Share Ownership

HL Deb 20 February 1985 vol 460 cc640-66

7.28 p.m.

Lord Terrington rose to ask Her Majesty's Government what further steps they propose to take to achieve their declared objective of encouraging a wider spread of share ownership.

The noble Lord said: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

This is by no means the first time that I have drawn attention in your Lordships' House to the importance of a wider spread of share of ownership, but it is the first occasion on which I have actually initiated a debate on this particular subject. In the circumstances, I think that I ought to follow the customs of the House and declare my personal interest, although I have already done so several times in the past during other debates.

First of all, I must declare a financial interest because I derive an income from the City partnership of which I have been a member for many years and which is substantially involved with private investors. Secondly, I must tell your Lordships that I am an executive member of the Wider Share Ownership Council, which is concerned with encouraging individuals to put at least a part of their savings into British industry and commerce.

Having said that, I now turn to the purpose of my Question, which is not to initiate a discussion on privatisation, although I should like to congratulate the Government on their British Telecom issue for reasons to which I shall refer later in my speech. My Question is concerned primarily with a spread of share ownership in its widest possible sense. By that I mean much wider than employee share schemes, admirable as they are for those who have access to them.

In fact, a number of reasons have prompted me to put my Question at the present time. Among them are comments on share ownerships which were made last year in your Lordships' House by the noble Lord, Lord King of Wartnaby. The noble Lord has, of course, considerable experience in industry. During his speech he expressed the view that although bricks and mortar provided the most natural type of ownership, that alone, in his opinion, was not enough. He felt that men and women should not only own a part of the company in which they work but in addition they should participate more generally in the whole success of British industry; in other words, share ownership in the widest possible sense.

I so agree with these sentiments that I find it particularly frustrating to have to recognise that personal share ownership continues to decline—apart from the privatisation of British Telecom, which was really rather a special event—and institutional domination of the market continues to increase. This surely cannot be in the best interests of its efficient functioning, as the chairman of the Stock Exchange has repeatedly emphasised. To my way of thinking, this is a very unsatisfactory situation, bearing in mind that we live in a mixed economy, and therefore socially it is vitally important for people to be involved in the success of industry, whatever their occupation. Also economically it is important because in a country such as ours, which is dependent largely on the success of its industry and its commerce, we must surely do all we can to help people understand the issues and the risks involved in various enterprises; in other words, education.

At this point I should like, if I may, to refer back to two debates in your Lordships' House, one in 1977 on a national recovery programme, initiated by my noble friend Lord Hankey, and another in 1978 on industrial growth, initiated by my noble friend Lord Baker. I took part in both those debates and I devoted a part of my speeches to pointing out the slowness of governments of all complexions in appreciating the need for a wider ownership of industrial shares and the very limited amount of encouragement they gave to individual investors.

Seven years have now gone by since these debates and regretfully I have to say that, apart from the special exceptions that I have mentioned such as privatisation, very little has really been done to provide strong encouragement to individual investors, although I should not be so churlish as to ignore the real breakthrough in the treatment of employee share schemes which were made possible by legislation, introduced by the last Labour Government, and further encouragement since then by the present Conservative one. Nonetheless, I have to declare that we make a very poor showing compared with the United States, which has a long tradition of share ownership, as we have in this country, and is based on similar capital markets and similar stock exchanges.

I do not want to spend much time on figures but I think these are important. These figures, which are the latest available to me, show that the number of shareholders in the United States is 41 million, which is about 19 per cent. of the entire population; and the United Kingdom total, prior to the privatisation of British Telecom—which is difficult to bring into the factor at the moment—appears to have fallen to 2.1 million, which is only 3¾ per cent.

I have chosen this particular comparison because I know something of the American scene from personal experience. For many years I was concerned with my firm's United States operations and I spent a part of each year working over there. In the course of my travels I talked regularly with industrialists and investment fund managers in many parts of the country. What particularly impressed me about these talks was the importance attached to the widest possible share ownership as a contributory factor to industrial growth.

Comparison with America is not, however, the only one that I wish to make today because there are European comparisons to be made which are to my mind equally important and, I should suggest, are worthy of some careful study by Her Majesty's Government. In France, for example, the Loi Monory, introduced in 1978, had a most striking impact on the spread of share ownership. Within three years of its introduction it had added more than 1 million new individual shareholders. This scheme is a very simple one. It grants tax rebate to individual taxpayers who make investments in quoted French companies—and I underline "quoted".

The rebate is quite substantial but the rules governing the scheme are very strict and provide safeguards against tax abuses. First of all, there must be a fresh investment—not an investment from a sale of shares held in an existing portfolio. This rule is well protected because a taxpayer, in order to make his claim, must declare his investments held in securities at July 1978, which was the starting point of the scheme. Secondly, the investment must be held for at least four years to qualify. Thirdly, it must be made in the shares of French companies directly or through special unit trusts which have pledged themselves always to devote 60 per cent. to those types of shares. This scheme ran until the end of 1982 and was succeeded by what may or may not be called the Loi Delors. Under this new scheme, the tax credit has been much reduced but the individual annual limits have been raised from 5,000 to 10,000 francs.

What I find particularly interesting in this country is the fact that the Government have already acknowledged the general principle of the Loi Monory but have confined their scheme to small and medium-sized unquoted companies—and I wonder why. The case in favour of a scheme to cover quoted companies seems to me to be a very strong one. In support, I should like to refer to your Lordships' Select Committee on the European Communities when it considered asset formation in 1981. But before going further, I should, if I may, pay tribute from these Benches to the late Lord Wolfenden who was chairman of this Select Committee. I feel sure that I speak for all sides of your Lordships' House in so doing.

I particularly noted in their report that the committee had difficulty in assessing trade union attitudes towards employee shareholdings because the TUC did not wish to give evidence to the committee. This, I must admit, I find rather disappointing. But it apparently became clear to the committee that, in general, unions are against employee share ownership, particularly when schemes restrict shares to the company in which the employee works. For that reason, the committee gave as its opinion that the Government should give careful attention to schemes that spread the employees' risks over a number of undertakings as, for example, in the French Loi Monory scheme. I do not want to flog this point, but it seems to me that I have a very strong ally in the opinion expressed by one of your Lordships' Select Committees. The Government will perhaps now feel inclined to agree with me.

There are a number of other points that I would like to make but I have probably spoken for long enough. I can therefore perhaps finish with a short summary of the main issues involved in my Question. To begin with, I know that the Government are enthusiastic about widening the scope of share ownership. I am very ready to acknowledge the steps that they have taken so far towards their declared objective. But I have to admit that I am doubtful if these steps can really help achieve their object, except perhaps over a very long period. I would respectfully suggest that a greater sense of urgency is now required.

I would never decry saving for retirement through a pension scheme or life insurance, but I deplore a tax system that does not appear to be fully on the side of the individual who wishes to be a capitalist through share ownership as well as through home ownership. It would seem that the owning of capital through shares is somehow still less virtuous than, for example, the ownership of a house. I would certainly commend a scheme such as the French have put into operation as a means of accelerating a wider spread of the owning of shares.

I realise that we are once again getting close to the Budget. This must obviously restrict to some extent what the noble Lord, Lord Brabazon of Tara, is in a position to say in reply to my Question. But if what I have said has drawn attention to a worthwhile means of really getting to grips with a much wider aspect of share ownership than just employee share schemes, then perhaps I may have achieved something this evening by asking this Question. I would conclude by saving that I look forward to hearing the views of other noble Lords who have put down their names to speak, and particularly the noble Viscount, Lord Bridgeman, who has chosen this occasion to make his maiden speech. My Lords, I beg to ask my Question.

