HL Deb 06 November 1969 vol 305 cc489-94

3.56 p.m.

LORD BESWICK

My Lords, with your Lordships' permission, I should like to repeat a Statement made by the Chief Secretary to the Treasury in another place. It is as follows:

"It is already known that further guidelines on the whole field of prices and incomes policy after 1969 will be set out in a new White Paper. In the meantime, however, the Government consider it desirable to give the earliest possible notice of the decisions which have been reached on dividends policy.

"The present 3½ per cent. ceiling scheme for dividends will come to an end when the reserve statutory powers in the 1968 Act expire on December 31. The Government gladly acknowledge that on no single occasion has it been necessary to use these powers; and they are confident of co-operation in asking companies to continue to observe the requirements of the scheme in so far as they concern recommendations of total dividends which are made public before December 31. Thereafter, it will remain possible for the Government to require notification of individual dividend increases under Section 12 of Part II of the Prices and Incomes Act 1966 if the need should arise.

"The need for companies to observe moderation when distributing profits will continue. The Government therefore reaffirm the general consideration which was set out in the joint statement of intent published in Cmnd. 2639, namely, that they have pledged themselves to use their fiscal powers or other appropriate means to correct any excessive growth in aggregate profits as compared with the growth of total wages and salaries, after allowing for short-term fluctuations. The Government also draw attention to the ability to refer for examination to the National Board for Prices and Incomes cases where the growth of profits or dividends appears to be based on price levels made possible by excessive market power.

"The specific scheme of dividend restraint introduced in the 1968 Budget was a necessary reinforcement of these more general policies, as a purely short-term measure associated with stringent statutory control of other incomes and prices. But with the end of the special powers over prices and incomes in the 1968 Act, it will be appropriate to revert to the more general policies which can combine restraint in the total of dividend payments with flexibility in individual company situations."

3.59 p.m.

THE EARL OF DUNDEE

My Lords, I should like to thank the noble Lord, Lord Beswick, for repeating this Statement, which I think is very simple, or nearly all very simple. We know that the statutory powers on restraint of dividends expires on December 31 and that thereafter notice can be required of any increase of dividend. We are glad to know that the exercise of compulsory powers has never been necessary, since all companies have voluntarily observed the dividend restriction. I think we would also agree that the examination by the National Board for Prices and Incomes in cases where the growth of profits or dividends appears to be based on price levels made possible by excessive market power is a function which is appropriate to the Prices and Incomes Board, as it was equally appropriate to its predecessor, the National Incomes Commission.

The only point on which I am not quite clear is the immediately preceding part of the Statement, which I think is a repetition of the last sentence in paragraph 17 of the White Paper referred to, Cmnd. 2639, which reads: The Government have pledged themselves to use their fiscal powers or other appropriate means to correct any excessive growth in aggregate profits as compared with the growth of total wages and salaries, after allowing for short-term fluctuations. That is taken out of a White Paper which is now 4½ years old. I had always supposed that that was a purely general statement, and that "aggregate profits" meant general profits of companies in the whole of the United Kingdom; and that the action taken would be some Budget measure which would apply to the whole of the United Kingdom. But its repetition in the context of this Statement to-day appears to suggest the possibility that "aggregate profits" here may be the aggregate profits of some particular firm or group of firms. In that case, surely the question, if it arises, should be referred to the National Board for Prices and Incomes, and we should know who it is who should judge whether or not the aggregate profit is excessive. If, as I have always supposed, it means general profits for the United Kingdom as a whole, then it is a repetition in this Statement to-day, 4½, years later, which would appear to be quite unnecessary. But I hope that in a minute or two the noble Lord will be able to make the position clear.

LORD BYERS

My Lords, from these Benches I also should like to thank the noble Lord and give a general welcome to this Statement on dividend restraint. I want to ask only one question, to clarify one part of it. The Statement says that after December 31 it will remain possible for the Government to require notification of individual dividend increases under certain sections of the Prices and Incomes Act, if the need should arise. May I ask the noble Lord what action the Government could take: what sanctions they could apply, and who is to determine whether increases are excessive, once the 3½ per cent. figure has disappeared?

