HL Deb 18 December 1989 vol 514 cc1-3

Lord Monson asked Her Majesty's Government:

Whether, in view of the fact that minimum commissions for dealing in stocks and shares have generally risen by between 100 and 614 per cent. since the Big Bang, compared with an inflation rate of only 19 per cent. over the same period, such high minimum commissions do not impede the effective functioning of the share-owning democracy which they are trying to foster.

The Minister of State, Department of Trade and Industry (Lord Trefgarne)

My Lords, I share the noble Lord's concern that commission rates should not discourage wider share ownership. I do not believe they do. Some firms' minimum commission charge remains £20 or less. The average commission rate paid by United Kingdom private clients has shown a consistent downward trend from at least 1980, falling from more than 1 per cent. then to 0.61 per cent. now.

Lord Monson

My Lords, I thank the noble Lord for that Answer and can only assume that he has not read the leading article in the Financial Times of 5th December which takes a very much less sanguine view of the situation. Does he agree that however beneficial the Big Bang has been for institutional shareholders, it has been a disaster for small shareholders? Secondly, does he agree that a society in which the investments of millions of small shareholders consist merely of £200 or £300 of shares in a couple of privatised industries, shares which cannot be sold profitably because commission absorbs more than 10 per cent. of the proceeds, cannot be considered a genuine shareowning democracy in the proper sense of that term?

Lord Trefgarne

My Lords, I am afraid that I do not agree with the noble Lord. The Big Bang, as he refers to it, has been of benefit to small investors too. They need to shop around to find the best deal. That is now made much more easy by the fact that the Stock Exchange publishes a free directory of member firms interested in private client business, giving details of their services, with in many cases commission rates. So shop around is the message to small investors.

Lord Renton

My Lords, is my noble friend aware that, in addition to their commissions and sometimes instead of their commissions, some stockbrokers make fixed charges and use the Financial Services Act as an excuse for doing so?

Lord Trefgarne

My Lords, any stockbroker who charges too much is likely to lose the business that he is seeking to attract.

Lord Peston

My Lords, I am as puzzled by the noble Lord's Answer as the noble Lord, Lord Monson. I was completely in favour of Big Bang but remember the great worry at the time that small shareholders would suffer. I should have thought that the evidence overwhelmingly shows that the small shareholder finds himself with large charges. Is the noble Lord quite certain in terms of what he knows of the subject that it is economic for small shareholders to buy shares at the present time? All the material that I have read suggests that it is expensive for the small shareholder to trade.

Lord Trefgarne

My Lords, I am not claiming that all stockbrokers reduce their charges to small investors. Some do, and they are therefore likely to attract much more of the business from small investors; and good luck to them. The number of small shareholders in this country has increased dramatically in recent times. Indeed following the water privatisation the other day the number is now something in excess of 10 million.

Lord Annan

My Lords, is it not a fact that the small investor often does better if he invests with a stockbroker not in the City of London but in the provinces?

Lord Trefgarne

My Lords, I think the noble Lord is quite right. There is undoubtedly a range of very competitive stockbroking services available outside the City of London, which I would commend to many small investors.

Lord Monson

My Lords, does the noble Lord agree that even the £20 minimum commission charge, which can be found occasionally although not very often, would absorb 8 per cent. of a £250 bargain or 10 per cent. of a £200 bargain? Many privatisation allocations fall within that category.

Lord Trefgarne

My Lords, the noble Lord's arithmetic is no doubt correct, but I am told that some minimum charges are less than the £20 to which he points.

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