HL Deb 27 July 1983 vol 443 cc1554-63

4.20 p.m.

The Chancellor of the Duchy of Lancaster (Lord Cockfield)

My Lords, I will, with permission, repeat a Statement made by my right honourable friend the Secretary of State for Trade and Industry in another place. The Statement is as follows:

"With permission, Mr. Speaker, I wish to make a Statement about the case brought by the Director General of Fair Trading against the Stock Exchange in the Restrictive Practices Court.

"Ministers have for some time been concerned that the court proceedings under the Restrictive Trade Practices Act may not be the best way to pursue the matters raised by the Director General. While these proceedings are pending, it is difficult for the Stock Exchange to make changes to enable its members to compete for business worldwide. There is also a danger that the legal proceedings within the framework of the Act may damage the effective operation of the Stock Exchange, which remains essential to the working of our economy. Accordingly, the Government would wish to see the matter settled out of court, if the Stock Exchange is able to make acceptable changes.

"I decided to discuss the matter with the Director General and thereafter with the Chairman of the Stock Exchange. I explained that the Government had concluded that in order to safeguard the position of investors the separation of the functions of brokers and jobbers should be preserved at least for the time being in its present form. The House will recall that, in analogous circumstances, it insisted on separating brokers and underwriters at Lloyd's. The Stock Exchange's rules which prescribe the separation of capacity may have to be included in statutory provisions under EC Directives. In that case I intend to make regulations under the European Communities Act.

"I said that I should also expect the Stock Exchange to make changes on points of concern to the Director General. Following discussions with his Council, the Chairman of the Stock Exchange has made the following proposals to me:

"The Council will take action to dismantle by stages and with no unreasonable delay all the rules which prescribe minimum scales of commission, completing this by 31st December 1986. The Stock Exchange will continue the rules prescribing separation of capacity of brokers and jobbers. The Council will introduce rules to permit non-members to serve as non-executive directors of limited corporate members of the Stock Exchange, provided that there is always a majority of directors who are members of the Stock Exchange.

"The Council will recommend to the members of the Stock Exchange changes which would: first, introduce lay members to the Council of the Stock Exchange, their number and the method of their selection to be agreed with the Bank of England.

"Second, establish a new appeal body, independent of Stock Exchange members of the Council. If the Council were to reject an applicant for membership who fulfilled the requirements of the rules, the appeal body could review the decision and overrule it. This body would include lay members of the Council, but Stock Exchange members of the Council would not be eligible.

"Third, introduce people who are not Stock Exchange members of the Council to the Stock Exchange's existing appeals committee on disciplinary matters so that they will constitute at least a majority on the committee. Lay members of the Council would be eligible to serve on this committee.

"I believe that these changes are to be welcomed, and would enable the Stock Exchange to continue to adapt in an evolutionary manner to changing circumstances while maintaining proper regard to the needs and protection of investors. The next step will be for the membership to approve the necessary changes to the Stock Exchange deed of settlement. I shall also make arrangements for the Department of Trade and Industry and the Bank of England to monitor the implementation of these measures, and the evolution and development of the Stock Exchange as an efficient, competitive and suitably regulated central market which affords proper protection to investors. Subject to these two points the Government will seek approval of Parliament for measures to exclude the Stock Exchange from the operation of the Restrictive Trade Practices Act."

My Lords, that completes the Statement.

4.24 p.m.

Lord Bruce of Donington

My Lords, we on this side of the House wish to thank the noble Lord for repeating the Statement made by his right honourable friend. May I once again point out to the noble Lord on the Government Benches that this Statement arrived on the Opposition Front Bench at 21 minutes past three, with the usual indication, of course, that the Statement would be made at some suitable time after 3.30. Once again I have to protest that this is not the way in which the Opposition should be treated in matters of this kind. If the Government are able to leak items to the press concerning what they propose to do the following day—at any rate, to leak the matter in its generality—surely it is not beyond the wits of Government to have a Statement ready somewhere around about midday, with the object that after they have studied the Statement themselves and made quite sure that they themselves understand it, the Opposition can have adequate time in order to study the Statement and collect such papers as they may require in order to put questions in generality. May I therefore request that this once again be brought to the attention of those officials of Govenment and of the House who are responsible for it?

