over £25 for political or charitable purposes must be disclosed in the report. Clause 19 provides that the report must state the amount of the company's export business if its turnover is over £20.000 a year. Clauses 20 to 22 are subsidiary points, and Clause 23 deals with the shareholders' rights to copies of the directors' report. In this group of clauses there are one or two points which may be open to some controversy.
May I say a word, first, about the requirement that the directors' report should state the turnover and the export business? It is suggested, as I understand it, that if, for example, a limited company here had really only one customer somewhere abroad, this requirement would tell the company's customer much too much about its business. This sort of practical point I shall leave to my noble friend Lord Brown, with his practical experience. But the answer, I suggest, is that if you are a company which has only one customer, he knows it anyway. This is the sort of information which it is necessary for Governments, "Neddies", E.D.C.s and trade associations to know in the days in which we live.
With regard to the provision for disclosure of exports, I understand it is said that this is, or may be, rather hard on some companies which manufacture a lot of parts which some other company then assembles into a machine and exports.
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But the Government and these trade associations are mainly concerned about the actual exporting companies; and, of course, there is nothing whatever to prevent a company which makes the parts from saying in its directors' report, "We are making a good effort to help the export trade, because such-and-such a proportion of our business consists entirely of making parts to sell to other companies, which they in turn export."
Then there is the question of political and charitable contributions over £25. Here I do not understand what the objection is. This is not, after all, the directors' money that they are giving away it is the shareholders' money. The Bill does not provide that they may not do so without the approval of shareholders. All it says is that when they have done so they ought to tell the shareholders what they have been doing, and I should have thought, with respect, that there could be no reasonable objection to that. I can well understand that, if three out of four directors happen to be supporters of the Labour Party, Conservative shareholders might be annoyed if they find their money being given away to the Labour Party. At all events, it is right that they should know. What seems wrong is that a shareholder writes to the directors and asks, "Have you been giving money away to any political Party, and if so which?", and receives the answer, "We shall not tell you." Of course, so often things work all right unless they are overdone.
Your Lordships may remember that in the General Election in October, 1964, the Conservative Party spent £750,000 on Press posters and Press advertising, the steel companies spent £1,250,000 of their shareholders' money on anti-Labour propaganda, Aims of Industry £370,000, and the Economic League £250,000. Then British United Industrialists was openly formed for the purpose of getting directors to give them grants and funnelling them to Conservative Party headquarters. As I have said, this is not directors' money; it is shareholders' money. I should have thought that the least we can do is to provide that, at any rate after the event, shareholders are told how much of their company's money has been given away, and to whom. In a sense, much the same thing applies to charities. Nobody wants to

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stop companies from making reasonable donations to charities, and I should think that the shareholders of any shipping company who found that their board was not making reasonable contributions to seamen's charities would think that they ought to do so. On the other hand, if very large sums of a company's money were being given to Moral Rearmament because three out of the four directors happened to be believers in that, the shareholders might very well object, although I expect that is a charity.
Clauses 24 to 28 are other provisions affecting directors. Clause 24 prohibits directors from getting themselves options on shares. Clause 25 provides for the disclosure of directors' contracts with the company in which those directors are interested. Clause 26 provides for the disclosure by directors of their holdings in the shares and debentures of the companies of which they are directors; and Clauses 27 and 28 provide for the availability of this information at the company's office.
That leaves Clauses 29 and 30. These clauses provide an obligation on the beneficial owners of 10 per cent. or more of the shares of a company to disclose who they are. I did say that when the absence of a provision of this kind in the February Bill was commented on the Government said that it was going to be a rather complicated thing to do—and I think it is. As to whether we have provided for this exactly correctly in these clauses, we shall of course listen to the views of your Lordships and will welcome any Amendments which are genuinely intended to improve the drafting of the Bill.
As I understand it, it is still said in some quarters that even this Bill is not enough: there are still other recommendations of the Jenkins Committee, for example, which this Bill does not include. This Bill is only a first instalment. It is the intention of the Government to introduce a further Companies Bill in the lifetime of this Parliament. If it is asked, "Why do you not do the whole thing now?", it is because it must be for each Government to decide how much Parliamentary time in a particular Session they can allow for reforming the law in any one field, and this is all that can be allowed in this Session. But it is
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a substantial meal. The Government will hope to be able to deal in the other Bill with the question of the protection of minorities; with the powers of the Board of Trade to investigate company affairs; and, perhaps, with the very relevant question to-day—as the success or failure of a company naturally depends so much on those who work for the company, the employees—of whether they ought not to have a more settled place or places on the board of directors of the company by which they are employed than English law allows them now.
It has sometimes been said that this Government have not always taken enough time in the drafting of the legislation which has been put before Parliament. It is because they want further time to consider these matters that they are introducing this Bill as a first instalment; and, in any case, it is not always wise to eat too large a meal at one time. This Bill, after all, has 87 clauses and six Schedules, and is just on 100 pages long, and I suggest it is quite enough for the time being. If, nevertheless, the noble Lord, Lord Erroll of Hale, or the noble Lord, Lord Drumalbyn, still say, "You ought to have covered much more ground", I must say that our reply will be—with every courtesy, of course—"Look who's talking!" In the last 36 years we have had only two Acts to reform our Company Law: that of 1947, consolidated in 1948, which was during the term of office of a Labour Government, and now this Bill is brought forward in 1966, again by a Labour Government. The Conservatives have not been wholly out of office in those 36 years, and it is strange that this passion for reforming our Company Law on an enormous scale seems to exist only when they are in Opposition.
I say nothing about "thirteen years", because I know that that is not a popular subject, but it is a fact that the Jenkins Committee reported in May of 1962 and that the Conservatives then had until October, 1964—two years and five months—with nothing much to do, except to create the worst adverse balance of trade in the history of the country; whereas we have not been in office yet, under both this and the last Government, for as long as two years five months.
LORD OGMORE: It seems so.
THE LORD CHANCELLOR: I hope so. My Lords, I was looking last night at the debates on the 1947 Bill, and I saw that, among the old faces—or familiar faces; I must not say "old"—assisting the Lord Chancellor in the Committee stage at that time (and an enormous number of Amendments were put down) was my noble friend Lord Chorley. There were also notable contributions from my noble friend Lord Latham; from the noble and learned Lord, Lord Simonds, as he then was; from the noble Lord, Lord Saltoun; from the noble Lord, Lord Hawke, coming in on a number of occasions on the question, "Whether the clause shall stand part?"; and the noble Lord, Lord Man-croft. I felt even more at home when I saw that between the dates of the different Committee stages of the Bill there was a debate on the rising trend of divorce, and what we were to do about our divorce law; there was a debate on the Territorial Army; there was the Sunday Entertainments Bill; and there was a debate on the grave economic position. So I felt altogether quite at home.
I also noticed that although, I suppose, in those days, the built-in Conservative majority was a good deal larger than it is now, and although there was this enormous number of Amendments, the Opposition did not press any single Amendment to a Division. Noble Lords opposite are very keen on precedents, and I respectfully commend this precedent to them. On this happy note, I beg to move that this Bill be now read a second time.
Moved, That the Bill be now read 2a.—(The Lord Chancellor.)
3.28 p.m.
LORD ERROLL OF HALE: My Lords, I should like to begin by echoing the appreciation which the noble and learned Lord the Lord Chancellor has expressed to the noble and learned Lord, Lord Jenkins, for his admirable Report. Lord Jenkins was invited by my predecessor, a member of a Conservative Government, to study Company Law and to report, and it so happened that I held the office of President of the Board of Trade when he reported to me in May, 1962. I therefore took particular note of what the noble and learned Lord the Lord Chancellor had to say about our so-called
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inactivity. Of course, the first and most essential thing is to get a good Report by a well-known, impartial and highly-respected individual—and that is what we got.
In our way of thinking, we thought it right that there should be time to collect the opinions of all those likely to be affected before framing detailed legislation, and we made our intentions to legislate quite plain in the summer of 1964. It being impossible to carry a Bill through because of the impending Election of October, 1964, we made it quite plain how we were going to legislate and what we were going to do. We are sorry that the successor Government did not see fit to take our Bill on board and put it through, because it was a good Bill. Instead, they have wasted two whole years while they have been doing certain things which the noble and learned Lord the Lord Chancellor described as "yet another economic crisis", rather than getting on with some useful legislation. Nevertheless, we now have the Bill and it was most interesting to hear how the noble and learned Lord the Lord Chancellor described it.
In his dignified and lofty way, he suggested that of course there should be no politics in this matter, and then proceeded to make one of the most violent, controversial Party political speeches that I have heard in this House. Indeed, I have seldom heard one so vicious in its studied arrogance in another place when I was there for twenty years. I hope that some of his violent strictures on the banks of this country were meant to be funny. I like to think that he was being humorous, for I have appreciated his delightful sense of humour on previous occasions. But it might have been better if he had made it a little clearer that he was being funny about the banks and not nasty about them. I should like to give him the benefit of the doubt and assume that he was making jokes about the prosperity of the banks and the poor chances of survival of the moneylenders.
Also I noticed that the noble and learned Lord the Lord Chancellor referred somewhat disparagingly to the Institute of Directors who he thought would be against the Bill, and the City of London who, he said, were in favour of it. Perhaps I might instruct the noble and learned Lord. There are many

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directors in the City of London who are Fellows of the Institute of Directors. Perhaps before going any further it would be in accordance with the custom of this House that I should declare my personal interests. I am a chairman of two British companies and a director of three others, and I am also a member of the Council of the Institute of Directors. So, if I speak with knowledge, I hope that I speak without prejudice.
My Lords, before going into the details of the Bill, I must say that I have seldom heard a Second Reading speech by a Minister introducing a Bill in which he started at the end and ended up at the beginning. But that, as the noble and learned Lord the Lord Chancellor said, does at least make it different; and with that I fully agree. I should like at the beginning of my remarks to state our Conservative attitude towards this Bill. We support changes in Company Law involving greater disclosure as a means towards greater efficiency. We therefore support the principles behind this Bill and many of its provisions. Indeed, there are some areas where we were pledged to go further than Labour has seen fit to go. I do not think that in going further it would have added many more clauses to the Bill. I have never heard a Member of Her Majesty's Labour Government apologise for a lengthy Bill. Some of the Bills we have had in the last two years have been very lengthy indeed. If they had wanted to, they certainly could have produced a more comprehensive Bill using the material that we left behind us.
While, therefore, we can lend our general support to the Bill's proposals, we criticise it on two grounds: first, on the ground of important omissions from matters recommended by the Jenkins Report, and, secondly, on matters in which the Bill goes further than the Jenkins Report recommended. To this we object. Noble Lords will probably have been studying Press comment on the Bill. It has been wide-ranging, and I think it is fair to say that it has been generally favourable. But respectable newspapers have not failed to point out some of the least savoury features of this Bill. For example, The Times, commenting on what one might call the "first edition" of the Bill, which was introduced in February, said on February 11:
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"The bit about political contributions of course is vengeful, the bit about directors' fees is envious and the bit about export earnings invidious."
The Daily Telegraph a week earlier said:
"Another radical proposal is for the abolition of the privileges of the 'exempt' private company. Here, likewise, it is difficult not to credit the Government with political prejudice…".
These are the remarks of two well-respected newspapers who see in this Bill a substantial element of political prejudice.
In studying the Bill, and the many remarks made about it in another place when it had its earlier Second Reading, the "first edition" Second Reading, and listening carefully to the noble and learned Lord the Lord Chancellor, I could not but sympathise with the dilemma and the problems facing a Socialist Government. First of all, we must realise that they do not really believe in the free enterprise system: they regard it as a necessary evil. They must tolerate it, because it is the driving force of productive industry to-day. Secondly, they recognise, quite rightly, that the reform of Company Law is overdue and that they must do something about it. Then they are in the dilemma that they hold shareholders in contempt. They do not like shareholders: they have said so on many occasions. I would quote only one example—it comes from the Chancellor of the Exchequer, who in another place on May 10, 1965, said that the oil company
"shareholder…is as redundant as the rhinoceros."—[OFFICIAL REPORT, Commons, Vol. 712, col. 208; 10/5/65.]
I do not think that that is a very good statement to come from the Chancellor of the Exchequer, even in the heat of a debate in another place. But it illustrates the attitude of Socialist Ministers towards shareholders.
Then there is the distrust, if not hatred, of directors, especially part-time directors or ordinary directors. There is this eager curiosity—a form of envy—to discover what is the pay of directors. But I should have liked the Lord Chancellor to be perhaps a little more forthcoming about the disclosure of the pay of members of his own distinguished profession. When are we going to hear about the emoluments of barristers? When are we going to have some reforms about some of those

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barristers who did very well in their last year and escaped tax? If there is going to be a vendetta between the profession which the Lord Chancellor represents and directors of companies in this country, let us have all the cards on the table and not just sneering, mocking references to the hard-working members of the Community.
I suggest that that summary of the difficulties and dilemma of the present Socialist Government may help to explain some of the more curious features of this Bill. I wanted to begin like this, because I must return to some of the points which can he regarded as political, contentious or prejudicial, according to the viewpoint of the individual noble Lords. Unlike the noble and learned Lord the Lord Chancellor, I propose to begin at the beginning and go on to the end, because in my simple, non-legal, way I find that the easiest way to get through a Bill.
I start, therefore, with exempt private companies. We accept the Jenkins recommendations; but I must point out to noble Lords that there is strong and reasonable opposition from many influential and respected bodies to the abolition of the exempt private company. In my opinion, this stems partly from the fact that Her Majesty's Government have gone beyond the Jenkins recommendations. If they had stuck to the Jenkins recommendations I think that the opposition to the abolition of exempt private companies would have been on a much smaller scale than it has proved to be in the event. The principal features in which the present Bill goes beyond the Jenkins recommendations are in turnover, directors' emoluments and rents. I should like to deal with each of these three in detail for a minute or two.
As regards turnover, it is going to be a very serious matter for the small business to have to reveal its turnover; nor is it necessary for it to do so, in the interests of the community or for any other purpose. The small business operating in, say, Leicester, will have to reveal its turnover in trade; whereas the comparable business in Leicester which happens to he a subsidiary of a nation-wide chain will not have to reveal the comparable turnover from its operations in Leicester. So that the small business will be put at a disadvantage as com-
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pared with the branch of the big business. I believe that in the case of a small company its turnover is a matter entirely for that company and its shareholders. There is no possible justification for compulsory disclosure to the nation as a whole of the turnover of these small businesses.
As regards directors' emoluments in the case of the formerly exempt private company, this provision runs directly counter to what the Jenkins Report had to say in regard to the exempt private company…and I am not here dealing with the question of the large public companies. I think this is a matter of such importance that I hope noble Lords will allow me to quote from Paragraph 351 of the Report, where the Committee say:
"We recognised, however, that some information required in the accounts, while of interest to the members, was not of prime importance to creditors, and that its public disclosure by some small companies might he embarrassing to them; we had in mind particularly the requirement to disclose directors' emoluments."
I should have been glad if the noble and learned Lord the Lord Chancellor could have explained, in a serious rather than a facetious manner, why he felt it was so necessary to override his noble colleagues' considered judgment in this matter. We shall, however, return to this subject during the Committee stage, when perhaps the noble and learned Lord will avail himself of an opportunity to give to noble Lords a fuller explanation.
The same applies to rents. I have mentioned turnover, directors' emoluments and rents, and I should like to inform noble Lords that during the Committee stage we shall seek to delete these requirements in respect of small, unquoted private companies. It is no answer to say that they can go unlimited if they prefer to do so, because that would be a retrograde step, since the great industrial and commercial development of our land has occurred through the remarkable British invention of the limited private company.
I turn now to the requirement to publish figures relating to export performance. I listened in vain for a full and satisfactory explanation from the noble and learned Lord the Lord Chancellor. He is an expert in many things but not, I fear, in the matter of

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exports. I cannot see what useful purpose this disclosure will serve. If the Board of Trade want to know whether a firm is exporting or not, all they have to do is write a polite letter, and get the answer. What are the Government going to do with all this information when they get it? Are they going to start a witch-hunt? Are there to be unpleasant comparisons between a butcher's shop in Leicester which does not export, and a butcher's shop in Hull which does export, because it has a big shipping victualling business? Are we going to have a great stir-up of comparisons between some companies who happen to export direct, and others who export indirectly through what they supply to other companies? Such figures could not be meaningful.
Although the Lord Chancellor suggested that such companies could quote figures, how are they to know, when they supply a large volume of components to a motor car assembly plant, what proportion of those components are going in direct export as motor cars; what proportion are going to spare parts depots in this country, and what proportion will be shipped abroad as spare parts stocks overseas? The only way to find out would be to write to the customer and say, "Please can you give me some figures, because I have to put them in my accounts". What is the outcome to be if they get the information? What are people going to do with these facts when they get them? What I fear about this excessive degree of disclosure is that some people will start to say, "We have a lot of information, now we must start doing something about it". We shall get the assistant economic lecturer at one of the new technical colleges writing a thesis on the proportion of exports among small companies in this country, which will, in turn, stir up more discussion and more controversy.
It may be that those companies which do not export will be accused of" failing the nation"—a phrase very popular with Socialist Ministers at the present time. They will then have to prepare a long justification of why they are not exporting and why, in fact, they are doing much better for the nation by sticking to the job they know how to do. We oppose this disclosure of export turnover because it is misleading as between firm and firm; and
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also because it can be very damaging to the firm concerned, and therefore to the national interest, because it will give foreign competitors valuable information which they would dearly love to have at present. We shall therefore seek to amend these provisions in Committee.
Then, as regards the disclosure of the salaries at higher levels and among public companies, the noble and learned Lord, the Lord Chancellor made great play with the salaries of Field Marshals and the salaries of public servants. I agree with him that many wives must be grateful to Whitaker's Almanack, but the great and essential difference between such salaries and the salaries of directors and executives in business is that the salaries of public servants are paid out of public funds and the public has a right to know how its money is being used. The salaries of directors and senior executives are paid by the chairman and the directors, in accordance with their estimate of the value of the services of each individual, in order to secure the best results for the company for whose success they are responsible to the shareholders. There is a very substantial difference. What is the object of this disclosure? is it really going to serve any useful purpose, or is it merely to satisfy the curious and the malevolent? We have had no satisfactory explanation of this. I fear too much that it is a desire to satisfy the curiosity of those who think they are not as well off as directors or chief executives. Or is it, indeed, to keep a watch on the general increase of such salaries? I thought that might have been a plausible argument which the noble and learned Lord the Lord Chancellor would introduce. I can assure him that the effect of such disclosures will be to increase the rate of increase of salaries far and away above what has been going on in the past few years, because you may be quite sure that there are many people who are curious.
The noble and learned Lord rightly pointed out that we are all interested in the incomes of other people—although we are not able to learn the incomes of barristers. And you may be quite sure that one executive will take good steps to find out what his opposite number in another firm is getting, if it is published, and make sure that his salary goes up commensurately. It is also obvious that