7.43 p.m.

Viscount Bridgeman

My Lords, this is the first time I have had the honour and privilege of speaking in your Lordships' House. I am most grateful for the opportuntiy to address your Lordships. May I also pay tribute to the noble Lord, Lord Terrington, who, I know, is far from well but who has insisted on coming to the House tonight to put the Question to the Minister.

I, too, must declare an interest in the debate as I am a member of the Stock Exchange and a partner in a member firm. While the reduction in stamp duty in the last Finance Act, from 2 per cent. to 1 per cent. was most welcome, it is still higher than in nearly every other major country. In Japan, for instance, it is 0.55 per cent. ranging down through Germany, where it is 0.25 per cent., to Holland, where it is 0.12 per cent.—only one-eighth of the present rate in this country—to, significantly, the United States of America, where it is nil.

With the improvements in communications between world financial markets, this is a hindrance which the United Kingdom securities industry can ill afford. It is also a major discouragement to the small investor. Furthermore, following the abolition of exchange controls in 1979, it has encouraged United Kingdom investors, quite legitimately, to hold United Kingdom securities outside this country by means, for instance, of American deposit receipts. This is a most unsatisfactory by-product of the high tax on dealing in the United Kingdom and serves to the benefit neither of the Exchequer nor, indeed, of the securities industry. I trust that I do not stray from the conventions of the House in expressing the hope that this tax, in the near future, will be further reduced.

May I impose on your Lordships' time to refer briefly to the Unlisted Securities Market on the Stock Exchange, or the USM as it is known? This is aimed at encouraging the small company to have a ready market for its shares, to allow the proprietors to realise some of the wealth they have built up in the business, and, most importantly, to make it easier for the company to raise funds to finance future growth. The noble Lord, Lord Cullen, will refer to employees' share incentive schemes, but one of the advantages of the USM is that it permits companies on that market to introduce these very valuable schemes.

From the outset, it has been emphasised that the USM is, in no sense, a second-rate market; rather, it is a miniature of the listed market. The ethics and disciplines of the Stock Exchange are in no way diminished. There is no minimum size for USM entrants. Entry formalities are kept to a minimum and there are concessions on the cost of entry in recognition of the generally smaller size of company. In many cases, the sponsors, be they stockbrokers or bankers, have local connections with the companies which encourage a local following among investors, who can thereby identify with, as it were, the firm next door.

I suggest that this market has, in the four years of its existence, had a success beyond the most optimistic hopes of its originators. There are now 346 companies on the USM and the number of failures is less than ten—a tribute, if I may say so, to the high standard of vetting by the quotations department of the Stock Exchange of companies seeking admission to that market.

The significance of this market in the context of the present debate is that each new company which comes to the USM will be expanding its share register from a handful of names or, in some cases, even a sole proprietor, to hundreds and, in some cases, thousands of shareholders. Naturally, many of the investors in these new companies on the USM will not be shareholders for the first time, but a significant number will. It is worth noting that since November, sponsors of these issues on the Stock Exchange have noticed a marked increase in inquiries from the public. I hope it is a fair deduction that this interest derives from the success of British Telecom and the awakening of interest in share owning that has been the legacy of that immensely successful flotation.

I suggest therefore that the USM is a wholly appropriate vehicle for the encouragement of wider share ownership. How, then, can more use be made of it in this regard? The noble Lord, Lord Terrington, has referred to the success of the Loi Monory in France. The Loi Monory and the business expansion scheme in the United Kingdom have one feature in common. They each permit the cost of an individual's investment to be set against his or her taxable income up to a prescribed figure. Here, the similarity ends, as the noble Lord has so eloquently said.

The difference between the French and British schemes is fundamental. Whereas investment in the business expansion scheme may not be quoted, the French scheme offers a choice of over one thousand companies on the French stock market. I suggest that this leads, in turn, to a further fundamental difference. BES investments are basically only attractive to investors who can afford to take risks—a comparatively small section of the population. The Loi Monory by enabling individuals to invest with tax relief in quoted companies appeals to a much broader section of the community. The noble Lord, Lord Terrington, has referred to the number of shareholders. I understand that the figure for the funds invested in the Loi Monory and the Loi Delors scheme over seven years is 36 billion francs. Shareholders in this scheme find themselves with a direct involvement in industry, while industry in its turn has been provided with a whole new catchment area of capital.

The Government have now two well-regulated markets on the Stock Exchange, admirably suited to a Loi Monory-type scheme: the Unlisted Securities Market and the main listed market. Between these two the individual would have the choice of the whole spectrum of United Kingdom companies, ranging from the small ones on the USM, with a capitalisation of perhaps £3 million, right through to the Shells and ICIs. I hope very much that the Minister will give consideration to the introduction of a scheme of this nature, if necessary offering it as an alternative to the business expansion scheme. The British Telecom issue has demonstrated beyond doubt the interest of the public in share ownership, and such a scheme would play a significant part in achieving this Government's aim of creating a property-owning democracy. My Lords, I thank you for the courtesy which you have accorded me.

7.51 p.m.

Lord Grimond

My Lords, it is my pleasure, though I am a comparatively new Member of your Lordships' House, warmly to congratulate the noble Viscount on a quite excellent and extremely fluent maiden speech. I remember his predecessor, who was a very well-known figure during the war, and, I am told, a very respected Member of your Lordships' House. My only direct contact with his family is that I was once asked to breakfast by his grandfather—a prospect which I must say filled me with some alarm, as I was a very small boy, but an occasion which I remember to this day with the greatest of pleasure.

One of the difficulties about coming from another place to the House of Lords is that, in another place, you can talk about any subject under the sun in the confident expectation that 99 per cent. of the House will know as little about it as you do yourself. The difficulty about the House of Lords is that quite a lot of your Lordships are expert on the subject under review. This certainly applies to the noble Viscount who has just addressed us. I hope very much that the Government will take note of his suggestions, both about the French experience and about the Unlisted Securities Market.

I should also like to thank the noble Lord, Lord Terrington, for having asked this Unstarred Question on what, to me, is an extremely important subject. May I say, with respect, that I agree with every word he said, particularly in regard to the disappointing experience of the last few years, which is that the institutions have gained ground while the private investor has declined. It is one of the most disappointing elements of the Government's policies that, although they profess to wish to spread ownership of property, and share ownership in particular, in point of fact they have done very little to alter the fundamental structure of industry. To my mind, it is extremely important to do so, not only because it will greatly improve industrial relations once there is some common interest between management and owners and workers, but also because it will enable workers of all sorts to share in the prosperity of the country. It will also combat inflation because it will mean that rewards can be linked to improved productivity and to profit. Finally, as we move on to the new technological revolution, in which, as I see it, fewer people are going to be employed but many people are going to make large fortunes, it is extremely important to spread the benefits of this revolution and to do so through wider ownership.

There are many ways of spreading ownership in industry. There are the co-operatives, in which I personally have an interest, but which are not part of the debate tonight. There are management buy-outs, which I think are to be applauded, and there is of course the employer-owned or employer-controlled business, which is now given official recognition. But the aspect to which the noble Lord has drawn particular attention tonight is the need for the wider diffusion of general share ownership. I wholly agree with him and indeed with the noble Viscount.