We note in particular the last paragraph of the Statement; and I quote— Subject to these two points the Government will seek approval of Parliament for measures to exclude the Stock Exchange from the operation of the Restrictive Trade Practices Act". It is to be hoped that both in another place and in this House a full opportunity for debate will be given in order that this matter may be thoroughly ventilated.

The Statement says that Ministers have been concerned "for some time" about the proceedings. These proceedings have been anticipated and indeed have had the support of successive Governments for quite a period of time. How was it that so suddenly the Government became concerned that the effective operation and expansion of the Stock Exchange's activities are being inhibited by the threat of proceedings? The Stock Exchange and its members appear to have done pretty well over the last three or four years at any rate, and their activities have indeed been expanded. Since when have their activities been impeded by the threat of these proceedings, and, if so, in what manner? Is the noble Lord aware that the country has reasonable grounds for supposing that the Government themselves have caved in to very considerable political and other pressures from the City of London in this matter?

Will the noble Lord give the House an assurance that the Stock Exchange will comply voluntarily with all those points at issue with the Office of Fair Trading? The matters at issue are those which are the subject of prospective litigation before the Restrictive Practices Court and are most certainly not confined to the matters mentioned in the Statement. Will the noble Lord tell the House whether it is his understanding of the position that if the voluntary points that are conceded by the Stock Exchange do not meet all the objections of the Office of Fair Trading, the Director General of the Office of Fair Trading will have the right still to go before the Restrictive Practices Court on the remaining items about which the Stock Exchange has given no undertaking?

I should like to refer in particular to the separation of the functions of brokers and jobbers. The Government have come to the conclusion that this should continue "for the time being" in its present form. If there is virtue in the present system, why should it continue only for the time being? It seems that this degree of indecisiveness is more likely to affect the future operation of the Stock Exchange and its prosperity than coming to a decision one way or the other. Either it is a good thing and should be retained without this "for the time being", or it is a bad thing and a time limit should be set for the separation to cease and for the positions to be merged.

The Minister has received an assurance from the council that it will dismantle by stages and with no unreasonable delay all the rules which prescribe minimum scales of commission, completing this by 31st December 1986". Why 31st December 1986? Is it beyond the wit of man, and the brains of the Stock Exchange and its members, to effect such changes before 31 st December 1986, by which time, I have no doubt, Her Majesty's present Government may have changed their mind and decided that they will accept further extensions? This is a thoroughly unsatisfactory Statement and I hope that it may be secured through the usual channels that we have very adequate time indeed to debate it.

Lord Mais

My Lords, I should like to support what was said by the noble Lord on the Opposition Front Bench on the time factor in regard to this Statement. It was handed to me not more than half-an-hour ago. We ought really to have been given more opportunity to study it and its implications, and I hope that when the next report is made we shall be given adequate time to consider it in detail.

I am glad to note the point regarding the safeguarding of investors. After all, they are the most important persons connected with the Stock Exchange. It is paramount that their interests should be protected and we shall certainly do our utmost to see that they are. As regards the position of brokers and jobbers, I note that they will be preserved but that the matter will be discussed further. Frankly, the sooner that question is settled the better for all of us.

I am very glad that it looks as if we shall not have legal proceedings. They could have a very serious implication for the working of the Stock Exchange. They would discourage investors from dealing with the Stock Exchange and would cause a good deal of unnecessary uncertainty. We on these Benches sincerely hope that the problem can be solved out of court and we trust that it will be treated as a matter of considerable urgency. It cannot be left in its present state of uncertainty. We depend a great deal upon the Stock Exchange for a large amount of our security and stability within the City, and if this uncertainty is prolonged it will have considerable implications.

I am very glad to see that non-executive directors of limited corporate members will be permitted in the future and that lay members will be allowed on the Council of the Stock Exchange. These are very considerable changes and obviously they will meet a good deal of opposition; but it is hoped that the problem will be settled in the foreseeable future. After all, whatever one may say for or against it, the Stock Exchange is a very large contributor of earnings to this country. The effect of this uncertainty particularly on small investors could be quite considerable. They have no means of knowing how they will personally be affected. Also, overseas investors will be affected.

So I hope that Her Majesty's Government will act with the same speed which they have shown in giving us this short report this afternoon, but I also hope that they will give adequate notice of what steps they are going to take. I am sure that they will continually bear in mind that whatever we think of it the Stock Exchange is a very large contributor of finance to our overseas trade.

