Sitting of 20 November 1978

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
ORAL ANSWERS TO QUESTIONS
  ORAL ANSWERS TO QUESTIONS
  Mr. Speaker: I remind the House once again that this is Question Time, not debating time.
  PRICES AND CONSUMER PROTECTION

    Inflation
    Mr. David Priceasked the Secretary of State for Prices and Consumer Protection what has been the increase in the cost of living over the past 12 months as measured in the retail price index; and what estimated rate of increase over the next 12 months the Government are using for planning purposes.
    Mr. Rookerasked the Secretary of State for Prices and Consumer Protection what is the latest rate of inflation.
    Mr. Edwin Wainwrightasked the Secretary of State for Prices and Consumer Protection what is the latest calculated percentage rate of price inflation.
    Mr. Tim Smithasked the Secretary of State for Prices and Consumer Protection what is the year-on-year rate of inflation.
    The Secretary of State for Prices and Consumer Protection (Mr. Roy Hattersley): The retail price index has increased by 7·8 per cent. in the 12 months up to October; the annual rate of increase has therefore been in the range 7 to 8 per cent. for the past seven months. The Government's forecast of the rate of inflation over the coming year was published on 15th November in the Treasury's economic progress report.
    Mr. Price: I am surprised that the right hon. Gentleman does not answer my Question. Is he aware that the Treasury view was that the retail price index would rise by between 8 and 9 per cent. over the next year? If the Government are successful in keeping earnings down to 5 per cent., does the right hon. Gentleman agree with me that that will mean a reduction in the standard of living of the average British citizen in the next year? When will the Government be honest enough to admit to this in public?
    Mr. Hattersley: The hon. Gentleman should have done me the courtesy of reading the entire survey. The survey assumes that the 5 per cent. figure, which is certainly the Government's target, will be exceeded to a small degree. Were we able to keep overall settlements to 5 per cent. there would be a further reduction in the inflation rate, and that is what the survey says.
    Mr. Rooker: Will my right hon. Friend bear in mind that in this House the Conservative Party strongly opposed the strengthening of the Price Commission and that action can now come only from him? Will he ensure that the Price Commission is toughened up in the foreseeable future so that we put the fourth leg on the stool and take positive action on prices? My right hon. Friend knows as well as I do that our constituents will get no change out of the Tory Party on this subject.
    Mr. Hattersley: I have no immediate plans to change the powers or activities of the Price Commission. There a some areas in which its powers might be sharpened and made more effective. Were that to come about, it would have to happen as part of a wider initiative on wages and prices in general. At present I have no plans to change the role or powers of the commission.
    Mr. Smith: What effect will the increase in mortgage interest rates have on the retail price index? Why will the Government not accept at least part of the responsibility for this occurrence, bearing in mind the size of the public sector borrowing requirement?
    Mr. Hattersley: There is a Question on this subject later on the Order Paper. The hon. Gentleman must take responsibility for denying the right of his hon.

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    Friend to ask it. The simple statistical answer to the hon. Gentleman's supplementary question is a figure of 0.4 per cent. over six or seven months. I do not know how the hon. Gentleman has the gall, if that is the correct parliamentary expression, to talk about the PSBR, when he compares the success of the Labour Government in holding down that requirement with the utter failure of the Conservative Government to do so.
    Mr. Litterick: Is my right hon. Friend aware of the astronomic price of EEC grain compared to world prices? Will he undertake to take some action with the EEC authorities to see that the British housewife is able to take advantage of the current low price of world grain, rather than allow the Euro-fanatical press to blame the low wages of British bakery workers for the high price of bread?
    Mr. Hattersley: My hon. Friend should not think of one European price in isolation. There is no doubt that over the range of food prices the EEC's common agricultural policy is now making a small contribution to increases in prices. None of us welcomes that. There are other ways in which the EEC is helping us. These matters have to be balanced one against another.
    Sir William Elliott: Will the Secretary of State take account of the fact that small and medium-sized businesses—particularly the latter—are having to bear in mind in their planning much higher wage awards than 5 per cent.? Will he give some estimate of what he thinks this will do to the retail price index in due course?
    Mr. Hattersley: We have made no secret of our belief that a series of pay increases in excess of those described in the White Paper published in July would increase the rate of inflation. Because of that conclusion we are fighting hard, as part of our overall inflation strategy, to keep planned wage increases at or about that figure. I hope that the hon. Gentleman and the companies to which he refers will, unlike the leadership of the Opposition, join in supporting the Government in that endeavour.

