LORDS AMENDMENT TO COMMONS AMENDMENT No. 236 (Hansard, 27 March 1980)

§ Lord WEDDERBURN of CHARLTON
My Lords, I beg to move, as an amendment to Commons Amendment No. 236, Amendment No. 236A. It is unfortunate that this amendment is the last on the Marshalled List, but sometimes as the field crowds round the last man has to play a few extra overs. I hope that as the last man in I shall have the sympathy of the House, because this is the only point in the Bill where this point can be raised.
With great respect to the noble Lord, Lord Lyell, I do not think it is a very complicated matter. This is the definition clause of an employees' share scheme. We have never had a definition of this sort before, but it has always been understood that an employees' share scheme covered cases in which employees got shares. But in this Bill we are introducing the wholly new element that an employees' share scheme can include a scheme to encourage or facilitate the holding of shares and, as this amendment would have it, or debentures. I am not making the semantic point that an employees' share scheme should not include debentures, but the substantive point that this is a break of a very serious kind.
Again, without labouring the point, I note that it was moved in Committee on 22nd November, met with doubt and some opposition by the right honourable friends in another place of noble Lords opposite and by some of their Back-Bench Members; then was said to be coming back on Report and was never brought back on Report; was, in effect, nodded through in Committee on 11th December and, finally, on Report on 4th March. So there were no substantive discussion and arguments from the Government in support of this addition.
Instead, if one reads the reports of the speeches of noble Lords' honourable friends on the Back-Benches, one finds Sir Brandon Rhys Williams, on 22nd November, at column 340 of the Official Report, being very doubtful as to whether debentures should be allowed in. I must read to your Lordships what Sir Brandon said, because I cannot put it any better. He suggested that he would not welcome—and I quote, if I may—

§ Lord LYELL
My Lords, will the noble Lord give way? I understand that it is against the Standing Orders of your Lordships' House to quote a Member of another place who is not a Minister. I am sorry, but I understand that that is the Standing Order.

§ Lord WEDDERBURN of CHARLTON
My Lords, I thank the noble Lord for bringing to my attention the Standing Orders. I had rather reflected as the evening went on, having heard of that Standing Order, that perhaps the number of times on which it had been broken had meant it to be in some form of obsolescence. However, if the noble Lord is so afraid of the point that he wants me to put it in my own words, I will put it in my own words, which happen to agree precisely with the sentiments generally expressed by Sir Brandon Rhys Williams on 22nd November. I am sorry that the noble Lord should hold up your Lordships in this way, and I have no alternative. He hurries me.
I, too, like Sir Brandon, do not particularly welcome the use of employees' share schemes, if they are primarily seen by management as a way of providing a new source of capital which is so dispersed that it does not threaten the controlling interest of the directors, or where rights of employees are strictly limited. I, too, feel that, at present, debentures are not a popular form of investment, for the obvious reason that inflation steadily erodes the asset, and most people prefer to put their savings into equities which give them some reasonable hope that their income and capital will move along with the depreciation in the value of money, of which the Government are very aware, and that they will not suffer too badly. I, too, feel like Members of another place, that if employees' share schemes are to invest in debentures, there will be friction when employees discover the character of the asset which their employers have given to them. I quite understand that it must embarrass noble Lords on the Front Bench opposite, but these are sentiments which I share with their honourable friends in another place and there are—

§ Lord DENHAM
My Lords, if the noble Lord will forgive me, it is a rule that noble Lords do not quote, and my noble friend was quite right to say so. 1170 I hope that the noble Lord will not take exception to that.