4.35 p.m.

Lord Cockfield

My Lords, of course I have very considerable sympathy with the point made both by the noble Lord, Lord Bruce of Donington, and by the noble Lord, Lord Mais, about the short time that they have had to consider this matter. There is of course a problem, as noble Lords will appreciate, as one moves towards the Recess in that a large number of Statements are made and are expected to be made. This very often means that the time available is comparatively short. But I do indeed realise how difficult it is when noble Lords are expected to grapple with matters as difficult as this at such short notice.

But may I assure the noble Lord, Lord Bruce of Donington—and I know that he does not really need this assurance—that there has been no question of the Government having leaked this information to the press. From time to time, information reaches the press but it certainly does not do so through leakage by Government. My right honourable friend went to another place and I came here to repeat his Statement as soon as we were in a position to do so.

I greatly appreciate the general welcome of the noble Lord, Lord Mais, for these proposals. We take the view—as he does—that this is the sort of matter which can much better be settled out of court, rather than dragged on for years through a process which might well not result at the end of the day in the right answer being achieved.

Perhaps from that I may go on to the point raised by the noble Lord, Lord Bruce of Donington, who quite rightly drew attention to the fact that the case has been in course for quite a long time. Why, he asks, is there suddenly this move being made now? The answer to that is a very simple one. The whole objective of the restrictive practices legislation is to remove those restrictive practices which are not in the public interest; and, of course, a very large number of cases are settled without ever going anywhere near the court at all.

In the present case, there was a great reluctance on the part of the Stock Exchange to make any movement at all. They explained this in terms of the fact that they felt it would prejudice their position before the court if they started making changes. But they have now come to the view that substantial and important changes should be made, and they have proposed those changes to my right honourable friend. This provides a foundation on which we feel that it is possible to settle the case on a basis which removes many of the more important and crucial restrictive practices, without damaging the general position of the Stock Exchange.

I entirely support the point made by the noble Lord, Lord Mais, that this is an institution which earns a very great deal of money, particularly money from overseas. It is a great contributor to our invisible receipts and it is very important that it should be maintained as an efficient organisation. But it is important that it should be competitive and these measures are designed to take it down that path. It is also very important, as the noble Lord, Lord Mais, said, that the position of investors should be safeguarded and that point is made on a number of occasions in my right honourable friend's Statement.

Both noble Lords raised the point of whether there would be a full opportunity for debate. It is stated quite clearly in the Statement that the Government will seek the approval of Parliament for the measures which are needed", and of course that inevitably carries with it the opportunity for full debate on these matters. I entirely agree that there is a degree of urgency about this, because we now want to get ahead. But before the die is finally cast, the measures must be brought to Parliament and that provides a full opportunity for debate. There is no question, if I may use the phrase of the noble Lord, Lord Bruce of Donington, of the Government having "caved in". What in fact has happened is that the Stock Exchange itself has made a very considerable movement in its position. It is on the basis of that change in the position of the Stock Exchange that it has been possible to make the progress which is reported in this Statement.

I note what both noble Lords say about the separation of the functions of brokers and jobbers. The noble Lord, Lord Bruce of Donington, referred particularly to the phrase, "that this should continue for the time being". This is a matter on which I realise that a diversity of views is quite legitimately held, but if there is to be development it should be evolutionary development rather than revolutionary development because a change from single capacity to dual capacity would represent a very, very big change indeed. If it were right for such a change to be made, it should be made in an evolutionary way over a period of time. In other words, this is one of the matters upon which one needs to make progress slowly; but I appreciate the importance of the issue and the fact that both noble Lords have drawn attention to it.

I should also like to refer again—because I believe it answers many of the other points which have been made—to the fact that the Statement specifically says that both the Department of Trade and Industry and the Bank of England will monitor not only the implementation of the measures which are set out in the Statement but also the evolution and development of the Stock Exchange as an efficient, competitive and suitably regulated central market which affords proper protection to investors". In other words, we want to see this institution develop in a proper way which is to the advantage of both the country as a whole and investors in British industry.