It seems to me that the Government should give to the man or woman who is prepared to buy shares advantages comparable to those they give to the house buyer, for instance. It is perfectly true that British Telecom was a great success and a great example, but, as the noble Lord who asked the Question said, it is rather sui generis. If you look at other examples of privatisation—for instance, British Aerospace and Jaguar Cars—you see that the inducement offered to employees in those firms to take up shares was very small. It amounted to £150 in British Aerospace and £450 in Jaguar Cars. If you compare this with the inducements offered to house owners—I think the noble Viscount mentioned this question of houseowning—you see that the inducement offered on mortgages is very large indeed. It is reckoned that, arising out of the privatisation of council houses, those who have bought their houses have probably, on average, gained about £7,000—far more than they would have done had they invested in equity shares. The Government are responsible for the tax inducements, or lack of them.

It is fair in this debate also to mention the City, to which both the noble Lord and the noble Viscount have referred. It seems to me that the City has done conspicuously well lately. It is the large City institutions which have gained from privatisation. As the noble Lord who asked the Question indicated, it is the large City institutions which take up more and more of our shares. It is the directors in the financial houses whose emoluments have risen steadily. In many cases the emoluments of directors have risen whether or not their companies are prosperous. When one reads of the inducements offered to the man who hopes to be the chairman of Dunlop one sees the enormous advantages of being at the top of the pile. Indeed, one reads of increases in the emoluments of directors of many companies which have not done very well.

It should also be borne in mind that the Financial Times recently pointed out that the FT Index has fallen by 50 per cent. since 1970. As I understand it, in spite of the fact that the index has gone through 1,000, anyone who invested money about 1960 or in the mid-1960s would by now, allowing for inflation, have lost half of his capital; so I think we should take care in recommending Stock Exchange investments to everybody and we should warn them of the importance of taking good advice and choosing the right companies.

I think the City is still itself neglecting the private investor. I am doubtful whether, when the "big bang" takes place next year, the private investor is going to be in a better position. The City owes it to us to explain what is going to happen to him. I believe also that, even in the City, there is some reluctance to distribute profits or even to wind up companies. It seems to me that many investment trust companies have been wound up where it was of advantage to their shareholders. But of course it suits the directors and the management to keep companies in existence and indeed to add to their reserves, which in many cases may be right but is not always to the benefit of the investor.

Further, there are what I believe are called the investment protection committees, which, largely on behalf of the insurance companies, are apt to oppose the distribution of shares to workers. Again, one can see their point, because it dilutes the capital. But the Government have made it possible for companies to distribute more shares to workers than was the case 10 or 15 years ago. I should be more reassured if I thought that the insurance companies see that this will lead to greater efficiency and profitability in industry and therefore is not something which it is necessary to oppose though it may lead to some diminution or some dilution of the capital.

Apart from general tax adjustments to bring the buying of shares more into line with the buying of property or insurance—something upon which, I fully appreciate, as does the noble Viscount, it will be impossible for the Government to comment tonight: Governments may leak, but they do not, before the Budget, commit themselves in public—there are certain points which I think are very obvious. For one thing, there is the 12-month restriction on interest relief for those who borrow money to take up shares in employee-controlled companies. To my mind, there is no reason why this should be confined to 12 months; and in that I think I would be supported by the management of these employee buy-outs, which have been relatively successful.

The Government should certainly consider the example of France, which was dealt with so fully and so expertly that I need not go over it again. I believe this Question comes at a very auspicious time, in that we hope it will get through to the Government, at any rate before the Finance Bill, but I fully appreciate that the Government's answer tonight may be somewhat guarded. However, I wish to support very strongly what has been said by the last two speakers, which is that it is profoundly disappointing that the wealth of this country is more and more falling into the hands of institutions; that wealth is not being spread; that ownership is not being spread to any great significance, though there have been increases in employee buyouts and indeed in co-operatives; and that if the Government are sincere in their desire to see a wider and property-owning democracy, then it is really very necessary now that they should give financial advantages to those who are prepared to risk their money, at least equal to those which are available for other forms of investment.

8 p.m.

Lord Killearn

My Lords, first of all I should like to compliment and congratulate the noble Viscount, Lord Bridgeman, on his maiden speech, which I think we all agree is a most valuable and weighty contribution, and well in line with what those of us who knew his forebear might have come to expect. I hope that we shall hear from him on many future occasions.

Next, I feel that we should all be most grateful to the noble Lord, Lord Terrington, for introducing this debate this evening in your Lordships' House. It is a subject of the greatest importance to the well-being of this country—and all countries and their inhabitants—and for the proper and orderly development of the economies of countries both rich and poor, developed, developing, and underdeveloped. Having said that, I think I am going to pull the terms of the Motion about slightly.

One reason that I intervene in this debate at all, is that I was a member of the sub-committee of your Lordships' House which examined the Commission's memorandum to the council in 1979 (I think it was), and we reported thereon to your Lordships' House in July 1981. Here I think it will be fitting to underline what the noble Lord, Lord Terrington, said and pay a tribute to the late Lord Wolfenden, who was at that time our most distinguished chairman, and who guided our deliberations gently and yet purposefully.

As our inquiry progressed, it became clear to us there was a danger of several lines of thought getting slightly crossed. The whole subject of employee participation in all its forms was of course at that time right up our street. The sub-committee shortly afterwards considered various methods and degrees of sharing information, sharing interests, sharing initiative, between employers and employees. We considered undertakings large and small, and national and transnational, so we were spreading the net. We were looking at this whole subject from the rather negative angle of the minimum requirements of existing law in various countries, and perhaps what the Commission was trying to impose on us, of trade union thinking, and of the fifth draft Directive, and the Vredeling draft Directive—I can never quite distinguish the two. So that was the minimum way of looking at it.

The more positive way of looking at it was that we were trying to explore the best practices of the leading and most successful companies in the United Kingdom and elsewhere, and the methods developed by them naturally and spontaneously in order to harness and co-ordinate the total co-operation of all involved at all levels, to the benefit of all those same people.

We concluded that the various types of preferential shares in one's own company might be useful incentives for the higher échelon. This form of participation was, however, of limited importance in the total area of employee participation of common benefit, common interest and common endeavour. In fact, in certain cases we thought—at least I thought, anyway—that it might even be counterproductive, and held to be so both by trade unions and employees, if not by employers.

There are several reasons for this. One I think is bad, and two perhaps are good. The first one is that traditionally trade unions in this country, and I dare say in other countries, are rather opposed to too close a get-together between employers and employees. If they do not have a "them and us" syndrome, then of course there is nothing to talk about. This is very interestingly borne out in a book about the noble Lord, Lord Shinwell. It refers to the nationalisation of the coal industry in 1946. Three people—Will Lawther, Arthur Homer and Harry Pollitt—were invited to come on the National Coal Board (if that was its title then) and they all said, no, they would not do so because they would be falling down on their jobs as union representatives. Whether that is a good reason or not, I do not know; but it is a reason. It is there.

The second reason, which I think is perfectly logical, is that the average man in the average company would be well-advised by any financial adviser, any solicitor or any stockbroker not to put all his eggs in one basket. That is to say, he has his livelihood here; why should he put his savings here, too? It would be foolish.

The third one, which I think is equally logical, talking from the other side—again the union side, but from the other end—is that if you have a very good year and you get a very good bonus, you do not want to feel that the next year you are not going to get it, so you would much rather consolidate it in your wage packet than leave it as a bonus. So therefore there is not everything going for a completely common outlook.

As to the value of these employee participation schemes from the point of view of producing extra capital in the undertaking itself, again I have some doubts, as the aggregate permissible percentage of allotment of such participating shares is in almost all cases fairly limited, probably by the articles of association, if not by practice. This will apply however they are allocated, whether on a formula or by directors' say-so or whatever. They will never amount to a very large part of the undertaking. If they are bought in at market price, then effectively there is no increase to the company's capital. If they are issued from some special reserve of unissued shares held for a purpose, again the increase is likely to be fairly small.