§ Lord WEDDERBURN of CHARLTON
Not at all, my Lords. I take the point of the noble Lord, which he put courteously to me, and I put courteously back to him that I share precisely the sentiments of Sir Brandon Rhys Williams, and that if he had been in the House earlier this evening he would have heard, time and time again from both sides of the House, reference made to sentiments expressed in another place. If we have all been out of order for the whole evening, I trust that those on the Front Benches and the usual channels will take steps to correct noble Lords on their own Back-Benches. It would, of course, be necessary for almost the whole debate.
I have established that I agree with the sentiment that to introduce debentures into an employees' share scheme introduces a novel element, which is, at least, to introduce something very different from equity shares, which in days of inflation could lead to friction if employees are at all misled about the nature of the security which they are being offered. Having established that somewhat more laboriously than I hoped to do, since I took the course that I did only in order to quote quickly something that somebody else had put better than I could, and having established that in six rather than two minutes, I wish to touch upon the areas of the Bill to which this definition is important.
I will do this very quickly by noting that the definition is important to Clause 15 and Schedule 13 by Amendment No. 315, to which we are coming in relation to the definition of "offer of shares to the public". Secondly, it is important to Clause 4. I spoke in your Lordships' House on Amendment No. 8 to Clause 4, about the allotment of share capital and the nominal value of a company's allotted share capital. Third, it is important to Section 54 of the 1948 Act in relation to financial assistance given by a company for the purchase or cash acquisition of its own shares. The fourth important part is Clause 22, which your Lordships have already dealt with. This deals with placing conditions on the right of a public limited company to allot its shares.
The clear intention of the Government and their advisers is to use the same 1171 definition in all fourplaces. Mysuggestion to the noble Lords opposite is that they may have been misled by a desire for tidiness, in that the same definition may not be wholly appropriate to all four places.
In view of the lateness of the hour, I will not extend my argument on this matter. However, I am perfectly willing, as other noble Lords have suggested, to put documents in the library if anyone should be interested. But there are very serious arguments whereby it could easily be established that this very serious new intervention could perhaps lead to different definitions in different parts of the Bill of an employees' share scheme. And it certainly leads to the point which was made in another place, that employees who are asked to take debentures might be in need of advice in a way which would be quite different if it were an offer of equities. They may be in need of advice on equities, but I think they certainly would need advice on debentures. In many cases they will not understand the difference unless it is explained to them.
My noble friends and I are suggesting in this amendment that the right people to give that advice, if there is a trade union recognised for consultation by the employer, is the trade union. The amendment does not in any way force an employer to recognise a union; it merely says that where there are good industrial relations and consultation with the union, what could be better than to explain to the employees concerned, through their union channel, that these are debentures and not shares. No doubt the union, in doing so after consultation, will explain why in this case it is a good buy. At least the workers will not afterwards be able to turn round and say, "You misled us; we thought this was an employees' share scheme. We know about shares. They go up when inflation goes tip, but debentures do not''.
I suggest that the Government should consider very seriously the need for advice for employees in their introduction of this new element into employee share schemes. I have taken a moment or two longer than I intended, and I trust that because it is the last amendment the Government will show a somewhat more relaxed attitude towards it than was possible earlier in the evening.

§ Lord LYELL
My Lords, the noble Lord, Lord Wedderburn of Charlton, has given a fairly lengthy and detailed explanation of his amendment. I have listened as carefully as I can to what he has had to say. There are two points which I should like to make. The Government are of the firm opinion that there is no reason at all why debentures should in any way be a more wise or unwise investment for employees than anything else. We believe that employees are perfectly capable of having such share schemes, debenture schemes or investment schemes in their own company explained to them, and that they are quite capable of making up their own minds.
I understand that there were problems about the possibility of trade union members in private companies, but this is not likely to be a major problem, especially in view of what I had to say about debentures as against shares. The Government certainly do not take the view that there is any difference in investment, as an investment medium, between debentures and shares just because debentures have a fixed rate of interest. There might be other attractive conditions attached to those debentures. They might carry conversion rights—indeed, many of them do—at a later stage. But I do not think that there is any outstanding reason to accept the noble Lord's amendment tonight. I am sorry to disappoint him and not to be more flexible, but I am afraid that is as far as I can go.

§ Lord WEDDERBURN of CHARLTON
My Lords, I thank the noble Lord for his reply. One point I omitted was the point on conversion and I am glad that he has mentioned it, because that does show one point on which employees might well need advice; but whereas he says that the company could give it, the company might not. However, in view of the circumstances, I naturally ask leave to withdraw this amendment.