Lord Taylor of Gryfe

My Lords, we on these Benches welcome the Statement and thank the noble Lord for it. We recognise the substantial contribution which is made by City institutions to the economic welfare of the country, particularly to the balance of payments, and we support any measures which are aimed at improving the efficiency and enhancing the reputation of these institutions. That certainly includes the Stock Exchange.

I must express some regret that these concessions have been made at the very last moment, and I should like to ask the noble Lord what is the effect of this withdrawal on the Office of Fair Trading. The noble Lord has said that the concessions by the Stock Exchange have been made with some reluctance. The Office of Fair Trading have been investigating this matter for more than two years, at a cost of £1.5 million. Keeping in mind that the noble Lord has rejected the advice of the Office of Fair Trading on at least six occasions in the past four years, I wonder what the impact of all this is on the standing and reputation of the Office of Fair Trading, which is important to retaining free competition and abolishing agreements which are against the public interest.

We very much welcome the arrangements in connection with negotiated fees. I wonder whether the Government can tell us whether they are satisfied that the proposals put forward by the Stock Exchange will enable the Government and industry as a result of these concessions to raise funds more cheaply and as efficiently as possible, keeping in mind the freedom in the United States Securities and Exchange Commission where Government issues business is bid for. We very much welcome the abolition of the closed shop which is contained in these proposals and the opening up of the Stock Exchange. As supporters of consumer interests, we are also delighted to see that the users of the Stock Exchange will have some voice in the councils of that organisation.

On the question of the separation of jobbers and brokers, the phrase "for the time being" also interests us. I hope that representations will be made by all interested parties before decisions are made. I should also like to ask the Government whether they believe that the maintenance of the single capacity and the introduction of negotiated commissions are compatible, and just what the full impact of that will be. I very much welcome the assurance of the Minister that the decision to depart from these procedures will be the subject of a debate in this House. I very much look forward to it.

Lord Cockfield

My Lords, I am grateful to the noble Lord, Lord Taylor of Gryfe, for the welcome that he has given to so many of these proposals. He expressed some regret that the concessions have been made only at the very last moment. It is so often the case of course that when there is litigation and a case is before the court it is only, as it were, as the parties approach the doors of the court that a movement is made towards a settlement. This indeed is what has happened in the present case. That really answers the question which the noble Lord raised about the position of the Office of Fair Trading. It is perfectly true that the Office of Fair Trading have put a very great deal of work into this and that a great deal of money has been spent; but I think it is undeniable that had the case not been brought the Stock Exchange would not have moved in the way that they have. In some ways, the most satisfactory result of any case is to move the parties to a position where a mutually acceptable solution is found. This is what we hope very much will emerge in the present case.

The noble Lord also raised the question whether the abolition of minimum commissions and the facility therefore to negotiate fees would enable funds to be raised more cheaply and efficiently. One of the major objectives of these changes is to increase the efficiency of the Stock Exchange. That in the end should have the kind of effect for which the noble Lord is looking in regard to the costs of raising capital.

The noble Lord also referred to the question of the separation of the functions of jobbers and brokers. I note what he says. I cannot go any further than to say that the Stock Exchange believe—and we share their view—that it would be quite wrong at this stage to abolish the single capacity rule. But we shall have to see how the Exchange develops in the light, inter alia, of developments in other markets elsewhere. This is essentially a matter where if movement is to take place it needs to be movement in an evolutionary sense.

The noble Lord also asked whether the Government believe that the maintenance of single capacity and the abolition of minimum commissions are compatible with one another. We believe that they are. But of course it is a perfectly reputable argument that the abolition of minimum commissions will push in the direction of dual capacity rather than minimum capacity. We are very well aware of that potential repercussion, but again it underlines the point I made earlier: that what we are looking for is evolutionary change on the right lines rather than plunging immediately into dramatic change, which may prove to be right or may prove to be wrong. Having said that, I greatly appreciate the noble Lord's general welcome of the line that the Government are taking.

Lord Boyd-Carpenter

My Lords, in view of what my noble friend has just said as to the advantages in respect of the raising of funds to be expected from the abolition of minimum commission, can my noble friend say why it has been decided that we shall have to wait three and a half years for this advantage to be obtained? I wonder if he can indicate whether, when this measure comes before Parliament, the Government will be prepared to consider an earlier date for the inception of this most welcome reform?