So having said that, were our thoughts on the subject entirely negative? The answer is, no, they were not. If we consider the wording of today's Motion, we can for the present disregard the admittedly complicated problem of employee participation and we can agree on the following points. An increase in soundly invested industrial capital anywhere is a good thing. In general terms, the more widely held such a holding is, the better it is for the people concerned, for industrial wellbeing and for industrial expansion. We heard from the noble Lord, Lord Terrington, that the holding of shares is not very wide in this country as compared with America or elsewhere on the continent.

In terms of private industry, the population in this country, as we heard, puts investment in wealth-producing industry a very long way down as compared with holdings of property, chattels, government bonds, local government bonds, building societies, friendly societies, trustee banks—even local tontines. The industrial share comes a long way down. There is still, not perhaps in the South but in the North (or what I know of the North), the deeply-held feeling that if you save money that is thrift and is a virtue however, if you invest money in shares it is gambling, and therefore a sin. It is for that reason that organisations such as the Wider Share Ownership Council, Aids to Industry and also the Industrial Society—which I see is today celebrating its fiftieth anniversary and receiving a Royal Charter, which is a very good thing—are most valuable and should be positively and actively encouraged.

I was going to give a little spiel on the Loi Monory and the Loi Delors, but I think we have already heard exactly how it works. It works very well, and it is most valuable. In this country we have Section 47 of the Finance Act 1980, and Schedule 10 to that Act, which is supposed to go some way towards equating the Loi Monory and the Loi Delors, but I must confess that it is very hard to understand. I had never heard of it until tonight, and I looked it up before I came in here. So there is great scope for us to catch up with what the French are doing.

I come back to the terms of the Motion. I have some reservations as to how far anyone should be doubly at risk by investing his savings in his own company. I believe that a wider investment in industry by individuals throughout the country can only be for the benefit of the whole economy. It should be encouraged by the Government, not only by exhortation: there should be some more tangible and better advertised form of encouragement to everybody in the country to invest in industry.

8.12 p.m.

Lord Rochester

My Lords, I had not intended to speak at all in this discussion, but there is a particular point which has just come to my notice and I felt that I must place it before your Lordships in general, and the Government Front Bench in particular. The Industrial Participation Association—an organisation for which I have the greatest respect—recently carried out an attitude survey on profit-sharing and employee shareholding, which elicited responses from altogether 2,703 employees in 12 companies.

An analysis of those responses showed that, whereas in companies where employees have a choice between taking their bonus in cash or in shares 80 per cent. currently choose cash, the number choosing shares would probably double if the seven-year period before shares are free of potential income tax liability under the provisions of the Finance Act 1978 were reduced to five years. I appreciate that this is not a party political debate, but perhaps I may be forgiven if in passing I remind your Lordships that those provisions were in fact introduced as a result of pressure from the Liberal Party during the period of the Lib-Lab pact. The seven-year period was also shown to be the most disliked feature of schemes among employees who are shareholders, whether by choice or because they are in a scheme where all bonuses are distributed as shares. That was another finding of the survey to which I have referred.

I support very strongly the view of the Industrial Participation Association that if this particular seven-year provision could be modified in this year's Finance Bill it would provide a real stimulus to employee share schemes generally. Like the noble Lord, Lord Terrington, who introduced this Unstarred Question, I realise that, in response to the point that I have raised, the noble Lord, Lord Brabazon of Tara, will not be in a position to anticipate the provisions of the forthcoming Budget. I would, however, ask for his assurance that he will place the information that I have given the House before his right honourable friend the Chancellor of the Exchequer.

It is worth adding, perhaps, that in the survey that I have mentioned three-quarters of all respondents said that, as a result of the scheme operating in their company, they now take a greater interest in the financial performance and profitability of their firm. Of those who have become shareholders through profit-sharing, the majority said that they intend to retain their shares on a long-term basis.

It is also heartening to note that the management of all 12 companies involved in the survey said that, in the light of their experience, they would certainly now introduce a share scheme if their firm did not already have one. I believe that the achievement of a common awareness among management and other employees of the financial and economic factors affecting a company's performance might do more than anything else to improve this country's competitiveness. I am not sure, from what he has just said, whether the noble Lord, Lord Killearn, would altogether agree with me. But I do feel that wider share ownership is a valuable means to that end, and I therefore very much welcome the initiative which the noble Lord, Lord Terrington, has taken in asking this Unstarred Question.

8.17 p.m.

Lord Cullen of Ashbourne

My Lords, I should like to congratulate the noble Lord, Lord Terrington, both on his initiative in asking this Question today and also on the strength and the clarity of the case that he has put to your Lordships for the encouragement of wider share ownership.

Although I spent all my full-time working life (apart from the war years) in the City, mainly as a stockbroker, I retired nearly 10 years ago and therefore now have no personal interest to declare. When my noble friend Lord Brabazon comes to reply I hope that, even if he is somewhat constrained by the fact that the Budget is less than a month away, he will adhere to the oft-repeated Conservative aim of a property-owning democracy, and that he will encompass in the word "property" the ownership of shares quoted on the Stock Exchange and, as the noble Viscount, Lord Bridgeman, reminded us in his admirable maiden speech, on the unlisted securities market.

It is well known that the Government have made great strides in expanding the ownership of council houses. They have also done many other things, at first sight unrelated, to bring nearer the goal of a wider spread of ownership and wealth. They have improved upon the employee share ownership scheme introduced by a Labour Government during the period of the Lib-Lab pact, to which the noble Lord, Lord Rochester, referred and for which the credit must surely go to the Liberal Party. They have introduced tax relief for savings—related share option schemes; and since last April gains on options granted under approved schemes have been charged to capital gains tax rather than income tax.

Furthermore, the Government have removed or reduced many disincentives to personal shareholding. Stamp duty on share purchases has been halved to 1 per cent., and investment income surcharge has been abolished. The threshold of capital gains tax has been substantially raised, and the tax is payable only on real gains rather than gains which represent the inflationary rise in the money value of assets.

So much has been done to improve the conditions for personal shareholdings, and very welcome that is after many years when Labour Governments have gone out of their way to penalise personal shareholders. I refer to nationalisation, taxation at 98 per cent. of investment income, dividend limitation, capital gains tax on illusory inflationary gains, and so on. It does not seem surprising that the number of individual shareholders has declined in the way in which the noble Lord, Lord Terrington, has described.

What I hope will now happen is that further moves will be made by the Government in the direction in which they have been travelling, and I put forward some suggestions for consideration in regard to capital gains tax and stamp duty. It would be an enormous improvement if capital gains tax could be simplified. The present legislation is so complex that, though undoubtedly very welcome to sophisticated investors, it is really counter-productive in terms of encouraging wider share-ownership. I so agree with the Wider Share Ownership Council that there should be a new base rate of 5th April 1982 to coincide with the start date of indexation; and also that the original pooling and identification rules should be restored and the threshold raised to £6,500.

I now turn to the very important subject of stamp duty, to which the noble Viscount, Lord Bridgeman, referred. By far the best policy would be to eliminate this tax altogether. The noble Viscount, Lord Bridgeman, has explained the situation as regards Europe and also the complications about the American deposit receipts. As your Lordships will know, there are very many large British companies whose shares are quoted in New York in the form of American deposit receipts. By buying shares in these companies in New York, stamp duty can be completely sidestepped. There is no stamp duty in New York. Institutions take full advantage of this facility and there is nothing to stop individuals doing the same. There is a growing market in these ADRs, and I think that this is a red alert warning not to be ignored.

