§ 6.15 p.m.
§ LORD PARGITER
My Lords, I beg to move that this Bill be now read a second time. The Local Authorities' Mutual Investment Trust was set up in 1961, following the passing of the Trustee Investments Act of that year. It was set up under a special section, Section 11, and the Treasury were able to authorise local authorities to do collectively what they were authorised to do individually. Therefore any scheme which is submitted, or any action which is taken with regard to this Trust, implies and needs Treasury approval. Since that time the Trust has operated very successfully on behalf of the local authorities, of which approximately 360, out of a total of some 550, contribute to the fund. Of course, many of the larger authorities have access to expert advice and are themselves able to invest. But it has undoubtedly been of very great advantage to the medium and small 938 authorities, while even the larger authorities have found it desirable to take advantage of the wide range which this Trust provides.
At the present time there are two funds—a wide-ranging fund and a narrow-ranging fund. This is, of course, to comply with the law that 50 per cent. must be invested in gilt-edged securities and similar Government guaranteed securities, and 50 per cent. may be in wider ranging funds which do not carry quite the same interpretation. The effect of this has been that the funds remitted for the Trust to invest amount now to almost£90 million on the wide-ranging fund and some £5½ million on the narrow-ranging fund. The difference is understandable, because the local authorities are themselves easily able to invest funds of such a very narrow range. On the other hand, the wide-ranging fund gives the small authority a very wide range of risks, in the same way as any unit trust provides it to the private individual.
It has proved to be profitable to them to the extent that before the Trustee Investments Act it was well known that a vast majority of authorities, if not all of them, were having to make pretty large equal annual contributions to their superannuation funds, in order to comply with the actuaries' requirements with regard to their solvency. I recollect that in the case of my own county, Middlesex, as it was at that time, where we had a very favourable superannuation fund, we were making an equal annual contribution which was at one time almost as much as the amount of the initial contribution.
Of course, the Act made a vast difference to local authorities by permitting them a wider range of investments. They were able to catch up with inflation much more easily. As a result of this many of the local authorities, if not all, are now not having to make quite so large a contribution from their rate fund. Therefore, the Act itself, and Section 11 in particular, has been of great advantage to local authorities as well as to the ratepayers, inasmuch as they have not been obliged to pay out so much money in support of the equalisation fund.
Having regard to the present range, and the restrictions which are implied as 939 a result of Section 11, the Trust now requires to widen the scope of the investments. As will be seen from the Explanatory Memorandum to this Bill,The Company desire…to permit investment in Commonwealth countries, the United States of America and certain Western European countries in real property in the United Kingdom, and in the United Kingdom securities which do not comply with the requirements of paragraphs 1 to 3 of Part IV of Schedule 1 to the Act of 1961…These particular requirements are that investments are not permitted in a concern which has an issued and paid-up capital of less than £1 million, or in a company which has not in the preceding five years paid a dividend on the whole of its shares.
On the question of £1 million as a figure, one could easily go either side of it, but a good deal of profitable investment has been missed because of this particular restriction, which the Trust is very anxious to see removed. On the question of the five-year period without paying a dividend on the whole of its shares, there are one or two instances recently which might be noted and which might have a very serious effect on this. I have noted that in one or two companies, in order to meet the requirements of the 3½ per cent. limit which the Treasury have imposed on dividends, some directors with substantial holdings have decided to waive their dividends. In effect, therefore, these companies will not be paying interest on the whole of their share capital. I doubt whether this was obvious at the time when this particular section was put into the Act, but on a strict interpretation, as I see it, this limitation would apply, and we are certainly very anxious that it should not apply to the Local Authorities' Mutual Investment Trust or, indeed, to local authorities generally.
This is a company which does not exist for any purpose other than to manage the affairs and funds of local authorities. It has no individual investors; it has nobody outside local authorities. The controlling body is set up by the local authority associations under a scheme for which provision is made. The local authority associations have agreed that this extension is desirable and necessary, in order that the Trust may be able to do the best it possibly can on behalf of its 940 investors. The people who do the actual investing are skilled people. The local authorities are very well satisfied with what has happened in the past, and will be very glad to have these additional powers—which, I may say, have been agreed with the Treasury. The Treasury were in some doubt, to begin with, as to whether or not a scheme of this kind would have to apply to all local authorities, but they are now pretty well satisfied on that point, and that that would not cause any complications.
On the second point, on the question of investments abroad—in the United States, the Commonwealth, and so on—the Treasury have required, and have been given an assurance, that so long as the voluntary restrictions apply they will be very strictly applied by the Trust, and that it will not seek any investments of this kind. With regard to property investments, the first impression was that it might be possible to set up a separate property investment trust, apart and distinct from the other part of the fund. It is not the intention of the Trust to do anything of the kind. It will hold property for investment purposes in precisely the same way as it holds any other funds which are available to it.