    Price Commission
    Mr. Dykesasked the Secretary of State for Prices and Consumer Protection when he next expects to have an official
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    meeting with the chairman of the Price Commission.
    Mr. Hattersley: The chairman of the Price Commission and I meet frequently. No firm date has been set for our next meeting.
    Mr. Dykes: When the Secretary of State next meets the chairman of the Price Commission, will he discuss with him whether it is right for the Price Commission to do a lot of rather esoteric market surveys —at the taxpayers' expense, of course—such as the recent one on Royal Doulton fine china? Is this an essential ingredient in its examination of the retail price index?
    Mr. Hattersley: I think that the hon. Gentleman does not understand the role of the Price Commission or the Bill against which he voted so assiduously for 36 hours last year. The Price Commission's task, as I hope to reveal in a later answer, is to prevent unjustifiable price increases. That requires the Price Commission to make specific investigations. That is what it did in the case to which the hon. Gentleman refers, and that is its proper statutory role.
    Dr. McDonald: Will my right hon. Friend reconsider his previous answer and, when he next meets the chairman of the Price Commission, tell him that he will remove the profit safeguard clause from the Price Commission Act 1977, which enables many large companies, such as Allied Breweries, Tate and Lyle, and Lever Brothers, to obtain the whole of the price increase for which they ask? Would not this undoubtedly strengthen the hand of the chairman of the Price Commission?
    Mr. Hattersley: I have never made any secret of my reservations about the safeguard clauses, which were inserted originally, while the Price Commission ran for its first year or so, to convince industry that neither the Act nor the commission was likely to work in a way which was to its detriment. But removing the safeguards, or changing them after a year, or one and a half years, would involve some penalties in terms of industrial confidence. I think that they could be removed or altered only as part of a wider initiative about prices and wages. It would be very difficult to alter them in isolation, undesirable though they are in many ways.
    Mr. Marten: The Minister has just mentioned unjustifiable price increases. When the Government have been considering the rate support grant, what level of settlement have they calculated for the local government employees, and what effect would that have had on the rates?
    Mr. Hattersley: A specific question about the rate support grant must be addressed to my right hon. Friend the Secretary of State for the Environment, but I have already made clear—and so have the Chancellor of the Exchequer and the Prime Minister—that our planning figure is the one published on 15th November. That is the planning figure that we use for local authorities, as for everything else.
    Mr. Gwilym Roberts: Does my right hon. Friend accept what has been said, that if we are to have any vestige of a wage policy we must have tighter price controls? Will he discuss with his Cabinet colleagues the need for public sector price increases to be contained within the guideline increases?
    Mr. Hattersley: I hope that my hon. Friend does not diminish—indeed, I know that he does not—the success in terms of price stability that the nationalised industries have already achieved. Most of them have managed to postpone price increases for 12 months or more, and all of them have kept their increases to the minimum. But there are two ways of looking at nationalised industry prices. One is the way followed by the previous Government, which was to subsidise prices out of taxation, with all the economic disadvantage that that caused. The other is to keep down the increase to a minimum consistent with the effective operation of the industry. We follow the second route, and I am sure that it is a proper route to follow.
    Mr. Giles Shaw: Will the Secretary of State return to the original question about the Price Commission's investigation into Royal Doulton, which was raised by my hon. Friend the Member for Harrow, East (Mr. Dykes), and confirm that he does not believe that the activities of the Price Commission will seriously reduce the rate of inflation? If that is so, what is the point of the Price Commission investigating markets, such as fine china or tableware,
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    which have little bearing on the cost of living? What, indeed, is the point of a sectoral inquiry, as recommended? What will the right hon. Gentleman do about it?
    Mr. Hattersley: The point of inquiries of this sort is to provide an assurance to the British consumer that prices are not increasing unreasonably. There may be occasions when a price increase is unavoidable because costs go up. There are others—the Price Commission has found a good many in the last 18 months—where a price increase can be avoided, and where—[Interruption.] The hon. Member for Gloucester (Mrs. Oppenheim) is rather late in starting her interruptions this afternoon. Where the Price Commission suspects that that might be the case it is its duty to investigate. Clearly. I shall not stop it from doing so, but will encourage it to do so whenever it thinks it is necessary.