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if the chairman is the best paid executive and he is getting more than the chaps lower down, they are going to say, "Why should you get three times as much as me? What about putting up my salary?"
There is another aspect of the matter: the new phenomenon in England known as the "head hunters"—a specialised firm which looks for men who are quite happily engaged in one job and entices them away to another job which is very much better paid. This section of the Bill is really the "head hunters' charter". It enable them to see in which firms the salary scales are low in relation to others, and they will know exactly where to go to pick out the good men for transfer to higher paid jobs. This may be a very good thing. I am not against high pay; it is only the Socialists who are against high pay. I am on the side of the executives who want more money, and it may be that this disclosure will be a very good thing to help to ameliorate the lot of the insufficiently well paid executive—though I very much doubt whether that was the intention of Her Majesty's Government.
Now I turn to political and charitable donations, a subject which was referred to in the Jenkins Report. It is a matter of some controversy, I think, as to whether Jenkins really referred to both political and charitable donations. I thought, as we may come back to the subject in Committee, that if noble Lords would allow me a moment, I should just like to explain that the relevant paragraphs are 50 to 53 inclusive. Paragraph 53 under the heading "Charitable and political donations", summarises what is going to be dealt with in the ensuing three paragraphs—namely:
(a) whether political donations by companies should be permitted; (b) whether statutory powers should be conferred on every company … to make charitable donations of every kind; (c) whether such donations should be shown separately in the accounts.
Paragraph 51 says:
"We do not comment on the substance of these suggestions"—
that is, about political contributions being prohibited—
"because we are quite clear that they are not primarily a matter of company law".
Paragraph 52 deals with charitable donations, and paragraph 53 sweeps up the
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earlier two paragraphs in regard to donations as a whole, and says:
"But we do not think donations are a sufficiently important item in most company accounts to justify an express, general requirement to disclose them".
We stand by Jenkins in this matter. We do not mind if all these contributions are going to be disclosed. We think it a pity to sully what should be a Bill dealing solely with Company Law by a mean, spiteful gesture designed to frighten firms out of giving to political organisations of their choice. But I think that side will be seen to be very small when compared with the charitable donations which have to be made public at the same time. So I think that by including disclosure and listing of charitable donations, the Government are largely defeating their own purpose in showing up the political donations.
But, of course, there may be effects unexpected by Her Majesty's Government. One would be if, as the years go by and more and more firms have experienced the hazards of Socialist Government, they will become increasingly proud to show their support of the Party which believes in free enterprise. Furthermore, there will be many shareholders—thanks to the initiative shown by Her Majesty's Government—who may well ask their companies, when they see no political contributions are being made to the Conservative Party, why no such contribution is being made on their behalf. So on this side of the House we are not afraid. We think that the correct Party will get the finance which they need from this source, together with funds from all other appropriate sources.
In regard to political contributions there are two matters which I think I ought to put to your Lordships. There can be two unfortunate effects. First of all, Socialist local authorities, and some trade unions, may well instruct the administrators of their pension funds to withdraw investments from firms making a contribution to Parties other than the Labour Party. There was some evidence of this in the summer of 1964. This, of course, would be only to the detriment of the viability of the pension fund. The other aspect (and there is some evidence of this too, though I will not burden your Lordships with the details) is the withdrawing of contracts and purchases from

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such firms by local authorities, and possibly by Her Majesty's Government as well. There is no provision in the Bill against this. And we shall seek at the Committee stage to insert an appropriate Amendment, designed to avoid the victimisation of firms which give full exercise to their right to donate money to such political Parties as they may wish to do.
As regards charitable donations, as I have said, I am sure that the Jenkins Committee were right in thinking that probably the matter did, not warrant action, as the paperwork would be so great. I would question the £25 limit. I mentioned this to the chairman of a large company to-day and he said, "This is going to mean a terrible lot of work." Indeed, it will mean so much that many firms may well consider reducing their donations to charity—but perhaps that is the object of Her Majesty's Government. Perhaps it is not. But it is not made plain. I would make the suggestion, which I hope we shall press in Committee, that at least the lower limit should be raised from the present niggardly £25 to something like £125. In any case, I would say at this stage that in my opinion the Government have wholly failed to make out a case for what they are proposing. About the insurance provisions, which the Lord Chancellor dealt with first, I have little to say, because I am going to leave that to my noble friend Lord Drumalbyn, who will be winding up for our side.
Before I close I should like to mention one or two important omissions which in our view should certainly have been included in this Bill. The first concerns the procedure affecting take-over bids. The Jenkins Committee made some important recommendations in this regard, but there is nothing in this Bill, yet this could surely have gone in. It would have been non-controversial and it is long overdue. Secondly, as regards unit trusts, the Jenkins Committee urged freedom from the prohibitions on security dealing and the issue of circulars, and also that the Board of Trade should have power to impose a number of requirements by Statutory Instrument affecting the operation of unit trusts. This is shown in paragraph 324 of their Report. The law relating to unit trusts urgently needs improvement and overhaul in the framework of the Jenkins Report, and it could
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have been done in this Bill without trouble or difficulty. Yet there is no mention of it at all.
As regards shares of non-par value, paragraphs 32 to 34 of the Jenkins Report recommended that ordinary and preference shares of non-par value should be permitted, but again there is nothing in the Bill about it. Accordingly, I give notice that we shall table an Amendment on Committee stage to give effect to this important recommendation of the Jenkins Committee, which I hope will be carried by noble Lords on both sides of the House.
My Lords, as I have explained, we on this side can give a partial welcome to this Bill, where it is good, but we shall not hesitate to oppose those features which we think are vicious and misconceived, and in that spirit we shall go forward to the Committee stage, where I hope we shall be able to improve the Bill substantially before it goes down the corridor to another place.

PRICES AND INCOMES WHITE PAPER
3.55 p.m.
LORD SHEPHERD: My Lords, with permission, I should like to repeat a Statement that has just been made in another place by my right honourable friend the First Secretary of State for Economic Affairs. These are his words:
"After consultation with the Confederation of British Industry, the Trades Union Congress and other interested parties I am laying a White Paper before Parliament (Cmnd. 3150) stating the principles which should govern prices and incomes in the first half of 1967. Copies are now available in the Vote Office.
"The consultation showed a wide measure of agreement that in this period there must be exceptional restraint on prices, charges and all forms of income.
"Proposals for price increases must be judged by criteria of severe restraint. The criteria set out in the White Paper on the Standstill (Cmnd. 3073) cannot therefore be relaxed, save that there may be exceptional circumstances in which, without some increase in price, the receipts of an enterprise would not be sufficient to enable it to

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maintain efficiency and undertake necessary investment. It is important that prices should be reduced wherever possible: the removal of the import surcharge will offer some scope for reductions.
"Increases in incomes during this period must be exceptional and severely limited. The criteria for this purpose, therefore, are not invitations to increases but rigorous tests to be applied to any claims. Accordingly, the Paper redefines the original criteria concerning productivity, lowest-paid workers, distribution of manpower and comparability, in much stricter terms. The chief emphasis is on agreements which genuinely increase productivity and serve the national interest as well as the interests of those immediately concerned; and on agreements where sole purpose is to help the worst-off in the community.
"Commitments for pay increases entered into in or before July 20 will have their operative dates deferred for 6 months or until at least July 1, 1967, whichever is the earlier. Commitments for pay reviews to take effect after July 20, where the amount of the increase had not by then been determined, should have their operative dates deferred until at least July 1, 1967, unless an earlier payment can be justified against the severe restraint criteria. This requirement applies to wage and salary increments in the public and private sectors other than those which are of specified amounts within a pre-determined range or scale, or were otherwise exempted under paragraph 18(iv) of Cmnd. 3073.
"The Government consider that the police, whose next pay review was originally due to take effect from September 1966, are in a special position because of their imporance in combating crime. My right honourable friend the Home Secretary is therefore prepared to discuss in the Police Council an increase payable in July, 1967, retrospective to March, 1967.
"The Government have already stated their policy on dividends and are pledged to use appropriate measures to deal with any excessive growth of aggregate profits.
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"The Government intend to work closely with the Confederation of British Industry and the Trades Union Congress and look to them to give guidance to their members about the application of these principles. The Government will receive information about individual cases, make the necessary inquiries and consider whether proposals are consistent with the criteria. We intend to make full use of the National Board for Prices and Incomes.
"The retail price index for October was one-quarter of one percent. higher than in June; the wage-rate index was two-thirds of one per cent. higher, nearly all this increase having occurred in July. This restraint could not have been achieved without widespread voluntary support. Statutory powers will be used only after consultation and only to ensure that the support of the majority is not undermined by the actions of a few.
"The first half of 1967 must indeed be a period of severe restraint. This will mean difficulty and sacrifice; but our economic recovery depend son the strict observance of restraint during this period, and on a permanent recognition of the indissoluble connection between productivity, prices and incomes."
4.0 p.m.
LORD ERROLL OF HALE: My Lords, may I, on behalf of noble Lords in all parts of the House, thank the noble Lord, Lord Shepherd, for his courtesy in reading out the Statement which has been made in another place. It is, of course, a complicated Statement and will require a good deal of study before we can find our way through the many platitudes that are contained in it to the essential truths. In the meantime, may I ask the noble Lord whether he could explain a little more fully about the already deferred pay increases? It seemed that we were to have a pay freeze for six months, but apparently commitments for pay increases entered into before the freeze ever started are nevertheless to undergo another period of deferment for six months, or until July 1, 1967, whichever is the earlier, as from this date or as from the beginning of the pay freeze.
Secondly, the Statement refers to the lowest paid workers. But what about

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what one might describe as the lower paid workers, the less well off citizens? Is their pay to be frozen until we have the benefit of another Statement in the summer of next year? I have in mind, particularly, the doctors. The Statement refers to the police. But what about the doctors? It would be helpful if the noble Lord could say something about that.
Finally, when the Statement refers to dividends and profits, it says:
"The Government have already stated their policy on dividends and are pledged to use appropriate measures to deal with any excessive growth of aggregate profits."
Is that a slip of the tongue for "aggregate dividends", or is the growth of profits—whoreby alone substantial investments can be made—to be discouraged as well as the payment of dividends?
LORD SHEPHERD: My Lords, the noble Lord is full of the humour this afternoon, but I hope he will not overdo it. I am not conscious that there are platitudes in this Statement.
SEVERAL NOBLE LORDS: Oh!
LORD SHEPHERD: There is hope. I do not identify that with platitudes. Nor do I find this a very frivolous subject for discussion in this House, particularly for the men and women who will be affected by this Statement. I do not find it in any way an amusing subject.
May I now explain to the noble Lord what is meant in regard to deferment of certain of the agreements? The noble Lord will be aware that there were a certain number of agreements made before July 20, and payment had not been made. Those agreements that were made before July 20, as I understand it, will now become payable in January. There are, however, agreements that were made or were under review before July 20, but there was no predetermined date or amount decided before July 20. These, I understand, will now be able to be paid six months from the date of the agreement. In other words, if the agreement was made for payment on October 30, and it was frozen, then it can now be paid on April 30.
With regard to the doctors, as the noble Lord will know, the Government undertook to pay the doctors the first part of their pay award in April, but owing to administrative problems of
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making arrangements it was not possible to pay it immediately and their pay increases fell within the freeze. The doctors will now receive payment, in December, of the sums due, but, as has already been announced, it will be back-dated to October. In other words, they will physically receive their money in December, but it will be back-dated to October.
With regard to dividends and profits, the view of the Government is well known. We believe that companies should absorb the natural increases of cost of operation within their own productive capacity. This is bound to reduce profits. It is clear already from the figures available that the profits of most companies are remaining at their previous standard, or are below: in fact, there are few that can report increased profits. If increased profits are made, the Government may well think it a matter to send to the Prices and Incomes Board for review into the whole operation of that company. This was not a slip of the tongue, nor was it a threat; it was merely a repeat of what has been said on a number of occasions in this House on this subject. I do not believe, from the support that industry has given the Government, that we need fear that we shall not have the same support during the next difficult six months.
LORD OGMORE: My Lords, we on these Benches will read with interest the White Paper, and no doubt will have some comments to make as a result of doing so. We are particularly glad that in the Statement to-day the chief emphasis is on agreements which generally increase productivity. Your Lordships will remember that in the debate last August from these Benches we particularly stressed the need to encourage productivity. As to the deferment for six months, this does somewhat depress us, in view of the fact that there is no indication of what is to happen after the six months' period. We are afraid that the whole country, and particularly industry, will feel that it is living once again from hand to mouth. Finally, may I ask the noble Lord, Lord Shepherd, whether his attention has been drawn to the speech made by Mr. Crossman, the Leader of another place, over the week-end, when he (I am not trying to quote exactly what he said) indicated that the freeze had

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gone quite far enough, if not too far, and that there was a danger of a serious recession setting in?
LORD SHEPHERD: My Lords, if my memory is right, the Lord President said that we must be careful that the deflationary measures taken by the Government do not lead us into a severe depression. I do not think he suggested that that position had been arrived at. I am glad the noble Lord welcomes the stress we have made in the Statement on productivity agreements. But I am sure that he and his colleagues will agree that a productivity agreement is something more than a title; it has to be a genuine productivity agreement from which the nation as a whole benefits. I believe that productivity agreements in that class will be welcomed, and that there will be no difficulty in implementing those agreements.
LORD REA: My Lords, would the noble Lord indicate once more that the Government are well aware that disincentive is a very serious thing, and will he try to give some encouragement to incentives?
LORD SHEPHERD: Certainly, my Lords; but may I say this to the noble Lord? In view of some of the criticisms that have been made of the measures taken on July 20, of which this is part, I may say that we saw the benefit of those measures in the October figures, when for the first time for many years we had a surplus of visible trade.
LORD CARRINGTON: My Lords, I rise to ask a question on a point of clarification. Did I understand the noble Lord opposite to say that if a company was successful in its exports and in its sales drive, and as a result made more profits, then the matter would be referred to the Prices and Incomes Board?
LORDSHEPHERD: I certainly did not mean to take that line. Obviously companies should make profits. We wish to see companies make profits, since it is only from profits that investments can arise. There is no dispute in this matter. But, clearly, if profits are made and they are distributed by way of dividends, in the present circumstances the Government may well consider it right. If the success of the company comes about by
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reason of increased productivity, production and exports, it would have nothing to lose in the matter being examined publicly.
LORD BYERS: My Lords, surely this cannot be right. The Government must make up their mind whether they are to control dividends or profits. Up to now, rightly or wrongly, they have controlled dividends. If they are going into the field of profits, it is an entirely new departure which would warrant a debate.
LORD CONESFORD: My Lords, does the noble Lord realise how much, by this statement of policy and earlier statements of policy, the Government are discouraging investment? Does he realise that, or will the further discouragement of investment strike them with complete surprise?
LORD SHEPHERD: My Lords, it is true that investment is a matter of concern. I would ask the noble Lord to recall the circumstances in which this Government took office—the circumstances at July 20. I do not believe any noble Lord in any part of this House would disagree that the Government had to act for balance-of-payments reasons, and that the actions they took are now having an effect. The point the noble Lord has made about investment is well taken. It is a matter for concern and certainly a matter for consideration.
LORD BLYTON: My Lords, apart from productivity agreements in industries like mining, where men are getting £10 per week, shipyard labourers who are taking about £9 a week, and dustmen under local authorities who are taking about £10 a week, am I to assume that there should be a wage restraint on these men because they cannot increase their productivity?
LORD SHEPHERD: My Lords, I am glad that the noble Lord from this side of the House has raised a subject other than dividends and profits. If the noble Lord will look at my Statement he will see that we have made special reference to those who are on the poorer side of our community. This is a matter which is subject to investigation by the Prices and Incomes Board. A number of references have been made to this matter to see whether we can establish some criteria. It is certainly being looked at, and is very much in the mind of the Government.
LORD ALPORT: My Lords, I can quite understand that the Minister is glad to be asked a question which does not refer to dividends and profits, but, as I understand it, the fact of the matter is that his statement with regard to profits contradicts the passage that he read out from the First Secretary's Statement. It deals with a very important point which, so far as I understood it, involves a complete departure from previous policy. If I and other noble Lord sare wrong in this, would it not he prudent for the Minister to consider it and explain the proposition in greater detail than he has been able to do up to the present, and at a very early date?
LORD SHEPHERD: My Lords, the noble Lord will appreciate that I speak under some difficulties, in that I am not a Minister of the Department concerned. I am not aware that what I have said is either new or departs from previous Government policy. For the benefit of the noble Lord and any of his colleagues I will repeat what was in the Statement. It said:
"The Government have already stated their policy on dividends and are pledged to use the appropriate measures to deal with any"—
and I stress this word—
"excessive growth of aggregate profits."
There is nothing new there, and I do not believe it should create special concern at this stage.
LORD CARRINGTON: My Lords, it may not concern the noble Lord, but it certainly concerns those of us on this side of the House. I must say that I find his explanations most unsatisfactory. I realise the difficulty he is in, and I do not want to press him, but the words he has used seem to me to go much further than anything we have heard before, and they cause a good deal of alarm on this side.
LORD SHEPHERD: My Lords, may I say to the noble Lord that I am not conscious that I have departed from previous policy, and I stand by all that I have said. If the noble Lord wishes to raise this matter, there are occasions which no doubt can be arranged so that the matter can be elucidated for the benefit of the whole House.
LORD SOMERS: My Lords, may I ask the noble Lord to make it quite plain whether this question of increase in incomes includes those salaries which in-
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crease annually by increments, such as the teaching profession on the Burnham scale and so on.
LORD SHEPHERD: My Lords, I gather that those salaries are subject to review and fall within the second part of the Statement I gave to the House. These reviews can take place, and no doubt will take place, and each of them will be judged on their particular merits.
LORD CITRINE: My Lords, would the noble Lord not agree that the proper course for Members of the House is to await the publication of the White Paper and, having studied it and its language, to raise the matter then?
LORD SHEPHERD: My Lords, once again the noble Lord, Lord Citrine, speaks words of wisdom and advice.
LORD BLYTON: My Lords, on the profits issue, does the White Paper not state that profits shall be no more in the next six months than in the first six months of last year?
LORD SHEPHERD: My Lords, I am sorry to correct my noble friend. It refers to dividends: that dividends should not be more than in the previous twelve months. I do not think it is possible to control profits to that extent.