Incidentally, before I leave that point, it seems to me to be high time that we debated the present state of turmoil and uncertainty in our securities industry in the City. It seems that we are getting closer and closer to the time when American firms will have 100 per cent. ownership of British stockbrokers and stock jobbers, and there must be many people who wonder how far away is domination of London's security business by Wall Street. New York has long been jealous of London as the financial capital city of the world, and we must not lose that position.

Oddly enough, even in the last 48 hours a major firm of London stockbrokers has come to terms with an Arab banking consortium. I would ask my noble friend on the Front Bench whether the Government are content with what is happening. Personally, I find it extremely worrying. However, I digress, and I must return to the subject of the Question.

The noble Lord, Lord Terrington, and the noble Viscount, Lord Bridgeman, have pressed the Government to consider the introduction of a scheme along the lines of Loi Monory. Although my noble friend Lord Brabazon will hardly be able to give an indication of the Government's reaction this evening, I cannot see why he should not find such an idea compatible with Conservative philosophy. After all, the Government have proved their commitment to employee share-ownership schemes and to employee participation. These schemes have grown in number from 30 in 1979 to 788, and there are many more in the pipeline. This is splendid, but unfortunately such schemes attract the criticism of "all eggs in one basket", and are inappropriate for over 10 million employees. Recent estimates show that there are some 6,900,000 people employed in the public sector, 860,000 in foreign manufacturing enterprises in the United Kingdom, and 2,300,000 who are self-employed.

Splendid also is the very successful Business Expansion Scheme, introduced in 1983. During 1983–84 more than 10,000 investors put money into over 400 small companies, and over half of the £75 million raised went to young or very young start-up companies. This is an admirable scheme for helping to improve the economy of the country and to increase employment; but, as the noble Viscount, Lord Bridgeman, mentioned, the taxation incentives are designed to encourage rich people who can afford to speculate. It is, of course, limited to investment in unquoted companies.

Therefore, good as these employee share-ownership and business expansion schemes are, they leave over 10 million people out in the cold, and this is why we need an original Loi Monory-type scheme. The Wider Share Ownership Council strongly recommends that such a scheme should be instituted and that thereby individuals investing in United Kingdom equities should be able to claim income tax relief up to the amount permitted in employee share-ownership schemes, which is currently £5,000.

Finally, I turn to the report of the Select Committee on Asset Formation, to which many noble Lords have referred. It was a most interesting report despite the lack of evidence by the TUC; and I should like to add my tribute to the late Lord Wolfenden, who was chairman of that committee. However, why we have never had a debate on that report I do not know. It was many years ago, and I think it is extremely unfortunate that we have never before debated this matter. However, thanks to the noble Lord, Lord Terrington, the opinion of this committee has now been put to the House, and I sincerely hope that my noble friend Lord Brabazon will be able to give some indication that the Government will now give such a scheme the urgent attention that it deserves.

Lord Rochester

My Lords, before the noble Lord sits down, I am not sure whether I am permitted to say this but perhaps the House will allow me to put the record straight. I think I am right in saying that there was a debate on that particular report. If I remember correctly, I took part in it. I felt that I should say that. I hope that I am correct in putting the record straight.

Lord Cullen of Ashbourne

My Lords, I am very grateful to the noble Lord, and I shall certainly make it my business to read the debate.

8.29 p.m.

Lord Pender

My Lords, we are all grateful to my noble friend Lord Terrington for bringing this subject to the attention of your Lordships. The results of the most recent survey of the Central Statistical Office show a drop in the proportion of total value beneficially held by persons from 37.5 per cent. in 1975 to 28.2 per cent. in 1981. At the same time, there was a rise from 48 per cent. to 57.9 per cent. in the proportion held by financial companies and institutions. This erosion of the individual's share of the market has been going on for 20 years, and must be arrested. The reasons behind the percentage decline of the private investor are well known, and are partly explained by the ever-growing funds available to institutional investors from individuals. This trend, of course, emanates from the existing tax system.

There are, however, grounds for optimism that the benefits of wider share-ownership are now being better understood. Positive factors are the introduction of the business expansion scheme and the introduction and subsequent growth of profit-sharing schemes. Permission for stockbrokers to advertise must also assist the financial community to reach the public.

Additionally, privatisation has been a strong contributory factor in making known the opportunities for the private investor to participate in the industrial wealth of the nation. The recent British Telecom issue reached a whole new range of investors. Let us hope that they are here to stay! Finally, a small incentive for the private investor would be for the Government to abolish the 1 per cent. stamp duty. This is a hardy annual suggestion at this time of the year, but a positive act of encouragement to would-be investors.

8.31 p.m.

The Viscount of Falkland

My Lords, I should first of all like to express my appreciation to the noble Lord, Lord Terrington, for giving me a chance to speak on this Question as a fairly recent member of the Wider Share Ownership Council. There is nothing like having to speak on a subject to concentrate the mind. In preparing my speech I have been aware of my comparative lack of detailed knowledge of wider share owning schemes and so on. Therefore, if your Lordships will permit me, I shall get on to a rather more general basis.

In the meantime, I should like to congratulate the noble Viscount, Lord Bridgeman, on a fluent speech which I very much appreciated. I can see that he has a deal of expertise from where he sits. When there is some unity of purpose and some appreciation of the broader philosophical and social questions which have to be tackled in the whole area of the redistribution of wealth and so on, expertise like his and that of other noble Lords will be extremely useful.

This leads me to some of the areas touched upon by my noble friend Lord Grimond. Surely one must first have a look at the position of wealth owning in our country, and indeed wealth owning in other industrialised countries. It does not take very long before you realise that the wealth—and by the wealth of a country we mean roughly the same as in an individual case, the net difference between one's assets and one's liabilities—of particularly this country is concentrated in a very narrow area indeed. The concentration of assets these days is unhealthy because it encourages the concentration of income. When you get a concentration of income that leads you, in these days of increasing social awareness, to take steps to redistribute that income. That is where one gets into difficult areas such as increased taxation, and of course the growth of welfare and so on, and Government interference—indeed, many of the areas which the Government have shown clearly they would like to free.

I do not think that this is a party matter at all. It is a national matter. It requires a great deal of national debate on a wide scale encouraged by thinkers, economists, academics, and indeed the media. We need to look at the whole nature of wealth in this country, the whole history of wealth, and to see how we can tackle these inequalities with a view to improving the overall prosperity of our country.

In the noble Lord's Question there is an implication that the Government have not done enough. I think that the Government cannot really be blamed for that. From my own experience in a large commercial company, albeit a service industry, and having had some experience of the application of incentive schemes and the possibility of share ownership, it has been clear that nobody has really fully understood the aims and the purposes, or indeed why one should want to give people incentives, whether incentives work or others.

The result of this has been a rather half-hearted and watery attempt to implement something which is only half understood and is new, and with the normal reaction we have to innovation in this country steps have been fairly slow. I hope that in the near future, with our declining industrial base and the problems of growing unemployment, we can take a look at these wider problems, and, to follow on from what the noble Lord, Lord Terrington, said, take a look at other countries who appear to have made more progress in this regard. The noble Lord mentioned particularly the United States of America, where there has been a much more concerted and much more understanding approach to the whole area of wider share ownership and incentives of that kind than here.

It appears that in this country the motivation for the excellent attempts which have been made has been purely philanthropic. I can think of large concerns which have made considerable and valuable inroads into this area. I can think of ICI, the John Lewis Partnership, Kalamazoo, and the Scott Bader Company, All these companies—with probably the exception of ICI, which has gone a little further than others—have taken a rather idealistic and philanthropic view, whereas the Americans appear to have taken a more realistic view of the wider area of the redistribution of wealth and the benefits that that would bring—and this is the point—to society as a whole.