    National Association of Citizens Advice Bureaux
    Sir Anthony Meyerasked the Secretary of State for Prices and Consumer Protection whether he will continue to provide support to the National Association of Citizens Advice Bureaux for the next three years, and at what level.
    The Minister of State, Department of Prices and Consumer Protection (Mr. John Fraser): My Department expects to provide over £1·l25 million in the present financial year by way of support to the National Association of Citizens Advice Bureaux. We shall maintain our support at no less than this level until March 1981. The form of our support beyond that date will be dependent upon the outcome of a review of advice services generally, which will take particular account of any relevant findings of the Royal Commissions on Legal Services in England and Wales, and in Scotland.
    Sir A. Meyer: In view of the uncertainty and loss of morale being caused by the lack of any fixed ideas on what the subsidy will be after 1981, would it not be possible, even within the framework of this review, to give an assurance to citizens advice bureaux that their invaluable work will continue to receive help at the same real level as they are getting at present?
    Mr. Fraser: I think that it would be difficult to do that so far ahead. Giving an assurance for as far ahead as we have done is a departure from normal practice. I emphasise that the grant is to the National Association of Citizens Advice Bureaux, and I hope that local authorities will supplement the figure by grants at local level. I understand that the hon. Gentleman's own citizens advice bureau in Rhyl receives a grant of only £65 a year from the county council.
    Mr. Park: I recognise the excellent work done by citizens advice bureaux, but does my hon. Friend agree that they cannot adequately discharge the functions of consumer protection which were disbanded by the Tory council in the West Midlands?
    Mr. Fraser: I agree. That is why, at the same time as we announced this grant, we announced a grant over the same period of £3¾ million per annum for consumer advice centres.
    Mr. Montgomery: Will the Minister explain why it has taken so long to make the announcement that he has made today? There has been a great deal of uncertainty among people in the citizens advice bureaux who, as I am sure he will recognise, do tremendously valuable work for the community.
    Mr. Fraser: I think the hon. Gentleman will find that the announcement of this form of expenditure has been made rather in advance of other announcements about public expenditure. I hope that he welcomes that. I agree with him wholeheartedly about support for the CAB movement. I do not think that there has been any doubt whatsoever about the degree of my support for that movement in the time that I have been a Minister.
    Mr. Ioan Evans: Does my hon. Friend recognise that citizens advice bureaux appreciate the assistance which has been given by the Government? Will he resist the constant demands to cut public expenditure and accept that the public expenditure given to the citizens advice bureaux is welcomed? Will he agree that hon. Members, in dealing with constituency problems, know that many of them can be and are dealt with admirably by citizens advice bureaux?
    Mr. Fraser: I have often made it clear that I think that citizens advice bureaux are a best buy. We calculate that the value for money that local authorities get is about four times as much as they spend.

    Food Prices
    Mr. Adleyasked the Secretary of State for Prices and Consumer Protection what has been the percentage increase in food prices since February 1974.
    The Under-Secretary of State for Prices and Consumer Protection (Mr. Robert Maclennan): The food price index in mid-October had increased by 103·8 per cent. since February 1974. However, in the 12 months to October 1978 food prices rose by only 6·9 per cent. The level of the index has now remained virtually unchanged for the past five months.
    Mr. Adley: Reverting to that part of the Minister's answer which was relevant to the Question on the Order Paper, may I ask whether he has read in The Guardian this morning a column entitled "Checking Labour's record"? Apparently Labour Weekly produces, with great fanfares, compliments to the Labour Party about its manifesto commitments being carried out. Will he explain —I am sure that it is a mere oversight—why little things such as jobs, the cost of living and food prices are not even mentioned by Labour Weekly? Could it be that the only carrying out to be done will be of pensioners and people living on fixed incomes, feet first, if we have much more Labour government?
    Mr. Maclennan: I think that it was relevant to the hon. Member's Question to explain to him—and it sometimes takes time to explain these things to him—that the trend in food prices has been very encouraging in the past five months, and that indeed over a period of 12 months the increase in food prices in this country has been below that of France, the United States and Canada.
    Mr. Buchan: Is it not true that our present position within the EEC means that there is a fourfold engine of increase? First, we have lost control over our own price mechanism in relation to food. Secondly, there are the annual increases of the EEC. Thirdly, there is the removal of the transitional

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    cushioning that we have had. Fourthly, there are increases in food prices in the form of taxation, which we are now paying in greater and greater quantities to finance the EEC.
    Mr. Maclennan: My hon. Friend is right to emphasise that there are aspects of the common agricultural policy which the Government find wholly unacceptable and are seeking to renegotiate. No doubt he will take encouragement from the steps that were taken at the Bremen council in the summer, and which we hope will be followed up at the European Council in December, to give some substance to these proposals.