COMPANIES BILL [H.L.]
Debate on Second Reading resumed.
4.17 p.m.
LORD BYERS: My Lords, perhaps for the sake of the Record I should point out that we are now continuing the debate on the Companies Bill. First of all, like the noble Lord, Lord Erroll of Hale, I must declare my interest. I am an executive director of a large public corporation, but I do not speak in that capacity to-day. I speak for myself and, I hope, for my noble friends on these Benches and the Party to which I belong.
I am not, like the noble Lord, Lord Erroll of Hale. a member of the Institute of Directors, but I should like to say how much I welcome the innate Liberalism of the Lord Chancellor's speech this afternoon. I was extremely surprised that the noble Lord, Lord Erroll of Hale, should have found it in any way vicious. I thought it rather gentle and

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soothing, and it was certainly quite innocuous, if you compare some of the experiences which the noble Lord and I have had in another place. I am sorry he found it arrogant and vicious.
It is certainly time there was a fresh look at the legislation dealing with companies, and to the extent that this Bill exposes the finance and the activities of companies to greater public scutiny, I and my noble friends certainly welcome it. I think: we would say to the Lord Chancellor that we regard it as a rather timid measure, but we accept his assurance that this is only the first instalment of what should be a much more radical reform. I hope that before the next Companies Bill is introduced there will be many opportunities in this House, and in other places, for a full public debate on the basic principles involved in the whole question of the reform of Company Law: the functions of companies, how they should be organised, and so on.
I do not think there are many people to-day who could say with complete honesty that they are satisfied with the organisation and functioning of the private enterprise system, though it is difficult to find anything very much better. At the same time, many of us consider that the intricacies of the large public corporations have not yet been mastered, particularly in the field of nationalisation. Moreover, many of us heartily distrust some of the theories which are put forward from time to time by armchair Socialist economists who have had no first-hand knowledge of how the private enterprise machine works at different levels.
I should like now to deal with the parts of the Bill which we welcome, especially those clauses which call for greater disclosure. I believe that the greater the knowledge which members of a firm and the public have of the affairs of companies, the stricter will be the discipline imposed on those running them and the higher will be the standards which are demanded and attained. I believe that the fear of being found wanting is a powerful influence towards virtue. I welcome the publication of directors' and higher executives' remuneration. I do not accept the view expressed by the noble Lord, Lord Erroll of Hale, that it is quite a different matter in the case of civil servants, whose emoluments are paid out
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of public funds. I think that where shareholders' funds are used there is an interest for the shareholder of the company and the employee of the company to know what top management is getting.
I am not sure that we should not have to go further and break down specifically the different types of emoluments which the top management receive, because I think much of the resentment about directors' expenses stems from the belief that all directors get tremendous "perks". I know this happens in a small number of cases, but I do not believe that it is widespread, or that there is anything like the abuse which the public think there is. I believe that if details were provided a good deal of uniformed speculation would be avoided. As the noble and learned Lord the Lord Chancellor hinted, we may have to go more closely to the American system, where the remuneration for the job is published, and in that way the shareholders can see whether there are any obvious discrepancies between the remuneration ratios at different levels.
Coming to the question of contributions to Party funds, I was not quite sure where the noble Lord, Lord Erroll of Hale, stood on this point: at one moment he appeared to welcome it, but at another moment I was not quite so sure. In my view, shareholders have the right to know what is being done with their money in this field, just as directors who believe that their interests are better served by one Party or another are quite justified in making a contribution which they think is right. Indeed, I think at the present time many companies would find it difficult to determine whether their contributions to the Conservative Party during those celebrated thirteen years had been worthwhile and, equally, I think there must be a number of trade unions licking their wounds at the moment and wondering why, over the years, they have contributed so many hundreds of thousands of pounds of their members' hard-earned money to Party funds. I think that both sides are wondering whether they have had value for money. Anyhow, it is a nice thought for a Liberal!
On the question of charitable donations, I feel that this is a problem. Large companies should certainly expect to support charitable organisations, and without

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this many of us would be badly off indeed. What I think is difficult is to know where to draw the line, and I wish the Government could offer some advice in this respect. What percentage is it reasonable to set aside for charity? This is a constant problem for the company which wants to do the right thing socially but, on the other hand, does not want to be wrongly accused of misusing money. I would support the noble Lord, Lord Erroll of Hale, in his contention that the £25 limit for charities is far too low. I think that companies normally give something like £50 or £100. If they respond to a very large appeal and give a donation of £10,000, or something of that sort, of course it should be known; but I think the normal figure should be about one hundred guineas. But, as I say, I should like guidance from the Government on this point.
The provision about nominee shareholders is also to be welcomed, though I doubt the wisdom of confining this to a 10 per cent. holding. Why not abolish the nominee principle altogether? In large companies with many shareholders, two organisations, each having 9 per cent., could exercise a high degree of control, and in my view it would be better if everyone knew where the financial power of the shareholdings actually lies. I can see no reason why we should not abolish the nominee system altogether.
Then I turn to the safeguards concerning dealing in shares by directors. These safeguards, I believe, ought to be extended to cover wives. There is perhaps some truth in the story of the man who said that everything was in the wife's name, "except the mink." I understand that the Stock Exchange, in its new recommendations, refers to the disclosure of family interests, and I think it is quite wrong to exclude the wife from this category. Other members of the staff of a company should also be covered by this. The principle here is whether they have access to, and can use, prior knowledge; and certainly that is not by any means the exclusive property of the board. I believe that this point should be looked at again.
Like the noble Lord, Lord Erroll of Hale, I would ask what is the object of the clause dealing with the disclosure of exports? It seems to me that this will
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get into a real Civil Service bureaucratic tangle. I am a great believer in encouraging exports, but I do not believe this can possibly be the way to go about it. I have a feeling that there might be something sinister behind this idea. I hope I am wrong; and if there is nothing sinister in it, why not drop it from the Bill? If we are going to disclose exports then why not disclose export services; and why not import savings? I believe we shall get into a red-tape muddle which it would be better to avoid from the very beginning.
I regret that there is nothing in this Bill about industrial relations and no recognition of the interest which employees have in the survival and prosperity of their companies. It ought surely to be made a requirement that before a new public company of any size is incorporated the structure of the company and the rights and duties of employees should be included in the Articles of Association; and in time that requirement should apply to all companies of any size. In the same way—and I think this could have been included in the Bill—the setting up of works councils should be made mandatory for companies of a certain size. There are admirable examples of constitutions of works councils set out in the Industrial Relations Handbook published by the Stationery Office and in Positive Employment Policies published by the Minister of Labour. Employees can suffer from mismanagement just as much as shareholders, if not more. Why should they not be allowed to call for an efficiency audit of their company if they feel that things are going wrong?
When all is said and done, this Bill merely skates lightly over a fundamental problem of great complexity. If it prevents scandals like Fire Auto and Marine, British Printing Corporation and others from being repeated it will have done something. Great public debate must go on and must deal, before the next Companies Bill, with the whole philosophy behind our industrial companies structure. I cannot emphasise too strongly the need for this before we embark on radical changes in our industrial system. I speak as one who wants them. We cannot afford to have the Government coming forward in a year or two years' time with half-baked ideas, as they did with the selective employment tax, and

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I hope that at the very least the Government will publish a White Paper indicating the sort of direction in which they believe company reorganisation should move. I believe that this would give rise to a really useful series of debates. After all, there was a lot of public discussion in Germany before they brought in the participation of workers which they now have and which in many German companies works extremely well. The French have been debating the Vallon Amendment for some time, which gives a form of co-ownership and co-partnership; and I understand that in Yugoslavia at the moment they are also discussing this sort of system.
We as Liberals believe that we have to move much further towards the concept of a team within each company, a team which is determined to play fair by the public in the form of the consumer. We must ensure proper conditions of remuneration and pensions for those employed and a fair return to those who risk their capital. If this is accepted it points very clearly in the direction of encouraging profits, encouraging profits in conditions of really free competition and ensuring that those profits are properly shared. And it means also bringing the employees far closer to the central direction of the company which is making those profits. I say to the Labour Party they must get their thinking straight on profits. Even to-day the most enlightened and sophisticated Lord Shepherd seemed to be sneering at the word "profits". I do not think he intended to, but if one has been in the Socialist movement as long as he has one tends to get these things ingrained. I say that basic to the radical reform of company law in two years' time will be a proper understanding of the private enterprise system as it should be and of the important place profits have in it.
4.32 p.m.
LORD PEDDIE: My Lords, I believe the House is indebted to my noble and learned friend who sits on the Woolsack for his clear, concise and cool assessment of this Bill. It was interesting to me to hear every gentle explanation as devastating support for the Bill. In contrast, I listened to the noble Lord, Lord Erroll of Hale, and I seemed to detect in his opposition to certain features of the Bill an element of heated panic, such panic
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as to carry an indication, at least to me, or a hint, of the need for some of the disclosures he did not wish to see. I think the House will come to the conclusion that this Bill, with all its limitations, deserves full support.
My noble friend stated that this goes some way further than the previous Bill, but at the same time it does not, nor is it intended to, cover the full range of the problems associated with company organisation. It is now more than a hundred years since the Companies Act 1862 was passed, and during that period the volume and complexity of legislation affecting company law has increased. I found it interesting to read in the Jenkins Report that the Chairman and his Committee offered very little prospect indeed of any reduction in the volume of legislation associated with companies. Therefore, I accept the necessity for looking upon this Bill as a first stage along what may be a long road towards reform.
We have been given an indication of the objects of this Bill: first, to abolish the status of exempt private companies; secondly, in the broadest terms, to give a greater disclosure of information on the accounts of companies; and, thirdly—of tremendous importance—to have a closer supervision of insurance companies. We have already had hints that Clause 2, which abolishes the privilege of the exempt private company, is likely to be resisted. The effect of this clause would mean that all limited companies would be required to file accounts and audit reports with the Registrar. All members of the House will have read Press criticisms of this particular suggestion on the grounds that the burden of disclosure is out of keeping with the value of the information received, and indeed one colourful phrase was used by one writer in which he said this was indicative of throwing weed killer among prize blooms. I do not agree.
I would accept the statement that the overwhelming majority of exempt private companies are small businesses doing an exceedingly good job of work. But there is no doubt at all about it, as my noble friend evidenced, that there are a considerable number of such companies that are used as a vehicle for fraud or damage to the public in some way. The Consumer Council itself has a long list of companies that come within that category,

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and indeed recently it published details of at least one individual who was active in no fewer than thirty such companies, all substantially fraudulent. I know that we cannot legislate against sin by putting all the population in handcuffs, but there is no doubt at all about it that over the years since 1908 increasing justification has developed for devoting more attention to this particular type of company.
In addition there is a basic principle involved here, and the principle is that where limited liability is granted, which has already been described by my noble and learned friend, quite rightly, as an enormous privilege, there is a responsibility to the State and to the public, and that responsibility must be accepted by such companies. I am quite convinced that the ready availability of information concerning companies will be a safeguard for the public. But must point out that, while more information will potentially be available, the control of abuses will be left to the overworked companies section of the Board of Trade; and I feel that whatever body is charged with the enforcement of the Companies Act ought to be given a wider discretion with greater access to companies' books and papers. Indeed. I would go further still and indicate that it should be specifically charged with investigating complaints about activities that are prejudicial to the public as well as to the shareholders. I regret to say that, until we have an efficient regulatory system in operation, the enforcement of company law will of necessity he somewhat "hit or miss".
The noble Lord, Lord Erroll of Hale, objected to certain matters that will be called upon for disclosure. He objected to the disclosing of directors' salaries, and he gave the strangest reason as the basis for his opposition, which was that he thought it would lead to higher salaries in consequence of the resulting competition. I am sure that is not part of the brief that has been given to him by the Institute of Directors. I believe that greater disclosure of information is long overdue, because it will, or should, enable earlier detection of unsound or fraudulent company management; and furthermore, would give a greater safeguard for consumers who suffer when a company goes into liquidation. They
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suffer in a variety of ways. Spare parts of some machine or other that has been purchased from a company that has gone into liquidation are no longer available; servicing obligations lapse; in completed contracts lapse without redress. In this sort of way one would imagine that this Bill would ultimately provide a means for dealing at least in part with these difficulties.
The additional information on public record will assist investigation by statutory authority, and at the same time will have a self-regulatory effect on unsound company management. But I must take this opportunity of pointing out that, to some extent, the disclosures are effected in a somewhat inconsistent manner. Let me take one or two illustrations: first, the question of a director's service contract. Under the new regulations companies are required to keep copies available for inspection, but only at the company registrar's office, and the only people empowered to see them will be the actual shareholders. I cannot see the point of this. To my mind it appears to be somewhat illogical, because even to-day, when a company is making a new issue or seeking new capital, it has to show relevant documents, including directors' contracts, to anyone who cares to ask. If it is justified when a company is seeking new money, then there is no case for restricting access during the intervening years. I should have thought it would be far better that the whole lot should be on file and open to all in Company House.
To my mind a similar consideration applies to directors' share dealings. In my opinion it is exceedingly good that they should go on record, and within the maximum period of only ten days before they have to be registered. But again they can be seen only at the company's offices, although this time anyone is allowed to inspect the register. Noble Lords will recognise that few will make that effort unless there is real cause for suspicion. The whole point of continuous monitoring is that someone should be able to see that directors are unloading all their shares before, and not after, the crash. I believe that there is certainly more opportunity to observe this if the record in Company House or on the file is always likely to be turned up.
It is true that a considerable increase of information relating to companies will

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now be available, but we must make sure that it is used, otherwise there will be justification for the criticism which was advanced by the noble Lord, Lord Erroll of Hale. Disclosure alone is not enough. The supply of more and more information is welcome, but with the most important exception of insurance, the Bill itself does very little indeed to give the Board of Trade greater powers or greater inducements to take action against wrongdoers.
Now I turn to insurance. Part II of the Bill, introducing the system of authorisation and closer supervision of insurance companies, was well received in insurance circles. As one who has spent many years as a director of an insurance organisation I would endorse that. The British Insurance Association has said publicly that the Bill will give the Board of Trade powers to prevent a repetition of the Fire, Auto and Marine failure. But it is well to remember that over one hundred new companies have been formed in the past five years, fifty of them to underwrite motor business. So far as I can see, all of these companies will get automatic authorisation under the Bill and, so long as they continue in the same line of insurance, they do not have to increase their capital to the new minimum of £100,000, nor do they automatically have to increase their solvency margin to the new minimum of 20 per cent. of premiums, although I must admit that they run the risk of being wound up by the Board of Trade if they do not do it.
I suppose one must accept that the key to the situation is that the Board of Trade will have the power to order companies not to make new contracts if it is doubtful about solvency or the way the company is being run. But let us keep in mind that existing companies and the companies to which I have just referred will be at a premium for anyone wishing to get into the insurance business. When the new Bill is law all insurance companies must notify a change in the ownership, but the field is going to be open for some months. I can only express the hope that any company changing hands in that period will put itself extremely high on the list for attention by the Board of Trade.
However, the real problem here—indeed, many people engaged in insurance have pointed this out—is the possibility of the development of the closed shop in
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insurance. I think it must not be made too difficult for newcomers to go into the insurance field. It is quite proper and right that this new legislation will, in the long run, help to kill off the cut price companies. I must agree, as I am sure other noble Lords will, that there is all too frequently a link between highly competitive terms and financial instability. There is no doubt about it that the cut price era certainly sharpened competition, and it is to be hoped that at least the competition will continue.
Over the years the development of British company law has followed the need to protect the interests of investors and traders. When originally developed that was the purpose, that was the function and that was the intention; and on the whole it was done fairly well. The protection of the public as a consumer has not been regarded as an integral function of company legislation until recent times. Indeed, all the provisions which protect the public interest are, to some degree, incidental to the main purpose of the 1947 and 1948 Acts.
I know that in another place the Minister has indicated his belief in the new philosophy that will guide those who will be responsible for framing the new company legislation. There is a need also for a new dimension in company law, by extending protection to the ultimate consumer and the public at large. I would agree that there is a need to effect a delicate balance between avoiding unnecessary brakes upon organisations that make some contribution to the wealth of the economy and, at the same time, causing companies to recognise their responsibility to the State and to the public at large.
I would agree with the noble Lord opposite who makes the comment about a wider, fresh approach concerning company law. I believe there must be a new relationship developed between the corporate bodies, the State and the public and those who are engaged in those companies, namely labour. All this, then, offers prospects for the future. We are to-day dealing with but a limited part, and I would echo the point that has already been made; in the tremendous task that lies ahead, in presenting to Parliament the new legislation, I hope that the field of consultation will be made extremely wide, far beyond the range of those engaged in companies, accountants

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and solicitors, reaching well beyond that because only by such means will it be possible really to express that new philosophy that will determine the approach to the new company legislation.
4.50 p.m.
LORD MANCROFT: My Lords, this Bill will obviously need careful examination at the Committee stage, but I think we are all agreed that we can safely accord it a Second Reading. For my part, I think it is a
"Wee, sleekit, cow'rin', tim'rous beastie"
of a Bill. There is a very good reason for that; nevertheless, it does more good than harm, and I shall therefore support it.
The reason why the Bill is such a ragbag is that it owns three parents. Some of it has been drafted by the Jenkins Committee—and though I should like to echo those who have extended their thanks to the Jenkins Committee for their work, I could only have wished that they had not stuck quite so closely to their terms of reference; some of the Bill has been drafted by the Board of Trade in a hurry; and some of it has been drafted by Transport House in a fit of political spleen. The noble and learned Lord on the Woolsack has told us that another Bill is to follow. This, to me, is acceptable. I think he has a point when he says that a Bill containing all the possible reforms would have been unnecessarily unwieldy and would have taken a long time to get through your Lordships' House.
But even with this short measure that is before us there is one obvious need straight away—and here the noble Lord, Lord Peddie, has opened the ground which I wish to cross. We undoubtedly ask the noble and learned Lord on the Woolsack at once to strengthen the Board of Trade's powers not only to act when something has gone wrong, but to act when it looks as if something will go wrong. The Companies Department of the Board of Trade has always been a notoriously weak department. This Bill is going to produce a whole list of new omissions and offences, a whole list of new things which have got to be policed—disclosure, nominee shareholdings, and the rest. I think that the details of the notorious John Bloom case have only
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now, after two and a half years, passed from the Board of Trade to the Director of Public Prosecutions. That is too long.
The noble Lord, Lord Peddie, gave us some sad reflections on original sin and directors. He would, I know, agree with me that if there are ninety-nine honest ones then it is the one villain who brings all the disrepute on the other ninety and nine. So I think that another department that will have to be strengthened if this Bill is going to come into effect is the Fraud Squad of the police in the City, which is notoriously understaffed. I believe that if you get into trouble you have got to fiddle your partner out of nearly £1 million to have any chance of getting anybody more senior than a sergeant put on the job. This means that the two departments have got to smarten up their procedures, because any director who wants to go wrong will employ some pretty smart accountants, and some smart wits will have to be pitted against them. The other accountants who are not quite so smart need not worry, because nearly 500,000 new balance sheets will be required under the Bill and this will keep them busy enough.
Disclosure will be one of the most difficult points under the Bill. I, for one, do not object to this. I think that the Government here are doing good by accident. What they have set out to do is not actually what they are going to achieve. My noble friend Lord Erroll of Hale took the noble and learned Lord the Lord Chancellor to task. I listened to the noble and learned Lord on the Woolsack observing that this Bill is in no way a political measure. He did it so gently and so quickly, I realised at once that we must look out. He then made a highly political speech, a Party political speech, to which I take not the slightest exception. I rather like Party politics. As President Truman used to say, "If you don't like the heat, keep out of the kitchen". So I took no exception to the remarks of the noble Lord on the soapbox—I am sorry: on the Woolsack—because I think that what he is doing will accidentally do one other very good thing. The disclosure provisions will dispel a large number of those legends which have be devilled the relationship between capital and labour in the companies world for many years. This lore of legend is one of the reasons why the question of shares