My Lords, I hope that the Bill will commend itself to your Lordships. It is simple in its effect; it is desirable from the point of view of the public interest, and I hope that your Lordships will give it approval. I beg to move that this Bill be now read a second time.
§ Moved, That the Bill be now read 2a.—(Lord Pargiter.)
§ 6.23 p.m.
§ LORD DERWENT
My Lords, I am going to make one of my longer speeches. We on these Benches think that this Bill is probably necessary and that it is certainly sensible. It has our general blessing. I use the words "general blessing" because there is one point which I think requires further consideration, but I am going to leave it to my noble friend Lord Coleraine to deal with that, since it is a point that he has raised. Apart from that, I hope that the Bill will receive a Second Reading this afternoon.
§ 6.24 p.m.
§ LORD MITCHISON
My Lords, I, too, rise to support this Bill. I remember 941 the Trustee Investments Act very well. With Mr. Diamond, the gentleman who is now the Chief Secretary to the Treasury, I had the honour of leading for the Opposition on the Committee stage of that Bill. At one stage we moved a very interesting Amendment, to which I shall refer in a moment. The local authorities were provided for, and well provided for, and I think it is significant that the need for further provision and an enlargement of their powers has arisen, has been urged by them and has been approved by the Treasury. I have no doubt it is right. But the Trustee Investments Act applied, of course, to all trustees, and one would have hoped that it would cover many types of trust funds.
The Amendment we moved was an Amendment to prevent far more drastic restrictions than had ever been put on any trustee being imposed, or their imposition being continued, upon the National Debt Commissioners. That is a body which has not met since 1860, but I have discovered the reason: it has power to operate, and does in fact operate, by three members only of the Commission. One is the Chancellor of the Exchequer, the other is the Governor of the Bank of England and the third is the Deputy Governor. This, I think, explains why the Treasury has found it unnecessary to give any advice to the Chancellor of the Exchequer.
My Lords, it really is a fantastic position, and I say at once, before coming to the Amendment, that a Labour Government, directly after the war, was responsible for it. We put into the National Insurance Act 1946, provisions which were re-enacted in 1965 and which tied these people, as regards very large sums of public money indeed, to Government securities or Government-guaranteed securities. I shall develop that, if I may, on an Unstarred Question which I have down for Monday next. All I wish to say now is that, having seen this Bill and having noted the fact that it went through another place without a Division and with general approval, and also the fact that it now appears, subject to any point that the noble Lord, Lord Coleraine, may raise, to be likely to go through this House in the same way, it is a little difficult for the Government to say that there is no time and no opportunity to remedy the very serious mistake that was made 942 in relation to the investing powers of the National Debt Commissioners.
The sums involved are very large indeed. The present figure of the total National Insurance (Reserve) Fund—only one of the funds with which they have to deal—is £1,187 million odd—that is the cost. It has depreciated to £845 million, not because the National Debt Commissioners have done anything wrong but because their hands were tied by the very thing which, to a far lesser degree, has been tying the hands of local authorities in this case.
I trust that the Government are going to wake up to the fact that this is going on. It is continually going on. In the last ten years £40 million has been lost simply on the realisation of securities. That is not the result of any wickedness on the part of the Governor of the Bank of England, or the Deputy Governor or the Chancellor of the Exchequer. This is not a Party point; it is something which has happened under both Governments. I earnestly hope that this nice little swallow, if I may so describe it, is the herald of the spring which, at the Government's own instance, will dawn upon the National Debt Commissioners very shortly.
My Lords, as to this particular Bill I do not think that the case could be put better than by the one Minister who spoke on the Third Reading. What he said was:I do not believe that we should attempt to supervise the Trust"—that is, the Local Authorities' Mutual Investment Trust—like a nanny in what it is going to Jo with the options it is proposed the House should give it. We should give these powers without tormenting ourselves as to hypothetical misuse or folly. The simple principle to be decided is whether we should widen these powers of the Trust in the knowledge that it is a wry well run Trust in charge of very responsible people and that these powers are unlikely to be misused."—[OFFICIAL REPORT (Commons), col. 792; 22/3/68.]Those words apply equally to the National Insurance (Reserve) Fund. It is a very well-run trust, within its limits—but its limits are quite impossible ones. It is in charge of very responsible people —who could be more responsible than the Chancellor of the Exchequer a ad the Governor and the Deputy Governor of the Bank of England? And it also follows 943 that the powers are unlikely to be misused. What is being done in this case should be done also in that far more important case. I think we ought to be grateful not only to my noble friend who has moved this Bill here but to those of both Parties who supported it, broadly speaking on the grounds I have just mentioned, in the Chamber below. We ought to say to the Government of the day, "Wake up and do the same thing for something for which you are directly responsible!"