Lord Cockfield

My Lords, I am grateful to my noble friend, particularly for his description of this measure as "a most welcome reform". I believe it is one of the most important of all the reforms; this one and the opening up of the membership, which I think is also crucially important. But here again we come up against the question of how quickly change can be made and absorbed by the institutions concerned. This is the date which has been offered by the Stock Exchange. They have promised to make progress towards it without any unreasonable delay and to ensure that by 1986 the minimum commissions will have gone altogether. That seems to my right honourable friend a reasonable rate of progress, given the circumstances we see in front of us. I will, however, report my noble friend's remarks to my right honourable friend.

Lord Denham

My Lords, although this Statement and questions on it have been going on for 32 minutes, it is a very important Statement and it would not be right to cut the House short. But in order to keep ourselves within the rules set by the Companion to Standing Orders, I wonder whether noble Lords will keep to brief questions for elucidation.

Lord Bruce of Donington

My Lords, I shall be greatly obliged if the noble Lord the Minister will answer two purely technical questions which arise. First, there is the question of making regulations under the European Communities Act in order to comply with the EEC directives. Will the noble Lord give an assurance that these regulations will come before the House, under either the positive or the negative procedure; and that when the regulations are laid before the House they will contain the appropriate references, for ease of reference, to the relevant EEC directives? Secondly, under the intention to seek the approval of Parliament, can the noble Lord say whether the approval of the House will take place with the presentation of a Bill to the House to enable this to be done—in which case there can be amendment—or will this matter be presented to the House by way of a regulation, which cannot be amended by the House? I shall be grateful for answers to those purely technical point.

Lord Cockfield

My Lords, so far as the first point is concerned, the regulations under the European Communities Act are bound to be laid before the House. I believe that answers that point. So far as the measures are concerned for which we shall seek Parliamentary approval, it is too early to say precisely in what form they will be taken. There are various possibilities. One is for an order adding to the list of exemptions made in the existing 1976 order I might mention en passant that there are a number of bodies which are exempted in this way, so this is not an unprecedented step. There is the alternative possibility that, if it were necessary, we could propose a short Bill. In either case, Parliament would have an opportunity fully to debate the matter.

Lord Molloy

My Lords, up until now it has all been Front Bench spokesmen and I should like to put in a word for those of us who are not on any Front Bench. I have never been particularly happy with the principle of Statements being made, either in this House or in another place, when they seem to discriminate between Members who are appointed to either House. I believe that is very wrong. The point I have in mind is that Members who are on the Front Benches receive advance notice of what a Statement is going to say. I see no reason why everybody should not get advance notice.

We are indebted to the noble Lord, Lord Cockfield, for all that he has done in answering difficult questions which he did not know were to come. He has done that in quite a remarkable manner, for which we should all be grateful. However, it would have been much better if we could have had more time. The issue of the Office of Fair Trading is one in which I am deeply interested. In so far as there has been complete denial of the fact that there was any press statement, why was it not possible for the Government to allow the Front Benches to have the Statement early tomorrow, say, so that they could have absorbed it? Then we lesser mortals on the Back Benches, who, it would appear, can absorb points just as quickly as those people on the Front Benches, would have had more time to examine the matters at hand. That would have done credit to the Government and to the Minister, who has done a remarkable job this afternoon. I repeat my thanks, but in so far as we have another two days, I believe that what I have suggested could have been done. We are very fortunate that the noble Lord, Lord Cockfield, has managed to give the information that he has—not so much in repeating the Statment but in the full and comprehensive replies he has given to questions from the Front Benches.

Lord Cockfield

My Lords, I am grateful to the noble Lord, Lord Molloy, for the complimentary statements that he makes. First, we ourselves, of course, rise today—so that, while another place does have a little more elbow room, had the Statement been made tomorrow it would not have been possible for me to have repeated it in your Lordships' House. I assure the noble Lord that we have made the Statement at the earliest possible opportunity. These were important and intricate discussions, which have gone on right up to the present moment. However much one would have liked to do so, it was not possible to give further notice than we have. The Government are always in a more difficult position than the press, because, while it is open to the press to speculate, the information given by the Government has to be the full and accurate information. I hope that the noble Lord will accept that explanation.

Lord Denham

My Lords, I believe that we should probably follow straight on with the next Statement.