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with no par value is not included in this Bill, and will not, I am sure, be included in the next Bill.
We discussed this matter when we debated the Gedge Report over eleven years ago in your Lordships' House on January 25, 1955, on a Motion by the noble Lord, Lord Cromer. The Government's point of view was put forward in a speech as lucid as it was reasonable, as fair as it was comprehensive. In the course of that speech what I tried to point out was that politics would always bedevil this question. When you hear that a company has declared a dividend of 100 per cent. you have a marvellous political point, if you are on that side of the House, for your weekend speeches—"These evil, money-grasping directors with 100 per cent. dividends …".If you reduce it to ordinary financial details, you find that it only means a dividend of between 7 and 8 per cent., depending on the market price of the shares, and half your political points have gone. If you want the case developed in more detail, read the minority report on the Gedge Committee which I believe was drafted (which is not surprising when you consider its lucidity and skill) by none other than the late Mr. Hugh Gaitskell.
Why is there so much play made about directors' salaries? I agree with these proposals because they will also dispel a legend. Once again the Government are doing the right thing for the wrong reason. They are going to help the whole situation by dispelling these legends of tremendous salaries, vast directorships and earnings. The noble and learned Lord is perfectly right when he says that we can look up his salary in Whitaker; we can look up the salary of the noble Lord, Lord Brown, there, too. But be very careful to get an up-to-date edition, because Ministers' salaries are raised more frequently nowadays than when I was a boy! I think that the proposals, given as they are for the wrong reasons and achieving right, are messy. I would rather have all the figures laid out clearly, stating exactly what each director earns, how it compares with the senior executives—and trying to cause strife between directors and executives is, I believe, one of the hidden purposes of this Bill.
I would add one or two things. I think that the shareholders and employees
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should be told exactly what job each director is doing and why he is being paid that salary. To that should he added the fringe benefits—top hats, cars, and, if you are a lucky man like the Prime Minister, how much of your salary you are receiving tax free. Furthermore, our gratitude should go out to the noble Lord, Lord Beeching, who, when he was transferred from I.C.I. to British Railways, insisted on taking his salary of £24,000 with him, because it showed up exactly the huge amount of tax which is paid on that size of salary, a point which is very often overlooked by the propagandist against directors' salaries.
Why do the Government want all this information? They are trying to persuade us that disclosure is for the good of the company, for the good of the shareholder. It is nothing of the sort. It is for the good of the Socialist Party. This is pure Party political propaganda. I do not mind, but I wish the Lord Chancellor would not try to persuade us that the contrary is the truth. The effect of publishing these so-called large salaries of £24,000, the Socialists hope, is to stir up jealousy among employees. It is certainly not going to help things much. It will also produce two other bits of trouble, as the noble Lord, Lord Byers, mentioned. The head-hunters will be out after those whose salaries are in the group they particularly want. It will also cause a considerable amount of heart-searching in various board-rooms. Your Lordships will be surprised to know how very many directors have no idea what their colleagues are earning. All this shows that Socialists frankly do not like directors. I do not think they like companies. I know they do not like profits. But this provision will, to their surprise, achieve good by stealth, by giving the truth and not the legend.
The same goes for political contributions. What the noble Lord is doing on this matter is again right, but for the wrong reasons. By allowing all these—if they are very many, and I doubt it—political contributions to appear on paper openly, a large number of legends will be dispelled. The idea that every company is secretly contributing to the Tory Party—all that legend will go the moment this provision comes into effect. And if the advice given in a letter from

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Sir John Foster in The Times this morning is closely followed, as I hope it will be, then a large number of companies will realise that, contrary to their previous opinion, it is legitimate and correct to subscribe to a Party if by so doing you are furthering the interests of that company.
The noble Lord, Lord Byers, painted a sad picture of the two Parties who, having subscribed to their own political organisations, wished they had done the opposite. I wonder whether he had in mind, also, that well-known North Country industrialist—and wild horses on bended knees will not drag his name from me—who at the last Election subscribed £10,000 to the Tory Party, which naturally pleased the Tory Party, until they discovered that in order to hedge his bet, he had also subscribed £10,000 to the Socialist Party. Whether under this Bill he gets a knighthood or nine months, I am not quite certain. He is a direct descendant of the American judge, who was given a bribe of 20,000 dollars to find for the plaintiff, but the defendant getting wind of this gave 25,000 dollars. So the Judge, being an upright, honourable man, gave 5,000 dollars to the Red Cross and tried the case on its merits.
May I ask the noble Lord, Lord Brown: when we have all this information, what are the shareholders going to do with it? I do not believe it is going to be of the slightest value to them. It is not going to help the progress of the company, it is not going to help the employees, it is not going to help the shareholders. It is only going to help Her Majesty's Government in any political battle which they may wish to fight over this next Bill; but it is not going to help the companies. But I do not think the Government want to help the companies, not a scrap. The Government are against the companies; they are against directors. This fact is only thinly veiled in the present Bill. We are having a second bite at the cherry, as the noble and learned Lord on the Woolsack has told us. I hope he will follow the advice which several noble Lords have given him, and make certain that the proposals which he has in mind are produced in a White Paper in the early future, so that we can see what the Government's philosophy is
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concerning the whole of the corporate aspects. I do not believe they have thought this out. If they have thought it out at all, I am certain they have come to the wrong answer. There is the whole aspect of the company's relationship—employers, directors, shareholders, public, potential public and, most important, employees.
Perhaps noble Lords opposite would bend their minds now to those great problems which have bedevilled any attempt to associate employees more closely with their companies' well-being. if you ask employees to take shares or give them shares, you will find that they love shares when the company is making a profit. They hate the sight of them if there is the risk of the company making a loss. This is human nature. The other trouble is that of identifying the employee more closely with the policies of the company, because the moment an employee starts to show an intelligent interest or is put on the board he is labelled as the "boss's man", and he loses the support of his fellow employees.
I suspect, and I hope I am wrong, that the Government's ultimate legislation is directed towards the destruction of the whole idea of company status. I do not believe they are interested in shareholders. I am sure they are not interested in small companies. I do not believe they are interested in any of this at all. I may be wrong; I hope I am. Therefore I hope that the Government will produce a White Paper proving me wrong, setting out their faith in a system which has brought so much prosperity to this country over the years and which will, if properly controlled, bring so much prosperity in the years to come. I may be wrong; I hope I am. I live in hopes.
5.4 p.m.
LORD GOODMAN: My Lords, I would begin by saying, in view of what was said in the most entertaining contribution by the last speaker, that I have no intention of making a political speech. In fact, I must apologise for bringing your Lordships back to the arid wastes of Company Law. These are, I think, a matter of concern to many people, and in relation to this Bill may be a matter of very grave concern to a number of small traders, people conducting small businesses, who may be vitally affected by provisions which I venture to think have

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not been sufficiently considered by the draftsmen of the Bill.
I should like to say this. It is rendered more difficult in an atmosphere of political discussion to make a critical contribution to this Bill. I should not like to think that I was associating myself with the comments of a general kind made by the last speaker: that I suspect the Government of having designs on Company Law as a whole, of hating directors, and of other rather extravagant and fanciful notions which have been expressed. I do not believe any such thing. What I do believe is that it is doing them too much credit to attribute some of the sinister motives which have been found in this Bill. I think they relate to the drafting, and nothing else. I think, also, that it is doing a disservice to the Jenkins Committee to say that this Bill is the legislative expression of their Report. It is, of course, the legislative expression only of a very small portion of their Report.
Here I venture to join issue with the noble and learned Lord on the Woolsack, and with the last speaker, on the desirability of legislating piecemeal on matters of this kind. I do not think it is sensible or remotely scientific to say, "We can have this amount of legislation in relation to Company Law this Session. Leave the rest of it, and come to the rest of it next Session." It is not possible to dole out a pound-and-a-half of Company Law this year and have another pound-and-a-half next year. But I sincerely believe that if many of these provisions had been drafted in the context of a whole comprehensive scheme of Company Law, this present Bill of the Government, in relation to those provisions, would have been very different. Viewed against the context of what the Government have promised—a whole comprehensive philosophy of Company Law—many of these provisions would not have taken their present form.
I wonder whether I might venture to illustrate my viewpoint on this matter in this way. I have some criticism of the Jenkins Committee in one particular. It was a splendid Committee composed of very great experts, but I thought it had one very great shortcoming. Most of the members, if not all, were people trained in matters of large company finance, concerned with public companies, concerned
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with the affairs of the City, and concerned with companies as a means of investment. I did not find in that Committee, nor did I find in the evidence called before that Committee, much evidence of a recognition of the importance of Company Law in relation to the overwhelming preponderance of small private companies.
If we look at the number of companies registered in this country—and this is a very important consideration—we find that there are something over 400,000 companies registered as private companies, as against (on the figures given in the Jenkins Committee Report) something like 16,000 public companies. It is quite plain that the overwhelming majority of companies are private companies, and, if I may say so, the greatest importance of Company Law in one very important particular relates to the private company. We find, in the abolition of the exempt private company, the type of viewpoint which I have instanced; the type of viewpoint which does not take sufficiently into consideration the interests of the small trader, the interests of the man who is concerned in running a small business. We need to examine this question of disclosure much more than in terms of generality. Disclosure for disclosure's sake sounds well: it is an attractive proposition. But we should examine it more closely in relation to the exempt private company.
An obligation is now to be imposed on every company to file a balance sheet, to file accounts, at the end of the year. Those accounts will not he timely accounts. As is known, the accounts can be twelve months out of date, so that from the point of view of the prospective customer, from the point of view of the prospective creditor who is doing business with the company, they may have no validity of any kind. There is a further consideration. If a man wants to do business with a company of doubtful credit, the sensible thing for him to do is what the bank will do if a company seeks an overdraft. They will not go and search a file: they will ask for a copy of the company's accounts. There is absolutely no reason why this method of protection should not be adopted by anybody who wants to do business with a small private company.

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The necessity of imposing an obligation on 400,000 private companies to file their accounts, so that somebody can have an opportunity of examining out-of-date financial information, commends itself to me as a total absurdity. It seems to me that what we are really doing is, by legislation, to dictate a sort of paralysis of self-help. There is no reason at all why people who want the information (and, of course, as prospective givers of credit they are entitled to ask for the information; it cannot be refused to them) should not obtain it simply by asking for it, without this very important change being imposed. Because, while I think there is no benefit at all to the small private company in this matter, I believe, with the Cohen Committee—and I am interested to see the noble and learned Lord, Lord Cohen of Birkenhead, here to-day—that there are very considerable detriments. I also believe that those detriments have increased since the days of the Cohen Committee because of the proposed abolition of retail price maintenance.
I should like to read one paragraph from the Cohen Report which I think has very high relevance to-day. It says this:
"Exposure of small private companies to competition. We have had evidence that the publication of the accounts of small companies would give large concerns valuable information about the finances of their small rivals while the latter do not gain any corresponding advantage from the publication of the accounts of the larger concerns".
I will not read the whole of the long paragraph, but I believe that that statement has total validity to-day. In many details a small company will be put at a great disadvantage by having to publish figures in relation to its turnover, in relation to matters like its rent and in relation to a number of things, which will be available to a larger rival, while there is no corresponding benefit to the small company in having that information from its larger rivals because it has not the financial resources to utilise the information.
I would venture to ask the Government to reconsider this matter very closely, because I think that on close and mature consideration they may find there is no real benefit in this requirement: that it will not procure any advantage; no creditor is any better off; no information
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is thereby available which cannot be made available by the simple expedient of asking for it, and it may be doing great damage to a number of people. I find myself in complete agreement with the noble Lord who spoke for the Opposition, when he said to the Government, in effect: if you are going to legislate, then at least legislate in accordance with the recommendations of the Committee. Perhaps I might here be permitted a digression. This is a highly-technical topic, and a highly-expert Committee have been at work on it. They have made a number of detailed recommendations, and it seems to me to be somewhat vainglorious, if I may say so, to depart from those recommendations without very full further consultation with other interests.
The Jenkins Committee, I think wrongly, recommended that the exemption of private companies should go, but only on a limited basis, and that exemption should be preserved in relation to certain matters such as turnover, directors' remuneration and, particularly, rent. I should like to enlarge on the topic of rent, because it was not enlarged on by the noble Lord who spoke for the Opposition and I regard this as a most important matter. The most vulnerable feature of a small business is its premises. Everyone knows that a very real threat to a small shop is that the lease will come to an end, and that it will not be able to procure a new lease at a reasonable rent. To require the small shopkeeper to divulge his rent to the people who we all know are prowling about looking for the opportunity to obtain premises at modest prices for their own enrichment seems to me entirely wrong, and I do not think it ought to be done.
If the benefit of exempting the private company is to be taken away (and I hope that, on reflection, the Government may still decide not to do this, because I do not think there is any benefit to anyone in the matter) I hope it will be done in the terms of the Jenkins Committee and not in the far-reaching terms of this particular Bill. I would plead with the Government to give this matter very serious consideration, because great damage could be done to a great number of people who are the mainstay of the trading community of this country, and with no corresponding benefit to anybody.
I venture to think, also, that on the question of disclosure the Bill goes too

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far in some directions. There is a provision that there should be a disclosure of all directors' contracts. We know the sort of scandals that have induced this type of provision, and why it is here. But why should it be necessary to provide a copy of the total contract? Why should a rival be given details of, for instance, the restriction clause, of the restraint on a man's re-employment, on the actual area in which he may not engage when he leaves the business, simply to ensure that shareholders are furnished with information about the directors' salaries? This again seems to me to be an unconsidered provision, if I may say so. I think that, pursuing a shibboleth of disclosure, the Government have legislated too widely, too bluntly and without sufficient concern for detail. My view is that much greater attention to detail is necessary to ensure that gratuitious damage is not done to a number of people.
Pursuing my theme that the Jenkins Committee were not sensitive to the concern of the small private company, tucked away in the Bill there is another provision which I regard as quite unnecessary and which will be extremely damaging to private companies and difficult to operate. That is the provision which says that a director of a private company may not borrow money from his company. If one has a family concern which is run as a family concern, what point is there in imposing this exceptional formalism in relation to the company's finances? It does not seem to me to make any sort of sense. We all know that you cannot get money out of a company except by a very restricted number of procedures. You can declare a dividend, you can pay a capital bonus, or you can go to the court and increase your capital; but the most convenient way to get money out of a company, for anyone who is running the business in an informal fashion and is not too concerned about having to call his accountants every five minutes to advise him, is simply to borrow the money from the company.
It is absolutely right that that prohibition should exist in relation to public companies, where other people's money is concerned; but it seems to me absolutely wrong, and quite nonsensical (if I may venture to use the word), that that prohibition should be imposed in relation to the great majority of private
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companies. It reveals, as I say, an absence of sensitivity to the needs of the small private company, and I should like to see this Bill reconsidered from that point of view, because I do not share the views put forward by the noble Lord, Lord Mancroft, about the sinister intentions of this Government. I know that this Government would not want to legislate to the damage of the small trader, but I think they may unwittingly and inadvertently have done so.
On the question of the second piece of legislation, there are some very vital matters of Company Law which have been left out. Here, I am proposing to make an uncharitable observation. I believe they have been left out not by the Government, not by the Minister, but by his draftsmen because they were difficult to draft. One has a splendid instance of this in relation to the doctrine of ultra vires. I do not intend to expound to this House the doctrine of ultra vires, because your Lordships would be bored to tears, but it does happen that there was a thorough-going recommendation from the Cohen Committee (which I think sat in 1945 or 1946) that the doctrine of ultra vires, which is far more calculated to do an injustice to a creditor and which may very easily defraud creditors, should be totally abolished. That was a thorough-going, simple recommendation made, if I am not mistaken, over 22 years ago.
When the Jenkins Committee saw the Board of Trade experts and asked why abolition of this doctrine had not been incorporated in legislation, they were told that it was too difficult to incorporate it in legislation. This, if I may say so, is the most pathetic admission of inadequacy and failure. It must be possible to produce an absolutely indispensable change in the law, or to find a draftsman who can do it. We still find a Bill in which not a word on the subject appears.
The Jenkins Committee then made a recommendation that was probably more generous and more sympathetic to the human failings of the draftsman. They did not impose upon him the obligation of having to draft something that would totally abolish the ultra vires doctrine: they said, "Let us go half way. Let us abolish the doctrine in so far as the person contracting with the company

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shall be entitled to enforce the contract, and the company itself shall not" But nowhere is that to be found in this Bill. There is not a word on the subject.
This, if I may say so, is the vice of piecemeal legislation. It is also the vice of trying to deal with highly specialised topics without sufficient resort to specialists. I think it is quite wrong that this Bill was not referred to the Law Commission. The Law Commission has as one of its members a most distinguished company lawyer who was a member of the Jenkins Committee. It would have made absolute sense to have referred this matter to the Law Commission and to have had their views on it. I should have been astonished if the Law Commission could not have evolved a piece of drafting that would have ended this idiotic doctrine of ultra vires.
I should like just to illustrate the working of the doctrine of ultra vires, because to some of your Lordships it may be a total mystery and because its working is really quite monstrous. In one case—I think In re Beaufort is the name of the case; it is a decision of Mr. Justice Roxburgh—what happened was quite simple. A company had been formed to manufacture, I think, veneers. It changed its business and went on to manufacture furniture, or something of the sort. When manufacturing furniture, it ordered a consignment of coal. It was then held entitled not to pay for the coal because all its activities were ultra vires the company. Can one imagine anything more idiotic or anything more monstrous? Yet this is being preserved as the law at a time when we are supposed to be making effective and far-reaching changes in the law. I think it reflects very badly on the draftsmen that they have not dealt with this.
There are a number of other matters which ought to be dealt with and which I am sure will be dealt with in the new Bill. I agree with what has been said about no par value shares. I think that one of the things that make the whole business of disclosure an absurdity is that the accounts produced are really meaningless until you have no par value shares. You have a situation at this moment that a nominal value is ascribed to assets in a balance sheet of a company,
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related to the sum of money for which the company was originally capitalised, which ceased to reflect the value of the company literally within five minutes of its formation. That remains nominally the value of the company to which all substantial transactions are related.
The Gedge Committee recommended that no par value shares should be introduced in respect to ordinary, but not to preference, shares. I think the Cohen Committee held that there was no strong demand for it. The Jenkins Committee took the view that it ought to be introduced for both categories of shares. My own view, for what it is worth, is that it ought to be introduced for ordinary shares but it would be inappropriate for preference shares. I do not agree with the noble Lord, Lord Mancroft, that there are sinister political reasons why this has not been introduced. I think the arguments about trade unions and so forth are historical; they have no further relevance today. I doubt if you could find an informed trade union leader who would not agree that this change ought to be made within ten minutes of having it explained to him. All the necessary safeguards to ensure that you show what distribution is being made, what amount of capital is being drawn on and so on, could be inserted as part of a short Bill. I hope that when the new Bill is introduced this particular change will he introduced.
Another matter which also surprised me was that there were no reference to the notorious Section 54; the take-over bid; the right of a company to spend their money in buying their own shares This again is a very important omission which ought to be remedied at some future stage. This is a Second Reading debate and therefore it would be wrong to go into detail; but I have said I do not think this is more than a stopgap measure. I think it is a useful measure. I think there are provisions in it that one would wish to see and which are timely. But I think it would have been far better if someone had taken the trouble to produce a comprehensive Bill. I do not think the explanation that it would have taken too much Parliamentary time is adequate. It is better to give twice the Parliamentary time to producing a satisfactory measure than to give half that time to producing something that is of little use at all, for then that time is totally wasted. I hope that before