§ 6.32 p.m.
§ LORD COLERAINE
My Lords, I certainly follow my noble friend Lord Derwent in his approval of the Bill. It is clearly a sensible Bill and I think it will do good. But there is one general point of principle which arises from it and which the noble Lord, Lord Pargiter, did not touch upon in his admirably lucid and concise speech in moving the Second Reading. It is a point that was not touched upon in another place, and which I yet believe to be of great importance; and I think that this House might well be seized of it. The point is this. As a result of this Bill, when it becomes law, this particular company, the Local Authorities' Mutual Investment Trust, will be put in a privileged position as compared with other investment trusts or unit trusts operating in the field particularly of property investment.
It is not only that. I think that under the Bill as it stands—and as it must stand; because I do not think it is possible to amend it—the local authorities themselves will be at a disadvantage because they will be able to invest through this particular company only, when there are in existence something like half a dozen other companies through which they could make their investments in property. The position to-day, before the Bill is passed, before this development in the powers of the Local Authorities' Mutual Investment Trust takes place, is that that Trust and other bodies operating in the same field are exactly on a par. None of them can invest local authorities' funds in property directly. I think I am right in saying that although they can invest in property companies, neither this company nor any other company can hold local authorities' funds in property itself.
944 When the Bill becomes law the effect will be that this one company will be able to make such investments in property but that none of its competitors will be able to do so. That does not seem to me to be equitable. The noble Lord, Lord Mitchison, referred to one comment made by the only Minister who took part in the Third Reading debate in another place on March 22 last. I should like to refer to another comment made by the same Minister. He was replying to criticisms that it was wrong for a public authority like the Local Authorities' Mutual Investment Trust, to add to the pressure on the property market by investing directly in property. The Financial Secretary to the Treasury justified it by saying that we were all agreed that there was a public sector in industry and in finance and that there was a private sector. He said:… what is sauce for the private … goose must be sauce for the public … gander."—[col. 778.]Conversely, I think it might be said that what is sauce for the public gander is sauce for the private goose.
As I say, it does not seem to be equitable that this public authority should have a privilege denied to a private company operating in the same field. But it is not only these private companies that are at a disadvantage. As I indicated a few minutes ago, the local authorities themselves are at a disadvantage. It may be the case—and I have no doubt that it is—that the Local Authorities' Mutual Investment Trust is admirably managed; but it has not, it cannot have, a monopoly of skill and experience, and it seems a little unfortunate that local authorities are prohibited—as they will be prohibited when this Bill is passed and as they are now prohibited—from drawing on a wider pool of experience, skill and knowledge in the management of property.
My Lords, I am told, and I accept the position, that there is no possibility of amending the Bill. If I thought it would do any good I might ask the noble Lord, Lord Pargiter, to withdraw it until he had considered the point that I have tried to make; but clearly it would be unreasonable to expect him to do that. But I would ask the noble Lord, Lord Beswick—not that he should reply now to this point I am making—whether the Government should not consider it desirable 945 in the future to bring in some quite small Bill to produce that equality between these various institutions which will be lacking when this Bill becomes law.
§ LORD MITCHISON
My Lords, before the noble Lord sits down, I wonder if he will allow me to ask whether he has noticed (in col. 778) the reason given by the Financial Secretary in answer to the point he has just raised? He said that a good many local authorities already had the power—I think, under Private Bills—to hold land; and that one ought not to discriminate between those cases and the cases which would be dealt with under this general Bill.
§ LORD COLERAINE
Yes, my Lords, that is true. There are some large local authorities like Manchester and the Greater London Council which have promoted Bills to give them the authority to make their own investments. There are also one or two smaller local authorities which have promoted similar Bills. But it seems to me to be much simpler for the Government to promote a Public Bill which would cover all authorities and which would give them permission to do what these particular authorities are allowed to do already.
§ LORD BESWICK
My Lords, my noble friend Lord Pargiter has fully and very clearly explained the purposes of this Bill. I think all I need say is that the Treasury were informed of the proposal to introduce the Bill and they approved of its terms. The noble Lord, Lord Mitchison, fired some of the shots which I should have thought he would have conserved until next Monday—
§ LORD BESWICK
—but possibly the noble Lord has a lot of spare ammunition. He appeared to think that there was a similarity between the Trust we are discussing and the National Insurance Reserve Fund. I would submit to him that there are significant differences, but as I have not the spare ammunition that he has at his disposal, I propose to conserve mine until next Monday.