Here in this country there is a fear at both ends of the spectrum that any kind of move in this direction is going to be damaging to the interests concerned. At one extreme those people who enjoy ownership of wealth in this country—and I am careful here to distinguish between wealth and income—are naturally afraid that they will suffer as a result of the redistribution of that wealth; and I do not think that that would necessarily be so. At the other end of the spectrum, there has been a trend in socialist thought over the last 50 to 70 years that ownership of assets is intrinsically a bad thing. This has been the mainspring of a lot of extreme Left-wing thought, which I think is beginning to become unfashionable.

We can only hope that now these two polarisations will disappear, and we can all get together—that is, the owners of wealth and those who have traditionally earned income from the sale of their labours—to see how we can redistribute the wealth so that we can go apace into a new era. The new era is surely upon us.

I hope that I shall not be misunderstood by my colleagues on this, but unemployment is a touchy subject in this country, and it must be so. The effects of unemployment on individuals are terrible to behold. Maybe we ought to recognise that unemployment is definitely with us. Unemployment is not, as a trend, going to decrease. The unemployed will be part of our society, and we shall have to try to remove the stigma from being unemployed. We shall have to give the unemployed the means and the wherewithal to exploit their leisure and to be able to enjoy a high standard of living—a high standard of living which does not necessarily spring from our cultural work ethic (again I shall probably be unpopular with my colleagues), which is another area which we shall have closely to examine.

Unemployment is unlikely to decrease because present productivity depends not so much on the labour of people but, to be competitive, on the further use of machines. One can visualise that if we are to become more competitive and more productive, unemployment will increase rather than decrease.

There is clearly a whole area of thinking and debate which has to be tackled. In the light of perhaps a new direction of philosophical thought behind this, it may be that we can approach the whole business of wider share ownership in a new light which will enable people to view it without being afraid of their own interests and to take a practical and optimistic view of the future which will perhaps lead to quicker, more decisive and more helpful guidance by Governments—I stress "governments"—in the future.

8.43 p.m.

Lord McIntosh of Haringey

My Lords, I should like to begin by thanking the noble Lord, Lord Terrington, for his introduction to this debate and by extending my congratulations to the noble Viscount, Lord Bridgeman, on his extremely well-informed, expert and well-delivered speech.

I hope it will not be thought that anyone speaking from this Dispatch Box is out of sympathy with increased participation in British industry, commerce and services. Indeed, if your Lordships will permit me, I should like to quote Clause 4(4) of the Labour Party constitution, which is printed on the membership cards which we on these Benches all hold. It says: to secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the means of production, distribution and exchange, and the best obtainable system of popular administration and control of each industry or service". I appreciate that a number of noble Lords might have views different from ours about, the common ownership of the means of production, distribution and exchange". But there are a number of aspects of that extract from the Labour Party constitution which will find echoes in the breasts of noble Lords in all parts of the House.

We are talking, are we not, about popular administration and control of each industry and service. We are talking about the full fruits of the industry of our people, and about the most equitable distribution of those benefits. On that we might find common ground. The difference that we on this side of the House feel from the generally expressed views this evening is about the most effective means of achieving those objectives.

I too, declare an interest. A number of interests have been declared from noble Lords who earn their living in the City. My interest is that I was, until recently, an owner of British Aerospace, Cable and Wireless, Amersham International, the British National Oil Corporation, Associated British Ports, Enterprise Oil and British Telecom. My shareholding in those enterprises has been taken away from me, and I object strongly to my loss of shareholding.

I want to say more about privatisation because the noble Lord, Lord Pender, expressed the hope that the two million-odd people who invested in British Telecom would stay as shareholders in that enterprise. The evidence for the fulfilment of that hope is not encouraging. My noble friend Lord Ponsonby tells me that he was at a dinner in December last year of the Chartered Institute of Secretaries at the Guildhall. The Lord Mayor asked the assembled company how many of them had taken up shares in British Telecom. About half the people at that dinner put up their hands. He then asked how many had already disposed of their shareholding—this was within a few weeks of the flotation—and about half that number again put up their hands. My noble friend asked me to make it clear that he put up his hand on neither of those occasions.

Not just that anecdotal evidence but the statistical evidence that privatisation does not achieve a wider share ownership is clear. Let us take, for example, British Aerospace. On flotation in February 1981 British Aerospace had 157,829 shareholders, not including the 58,800 employees who took advantage of the 33 free shares—that was 30,000 of them—and the free shares plus the one-for-one offer which was made available, which was a further 28,000. By January 1982—that is, less than a year after the flotation—the number of shareholders had declined by 83 per cent., and by December 1983, which is the latest period for which I have figures, the number of shareholders, including the employees, had dropped from the original 216,000 to fewer than 50,000.

Are we talking about meaningful participation by the wider public in British Aerospace when I say that at 31st December 1983 95.52 per cent. of the accounts of shareholders in British Aerospace were held by individuals, but that only 6.25 per cent. of the shares were held by those making up that 95 per cent. of the shareholders? Is that in any sense meaningful participation in the fortunes, let alone in the management or administration of British Aerospace? By contrast, the banks, the nominee companies, the insurance companies and the pension funds, which accounted for only 3.95 per cent. of the accounts of shareholders, held 40.63 per cent. of the shares, bearing in mind that 48 per cent. of the shares are still retained by the Government. I suggest that that sort of wider share ownership, apart from the fact that it is shown to be very temporary after flotation, does not amount to a meaningful social, economic, political or industrial reform of our society.

I should like now to turn to what I consider to be special pleading from a number of noble Lords for more favourable taxation for investors in private industry. I remind noble Lords that the Government have set their face against reductions in the tax base. They are, for example, considering—I do not think there is any secret about this—extensions to value added tax. Such things as childrens shoes, newspapers and books and food, other than in restaurants, have been suggested as subjects for value added tax so that the tax base may be widened.

In those circumstances, if we are talking about tax concessions to particular individuals—that is what the abolition of stamp duty would mean and what the application of the Loi Monory or the Loi Delors would also mean—we have to ask ourselves: who would benefit from those concessions, and who would lose out? Somebody has to lose out unless the total amount of tax received is to be reduced by means of these devices. I would suggest that the people who would benefit would be a very small number of not-too-poverty-stricken individuals while those who would lose out would be the rest of the taxpayers in this country. I am strengthened in that belief by the determination of noble Lords who support this Government to see to it that the biggest tax concession of all—the one which a number of noble Lords, including the noble Lord, Lord Grimond, have referred to, the tax concession in favour of home buyers—shall remain intact.

If we are talking about a rationalisation of that kind of tax concession, surely the first for the chop ought to be at least the increase in the tax concession to home buyers which was granted by the Government within the last two years. A number of noble Lords from the Alliance have spoken about increased participation. It is part of an honourable tradition of the Liberal Party in particular that they should believe in co-operatives, that they should believe in participation in industry and in sharing in industry. I respect and honour that tradition. I am disappointed, I must say, that they should feel it proper to support wide share ownership, except on the basis that it is a very poor alternative to the more broad-ranging, more socially desirable objectives which they have espoused over many years of political life. I must say that I think it is a going back from the Liberal tradition that we should have the welcome whch has been extended from the Alliance Benches to the Question and to the special pleading which has been given in support of the arguments for wider share ownership.

I return to the basic question. If we are to have, whether for employees or for the general public, wider participation in the management and profits of our industry and commerce, how are we to ensure that that participation will be meaningful? I suggest that the evidence for individual participation in shares as a way to achieving that goal is not particularly encouraging, and I suggest that the Government would be well advised to resist pleas for further tax concessions of the sort which has been suggested.