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long we shall see another Bill, an adequate Bill, which deals thoroughly with a great many matters that are of great concern to many people.
5.22 p.m.
VISCOUNT ECCLES: My Lords, I must apologise for not being in the Chamber at the beginning of this debate. Unfortunately I had to take an annual meeting the date of which was fixed some time ago, and I was therefore unable to benefit from the opening speeches. But I can now be much shorter than I had thought, because the noble Lord, Lord Goodman, said so excellently what I wanted to say about private companies that I can only commend your Lordships to take every word he said to heart. With his experience, and with no political bias, I believe he has made an unanswerable case for some important Amendments which I only hope the noble Lord will put down. If he does so he may find support in all parts of the House. I can assure the noble Lord that it is my intention, with the support of other noble Lords, to put a new clause—and I am sorry to say that it will be a lengthy one—and a new Schedule on the List of Amendments which would provide for the issue of shares of no par value.
It is twelve years since my distinguished friend Mr. Montagu Gedge, whose untimely death was a great loss to Company Law, reported, and the case he made was unanswerable. There was at that time a trade union reservation, and I am glad to hear from the noble Lord, Lord Goodman, that he thinks that is now a matter of the past. Eight years later the Jenkins Committee, having looked at this again, said that there was no evidence against, and much in favour of, the introduction of no par value shares. The new clause which I hope to put down will follow the recommendation of the Gedge Committee except in two respects, which I would speak to if an appropriate occasion arose later, and it will also embrace the additional recommendation of the Jenkins Committee that the system should apply to preference as well as to ordinary shares. I agree with the noble Lord, Lord Goodman, that there is not the same argument in favour of its application to preference shares as to ordinary shares, but the very careful examination which the Jenkins Committee gave to the subject is something that should weigh
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with us. Therefore I should hope that we could follow their advice. If your Lordships are agreed in Committee to the new clause, it would then be necessary in another place to consider certain consequential changes in the registration fees and capital duties which it would not be appropriate to bring forward in your Lordships' House.
Looking at the Bill as a whole, I cannot but feel disappointed, not because of what is in the Bill but because of what has been left out. I gather from the speeches that I have had the good fortune to hear that that point of view is fairly widely shared in this House. We badly need a new Company Act, but we cannot have one every year, and when we have a new Company Act it ought to be as good as we can make it. If one asks what is the main purpose for which we want more information about what companies are doing, surely the answer must be: "In order to secure a better performance in industry". That is the only real object of getting more information, and the Bill, as I see it, is much weakened by including requests for information, which have little relevance to the efficiency of the economy, and by leaving out other requests that would have been highly relevant. For this reason I judge it to be a sad disappointment.
It is seven years since the Jenkins Committee was set up and they must have based their conclusions in a very large measure on the balance sheets, the business practices, the notions of economic policies that were current in the 1950s. Since they were at work we have learned a great deal about company accounts and about the relevance of the way they conduct their affairs to the general health of the economy and of Government policy. It is a great pity that so much of what we have learned has failed to find a place in this Bill. I do not think anyone expects the disclosure of directors' and executives' emoluments to be of much value to the economy. This information is as likely to find a place in the gossip columns as in the financial columns of the Press. I am sure that the practical effect of these disclosures is that they will greatly increase the pressure to raise salaries and fees to the level of the highest paid in comparable companies. In the field of wages we are all too familiar with the

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principle of comparability. It is perhaps only human nature that in a field in which we have lacked a good deal of information we shall now be able to play this game of leapfrog. That is going to be the result. It will add to costs, and I can hardly believe that there will be any compensating advantage to the economy as a whole.
Would it not have been much better, to give one example, to have asked these same directors and executives to disclose in the balance sheet the basis on which they value their stocks? And especially to tell us when they alter their valuation? I heard recently of a company which offered itself for a take-over. It was a printing company. The balance sheet looked all right. Its main business was the printing of annual diaries, social diaries, business diaries and all those useful books which we expect to be given at Christmas time. But when the stocks were examined it was found that the unsold stocks of diaries going back for years were all there at the cost of production—that is, on the directors' valuation. Well, my Lords, it must be fairly clear that there was a company very ripe for a take-over.
We should also be advantaged if directors were compelled to tell us the basis on which they depreciate their buildings, their plant and their machinery. This is not done on the same basis as between one company and another. This is the sort of information that we really need to have if we are to assess the position of a company. Again, the Bill contains very arguable provisions designed to make a company show where its profits were earned. In theory, this sounds a very laudable thing to require from private industry—that they should tell where their profits are earned. And, similarly, one would like to know where the losses of the nationalised industries were made. But it is necessary to ask oneself whether this is going to do any good to the economy.
In particular, I doubt whether the requirement to disclose exports as a separate part of the turnover is going to work to the advantage of the British economy. I imagine the intention is to "put on the spot" those companies whose exports are very small, and to be in a position to congratulate those companies whose exports are large. But is
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that fair? A company may manufacture parts which are assembled by another company, and the assembling company may do all the exporting. The manufacturing company would have to show that it did not export at all.
More serious than that, which I should think one could put up with without too much difficulty, would be the disclosure of information to our overseas rivals. I imagine it is most serious in the capital goods industry, for there the quotations are cut very fine. We all know that in certain markets capital goods are subsidised by Governments in one way or another. If a company is exporting a large proportion of its products overseas and it has to declare that proportion, and rival companies have not only that figure but the profit and loss account of the company, they can work out the profit margin pretty easily; and will be in possession of information which might be of very serious consequence to our firms. I think that firms in this position of fighting for capital goods orders overseas should be consulted as to whether or not the provision in the Bill will damage their affairs. In fact, some of the provisions in the Bill appear to have been inserted by people who are more interested in statistics than in production and exports. We ought to be interested in both—of course that is so—but in our present position it is very unwise to ask for information which would have the effect of slowing down any part of our economy, and more particularly the export trade.
I come to a point about which I do not know whether your Lordships will agree with me or not, but I wish that in this Bill the Government had taken a bold step and required the value of the assets in a balance sheet to be shown at replacement value. This is done by great companies like Philips in Holland. Until we can have the assets shown at what they are really worth in terms of present-day price-levels—and they are always changing—we cannot calculate how much a company is earning on the capital employed. I should have thought that the Ministry of Technology, and all other persons and bodies interested in raising the efficiency of British industry, needed this yardstick; that they needed to be able to know when one board of directors employed assets of a similar value and

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kind to another board of directors but were in fact earning much more. With this information we might begin to ask why one company was earning more on its capital than another. We cannot do that satisfactorily until assets are valued at replacement value, and I had hoped that this requirement would find a place in a Companies Bill brought forward by a Government which so frequently tells us that they are devoted to modern methods to make us efficient. Instead of that we have a Bill which is largely trivial.
It may be worth reminding your Lordships that it will not be by getting better information, however accurate, however good and useful that information may be, that we shall make our industry perform better. It is a question of the attitudes inside industry, between management and workpeople and between both and society at large. The time will come when we shall have to discuss these, which are the really serious difficulties in British industry. I only hope that we shall not persuade ourselves that just because we know a little more in facts and figures we need not pay attention to the really serious problem of attitudes in industry. In the meantime, we must make the best we can of this inadequate Bill.
5.37 p.m.
LORD STOW HILL: My Lords, your Lordships have listened to a series of admirable speeches on this somewhat abstruse Bill, beginning with what I thought were two splendid opening speeches. If from time to time I detected a slightly controversial note in the speech of the noble and learned Lord, the Lord Chancellor, when I listened to the admirable speech of the noble Lord, Lord Erroll of Hale, I could not help thinking of the adage that imitation is the sincerest form of flattery. As I listened to the informed speeches which have been delivered, I had the painful experience that I sometimes have in your Lordships' House of thinking that the points which I had carefully prepared I ought one by one to discard; and, having performed that process, which I am sure is to your Lordships' relief, I find myself left with a few rather naked, feeble points. But they have not yet been touched on, and I hope your Lordships will not think that I am unnecessarily trespassing on the time of the House if I just make them.
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Part I of the Bill, in effect, reconstructs Schedule 8 of the Companies Act, 1948, broadly in order to achieve the purpose set by the Jenkins Committee of making the conventional balance sheet and profit and loss account approximate more nearly to the requirement of the Companies Act, 1948—I think Section 149—that the accounts should present a true and fair picture of the company's position. Clearly that objective involves a number of points on which your Lordships have differed and on which I suppose in the course of our Committee investigation of this Bill your Lordships will express conflicting views.
The point on Part I of the Bill on which I would detain your Lordships for a moment is Clause 18, which deals with the requirement to disclose contributions or payments, as they are first called, to charitable or political organisations. If I may say one word to the noble Lord, Lord Mancroft, I hope that he will not continue to think that the purpose of this clause is sinister. After all, noble Lords on all sides in this House believe in the necessity of a mixed economy, and over the years the number of smaller investors drawn from all sections of the population has increased and will increase, and I hope your Lordships will accept that that is a desirable process.
The interest of shareholders is growing. I should have thought I should be echoing your Lordships' feelings if I said that an annual general meeting these days is sometimes less pacific than it used to be fifty years ago. Partly this is due to the fact that individual shareholders with modest holdings take a much greater interest in the company's affairs and wish to be better informed about them. The names of our great companies and their activities and history are largely featured in the Press, on television and on radio, and people generally are more interested in them. There are also large institutional shareholders who wish to know more, in order to be able to probe the board about the company's proceedings during the year. And I should have thought that in general it was desirable, as a trend, to lean towards greater disclosure.
It is in the context of this that I view, for example, the disclosure of directors'

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remuneration. It is not an envious provision. It is simply that those who provide the money should be in a position of knowing how it is disposed of. I think that the noble Lord, Lord Man-croft, was perfectly right in saying that frequently such disclosures will serve to allay a bogey. People sometimes think of enormous remuneration received by directors when in fact nothing of the sort is the truth. The truth should be given, and there surely can be nothing wrong about that. It may be that it will have the effect of levelling up remuneration in different companies. If so, so be it. I believe that in general it is right that shareholders should know how those who manage their money deal with it in this respect as in others.
The noble Lord, Lord Erroll of Hale, in answering an argument addressed to the House by my noble and learned friend the Lord Chancellor, said that the remuneration of civil servants, Ministers and members of public bodies should be known because that involved the expenditure of public money, and he differentiated that from the case of directors who are remunerated by their shareholders—or, in the ultimate result, out of the use of shareholders' money. I should have thought, with great respect, that that was a distinction without a difference. It seems to me that, if anything, there is greater reason for shareholders to know what happens to the money they provide, and how it is applied, than for the general body of the public to know how public funds are disposed of. The public are informed with regard to the expenditure of public money, and I think that to inform shareholders with regard to the expenditure of the money they provide is logical and desirable. If it will help to dispel suspicions and exaggerated views of remuneration, that is all to the good. I hope that the House will feel that this is a provision which is inserted in the Bill not from any sinister political motive but because it is generally healthy that people should have as much information as can be given without injuring the company and its interests.
LORD ERROLL OF HALE: My Lords, I am grateful to the noble Lord for giving way, particularly as your Lordships heard
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my speech without interruption, but I think that I ought to explain to the House that this information is already available to shareholders, since the total sum expended by way of fees and salaries to directors is already shown in the company balance sheet. It is the breakdown that I object to.
LORD STOW HILL: My Lords, the difference is between the total sum, which is certainly shown, and the breakdown for which this Bill provides. I should have thought that that was desirable from the point of view of the general public. But I leave that point, which your Lordships may wish to consider further in Committee.
The other part of this question is contributions to political organisations, and here I would apply the same touchstone. People ought to know. As my noble and learned friend the Lord Chancellor said, the Bill does not in any sense prevent such payments. It simply says that shareholders should know if there are charitable or political payments. Speaking for myself I certainly would not put political payments to Party organisations on the same footing as payments to charities. In this healthy and vigorous democracy of ours, where we have differences on political matters—and I hope that we always shall, because democracy cannot learn without them and democracy is essential to civilised living—payments to a political Party have (if I may use a rather ugly word which has now crept into our language) an emotive quality. I do not quite know what that word means, but I take it that it is a quality which makes one's hackles rise.
After all, shareholders come from all shades of political opinion. I am a member of the Labour Party, and I should like to know whether the companies in which I am a shareholder—and I hold shares in a number of companies—do in fact contribute to the Conservative Party. There is nothing wrong in my knowing that. If I object, there are various courses open to me to take; but all that is being done by the Bill is to put me in a position to know. With great respect, I would submit that it is not really an answer to that to ask, as the noble Lord, Lord Mancroft, did, what would the shareholders do when they knew. I do not know. They may disregard it. They

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may say, on the other hand, that they are no longer going to be a shareholder in a company which makes contributions for that purpose. Perhaps they will not. But they will be in a position of having the information available to them.
It is not easy to determine what is a political payment, and I should like to make a few observations on that point. It is easy enough, when talking of a payment to the Conservative Party or the Labour Party or the Liberal Party, but it is not so easy to determine what is a political payment when the payment is made to some organisation which may be more or less closely affiliated to, or designed to serve the purposes of, a particular trend of political thought. A number of names spring to mind—but, "No names, no pack-drill!" They are not here to defend themselves or speak for themselves, so I do not name them. But there are organisations which are "Friends of" this and "Friends of" that, which may or may not directly serve the purposes of some political trend. The way the Government seek to deal with this is to provide the definition which appears in Clause 18(4). The relevant words are:
"For the purposes of this section a company shall be treated as giving money for political purposes if, directly or indirectly,—

(a) it gives a donation or subscription to a political party of the United Kingdom or of any part thereof; or"—

that is simple enough. It covers a straight contribution to a political Party—

(b) it gives a donation or subscription to a person who, to its knowledge, is carrying on, or proposing to carry on, any activities which can, at the time at which the donation or subscription was given, reasonably be regarded as likely to affect public support for such a political party as aforesaid."

The directors have to decide; it is for them to take the decision, and to accept the responsibility of determining whether a payment comes within this definition or not.
What is, and what is not, within that definition? Supposing a large company pays a sum of £25 5s. annually in order to provide the public with newspapers in their waiting rooms? Newspapers sometimes support one political Party, sometimes they support another political Party, and sometimes both; and they quite often criticise all political Parties, and it is a good thing that they should. Have the
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directors of a company to put into their report that they have paid £25 5s. to buy a newspaper, or a periodical or something of that sort, to put in their waiting room so that people can read it when they wait? I cannot suggest a better definition. I think this is a serious difficulty, and it may be that the Government have chosen the best form of words. Common sense generally comes to the rescue in difficult situations of this sort, and one hopes that it will relieve directors from embarrassment in having to exercise their discretion on these words.
The expression "subscription" is used. Do you pay a subscription within the meaning of the definition only if you pay for nothing in return; or do you pay a subscription if in return for the payment you make, to take the example that I gave, you receive a newspaper? I do not know. It is, I think, a difficult point, and it may be one that your Lordships will wish to consider further in Committee.
I should like now to pass from Part I and make some observations on Part II of the Bill. Every Government are in this dilemma. If a Government take stringent powers, often they are, quite properly, called dictatorial; if they do not take stringent powers, they are apt to be called weak and not ready to take the necessary measures to avert a particular mischief. But your Lordships may in Committee wish to examine some of the powers which are taken in Part II of the Bill. If I may give your Lordships some examples, Clause 61 says that the Board of Trade can insist on the production of papers and books, and they may take copies. Clause 62 provides that a justice of the peace may on the information of the Board of Trade authorise what is in effect a forcible entry of premises in order to enable the Board of Trade officers to take possession of papers. I think your Lordships may wish to question whether there are other precedents for powers quite as drastic as that. I think I am right in saying that there are some fairly close to this in the Exchange Control Act 1947, for which the Government of which I then had the honour of being a member had some responsibility. It may well be that these powers are essential and cannot be forgone.

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Clause 48 raises a difficulty which I think often emerges when stringent powers are under consideration. The Board of Trade can refuse to allow, in effect, a person to serve as an officer of an insurance company on the ground that he is generally undesirable. A "person", I think, includes a manager, director, secretary and so on. It is a very drastic power. It may, of course, be necessary. British insurance has, I suppose, as high a reputation as any in the world, and I can well understand those concerned with its interests being most anxious to keep away from it a person whose character, particularly financially, leaves something to be desired. But for somebody in the Board of Trade to say, "I hear that X is to be a director of such-and-such an insurance company. He has not been to prison; he is not in prison at the moment, and he is not bankrupt, but we do not like it. We think he is a person of potential bad character", there being no appeal against that decision, and no recourse to any other authority against it, is a very stringent measure, and your Lordships may wish to examine that in Committee.
I suppose a particular feature of Part II of the Bill is that it puts beyond doubt that the Board of Trade can intervene before an insurance company, if I may use a colloquialism, goes "on the rocks". I think it was thought by some, at any rate, that this power already existed, but this puts it beyond doubt. I should have thought that this was absolutely right. The only comment I have to make is this. There are stringent powers for the Board of Trade to intervene when it doubts whether an insurance company is being carried on on a stable footing. But I wonder whether those powers are sufficient, that are designed to prevent the entry into the insurance field of new unstable concerns. In effect, the only gateway through which you have to pass if you wish to start a new insurance company—a cut-price motor insurance company, for example—is that if you are a limited company you must have a paid up capital of £100,000, and your assets must exceed your liabilities by £50,000. Those of us who, unhappily, have had some professional contact with these matters know perfectly well that if there is a collision between
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two cars, each of which has passengers, and if the driver of one of the cars is held in the courts to be negligent, the consequent damage, consisting of compensation for injury to the various persons involved, may easily exceed £50,000. So I ask myself whether the provision designed to prevent companies from entering into the insurance field is adequate. Is £50,000 really a figure which has any other than an illusory significance in this context?
I understand that there are a number of perfectly solid respectable companies which operate only in limited fields of insurance on a modest scale, and if the figure of £50,000 were considerably higher, it would make it impossible for them to continue their very useful undertakings. I should have thought that possibly the right way to provide for this situation would be to make the figure of £50,000 considerably higher, but to allow the Board of Trade to grant special exemption to smaller companies dealing with particular types of insurance business.
I now want to pass on, quite briefly, to Part III of the Bill. This is the part of the Bill, as the noble and learned Lord the Lord Chancellor told us, in which the Government have, in effect, adopted the advice of the Jenkins Committee, not to define bankers, but, as the Committee recommended, to leave it to the Board of Trade to certify what concerns are and what concerns are not bankers. The situation arises in these circumstances. Hire-purchase business is now an enormously important field of our commercial and industrial enterprise. A hire-purchase company, if it comes within the scope of the Money-Lenders Acts, as the noble and learned Lord the Lord Chancellor said, cannot recover the debts owed to it, and, indeed, may well be committing criminal offences if it fails to comply with certain requirements of the Money-Lenders Acts. The situation sometimes arises that a hirer who owes money to a hire-purchase company seeks to evade liability by maintaining that the hire-purchase company really carries on the business of money-Lending and therefore should be prohibited by the 1909 to 1927 Money-Lenders Acts from recovering its debt against him.
The noble Lord, Lord Erroll of Hale, mentioned one case of that sort to which