    Advertising and Promotion Campaigns
    Mr. Gwilym Robertsasked the Secretary of State for Prices and Consumer Protection if he will initiate a study into advertising and promotion campaigns directed at children; and if he will take steps to curb this form of advertising.
    Mr. Hattersley: My hon. Friend will be aware that I have asked the Advertising Association to consider the social implications of advertising—including advertising directed at particularly vulnerable groups like children. In addition, the Consumers' Association is studying sales promotion techniques and practices and giving particular attention to those directed at children.
    Mr. Roberts: Does my right hon. Friend accept that the present pre-Christmas television advertising campaign directed at children to pressurise their parents is in every way unacceptable? Does he agree that the attitude of the Independent Broadcasting Authority, which has refused to implement the Annan committee recommendation that advertisements in areas of interest to children should be broadcast after 9 p.m., is completely irresponsible?
    Mr. Hattersley: Advertising on television is a matter for my right hon. Friend the Home Secretary, but I strongly share my hon. Friend's views that advertising campaigns intended to encourage children to bring pressure to bear on their families, sometimes families that are not remotely near being able to afford what has been advertised, is a squalid operation. It is for that reason that I have asked the association and other interested
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    bodies to examine the matter very carefully.
    Mr. Adley: If the right hon. Gentleman is talking about squalid operations in advertising, does he think that the phrase "Back to work with Labour" used in 1974 was honest, fair, decent and true? If he were chairman of the Advertising Standards Authority, what would he say if the advertisement were referred to him?
    Mr. Hattersley: I have inquired as to what political advertisements have been referred to the authority. The only example was that of the Conservative Party pretending that an old lady was poor and destitute when she was neither.

    Ford Motor Company
    Mr. Ridleyasked the Secretary of State for Prices and Consumer Protection if he has asked the Price Commission to investigate prices charged by the Ford Motor Company.
    Mr. Hattersley: Under the Price Commission Act it is for the commission to determine which individual companies should be the subject of price investigations.
    Mr. Ridley: For once, does not the right hon. Gentleman think that it might be a good idea if the commission did investigate Ford? It might find that trying to stick to the Government's asinine policy has cost the company £400 million, which could be a justification for raising the prices of Ford motor cars.
    Mr. Hattersley: Whether the commission investigates a price increase by Ford, were one to come along, is a matter for it, just as the rather arcane principles of economics that the hon. Gentleman holds are a matter for him.
    Mr. Rooker: If and when the commission looks at the Ford. Motor Company, will my right hon. Friend ask it to take into account the company's very responsible attitude in producing vehicles in this country since 1975 to run on low-lead petrol? The fact remains that the Government have not taken action to provide the low-lead petrol that Ford motor cars made in this country could use.
    Mr. Hattersley: I know that my hon. Friend has a valuable point to make, as

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    he and I both represent Birmingham, where the problem arises. But he knows very well, having made his point, that it is not one for me.
    Mr. Michael Latham: If the Confederation of British Industry's counter-sanctions to the Government's black list work, and Vauxhall, Chrysler and British Leyland refuse to fill the gap left by sanctions on Ford, is it the right hon. Gentleman's intention to ask Toyota and Datsun to fill the gap?
    Mr. Hattersley: The hon. Gentleman asks me a question that includes at least three hypotheses, and on account of each I am entitled not to answer him. But I shall tell the hon. Gentleman that I do not believe that the CBI would be so irresponsible as to try to work against the Government's pay policy.
    Mr. Michael Latham: Why not?
    Mr. Hattersley: The Government's pay policy is in the interests of the economy as a whole. Despite some of the rather extreme things said at the CBI conference, if that is what it calls it, I believe that the leadership of the CBI will be a great deal more responsible than the hon. Gentleman gives it credit for.
    Mr. Ridley: On a point of order, Mr. Speaker. In view of the thoroughly irresponsible nature of the Secretary of State's answer, I give notice that I shall raise the matter on the Adjournment at the earliest possible opportunity.