My Lords, the noble Lord, Lord Coleraine, made some very interesting points. He was kind enough to say that he was not expecting an answer this 946 evening, but perhaps I may say just this. This Trust, LAMIT as it is apparently called, is a non-profit-making body. It is, as the noble Lord said, expertly advised and adapted exclusively to the requirements of local authorities. Treasury approval of the scheme, which is necessary under Section 11 of the Trustee Investment Act 1961, takes into account the intention of the Trust to operate a balanced portfolio, and the proposed extension in this Bill would not impair the general suitability of the scheme for local authority purposes.
I would put this point to the noble Lord. If local authorities wish to submit other schemes for Treasury approval under Section 11 of the 1961 Act, they will be considered. I quite agree with him that it would be unsuitable to attempt to amend the Bill now before us. Similarly, I would say to him that if other bodies wish to seek an extension of the scope of trustee investment, such as investment in a non-authorised unit trust, that is a matter on which the view of Parliament ought to be obtained by separate legislation. With that, my Lords, I welcome the Bill and trust that it will pass safely through its further stages.
§ LORD COLERAINE
My Lords, the House and the noble Lord have been most patient, but may I put this point to the noble Lord, Lord Beswick? So far as I know, the position of the Local Authorities' Mutual Investment Trust and other property-unit trusts in the private sector is exactly the same so far as profit is concerned. They, too, are mutual trusts and the money that passes, so to speak, is in respect of management fees just as in the case of the Local Authorities' Mutual Investment Trust. On the other point, I should still like to ask the noble Lord to consider it again. Surely it is extremely cumbersome for every local authority that wishes to have some other avenue of investment to promote a Private Bill or a hybrid Bill, and it would be perfectly simple for the Government, if they thought fit, to introduce a Bill which would cover any local authority which wished to take advantage of it.
§ LORD BESWICK
Yes, my Lords, but the point I was attempting to make was that if local authorities find it cumbersome or burdensome, it is perfectly open 947 to them to make the necessary recommendations, and if they were made they would be considered.
§ 6.45 p.m.
§ LORD PARGITER
My Lords, I am grateful for the way in which the Bill has been received, and for the assurance that it will receive a Second Reading. I hope that the remaining stages will not detain your Lordships for too long. With regard to the points made by my noble friend Lord Mitchison, they are right outside the scope of the Bill. I wish my noble friend luck. I would ask him to think about this point. Having regard to the huge sums involved in the National Insurance Fund and so on, what would happen if they were all channelled outside Government investments into all sorts of other forms of investment? It might prove difficult for the Treasury. But that is a matter which will be discussed on another occasion.
§ LORD MITCHISON
My Lords, I wonder whether my noble friend will allow me to point out that that was why I read the quotation about not treating responsible people like a nanny? The Chancellor, the Governor of the Bank of England, and the Deputy Governor of the Bank of England could be trusted to look after the point that he mentioned.
§ LORD PARGITER
As I said, my Lords, it is not a matter that I wish to pursue. It is only a thought which occurred to me while my noble friend Lord Mitchison was speaking. I have a good deal of sympathy with what was said by the noble Lord, Lord Coleraine. It has been the practice for a very long time in most matters affecting local authorities that the general law very often follows Private Acts of local authorities. In fact, it frequently happens that a local authority or a number of local authorities promote Private Bills, and ultimately the volume of opinion is such that the Government realise it is a matter of public interest and something is being proposed for the public good; and generally the provisions are incorporated in an Act. I should imagine that a similar procedure would be adopted here if it were seen that the present law is restrictive and that the provisions should be widened.
948 I am glad the noble Lord agrees that it is not possible to amend this Bill, which is a hybrid Bill and subject to a special procedure. It would create tremendous complications if any attempt were made to amend it, particularly to bring in bodies which are not now subject to Section 11 of the Trustee Investment Act. It is a peculiar body set up under particular circumstances by the Treasury under a particular section which was conveyed into the Act for the purpose. It would seem, therefore, that it would not be possible to do more than is proposed at present. But that does not mean that I am out of sympathy with the proposal of the noble Lord, or that I would not support a proposal for local authorities generally to have wider powers of investment quite apart from their investment in this particular body. But at this stage I wish to confine myself to what has been said on Second Reading and to thank your Lordships for the kind consideration you have given to the Bill.
§ On Question, Bill read 2a and committed to the Committee on Unopposed Bills.