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I should like to invite your Lordships' attention in support of the argument that I seek to put that possibly the Government have taken a mistaken view here. I know the truth of the adage that one can tell an elephant when one sees one but it is awfully difficult to define one, and it may not be easy to define the business of banking. But it is not as difficult as all that, and I should have thought that the Government ought to try to define the business of banking. There are many definitions in the cases. Joachimson v. The Swiss Banking Corporation gives a general definition and, normally speaking, the general business of banking is the acceptance of money on deposit with an undertaking to repay on demand on the understanding that the bank can use the money until repaid to a depositor. That is a general description which does not necessarily describe a number of commercial activities which we now associate, for example, with commercial banks, merchant banks, discount houses, acceptance houses, and so on.
But the position arose in a somewhat difficult and acute form in the case to which the noble Lord referred, the United Dominions Trust v. Kirkwood. The United Dominions Trust is a famous company which carries on business on a very large scale, and is of the highest repute and standing. It wanted to sue a motor dealer for £5,000 due on what were called "stocking" agreements. The motor dealer said, "No, you cannot recover the amount because you are moneylenders, and you did not comply with the terms of the Act." The United Dominions Trust said, "No, we are not moneylenders we are bankers." That issue came before the Court of Appeal, over which the noble and learned Lord, Lord Denning, presided as Master of the Rolls. I hope I state fairly what actually happened.
The noble and learned Lord proceeded first to look at no fewer than twelve Statutes which contained important provisions about banking. In the case of each Statute he looked to find what was a banker, and in each case he found the definition that a banker was "a person who carried on the business of banking." Sometimes there was a variant, and the variant took this form: that a banker is a person whom the Board of Trade certify carries on the business of banking. The
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Court of Appeal, finding that there was no help in that direction, proceeded to look at cases like Joachimson v. The Swiss Banking Corporation, and by reference to the definitions in those cases, to examine the proceedings and the type of business carried on by the United Dominions Trust.
The Master of the Rolls came to the conclusion that none of the business carried on by the United Dominions Trust conformed to the ordinary understanding of what a banker does. That looked rather black for the United Dominions Trust, and if the case had been decided against it, it would have been quite disastrous. It could not have recovered that debt or, I suppose, any other debt. I speak rather feelingly, because I have been privileged to represent a number of companies in a similar situation, and it is very serious for them indeed. Fortunately, the Court of Appeal felt that on the authorities it could and ought to decide that the United Dominions Trust was a bank, for the reason that it was generally reputed in the City of London to be a bank and was generally described and treated as a bank. I summarise the argument.
In those circumstances judgment was given for the plaintiff. But Lord Justice Diplock, who was a member of the Court, pointed out at the end of his judgment that in that particular case the Court of Appeal were able to decide in favour of the United Dominions Trust because there was sufficient evidence before the Court to convince them that it was generally reputed to be a bank in the City of London. But he said that in future cases the evidence may not come up to that, and that although the judgment was good as between the United Dominions Trust and the defendant in that case, it would not be good as between anybody else and the whole question would have to be litigated as a matter of fact should the question arise in the future. Surely, that is a most unsatisfactory position.
The Board of Trade said to the Jenkins Committee that they found that the power which was vested in them, or thought to be vested in them, of saying what was a bank and what was not was a difficult one to exercise, and expressed the hope that a definition would be found. I would venture to echo a similar hope, and express the view that the Government might

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think again on this question of definition. It would introduce certainty where uncertainty now resides in a very large field of our valuable commercial operations centring around hire-purchase companies and finance companies.
I personally think that this is a necessary Bill. I am glad to see that it is only one instalment. I should hope that, when the full thinking of the Government is reflected in statutory provisions, the example of the Government in 1947 and 1948 will be followed; and that the new provisions will be consolidated, as the 1947 Act was consolidated in the Companies Act 1948, which is now the Act which governs the situation.
6.5 p.m.
LORD HAWKE: My Lords, the noble and learned Lord on the Woolsack reminded the House of what transpired in 1947 when the present Companies Act was going through this House. I well remember that, because I was an extremely inadequate secretary of the Committee on this side of the House putting down Amendments. I should like to recall the very pleasant atmosphere there was in the House at that time. The noble and learned Lord on the Woolsack—in those days Lord Jowitt—invited the House to improve this Company Law. I hope that the noble and learned Lord who sits there to-day will take the same attitude, though from one remark in his speech I rather imagined that he might be thinking he was casting us something on which to do a few drafting Amendments only. I hope I was wrong.
On the whole, this Bill has had a very good Press, and the financial journalists are now the best protection that shareholders have to-day; and shareholders are very inadequately "trade unionized" in an increasingly unionised world. There has been a good deal of talk about the proposals for disclosure, and I personally do not object to them. But they will have certain repercussions which I do not think the Government have thought of.
I am glad that an ex-Home Secretary picked up Clause 18(4)(b), because I think that is quite impracticable, and I hope we shall try to delete it from the Bill. Various noble Lords who have said in effect that it is not necessarily to the advantage of shareholders to learn
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the emoluments of their directors and their principal executives are absolutely correct, because undoubtedly the shareholders will find themselves paying more for their executives as a result of the process of "head hunting", et cetera, which will certainly go on. I have not the slightest doubt about that.
I am not sure that I am happy about the banking and insurance clauses. The noble Lord who has just sat down told us a good deal about his experiences on this question of what is and what is not a bank. If you are not a bank you become a moneylender, and under a grave handicap. I should have thought there was a case for having a third animal: a bank, in the sense in which the general public thinks of a hank, a person who lends money against goods in some way or another and takes deposits from the public to do so, and the moneylender. I give that thought to the Board of Trade to think on next time.
When we come to insurance, I am sure the noble Lord, Lord Stow Hill, is absolutely right that there are a number of insurance companies in existence to-day who have come into existence for the specific purpose of insuring people whom nobody else is prepared to insure. Considering what shockingly bad accident records some of these people have, the financial provisions for allowing these companies to go on are to my mind quite inadequate, and something ought to be done about that. Perhaps I should declare an interest, as I am a director of a small tariff insurance company. I know that one noble Lord—I think, Lord Peddie—was frightened of insurance becoming a closed shop. I can assure him that there is not the slightest chance of that happening so long as Lloyd's is in existence. Insurance is the biggest cut-price industry in the country to-day, and always will be so long as Lloyd's and the companies are all competing.
As to the exempt private companies, I do not think there is any great objection to the abolition of their status. But when we make them conform to various rules and regulations which were designed for the large public companies, the small businesses can be very heavily penalised. The noble Lord, Lord Goodman, made a number of valid points in that field, and I hope that when we come to the Committee stage they may be turned into

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action. Publishing the turnover is most deleterious to a small business in a small town. I do not see that publishing the directors' emoluments serves any useful purpose. Does it really help the stockholders, the widows or retired people of the family, to know that Uncle Stanley takes £2,000 a year out of the business? They probably know that already and do not object.
When we were dealing with the last Companies Bill I remember that I was much struck by the reminiscences of the late Lord Maugham, who had been Lord Chancellor. He told us wonderful stories of cases in which he had been engaged, of quarrels between families, directors, and so on, and it was most eye-opening to me as the experience was completely different from anything I had ever come across. Then I realised that the Chancery Bar probably comes upon the cases of these innumerable small companies when they have quarrels and are foolish enough to go to law. The other day I was discussing this Bill with a friend who has a practice at the Chancery Bar, and his comment was that he thought it fundamentally wrong to treat private companies like public companies. He thought there should be a separate code of law and he said that at least one country on the Continent (the name of which I forget) has some sort of separate law, so that in effect there are three different types of "person".
Some of the legislative protections designed for the shareholders in the large public company can act in a most deleterious manner to those in a small private company, and the noble Lord, Lord Goodman, gave various instances. I will give another one, drawn from my friend's practice. There was a flourishing little business in the South of London, run by a man and his wife. They were sole directors and they took the whole profits of the business, more or less as directors' fees. The wife had 51 per cent. and the husband had 49 per cent. The marriage broke up, whereupon the wife promptly sacked the husband and ruined him. He had nothing to live on. They were to all intents and purposes an incorporated partnership, and of course she could not have got rid of him in that way if they had been partners. It is quite right that the shareholders in a big public company should be able to get rid of their directors
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like that, but in this particular instance it worked in a harsh manner.
The Jenkins Committee rejected the idea of following the American practice of allowing companies to buy their own shares. Their reasons are obviously perfectly sound for large public companies, but when it comes to a small family company and one of the shareholders dies, there may not be any other method of disposing of the shares if the company is not permitted to buy them, and it really acts as a reduction of capital and the executor finds a buyer. Arising out of this sort of situation it might be in the best interests of the company that one of the surviving directors should be allowed to borrow money from the company in order to acquire the shares, but of course the law is very stringent against that happening in a large public company; and quite rightly so. In this case it would have to be subject to the shareholders' not having an objection and to the interests of the creditors being safeguarded.
Then again, I am told that there is no fiduciary relationship between the director of a private company and the other shareholders. He can buy shares too cheaply from the widow and not be accountable to her for any profit he makes by re-selling them. If it is correct, that seems to be a flaw in the law as relating to these small companies. My Friend brought out all these points, not with a view to this Bill but immediately the Jenkins Committee's Report was published, and I think he spotted, as the noble Lord, Lord Goodman, has, that the Committee was composed of people well skilled and learned in big company practice but with little experience of the small private companies which conduct most of the business of the country.
I hope that the next Bill will deal with this situation. This one, of course, by its insistence on various forms of statistics and disclosures, will provide a lot of extra work for those service industries clustering around Whitehall, which makes the Government's intentions rather extraordinary. They want to reduce the employment in service industries in the private sector, yet at the same time everything they do is trying to increase the employment in the service industries in the public sector—the statistical offices, and so on. That, of course, is inconsistent and silly. In fact, in that respect

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the Bill really panders to this modern trend for statistics and information, quite regardless of whether the result will be of the slightest use to anybody.
6.18 p.m.
LORD MILNE: My Lords, I should like to preface such brief remarks as are now left to me by echoing an earlier tribute to the Jenkins Company Law Committee. Speaking as an accountant, and so to a certain extent an interested party, I welcome the objects of this Bill generally. I, too, have some reservations on Part I, both as to the contents of one or two clauses and, with the noble Lord, Lord Goodman, as to the proposed application of the Bill to the small limited companies.
There is a dilemma with regard to what is reasonable in disclosure. This was considered by the Jenkins Committee and their views may be summarised under three heads. First, that the information should be of real value to the recipient; secondly, that it should not involve disproportionate work, and thirdly, that it should not be detrimental to the business. I think that, with few exceptions, most of the clauses in Part I of this new Bill fulfil these three requirements, provided that the application is not to be universal. I cannot, however, feel that the detail required in Clause 18 with regard to donations is justifiable from the point of view of Company Law. The Jenkins Committee considered this point and they dismissed the subject as immaterial. If, notwithstanding that, it is thought that times have now so changed as to warrant such disclosure, so let it be; but I think the disclosure should be in total only and the details should be available to shareholders or others, possibly on request.
Nor do I feel, following a multitude of speakers, that the particulars of exports required by Clause 19 have any real value, other than to satisfy curiosity. They will not assist shareholders or creditors, while the Board of Trade has other means of obtaining such information if it requires it, and the information would then be defined, and so accurate for their purposes. I agree with the noble Viscount, Lord Eccles, that stated in company accounts the information could well be misleading, and coupled with the other disclosure now contemplated could very well do more harm
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than good. My feelings are rather with the noble Lord, Lord Byers, and a speaker in the other place on an earlier Bill who asked, "If exports, why not imports also?"
To turn to the question of the application of the Bill, it is clear there is considerable concern over the general application to small companies. This I share. The reasons are obvious and the arguments have already been expounded at length by the noble Lord, Lord Goodman. The problem, of course, is where to draw the line. As a compromise, could not the provisions of the Bill apply to all companies, but, let us say, the former exempt private companies should file only their balance sheets? Power might also be given to the Board of Trade in certain stated circumstances depending on size to call for further information, and they should be given a fair measure of discretion in so doing.
As to omissions, this Bill mainly concerns disclosure, so the omission of such matters as no par value shares and nonvoting shares will no doubt be justified on those grounds. But it seems a pity to omit these, or to leave the initiative with the Stock Exchange on, for example, half-yearly accounts. I also agree with the noble Viscount, Lord Eccles, on the remarks about depreciation. Also why should the "inside information" clause not be extended if possible beyond directors?
I do not wish to raise now details which can be amended in Committee, but there are also some taxation matters which arise out of the 1965 Finance Act and which I think will need attention. Apparently, however, we must wait for another Bill to apply these Jenkins proposals which, though not strictly on disclosure, bear on take-over bids and good company management. Lastly, the withdrawal of the ban on large partnerships contained in Section 37 will be welcomed with relief by those concerned. Though not greatly publicised, this is a considerable change of policy and may have far-reaching effects on the shape of business, in the professions, the Stock Exchange and even in commerce. May I suggest to the Government that they might now consider amending the Business Names Act so as to avoid the necessity of putting the names of all partners on letter headings et cetera, failing which, as

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was pointed out to me, some notepaper will look like the back of a Lloyd's policy. With those remarks, I welcome this Bill.
6.14 p.m.
LORD ROYLE: My Lords, because I am conscious of my own limitations, in the short time I shall keep your Lordships I intend to talk only about Part II relative to the insurance clauses; and even here, because of what has been said by my noble friends Lord Peddie and Lord Stow Hill, what I had intended to say will now be shortened, because I am quite confident that both of them have said some of the things I wanted to say very much better than I could. If the noble Lord, Lord Erroll of Hale, were here at the moment he would be either shocked or comforted by the fact that a noble Lord on this side of the House has to declare an interest as being a director of an insurance company. I got the impression from the noble Lord that anything of that sort would be completely outside our ken and consideration. But I do at once make that declaration. It is not a company in the "top ten", as it were, but for all that it is a very important company in all classes of business, and therefore what I am saying this evening is to a large extent what my fellow directors in the management of that company are thinking.
It took the State Building Society to compel the Government to introduce in1962 the Building Societies Act, as it is now. It seemed in that case that to a large degree the stable door had been locked after the horse had fled. Likewise with regard to insurance companies, it is due to the activities of American and Military, Brandaris and Fire Auto that we have this part of this Bill before us to-day—because, if I understand rightly, it was never intended that there should be any clauses on insurance, particularly after the publication of the Jenkins Report, and this section of the Bill must be a later thought on the part of the Government. Therefore it seems to me that to some extent their hand has been forced by the fact that these incidents have occurred. They are closing the stable door after two or three horses have escaped, at least so far as insurance companies are concerned, and it is interesting to note that the "vet" is still examining one or two more at this stage.
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Nevertheless, I say without hesitation—and I am sure I speak for most of the insurance world—that we welcome part of the Bill which the House is discussing this afternoon. We welcome it from the point of view of the country and business generally, but it is more particularly welcome from the point of view of the insurance companies. Every reputable insurance company in the country is wholeheartedly pleased with the provisions of the Bill, the Government's intentions and the protection which they as reputable companies will now receive, and particularly, if I may say so, where motor insurance is involved. There was great anxiety over the last year or two among the good companies during the cut-price premium period of some of the companies with which we are now very familiar. A great deal of business was lost to this mushroom type of company, and it is a happy feeling that now that some of them have been found out, even though it has meant great sacrifice for some people, there is a steady drift back to sanity after very many fingers have been burned in the process.
In passing, may I say one thing? I do not want to be critical of insurance brokers—indeed, insurance companies depend greatly upon them—and I do not blame insurance brokers for advising their clients which is the best company in which to take out their insurance: it is their job, their duty, to get the best value they can for their clients. On the other hand, it seems to me that brokers might be a little more careful than they have been in the past in the giving of their advice so that there will be a greater guarantee and assurance for their clients. And surely nobody is better placed than the broker to know, or at least have a very good idea, what type of company he is recommending.
One point to be stressed in any debate on the insurance business in this country in a general survey, for which this Bill gives the opportunity, is the value of insurance as an invisible export. We have heard a good deal this afternoon with regard to the production of figures relevant to exports. I do not think it is generally realised what a great part insurance companies in this country play in the realm of invisible exports. I believe that in the national interest we have to

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maintain the companies' vital contribution towards the balance of payments. Two-thirds of the total non-life business, £750 million, is transacted overseas and earning a net benefit of £50 million a year. If I might be allowed to quote my own company, we have business in France, Morocco, Scandinavia, Malaya, Algiers, and Greece, apart from the Commonwealth, and in that way a great deal of money is earned for our country. The reputation which British insurance has established over the years must continue to be unsullied by unstable companies, and I believe that, more than anything, this Bill will help to preserve that reputation.
I am disappointed that the British Insurance Association were not able to persuade the industry generally to adopt the main recommendation of the Mackenzie Report, part of which suggested a revision of underwriting to insist on compulsory excess for motor insurance. I believe that a great number of people, mainly young drivers, are in many cases quite careless because they know full well that in the final analysis it costs them next to nothing, and therefore they are prepared to take risks. If a compulsory excess of, say, £25 were placed on every motor insurance I think we should find much greater care being taken, and in my view there would be far fewer accidents in the country.
Now may I make one or two brief points on individual clauses? My noble friend Lord Stow Hill has mentioned one that I wanted to refer to, Clause 48, which relates to the question of unfit directors or officers of any insurance company and takes powers to prohibit them from acting. I agree with my noble friend that this can be very wide indeed. It is a clause which is admirable in its intent, but a great deal of power is left to the Board of Trade. As my noble friend says, there seems no provision at all for an appeal against a decision which some officer of the Board of Trade, with the best intentions in the world, might take. Surely we should all agree that an appeal in anything of this kind is in accordance with our British sense of justice. Why not apply the appeal procedure of the fraud legislation, which provides for a tribunal of an independent nature? I do
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not want to say more about it because my noble friend has dealt with it so well. But I strongly press this point on my noble friend Lord Brown, in the hope that some notice may be taken of it.
My other point is on Clause 49, which relates to investment by insurance companies. Subsection (1) of that clause says that the Board of Trade may impose on a company
"a requirement that the company or body shall not make investments of a specified class and shall, before the expiration of a specified period … realise investments of that class held by it immediately before the requirement is imposed."
This provision, again, seems to me to be giving a great deal of discretion to the Board of Trade. I feel that any requirements which concern investment should be prescribed rather than left in the loose and vague way envisaged in the Bill. I understand that in the realm of insurance the French Government insist on certain definite investment. I am not quite sure of my figures, hut they are something like this: 25 per cent. in Government stock, 25 per cent. in what we call "blue chips", 25 per cent. in property and 25 per cent. miscellaneous. In addition, the company must send a quarterly schedule of the investment portfolio to the appropriate Ministry. It seems to me that if we adopted this method, the board of an insurance company would know what it had to do, and the Board of Trade officers would know what they had to check. I think this would be a wise provision, and it is a suggestion which again I put to my noble friend. With great respect, Government Departments are not famous for exercising discretion, and rules are so often vigorously applied. It seems that here would be one way of dealing with the question.
In conclusion, as a director of a composite company with predominant interests in the motor market, for that special reason and perhaps with special knowledge, I welcome this legislation, because I think it should, and will, bring back sanity to the motor market in insurance. I wish the Bill well. I can assure my noble friend that the general feeling in the insurance world is that these are fine steps, and that the proposals and provisions of this Bill will be generally welcomed.
6.38 p.m.
LORD ALPORT: My Lords, I must begin by following the noble Lord, Lord Royle, in declaring my interest. I am associated both with a merchant banking institution in the City and with an insurance broking group at Lloyd's. I listened with interest to the advice which the noble Lord, Lord Royle, gave with regard to the duties of brokers in the insurance field, and I think that everyone would entirely agree with him. Certainly what he has preached is our practice. On the one hand, it is quite clear that the proposed legislation in this Bill deserves to be welcomed as a reforming measure in the body of our company law.
When I first studied the Bill, I must say that I thought there was behind it a new and desirable basis of philosophy. I thought that the provisions for disclosure might perhaps be intended by the Government to increase the shareholder's interest in the activities of the company of which he was partly a proprietor. My own view is that the developments in business during the years ahead of us certainly should see an increasing participation by the shareholder in the affairs of the company whether it be as an institution or as a person. I do not mean that there should be interference with the decisions made by the company. I fully recognise the warning given by Professor Galbraith in the second of his Reith Lectures, in which he said:
"The modern large enterprise is equally jealous, although less outspoken, in protecting itself from interference from those who own or supply it with capital. Interference with decisions from these quarters would be equally damaging to the authority of its planning and to the quality of its decision."
That is perfectly right. On the other hand, a new relationship is growing up between boards of directors, on the one hand, and their shareholders, on the other, and I believe that this is a thoroughly desirable development.
The more useful information which can be made available to shareholders the better for the general health of British industry and business. In so far as this Bill represents that principle, I would welcome it. Whether all the disclosure of information is required I am not at the moment prepared to say, although I have listened with great interest to the arguments put forward by noble Lords
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on both sides of the House, particularly that made by the noble Lord, Lord Goodman.
On the other side of the matter, I think it is a pity that in a measure of reform, much of which would be generally regarded as desirable, a political element should have been introduced. I know that we are dealing with the realities of a political world and a Party system in this country, but on the whole we tend, both in this House and in the House of Commons, to over-estimate the involvement of people in this country in politics generally and Party politics in particular. I must say that since I ceased to be an active politician I have begun to realise how in the general field of business and of national activities there is far less partisanship than I had ever realised when I was an active politician or than is reflected in the Press or in other forms of communication. I think that when reform measures of this sort are being introduced, it is a mistake that what are blatant Party political points should be included in them.
I refer of course to Clause 18. My own view is that the result of that clause and the provision requiring the publication of political contributions will in fact probably increase, as my noble friend Lord Erroll of Hale suggested, the number of contributions made by companies to the various Parties—but what I think it will do also is to decrease the contributions which are made by companies to charitable objects. On the whole, that clause obviously is intended to be a deterrent to Party political contributions. By associating charitable contributions with them it will act as a deterrent to charitable contributions. All of us in this House are associated with appeals of various sorts and we all know from our experience how much we depend on the generosity of companies of all sorts and sizes to support these appeals. There is relatively little scope for patronage in these days, and we look to public authorities and to corporations to help us when we need money for charitable objects. Therefore, I think that it is a mistake for the Government to introduce this provision.
I want now to deal with one relatively limited point in this Bill, although it is a matter of principle and therefore is properly to be aired on Second Reading.