8.54 p.m.

Lord Brabazon of Tara

My Lords, I am most grateful to the noble Lord, Lord Terrington, for bringing the subject of wider share ownership to the attention of the House, and to all noble Lords who have made contributions to this interesting debate. I should like also to add my congratulations to my noble friend Lord Bridgeman for his excellent and well-informed maiden speech. I hope that we shall be hearing a lot more from him. I think we have the subject for him when the Financial Services White Paper is debated and we look forward to hearing from him again. I should also like to express the Government's tribute to the work of the Wider Share Ownership Council over the years in promoting the wider share ownership cause.

It is a cause that has the Government's full support. The private ownership of property carries with it a direct interest in both the economic performance of our industries and the social cohesion of the nation. The Government hope that the extension of private property ownership will enhance and emphasise the responsibility of the individual for both his own welfare and the welfare of his fellow citizens. It is part of the process of shifting power and responsibility from the state to the individual and, as such, is fundamental to the Government's basic philosophical approach to the job of government.

Home ownership to promote social cohesion has been one facet of this policy. The right given to council tenants to buy their own homes has resulted since 1979 in three-quarters of a million having done so. The halving of stamp duty and increases in the exempt threshold have reduced the costs of home purchase. The results have been dramatic. The proportion of home owners in England and Wales has increased from 57 per cent. in 1979 to 63 per cent. today.

Just as a wider spread of home ownership develops social responsibility, a wider spread of share ownership develops a community of interest in economic matters. Employees should have a stake in the business employing them, and ordinary individuals should be able to own part of the wealth generating activities of the economy. Employees with shares in companies employing them have a direct and immediate financial interest in company performance. Part of their savings is tied up in the company and part of their income depends on the profits made by the company. This brings into sharp focus the mutual interest of employees and employers. Mutual interest has always existed. The problem is that it is not always recognised. Profits are a dirty word to some people, concerned only to squeeze them and maximise wages at the expense of the long-term competitiveness of the business. Some managements have also seen the workforce as wage slaves interested only in the pay packet at the end of the week and have managed without any regard to the contribution that the workforce can make to the development of the enterprise.

This confrontational attitude of "them and us" is as short-sighted as it is damaging. No company can pay decent wages or provide secure employment without earning decent profits. And no company can prosper without the co-operation of its employees. Employee shareholdings crystallise these truths. The workers are motivated to work hard. They know that profits from their efforts are not creamed off by the so-called "bosses" but benefit them directly. They see clearly and experience directly the benefits of co-operation.

So much for employee share ownership. A second strand of policy is to enable individual investors to place a proportion of their savings in shares. This can be through direct investment listed shares in the Stock Exchange, through participation in the Unlisted Securities Market as my noble friend mentioned, or through unit trusts. Investing through unit trusts is an easy way into the stock market for small investors who are perhaps initially put off by the vastness of the equity market. In time this reluctance may disappear and lead to more people taking the plunge into individual share ownership themselves.

The more people own shares, the more people there are with a direct interest in the efficient running of companies and the operation of free markets. International comparisons are instructive here. The noble Lord, Lord Terrington, mentioned the comparison with the United States. I will not go through the figures again. However, we hope that following the BT share issue—and we do not know (as the noble Lord, Lord McIntosh, pointed out) how many people have held on to their shares: the register will be published next month—the sale will have increased the proportion of UK adults holding shares to about 8 per cent.

Lord McIntosh of Haringey

My Lords, I wonder if I may interrupt on that very point. A question was asked in the House of Commons on 24th January this year about the number of shareholders in various privatised industries and the answer from the Financial Secretary to the Treasury referred only to the number of shareholders on the flotation. Is the noble Lord saying that the number of shareholders there are in privatised industries after flotation will become public in future?

Lord Brabazon of Tara

My Lords, perhaps I may explain the technicalities. Some two million applicants got shares in the BT share issue. Those shares are currently being traded in what are known as allotment letters whereby they do not go on the register. Next month, I think, they will become registered and therefore the register will be open for anybody to see who owns the shares.

Lord McIntosh of Haringey

My Lords, in that case, why did the Financial Secretary to the Treasury fail to answer the question in another place as to the number of shareholders after flotation and after registration had been completed?

Lord Brabazon of Tara

My Lords, I do not think the noble Lord has quite got my point. Registration has not yet been completed. We could go on arguing about this all evening, but the shares are still being traded in allotment letters at the moment and therefore they are not registered.

I have mentioned the recent United States experience because their recent economic success, including the creation of 10 million new jobs, has been partly due to the way American workers have adapted to the new technologies and changing economic circumstances of the 1980s. This greater adaptability and willingness to work is related to the greater personal commitment that the average American has to the market economy. There is less resistance to change and greater willingness to undertake new challenges because there is a greater perception of the relationship between effort and reward. We need to improve that perception in the United Kingdom.

So far, I have discussed the framework of Government policy. Noble Lords will legitimately ask what the Government have actually done. Action has been taken through the tax system, the privatisation programme and the promotion of institutional reform. I should like to say something about each in turn.

First, the tax system: at this point I should like to give credit to the Labour and Liberal Parties. Measures to promote employee shareholding through the tax system were brought forward in the 1978 Finance Act, as the noble Lord, Lord Rochester, mentioned. This was possibly the only benefit, some would say, that history will record as deriving from the Lib/Lab Pact. The encouragement was modest. The 1978 Act gave income tax relief for shares distributed to employees as part of an approved profit-sharing scheme, up to a yearly limit of£500. This Government have increased that limit to £1,250, or 10 per cent. of salary, subject to a ceiling of £5,000.

In 1980 my right honourable and learned friend Sir Geoffrey Howe introduced relief from income tax for employee share option schemes undertaken as part of savings plans. Up to £100 a month may now be invested in this way and the accumulated amount used to take up the options in five or seven years' time. The take-up of these options is also free from income tax.

The two schemes had to be open to all employees if they were to be approved and qualify for tax relief. In 1984 a new scheme enabling companies to grant key employees share options of up to four times annual salary or £100,000, whichever was the greater, was introduced. The options can be exercised between three and 10 years later, free of income tax. There has been some criticism of this scheme because companies may restrict participation to a small number of employees; but I do not accept the criticism. It provides an opportunity for certain key employees—for example, a brilliant scientist or technologist or an exceptionally capable manager—whose performance is crucial to the firm's success, to be rewarded. It gives firms the ability to attract, motivate and reward such key employees. Up to the end of January the Inland Revenue had approved nearly 900 schemes of all three types, involving an estimated 850,000 employees, and there were many more in the pipeline.

It has been pointed out that these incentives only help employees in companies with such schemes. What have the Government done to help the small investor who cannot take part in an employee share scheme to become directly involved in the wealth creation process? First, there is the Business Expansion Scheme, which has made investing in ordinary shares of unquoted companies a very inviting proposition. The Business Expansion Scheme provides generous tax reliefs which allow individuals to offset the cost of their investment against their highest marginal rate of tax. This can make the after-tax return on such investments very attractive, particularly for those paying the higher rates. It is important that we encourage risk-taking, and this scheme is helping to change attitudes by bringing together the investor and the less well-known smaller companies with good potential for growth. The Business Expansion Scheme benefits the unquoted company as well as the investor by making it easier to raise equity finance. It is important that small firms taking large risks should have a good proportion of equity funding if they are not to be weakened by an excessive interest burden.

My noble friend Lord Cullen has mentioned the results of the first year's operation of the scheme and it is hoped that many more investors will look closely at the opportunities which the scheme has opened up and that companies raising new finance should consider using these funds to ensure that they obtain the correct balance of types and sources of finance.