LORD BESWICK

My Lords, may I first of all thank the noble Earl and the noble Lord for the observations that they have made and the general welcome they have given to this Statement. In answer to the noble Earl, Lord Dundee, about paragraph 3 of the Statement, I can only tell him that this is a reiteration of a policy which we held to be valid in 1966 and which is still applicable, or will still be applicable in 1970; namely, that if this additional flexibility which is given for the declaration or recommendation of dividends is abused—there is absolutely no reason to believe that it will be, but if it were and there were ex cessive distribution—then the Chancellor of the Exchequer would find it necessary to take other fiscal measures or to emphasise credit restrictions.

THE EARL OF DUNDEE

My Lords, may I ask whether "aggregate profits" refers to general profits for the whole of the United Kingdom, or means the profits of one particular firm?

LORD BESWICK

My Lords, I am re-emphasising what the position was in 1966. Of course, in 1966 one could not have a selective tax on a particular company which was held to be abusing the situation. Here, we are referring to the aggregate situation and to an aggregate counteraction which would be taken.

THE EARL OF DUNDEE

For the whole country?

LORD BESWICK

For the whole country, yes. To answer the point made by the noble Lord, Lord Byers, the powers referred to here would be powers vested in the Treasury to require information which, if on examination it was thought appropriate, would be referred to the Prices and Incomes Board, who would then look at the situation of the company in question to find out on what basis they were making their apparently excessive dividend recommendation. If it was because they were charging undue prices for their products, then of course action could be taken.

LORD BYERS

Yes, my Lords, but if the 3½ per cent. figure is no longer valid, who determines what is excessive? And what is excessive?

LORD BESWICK

My Lords, I take the noble Lord's point, but here we are dealing with a social as well as an economic problem. We have a general climate of opinion, which has to be recognised. So far, the trading community have recognised that excessive dividends were not warranted in the economic situation; and it is hoped that they will co-operate in the future. There is no arithmetical formula which can be applied, but I should not have thought it would be impossible for Her Majesty's Government or the Treasury to decide if a particular dividend limitation breached the general standards observed by other companies.

LORD BYERS

My Lords, is that not contrary to all forms of natural justice — to leave Not Knowing where they stand?

LORD BESWICK

My Lords, if the noble Lord wants to look upon this matter as a particular trouble I am prepared to discuss it with him afterwards, but I should not have thought it would be beyond the bounds of ordinary common sense to come to a conclusion as to whether a particular company was going contrary to a policy which hitherto it has willingly, voluntarily accepted.

THE EARL OF DUNDEE

My Lords, is it not the case that the only legal requirement is notification under the Act, and the Government have no power to do anything else? Of course, they could refer any case on any grounds to the National Board for Prices and Incomes, not on the ground of the figure being more than 3½ per cent.

LORD BESWICK

My Lords, I accept that gladly. It will not be possible to attempt to regulate the amount of dividends; that is quite true. But, again, if the declaration of a dividend is clearly contrary to the economic requirements of the country, then one would have thought that, for example, public opinion could be invoked in this matter; and if excessive prices are being charged then other action can be taken.

LORD CARRINGTON

My Lords, am I then right in understanding that the Government remove the 3½ per cent. limitation and substitute for it excessive, and then do not define "excessive"?

LORD BESWICK

No, my Lords. What the Government are saying (and possibly the noble Lord will read this Statement again) is that they are taking away the rigid 3½ per cent. limit. They are asking for further co-operation. They are recognising that in particular cases flexibility is required. If any individual company appears to be abusing this flexibility by using its market power or near monopoly position, then the Government would have to consider that particular case.

LORD LEATHERLAND

My Lords, can the noble Lord tell me—because this is a very complicated Statement, of which I myself have not a copy—what the answer is to this question? If I were still back at my old job of produc- ing newspapers, would I be justified tonight in putting up the heading: "Dividend Squeeze Eased"?

LORD BESWICK

My Lords, with the freedom which some newspapers exercise to-day they would be free to put up any headline they liked. What my noble friend could say in a newspaper is that the co-operation of the business community and the trading community is still expected.

LORD LEATHERLAND

My Lords, that would not fit into a heading type.

VISCOUNT ECCLES

My Lords, while I welcome the announcement we have heard, may I ask whether, when the Government are watching what happens in the future, they will remember that it is now very difficult to borrow money, and it is extremely expensive for small businesses? Quite a number of these businesses ought to put their dividends up quite a bit in order to have an issue of ordinary shares. Perhaps the noble Lord could tell some of his friends on the trade union side—because they may not all quite understand what is happening now —that this is very much in their own interests.

LORD BESWICK

My Lords, this is of course the kind of consideration which has led Her Majesty's Government to make this change.