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Indeed, it has already been elaborated in detail by the noble Lord, Lord Stow Hill, when he referred to the absence from this Bill of a definition of banking. When the noble and learned Lord the Lord Chancellor was referring to this part of the Bill, namely Part III, he said at one stage in his speech that "there should be no uncertainty in this field", and went on to claim that Clause 81 met the requirements of the situation. The noble Lord, Lord Stow Hill, pointed out very clearly that, whatever may be the effect of this particular clause, it does not contain any definition of banking. He pointed out that the matter was considered in great detail by the Court of Appeal in the recent U.D.T. case. He referred to the fact that the noble and learned Lord, Lord Denning, suggested in that case that the definition should be a decision of the Board of Trade. If it is the purpose, as indeed it is, of this clause that the decision as to what is a bank should be left to the Board of Trade, then surely it is right that the Board of Trade should be given some criteria on which to make that decision, and to make it in the interests of good government, good business and good banking here in Britain.
I have looked through the banking legislation of the Commonwealth to see whether there is any definition there, and I must confess that neither in Australian nor in Canadian legislation could I find any different definition of a "bank". The only country which has a definition, so far as I can discover, is the Republic of Malawi. And I am not sure that the definition which is contained in their banking legislation would necessarily commend itself to Parliament in this country. But, at any rate, they have done something about attempting to define by statute "a bank". We, the greatest banking country in the world, have so far left that definition uncertain.
Under this Bill the responsibility for defining a bank is to be put on the shoulders of a civil servant or a department in the Board of Trade. It may be that that is the right solution, but it is still very important that we should know what are the criteria which the Board of Trade are to use in judging whether a company carrying on the activities of a bank is qualified for registration as a
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bank. In his judgment in the lower court in the U.D.T. case, Mr. Justice Mocatta said that there were five criteria with which a company could establish its right to be a bank; and I hope that I am reflecting his judgment correctly when I say that they were taking money on current account; paying cheques; collecting cheques; carrying out a significant volume of banking business; and having the repute in the commercial community as a bank.
I understand—and whether I am right or wrong in this I do not know—that up to the present in interpreting the right of a company to be included as a bank under paragraph 23 of Schedule 8 to The Companies Act 1948, the Board of Trade used criteria on the following lines: that capital should be above £250,000; that its liquidity ratio should be adequate; that it should carry out a full range of banking services; that it should be a member of the British Banks Association, the Issuing Houses Association or the Discount Houses Association; that it should have the repute in the City of London of being a bank, and that the Commissioners of Inland Revenue and the main clearing banks should regard it as a bank.
The Financial Times, in a recent article commenting on this Bill and this particular clause said this:
"Whether a particular company qualifies for a stamp or not it will be for the Board of Trade to decide. But it would appear that to start with at all events there will be one criterion. This is whether the company has been able to satisfy another governmental body—the Inland Revenue—that its activities have enough of a banking flavour to enable it to qualify for privileges reserved for banks in the Income Tax Acts, of which that permitting it to pay interest without first deducting tax is the most important."
Are we, therefore, in the Bill as it is at present drafted leaving this decision not to the Board of Trade but to the Commissioners of Inland Revenue? Is this not a case when, in fact, administrative discretion is not appropriate; when we in the House—we in Parliament, in both Houses, to put it more accurately—should take the responsibility for defining in law what a bank is?
I realise that this is extremely difficult. I realise the problems which this creates for those who are attempting to draft this definition. But I ask the Government to

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consider most earnestly, when the Bill is in Committee, the advice which they have already had from a very distinguished lawyer in this House, the noble Lord, Lord Stow Hill, and from other Members of this House, and to try to grasp this nettle which has been left untended, so to speak, for a long time past, and to include in this Bill a definition of what is a bank. The noble Lord, Lord Stow Hill, emphasised the consequences of a different judgment of the Court of Appeal in the U.D.T. case, and perhaps that will emphasise to your Lordships in general the importance of this particular matter. It is on that point that I wish to address your Lordships' House at this stage, and perhaps to have an opportunity of coming back to this point when we reach Committee.
6.52 p.m.
VISCOUNT MASSEREENE AND FERRARD: My Lords, I should like, on the whole, to give a welcome to this Bill, in that I personally have never seen any object in secrecy regarding the affairs of a company. Apart from the fact that if everything is published, as is suggested in this Bill, that can aid one's competitors, especially foreign competitors, I have always thought the less secrecy the better. We have to remember now, when we think of the control of some of these very big companies, that direction has now become very far removed from ownership. That is another reason why many of the clauses in this Bill, which aim at giving the shareholders and the public generally more information, are good. Of course formerly, perhaps fifty years ago, the ownership and the directorship in the average company were to a great extent one and the same thing.
I particularly welcome Clause 24, which does not allow directors to deal in options in their own shares. I regard that as an excellent clause. I also like Clause 25 which deals with service contracts. But with regard to the clauses relating to the disclosure of directors' emoluments and the remunerations of highly-paid employees, I would ask: is this really necessary in the case of small private companies? I have to declare an interest in one or two small private companies. Of course, it has been pointed out already that this disclosure lays these small companies open to take-overs. A big company—take a firm like Sains-
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bury's; though the noble Lord, Lord Sainsbury, is not here, so perhaps I should not mention it—can have a shop in a small country town, but be under no obligation to disclose the trading figures of that shop or, in fact, anything about it; although, of course, they are under obligation to disclose general information about the company as a whole. But a small private company with a shop whose operations are entirely local has to disclose everything, which seems rather unfair, and I am afraid that it may lead to giving an unfair advantage to some big concern. I had a small company which has been taken over, although I was quite pleased that it was taken over.
I am rather mystified as to why the chairman and the highest-paid director are singled out with regard to the disclosure of fees. Why does this not apply to all the directors? In any event, in my experience the chairman is not usually the highest paid. In fact, I am quite convinced that when all this information becomes public a great many people will be very surprised that the average director is paid so badly. In fact, in my experience in small manufacturing companies, the average director is paid worse than the lowest skilled manual worker in the firm. So I am all for having this information. I think it will be excellent propaganda for free enterprise.
With regard to Clause 19, which deals with exports, I believe that there is a great danger here. I entirely agree that the Board of Trade should have every help in compiling statistics of exports, but I should have thought they could get this information equally well by just writing to a company. If information on exports is to be made public the world over, it is bound to help our overseas competitors.
The other question on exports over which I am a little worried, although the noble and learned Lord who sits on the Woolsack told us that we had no need to worry about it, concerns the firms who make component parts for other firms, who export the finished products. It appears that a firm making component parts is not going to have any kudos from the Board of Trade for doing that. It is the exporting firm which will get the kudos. The noble and learned Lord told us that we could always blow our own trumpet in our accounts, and could say

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how we made these component parts. But that is not quite the same as having the export figures credited to you. I cannot understand why the Government require these export figures. I am sure they have some hidden motive, and I have been wondering what it is. I can really smell quite a big rat here, and I am wondering whether they are thinking of taking over, or taking an interest in, certain firms that export. I am sure they have something up their sleeve, but I do not know what it is. Perhaps the noble Lord, Lord Brown, will tell us, although I rather doubt it.
The other clause I should like to speak about is the one that has been referred to by almost every noble Lord who has spoken—the famous Clause 18, dealing with political contributions. How much better the Bill would have been drafted, surely, if all the clause had said was, "contributions to political Parties" instead of saying, "contributions for political purposes". This has been brought up, I think, before—it was the noble Lord, Lord Stow Hill, I think, who brought it up—but how is one going to define a political purpose? As the noble Lord, Lord Stow Hill, said, any firm buying newspapers for its waiting-room could spend over £25, and this could be classed as paying money for political purposes. Personally, I think, that is rather farfetched. But take, for instance, firms which contribute funds to agencies abroad to protect their capital investments overseas. Is that a political purpose? Surely the Government desire to protect British capital overseas. I understand that if firms give money to protect private enterprise at home—in other words, to protect their shareholders' capital at home—that is to be classed as a political purpose. But it is a great pity that this cannot be defined.
Take the Foreign Office, for instance. I think some people have objected that the Foreign Office were publishing abroad Labour Party arguments for steel nationalisation. My Lords, their excuse for doing this was that it was Government policy. We really ought to have a distinction between Government policy and political purpose, because if, through the Foreign Office, the Government can broadcast Socialist policy abroad, then opposition at home to the Government
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policy of nationalisation cannot rightly be held to be influencing the public attitude towards a political Party. You cannot have it both ways. I do not object at all to the publication of particulars about political contributions, but I am concerned about victimisation. It may be that if a firm has made a very big contribution to the Conservative Party, or to some other organisation promoting the Conservative policy of private enterprise, then they may perhaps have a politically inspired strike. There is also the question that a firm may not get contracts from a Socialist-dominated council, or even from a nationalised industry. As I say, there is nothing wrong in requiring disclosure of information about these political contributions, but firms—and individuals, too—ought to be protected against victimisation. I should have liked to see some clause in this Bill to prevent victimisation, because my own opinion is that there may be some.
My Lords, another point that I should like to make (it has also been made by the noble Lord, Lord Goodman, who made an admirable speech) is on the question of no-par-value shares. It is a great pity that we could not have had something in this Bill about that subject, because it really confuses the public if, as the noble Lord, Lord Mancroft, said, they see a dividend of, say, 100 per cent. declared. They might well imagine that the investor is getting 100 per cent. on his money, whereas, of course, in actual fact, he is probably getting only 6 or 7 per cent. I therefore think it is a great pity there is nothing in the Bill about no par value shares.
Another point—it is a rather ticklish subject, I suppose—regarding this question of political contributions is this. I agree that it is all published, but, after all, trade unions subscribe hundreds of thousands of pounds, I understand, to the Socialist Party. I think we ought also to have something in this Bill applying to any organisation which pays people, or gives people salaries, to put forward their point of view in either House of Parliament. I do not know if that happens, but it may; and if it does it ought to be brought out into the open. In conclusion, my Lords, I will merely say that, on the whole, I welcome this Bill. I am quite sure that it will be a

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great help in generally assisting shareholders and the public generally. With those words, I sit down.
7.10 p.m.
LORD DRUMALBYN: My Lords, we have had a long and very interesting debate which, as one would have expected when considering a Companies Bill, has covered a very wide range of subjects. If I have gathered the sense of this House correctly, it would simply be that in so far as the Bill lets light into hitherto dark places and so prevents abuse it is a good thing; in so far as greater disclosure by companies can lead to a greater interest in their affairs on the part of all concerned with them, be they employees, shareholders, would-be shareholders, creditors or customers, and to a more competitive spirit and greater efficiency on the part of the companies themselves, it is also a good thing—although one can have too much of a good thing, especially if it is compulsory. As the noble and learned Lord who sits on the Woolsack said earlier, one may overdo things.
I think all this has to be looked at in the light of the criteria that Lord Jenkins himself laid down. First of all, he said:
"… generally speaking we accept the principle that it must be for those who claim that the law should be altered to make out their case."
With that, I think we should always agree. Then he went on to deal with restrictions and requirements, and in that too we should very much agree with what he said. He said:
"… we have asked ourselves whether the new restriction or duty proposed would, if it was made law, improve to an extent worthy of legislation the position of the investors or creditors it was designed to protect if so whether its implementation would to any significant extent hamper or impede the company in the efficient conduct of its legitimate business, thus perhaps operating to the detriment of those very persons."
Then, in dealing with information, he laid down three criteria regarding proposed statutory obligation, to which my noble friend Lord Milne has referred. First: will the additional information be of any real value to the persons receiving it? Secondly, will its ascertainment involve an amount of work disproportionate to its value? Thirdly, may its publication be detrimental to the company's business and thus indirectly to its shareholders and creditors?
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In some respects the Bill does not require so much disclosure as the Stock Exchange requires when new issues are made. When there is no question of a public issue or a quotation on the Stock Exchange at all, it may be that in some respects the Bill goes a little too far. I think we could look at this particular matter in the light of those criteria.
We have had a great deal of discussion to-day on the exempt private company. Almost every speaker, except the noble Lord, Lord Boyle, has mentioned this subject. We can discuss it in detail when we come to the Committee stage of the Bill. But we have to look at the general proposal to abolish the status of the exempt private company in the light of the principles enunciated by Jenkins. In a particularly cogent speech, the noble Lord, Lord Goodman, made clear his reasons for thinking that at the very least we should accept the Jenkins conclusions—namely, that so far as turnover, rent and directors' emoluments are concerned, a degree of exemption should continue to remain. It is, of course, here in the first place that the Government must make their case for the non-retention of the three exemptions which already exist.
I recognise that it is a difficult problem because, as the noble and learned Lord the Lord Chancellor said, some operators may have sheltered behind the exemption provided by the exempt private company in order to commit frauds. It is also true, I believe, that some bodies which have the status of an exempt private company are on a very much larger scale than the Cohen Committee originally envisaged. This is a problem we have to solve. I hope we shall not simply say that because of these two facts we should sweep away any necessary exemption for those for whom the sweeping-away would be detrimental.
I do not want to go into any detail on this matter, but there is one point which the noble Lord, Lord Goodman, mentioned with which I would deal. It is the question of loans to the directors of private companies. I should like to mention this first because it seems to me that in any case quite different considerations, which he went into, apply to private companies in regard to loans to directors from those which apply to public companies. Secondly, I should like to make

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the point that in any case there seems to be no transitional provision as to loans made by exempt private companies to directors. What is to happen about such loans which were made before the introduction of the Bill? I suggest it would be unduly harsh to require that they should all be paid back, irrespective of the terms on which they were made, before Clause 2 comes into operation. It would be even harsher on the creditor if any guarantee from the company automatically ended six months from the passage of the Bill. The Bill is not quite clear to me on that point. It should be made quite clear either that it does not apply to loans already outstanding, or that a generous transitional period would be allowed in which to pay them back. In any case we should look at this question as well. I recognise that Jenkins, on the ground that there had been very few representations on this matter, did recommend that in future exemption as to loans made to directors of private companies should be discontinued.
There is another point I should like to make which is of the utmost importance. Clearly private companies on losing their exempt status should have the right to be re-registered as unlimited. To do so the Bill requires them to apply to the Registrar of Companies on a prescribed form of assent which has to be signed by or on behalf of all the members of the company. In other words, this must be unanimous, and not as the Jenkins Committee recommended. I think this is probably right. But what is extremely important is that the form of assent itself should make very clear the effect of assuming unlimited status. I hope that the Government will pay attention to this so that everyone concerned, all the shareholders in a private company, will be well aware before they sign that the entire personal fortune of each of the members is at risk.
I turn to a question which has been dealt with at any length only by the noble Lord, Lord Royle. It is the question of insurance, which the noble and learned Lord who sits on the Woolsack said would be dealt with by the noble Lord who is to wind up. If I may say so—and I do not want to be captious in this matter—it is perhaps a little unfortunate, for we should have
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willingly listened a little longer to the noble and learned Lord the Lord Chancellor in order that we might have some steering for the debate on insurance before we considered it to-day. It seems to me that there are two aspects of insurance which currently raise difficulties. The first is how to prevent insurance from being abused as a means of financing other undertakings with money raised as insurance premiums; the second is, when things start to go wrong, how to intervene in such a way as not to make them worse.
My Lords, to deal with these aspects, and I would say without creating a closed shop, the main proposals in the Bill seem to be, first, a system of authorisation by the Board of Trade under Clause 45 for each class of insurance undertaken, coupled with the power to impose requirements for up to five years and a duty on the Board of Trade before issuing an authorisation to satisfy itself that the company's officers and any person controlling the company are fit and proper persons; secondly, to increase the margin of solvency by which assets may exceed liabilities; thirdly, a power for the Board of Trade to intervene if it is dissatisfied with the conduct of business, coupled with wider powers of investigation; fourthly, a power for the Board of Trade to present a petition for the winding up of an insurance company without previous reference to a court; and, fifthly, an obligation on insurance companies to report to the Board of Trade the appointment of an officer, defined rather vaguely as including "a director, manager or secretary, "or a person acquiring or relinquishing control of the company. I think these are the main points.
These powers for which the Government are asking are very wide; nevertheless it seems necessary that someone should exercise such powers of supervision and control in the interests of policyholders and of the good name of British insurance. I believe that the insurance companies as a whole have given a general welcome to these provisions. What I think is in doubt, my Lords, and this has been slightly questioned during the debate, is whether the Board of Trade is equipped to do this. In due course the Board of Trade may, no doubt, accumulate sufficient experience,