Noble Lords have pressed for the Business Expansion Scheme to be extended to quoted companies. Its purpose is to provide risk capital for start-up companies and those without easy access to the capital markets. It is targeted specifically at a sector which has experienced difficulty in the past in raising finance for new products and processes because of either high risk or unfamiliarity in the established markets. To widen the relief to quoted companies would mean siphoning money away from this sector, which needs special help, to more established companies. The Business Expansion Scheme is a chance for individuals to invest modest funds in small-scale risky ventures carrying with them the prospect of very high returns if the company succeeds. It is intended for venture capitalists, and the generous nature of the reliefs reflects this. It is not intended for everyday investment. Also in the tax area, general measures have been taken to encourage people to save, to put their savings into income yielding assets, to reduce the cost of direct investment, and to even out competition between institutional and direct savings mechanisms.

Stamp duty was mentioned by my noble friends Lord Cullen, Lord Bridgeman and Lord Pender, and here perhaps, if I may, I will quote from col. 367 of Hansard of the 15th December 1983, on the Second Reading of the Restrictive Trade Practices (Stock Exchange) Bill. It is worth reminding your Lordships that perhaps the biggest gainer on Stock Exchange dealings is the Chancellor. He takes 2 per cent. stamp duty, then he takes VAT on commission and, if one is lucky enough to make a profit, there is capital gains tax to pay on that. The removal of the 2 per cent. stamp duty would be a marvellous step and would prove that this Government are in favour of wider share ownership. My Lords, those are my own words in my maiden speech made at that time when I was sitting on the Back Benches. Now I am on the Front Bench and I have to be a little more cautious.

However, as has been said, stamp duty was halved in the last Budget and that has reduced the cost of stock market investment to the individual investor. As noble Lords have pointed out, we have also abolished the investment income surcharge, we have removed dividend controls and we have attempted to help on capital gains tax. I quite take the point that the system is complicated.

The noble Lord, Lord Terrington, asked what further steps the Government will take, so perhaps I should address this point for a moment. I cannot anticipate the Chancellor, even if I knew what he was going to say, which I can assure your Lordships that I do not.

First, compulsion is not the way. There are advocates of making employee share schemes compulsory or telling companies that they may only introduce key employee schemes under the 1984 Act if they also introduce all-employee share schemes. But the Government do not agree. Company circumstances vary and employee share ownership will not work successfully unless there is genuine desire for it.

Many noble Lords have mentioned the Loi Monory and its successor and have called upon the Government to introduce measures akin to those operating in France. The Government have considered this possibility seriously and there are some attractions. But I am afraid that there are also a number of disadvantages and these outweigh the advantages. First, creating a new category of privileged savings would carry with it the same difficulties that would be involved in extending the Business Expansion Scheme qualification to quoted companies. There would be a blunting of the incentives currently available for investment in small, unquoted companies—which have the greatest need for risk capital and the greatest problems getting it.

Secondly, if the take-up was worthwhile, it would cost a lot of money. If the limit was, say, £1,000 per year, the cost would be between £300 million and £400 million per year for every million taxpayers who invested. It would also add substantially to Inland Revenue staff numbers. Thirdly, and most important, introducing such a general relief would create a new class of privileged savings and be quite contrary to the Government's policy of reducing distortions in the tax system. Last year, the Investment Income Surcharge and Life Assurance Premium Relief were withdrawn to remove biases which discriminated against direct investment in shares. It would be rather perverse and against the general grain of policy to introduce a new fiscal distortion a year later.

Before leaving the Loi Monory, I should point out that while the French are more generous than we are with tax reliefs on investment in quoted companies, they are less generous on other investments. For example, the French system of relief against tax for mortgage interest is much narrower than ours. Relief is subject to a fairly low ceiling and lasts for only five years. This is perhaps why they are able to be more generous on equities.

While I cannot hold out promises of extra tax incentives, there are two other areas where much has already been done and more will be done to promote equity investment individuals. The first of these is the Government's promotion of reform in City and other financial institutions, which my noble friend Lord Cullen and the noble Lord, Lord Grimond, mentioned; and I understand my noble friend's concern. The City is currently undergoing a controlled but officially approved, even officially promoted, revolution. Fixed commissions are to go by the end of 1986. This—together with Government action halving stamp duty last year—will reduce the cost to individuals of investing in the stock market. Link-ups between banks, with their large branch networks, and stockbrokers with their expertise in shares are taking place. As these new financial service institutions develop, we can expect them to compete with each other to offer customers a wider range of services. This will doubtless include facilities to make direct purchases of shares in branches. A network of retail outlets for share dealing, which American financial service enterprises have offered for many years, will grow up and introduce the possibility of share ownership to people who have never previously considered it.

Building societies may also play a part in the widening of outlets for share purchases. The Green Paper on building societies published last year floated the idea of building societies being able to offer shares—on an agency basis. Due consideration will be given to this proposal when the Government prepare their legislation on building societies. The Government welcome the increased availability of mechanisms for individuals to deal in shares. They seek to promote these opportunities and give investors the confidence to participate in these new markets. The White Paper on financial services and the protection of investors aims to establish a regulatory system that will promote competition and innovation while providing appropriate safeguards.

I now turn to privatisation and the opportunities it has created for both employees and small investors. Since taking office the Government have privatised eight undertakings. We estimate that as a consequence the number of employee shareholders has increased by a third of a million and, taking British Telecom into account the number of small investors by over a million. In the public flotations the arrangements have typically included for employees an offer of free shares, free shares up to a ceiling for shares purchased by the employee under the matching offer arrangements, and special forms which give employees preference in the allocation of shares, in addition to the free and matching offers. Take-up has been high: 96 per cent. of BT employees received shares under these arrangements and 99 per cent. of Cable and Wireless and Amersham employees.

Special efforts have also been made to make the offers attractive to small investors. Prospectuses and application forms have been distributed widely. In tender offers, those applying for a small number of shares have been allowed to bid at the striking price. The allocation in fixed price offers has been weighted to small investors. In the BT case over 2 million people were allocated shares. Almost half the investors applied for 200 or 400 shares and had their applications met in full. The privatisation programme is continuing. Future sales will continue the successful practice of making special provision for employee and small investor shareholding.

I should like at this point to mention something which the noble Lord, Lord Grimond mentioned—the Finance Act 1983 regarding employee buy-outs. I take his point that the 12-month restriction should be removed, but I cannot of course comment on it at this moment. However, I should like to mention the case of the National Freight Consortium where there was a most successful management and employee buy-out. I am sure noble Lords will be pleased that for every £1 the employees invested those shares are now worth £8.60 through the efforts of the employees and the management to turn that company around from what was a pretty good disaster.

Noble Lords have made other points. I know that they do not expect me to answer them so close to the Budget and I am afraid that I obviously cannot do so. I should like to conclude on the question asked by the noble Lord, Lord Terrington. I cannot promise further steps in the taxation field. A great deal has been done already, but the Government are always open to new ideas. The noble Lord will appreciate that I cannot say more about this at the moment.

I can assure the House that in other fields the Government will be taking further steps. We will encourage the process of institutional change in the City and financial community by providing a regulatory framework to promote innovation and competition which will expand the opportunities for individuals to venture into the new markets and give them the confidence to do so. The privatisation programme, with its opportunities for employees and small investors, will continue.

We have had a most interesting debate. I hope that the noble Lord, Lord Terrington, has found at least some parts of my speech to his liking, and I congratulate him again on raising this important subject.

House adjourned at sixteen minutes past nine o'clock.