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but the difficulty is, as we know, that civil servants seldom remain in the same division for long and it is doubtful whether any of them will be there long enough to acquire the necessary expertise.
The Board of Trade has its legal department to keep it right with the law, and I am bound to say that I did not agree with one observation made in the debate about the legal department. Having been at the Board of Trade myself, I can say that I found the advice which we received was, so far as I could judge, very sound advice. It is not easy to judge—and this is not a matter for the legal department—whether or not a particular company is in danger of becoming insolvent, or, for that matter, whether a particular person is a fit and proper person to be involved in insurance, with all its peculiar responsibilities. It may well be that some form of appeal should be provided for a person who is barred by the Board of Trade in this way, as the noble and learned Lord, Lord Stow Hill, suggested—I am sorry that I missed part of his speech—either to the courts or to the Privy Council; and it may well be that the Board of Trade's power should be limited to suspension pending settlement by the courts.
There is wide agreement in insurance and financial circles that something must be done as soon as possible. I hope that the Government will proceed with this Bill with all due expedition, but we certainly need time to consider its various aspects. We shall certainly wish to discuss these powers. In the long run—and here I speak entirely for myself—it may be that some new expert body, an insurance commission or something of the sort, could exercise at least some of the powers more appropriately, with more continuity and with a more intimate knowledge of the insurance world. The reason is that the Board of Trade's information must come from the insurance world. It must rely to a tremendous extent on the insurance world for its sources of information, and, as I say, continuity is of great importance, as is depth of experience, in matters of this sort.
The area which has given most trouble recently is motor-car insurance. The insurance companies have a very direct
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interest in seeing that claims are met, since whenever they are not, whether because the insurer cannot meet his obligation or the other party was not insured at all or for any other reason, the Motor Insurance Bureau has to pay up. Some insurance companies would like the Board of Trade not to authorise any company to engage in motor vehicle insurance until it has had at least a period of experience—say five years—in other classes of insurance, and has proved its competence and reliability. This, again, is a matter with which we can deal during the Committee stage discussions.
It has been argued that it would have been better to have one big Bill dealing with Company Law, and it might have been better to have a separate insurance Bill. In this case, I am not certain whether the companies' part is tacked on to the insurance part, or the insurance part tacked on to the companies' part, but we all know that a Department will take every opportunity to get legislation through as soon as it has decided upon it; and we can only conclude that it is either because the Department has not decided on other legislation or because, as I think the noble Lord, Lord Goodman, said, of drafting difficulties that the Bill does not contain other clauses, despite the fact that two years have passed.
My Lords, I think I ought to say to the noble and learned Lord who sits on the Woolsack that as soon as a Report is submitted it has to be carefully examined by the Department. This is what happened in the two years before we reached a decision as to what action ought to be taken. The Department had all that background, it had the matter at its fingertips, but the fact is that the Government have still taken two more years before presenting this Bill. I do not think that is an unfair comment to make. Nobody denies the difficulty of the subjects with which we are dealing, but perhaps it is not an unreasonable criticism that we might have had a Bill with rather more content than we have at present.
My noble friend Lord Eccles will move an Amendment to deal with the no par value shares. It is very difficult, of course, for an Opposition or Back Benchers to move whole sections into a new Bill, and I imagine that the observations of the noble and learned Lord the

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Lord Chancellor were some indication of a desire that we should not attempt to do so. But there are a good many Amendments that we shall be able to deal with. There will be some where it seems the Government have gone rather too far, and I think that the Government will have to justify the need, or what they consider to be the need, for a statement of exports. There is a great deal to be said against it. One company may be supplying component goods which go for export while another may be supplying machinery for the production of exports. Another company may be supplying manufacturing goods for the replacement of imports: another may be exporting materials and components for manufacture or assembly by their own subsidiaries abroad; and if the companies supplying components and machinery to home industries were instead to export, or were to dispose of or wind up their subsidiaries abroad, the resulting effect on the balance of payments might be very much worse.
I think the main point to bring out here is that a mere statement of exports can be only a very approximate indication because it depends on what basis they are shown. Apart from that, it is no indication whatsoever of a company's real contribution to the balance-of-payments situation, which is after all what concerns most of us in these days. My Lords, many companies will gladly give this information whether or not required by Statute to do so. Others may have very good reason for fearing to disclose it, because it might well result in making it harder for them to maintain the volume or the value of their export business. I would suggest to the noble Lord that at the very least there should be a proviso, similar to those in Clause 3(2) and Clause 16(1)(f), which allows directors not to publish certain information in their reports if, in their opinion, it would be harmful to the business of the company or of its subsidiaries to do so. I feel that the Government are bound to accept an Amendment of this kind.
I suppose that your Lordships expect me to say a word about charitable and political donations. Whatever the purpose of requiring this information might be, we must also ask what are going to be the effects of it. It may well be that
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shareholders may want to know this information, and it may well be that they should have a right to know it, but what is going to be the effect of publishing this information? I think that my noble friend Lord Massereene and Ferrard was right here. If this information is to be published, we have to make very certain that there will be no discrimination as a result, and it is to this that we would direct our attention in Committee.
I would regard Clause 16, which deals with directors' reports, as a messy piece of drafting. It brings in a variety of matters. The interests of directors and the activities of the company seemed to be jumbled up in one subsection. Where it is necessary that interests should be disclosed, not only the interests of the director himself but those of his wife and minor children should be disclosed as well. This applies elsewhere.
I should like to make a technical point about options. I think that the essence of this clause should be that no director should have available to himself options which are not available to others. I am told that this clause goes rather further than that. We shall have to look at it in Committee. There are such things as convertible debentures and convertible preferences, and it may also happen that shares are issued with a warrant to subscribe for ordinary shares. It hardly seems reasonable that directors should be in a worse position than any other shareholder in these matters. It may be that the Government meant to cover this in Clause 26. I am told that it does not appear to have done so, and I hope that the noble Lord will look at this question again.
I come back to what I said before, that in this Bill what we have to make certain of is that as much disclosure as is needed for shareholders and others interested should be given, while at the same time it should be made certain that no detriment will result to companies in consequence of disclosure. This, I think, is the way in which we should look at this Bill throughout. It certainly carries us some way forward. We cannot but regret that it has not dealt with other subjects, such as unit trusts, the procedure for take-over bids, no par value shares and the interesting points which the noble Lord, Lord Goodman, mentioned—namely, the suggestions of the Jenkins

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Committee that there should be some standard clauses for the memorandum and that the ultra vires doctrine should disappear. We should have liked to see these matters dealt with in the Bill. But, in so far as this Bill is likely to lead to a greater economic activity, to a greater appreciation of what our companies are doing, we would welcome it; and we give the promise that we will look at it very carefully in Committee.
7.35 p.m.
THE MINISTER OF STATE, BOARD OF TRADE (LORD BROWN): My Lords, I should like to start by pointing out to the House that this is the first Bill in which I have had any hand. I am sure that I am going to exhibit many inadequacies, and I ask your Lordships' forgiveness for these in advance. One thing I have learned this evening is to exercise more compassion for my colleagues who wind up debates in the evening than I have done in the past. I have an enormous series of notes here, and whether they will form themselves into a coherent speech remains to be seen.
I should like to pay tribute to the noble Lord, Lord Cohen, who was present this afternoon but who has now gone, as the man chiefly responsible for the 1948 Act. Other noble Lords have paid tribute to the Jenkins Committee, and in this I would join with them. This has been a good debate. It has not been political in character, although some noble Lords have insisted that it is so. I am sorry that the noble Lord, Lord Erroll of Hale, has had to leave. He is suffering a little to-night and passed me a note excusing himself. My noble and learned friend the Lord Chancellor indulged in some gentle leg-pulling, and I think the noble Lord opposite took this up a little sharply. Several speakers subsequently suggested that there were political points in the Bill, but I can only say sincerely that to me there are no political points in this Bill. But I will come later to some of the accusations made.
An increasingly complex society can become a jungle of confused institutions and endeavours unless there is adequate information available, not only to the Government but to the public generally. It is my view that an increasing flow of data in future is the necessary basis of good legislation and good government.
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Secrecy over affairs of business is usually replaced by a highly inaccurate series of conjectures by those in industry. Everybody with experience of industry knows this full well. I do not think that industry is being given a sufficiently important place in our society. I make this point all over the country in speeches vis-à-vis exports, and I am happy to be able to make it here with reference to this Bill: because this biased, unsatisfactory and unfair image is partly, I think, the responsibility of industry itself.
It often fails to be sufficiently outspoken in talking about its affairs, and the consequential ignorance of the public generates quite unjustified suspicions. Whatever the salaries of directors, most employees assume that they are larger than in fact they are. Whatever the profits, they are assumed to be higher than they really are; and if a firm is in trouble, the losses are assumed to be bigger than they are. However honest the accounts, they are believed to he "fiddled". However large the tax paid, it is believed that some of it has been evaded. In the absence of real knowledge, everything tends to be exaggerated. This is one of the great justifications for this Bill. Some noble Lords have suggested that business will be made more difficult by the Bill because of the increased information which is to be disclosed. As an erstwhile businessman, I do not think that this is sound thinking. Knowledge, good relations, efficiency and growing wealth are, in my view, bed-mates, and ignorance and secrecy are the enemies of every one of these things.
Moving on to the debate itself, I would try to reduce the time I take by doing something perhaps a little unfair. Many noble Lords have welcomed the Bill wholly, and some have welcomed parts of it. I am going to do them the injustice of passing over those who have spoken favourably and concentrating my attention on those who have spoken critically—though, to the credit of the House, I do not think that any noble Lord has been bitterly critical. The noble Lord, Lord Erroll of Hale, and the noble Viscount, Lord Eccles, both delivered what might be considered an attack on the required disclosure of directors' salaries, and they were joined by the noble Lords, Lord Byers, Lord Peddie and Lord Mancroft.
LORD BYERS: No. Let us get the Record right.
LORD BROWN: I am sorry. Of course, it was the exact opposite. The noble Lords, Lord Byers, Lord Peddie and Lord Mancroft, in what I might describe as a slightly cynical way, and the noble Lords, Lord Stow Hill and Lord Hawke, all approved of, or at least did not object to, these clauses. The suggestion was made that the disclosure provision is to satisfy idle curiousity; that it is an attack on directors and so on. The justification for this disclosure is really contained in the opening statement that I made this evening: that employees want to know this information, and shareholders want to know.
But, above all, I would grasp the nettle firmly that has been held out to me, and agree that this disclosure may lead to some people being paid higher salaries than they are at the moment. And this may well be justified, because there probably are cases of underpayment in British industry. But, what has not been said is that it could equally well result in a board of directors facing the fact that they have been paying "old Joe" a very large sum for a very long time; that they have not had the "guts" to ask him to retire, or to do anything about his salary, and they will now be faced with disclosure, and this may result in action. It may also result in the exposure of a number of other forms of salary which are higher than they ought to be, and have been higher, through a history of over-assessment or good service in the past, than is justified. I can see nothing in this disclosure except good. It is impossible to adjust things in accordance with equity and service unless the facts are known. If they are kept secret, this is a way of ensuring that things will remain inequitable.
There has been a lot of criticism of the requirement on small firms to declare their turnover. Again, the noble Lords, Lord Erroll of Hale, Lord Goodman, Lord Drumalbyn, and others, have been very concerned about this. The point has been made that it would be damaging to small firms to have to disclose their turnover, I think on the inference (although I do not think it was quite brought out in this way) that people would be able to see what their profit
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margins were. I have heard this argument elsewhere on the ground that there are firms which make only one product, and if a firm makes only one product then, ipso facto, when that firm discloses its turnover its opponents know what its profit percentage it. But there is no such thing as a firm with one product. If a firm confines its products to pins, it makes them with different heads, different points and different coatings, and it would be unable to distinguish what the profit was on a particular type of pin. So, in my view, the disclosure of turnover will be good for competition and good for creditors, who will be able to see whether a concern is safe or in a dangerous position, and in many other ways. We shall be prepared to consider Amendments in Committee, but we shall need some strong arguments to shift us from the position in which we stand at the moment.
The noble Lord, Lord Goodman, supported by the noble Viscount, Lord Massereene and Ferrard, raised the point about the disclosure of rent. I think he has a point, particularly in the case of a small business that has to disclose its rent, when there may be property companies looking for easy purchases. This may be a case of a minority feeling the cold draught of exposure, but if we began to single our particular items of this sort from the general disclosure plan I think we should be in grave difficulty.
LORD HAWKE: My Lords, before the noble Lord leaves that point, can he say what is the exact purpose of requiring disclosure of rent? I have never been able to see that it serves any useful purpose at all.
LORD BROWN: I think the argument for the disclosure of rent is merely the general argument for the disclosure of the information of the expenses of the business, so that creditors and others may be well aware of the position of the business. If you insist on the protection of limited liability you are liable to have to disclose items of this sort for the information of those who are giving you credit.
I move on now to the question of charitable and political donations. It has been averred by one speaker after another this afternoon that this is a somewhat vindictive political measure. I

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can only suggest that to let in the light of day into a situation where directors are deciding without reference to shareholders what proportion of the shareholders' money they are going to give away is absolutely correct. I do not think that in equity it is possible to challenge that. The argument that companies may begin limiting the amount which they give by way of charity because they can be seen to be charitable does not ring true to me. I think it could quite probably have the opposite effect; and if some companies were giving away a rather small amount the matter might well be raised at a shareholders' meeting.
The noble Lord, Lord Byers, raised the question of the possibility of the Government providing guidance on the percentage of profits, or of turnover (I am not sure which it was), which industry might see fit to pay to charity. I think it would be a dangerous exercise for the Government to attempt to give guidance, and this would seem to me to be a point for discussion by the Confederation of British Industry, the Institute of Directors or some such body concerned with industry as a whole. I personally should not like to wind up a debate on a Bill which had proposed a percentage. I think it would cause a great deal of argument.
There was a point made (I think it was by the noble Lord, Lord Byers, but he will no doubt correct me if it was somebody else) on the possibility that local authorities, and indeed the Government, on learning of the fact that a particular company was paying large sums to a particular political Party, might show political prejudice in the placing of contracts.
LORD BYERS: My Lords, I think the noble Lord will allow me to say that that suggestion is unlikely to have come from me. It must have come from someone else.
VISCOUNT MASSEREENE AND FERRARD: My Lords, it came from me.
LORD BROWN: May I suggest, with respect, that a comment of that sort is a somewhat unworthy reflection on our local authorities, and indeed on the Government. I do not think that there is
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any real danger of such a point becoming one of importance.
LORD DRUMALBYN: My Lords, may I intervene for a moment? This is an important point, as we see it from this side of the House, because we already have had some information that something of this kind has started to appear. I hope the noble Lord will look at this. He says it is something that is not likely to happen, but since it has already appeared on the scene I think measures must be taken in the Bill to prevent it.
LORD BROWN: My Lords, if this sort of situation emerged it would indeed be extremely serious, but it would seem to me at first sight to be an extraordinarily difficult matter about which to legislate. We are in a situation in society where there are many opportunities for displaying political prejudice on matters on which it should not be displayed, but I think that on the whole we do not suffer too extremely from this. However, we note the point.
The noble Viscount, Lord Eccles, has commented very seriously on the absence from the Bill of anything to do with shares of no par value. The noble Lord, Lord Mancroft, took this up in rather a political way, suggesting that the omission of it was a political point. The introduction into the Bill of the whole conception of shares of no par value is likely, I am advised, to involve many clauses and consequential amendments affecting other financial Acts. There is in the Government's mind nothing in principle against this matter, but it has been delayed for the purpose of simplicity. The political accusation is, I think, not justified. The noble Lord, Lord Goodman, made the point that, in his experience, given ten minutes to understand the point the unions would not be against them, and I think he was right.
The noble Viscount, Lord Eccles, suggested during his speech that it would have been an improvement if the Bill had included the necessity for directors to put in their report the basis on which stocks had been valued. In case there is any misunderstanding about this, I would point out that where the valuation of stocks can have an important effect on the profit and loss account of the company, then under the Bill that obligation rests on the directors. I think the noble

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Viscount is mistaken on that point. He also spoke about the advisability of considering fixed asset valuation at replacement value. This is a subject which has been debated by the accounting profession ever since the end of the last war. It is a tremendously evocative subject. It is a very contentious subject, and certainly not one which would be suitable to introduce into a Bill aimed at getting on with matters now while we are considering a further measure of greater extent at a later date.
I come now to the point made by the noble Lords, Lord Royle, Lord Stow Hill and Lord Drumalbyn, on the insurance clauses, about which there has not been a great deal of discussion this afternoon. The noble Lord, Lord Royle, in referring to Clause 48, drew attention to the fact that the Board of Trade were going to exercise a great deal of discretion over the veto they possessed under the Bill of the appointment of officers whom they considered unfit, and suggested the necessity of introducing an appeal tribunal. In very recent years the Board of Trade have been suffering acutely from the fact that in certain cases, in order to take action which in the eyes of Parliament and, indeed, in the eyes of the public was necessary as a matter of urgency, they have been handicapped by having to go through the legal procedures which make the production of proof rather than suspicion the basis of their act. It is a very far-reaching measure to put the Board of Trade into a position where, on the basis of their assessment or their suspicions, they can exercise a veto of this sort. But in the light of the events which have taken place over the last three or four years, it would appear to be necessary, and I have the feeling that the House is with the Government in this clause.
The noble Lord, Lord Drumalbyn, has raised a very serious point in wondering whether the Board of Trade is administratively in' a position to exercise these controls. That, of course, is an administration matter. We take note of the point. I think there are a few people already rather worried about it, and we have noted the suggestion he made in connection with that point. It will be considered.
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The noble Lord, Lord Royle, raised a point in connection with Clause 49, concerning the right under the Bill for the Board of Trade to veto certain classes of investment for insurance companies about whom they were concerned. He went on to suggest, a little to my surprise, that in place of this veto there should be in various types of insurance a positive right to make insurance companies invest in particular types of securities. In my opinion, I think this goes too far. I believe that the veto which is included in the Bill will be adequate for the purposes of putting the matter to rights. We shall see.
The noble Lord, Lord Alport, gave us an extremely interesting commentary on the lack of a definition in the Bill of a bank. Of course, if we had a sound and well tried definition it would be an enormous advantage. The immediate purpose of the clauses in the Bill is to try to get the banks—and merchant banks in particular—into a situation where they can no longer be regarded as moneylenders who have not been authorised, and get them out of the awkward situation in which they are placed inadvertently. The noble Lord may well he right in that there is this necessity. In my submission, it will take a long rime to get a satisfactorily agreed definition, because the term "banking" connotes a very wide field of operations. This Bill provides a breathing space, and the point will be noted as a possibility for inclusion in a later Bill. I do not think we can possibly indicate our intention to do much more than that at this state because of the difficulties of definition.
A point was raised by the noble Lord, Lord Goodman, and others about loans to directors. I think the noble Lord, Lord Drumalbyn, raised the point that in the case of loans that have already been made there might be some injustice arising after this Bill was introduced and they found themselves in difficulties. I think that is probably a Committee point, and should be dealt with at that stage. The noble Lord, Lord Drumalbyn, in his summary of what he had to say, made the well-known and largely accepted point that if alterations were to be made, then those who sought to make them must make the case for them. In industrial circles in recent years I have

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begun to doubt the wisdom of that statement. I believe we tend to be a society who, on looking at any change, examine it with great rigour to see whether there is the slightest possibility of faults within it, and if we can detect any then we refuse to move. What we fail to do is to examine what exists with equal rigour, and then decide which has the most faults and come to a conclusion sometimes to change simply because what is new has less faults than the old.
LORD DRUMALBYN: I quite agree.
LORD BROWN: If we are agreed on that, then many of the points in this Bill, criticisable as they may be, should stand so long as they are a betterment on the situation which exists.
May I wind up what I have to say in this way? I notice that the noble Lord, Lord Byers, has now gone, but I thought his speech was a model of clear thinking of what we were going to require in the future. If I might paraphrase what he said, it seems to me that it must not be a politically biased scrutiny which leads to the next Companies Bill which will follow this one, but one simply designed to examine all the institutions, the relationships, the organisational structures, the groupings, the procedures and the conventions alike in what Harold Wilson has referred to as an "irreverent attitude". I think that is necessary, with a view to seeing what change is essential to make a larger contribution to the wellbeing of the people and the wellbeing of our economy.
It seems to me that the future of company legislation is not necessarily, as I think it has been to some extent in the past, an exercise in law, in finance and accountancy, but will have to be based on a penetrating study not only of those but of economics, of sociology and of psychology, because in trying to control the increasing complexity of business in this country we are entering these fields. We are going to need far more information than this Bill will give us if we are going to reach an optimum situation in our industrial and commercial life.
On Question, Bill read 2a, and committed to a Committee of the Whole House.