    Pacemaker Machines
    Mr. Pavittasked the Secretary of State for Prices and Consumer Protection if he will refer the sole supplier of pacemaker machines to the National Health Service to the Monopolies and Mergers Commission, in view of the increase of cost by 100 per cent.
    Mr. John Fraser: I understand that the only United Kingdom manufacturer of pacemaker machines ceased production about a year ago, and that the National Health Service currently obtains pacemakers from 10 suppliers, all of them foreign. I am not aware that any of these suppliers has recently introduced price increases of the order of 100 per cent. Monopoly references are a matter for the Director General of Fair Trading, who would be willing to consider any
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    information made available to him by my hon. Friend.
    Mr. Pavitt: I readily respond, and shall let my hon. Friend have the necessary information. Is he aware that, while the NHS is one of the largest employers of labour in the country, and therefore its wages affect the cost of living, it is one of the largest purchasers of goods, and the suppliers seem to regard the NHS as the Government and think that they can milk it dry and charge excessive prices time after time? Therefore, will my hon. Friend take as much interest in the prices charged to the taxpayer for supplies to the NHS and nationalised industries as in prices to the private consumer?
    Mr. Fraser: Of course, the restraint of prices is important, whoever is the consumer. I must ask my hon. Friend to give me any information that he has about price profiteering, and I shall certainly consider that evidence very seriously.
    Mr. Hooley: While we are on the subject of the Monopolies and Mergers Commission, may I ask my hon. Friend whether he will consider referring to that body the attempt by commercial television to exercise a three-year monopoly on football?
    Mr. Speaker: The hon. Gentleman should put that Question on the Order Paper. This Question is about pacemakers.

    Prices
    Mr. Montgomeryasked the Secretary of State for Prices and Consumer Protection by how much retail prices have increased since February 1974.
    Mr. Knoxasked the Secretary of State for Prices and Consumer Protection what has been the cumulative rate of inflation since February 1974 to the latest available date in West Germany, Japan, France, the United States of America and the United Kingdom, respectively.
    Mr. Rostasked the Secretary of State for Prices and Consumer Protection in which month prices will have doubled since February 1974, assuming that his forecast of 7·9 per cent. inflation at the end of the year is correct.
    Mr. Hattersley: From February 1974 to the latest available date, price indices for West Germany, Japan, France, the United States of America and the United Kingdom have risen by 20·2 per cent., 47·3 per cent., 57·7 per cent., 40·9 per cent. and 97·7 per cent. respectively. The month to which the hon. Member for Derbyshire, South-East (Mr. Rost) refers will not, on the interpretation of the forecast which he has chosen, be reached this year.
    Mr. Dykes: On a point of order, Mr. Speaker. Is it possible for the Secretary of State to read out that answer more slowly so that we can take down all the figures?
    Mr. Montgomery: In view of the figure for the United Kingdom, has the Secretary of State any special plans ready for the day when it reaches 100 per cent? Is he aware that this is the worst record of any Government since statistics were first kept? Is not this a much more valid point than the fact that he keeps trotting out, that we have had inflation of less than 10 per cent. for the past year?
    Mr. Hattersley: When inflation was running at more than 10 per cent., the Opposition did not think that getting it down to single figures was unimportant. In those days I was told—I have all the quotations of the hon. Member for Gloucester (Mrs. Oppenheim)—that we would never do it and that if we did we would never stick to it. The figure of 7·8 per cent. has become unimportant only since this Government achieved it.
    As for the overall increase in inflation, what the hon. Gentleman must bear in mind is that four and a half years ago we had in this country a condition of inflation that had been induced, and knowingly induced, by a Government who had allowed the money supply and the public sector borrowing requirement to get totally out of control. That is why this country has an inflation record different from the inflation records of our competitors.
    Mr. Knox: Is it not a matter of great concern to the right hon. Gentleman that prices in Britain have gone up by four times as much as prices in West Germany and by about twice as much as prices in Japan, the United States and France since
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    this Government came to power? As adverse external factors have affected all these countries, why has the situation been so much worse in Britain?
    Mr. Hattersley: I explained it in answer to the previous supplementary question, but I shall gladly do it again. The simple fact is that those countries were fortunate enough not to have in 1973 and 1974 Governments who allowed the money supply and the public sector borrowing requirement to get out of control.
    Mr. Rost: If I now ask the right hon. Gentleman to explain why prices have doubled under Labour, may we please be spared the usual list of miserable excuses, blaming everybody else and everything else except the real cause, which is the failure of Socialist policies?
    Mr. Hattersley: I am astonished that the hon. Gentleman asks that question. The criticisms that I make are of the Conservative Government of 1973 and 1974. The faction of the hon. Gentleman's party that he claims to support is making exactly the same criticisms of the Conservative Government as I have made this afternoon.
    Mr. Gwilym Roberts: Does my right hon. Friend agree that what is as important as the level of inflation in different countries at a certain point in time is the rate at which inflation is changing in those countries? Measured in those terms, Britain's present position compares favourably with that in the great bulk of Western European countries.
    Mr. Hattersley: Our inflation rate is now appreciably lower than the overall inflation rate in countries belonging to the Organisation for Economic Co-operation and Development. The significant thing about that, to paraphrase my hon. Friend, is that the Opposition's reaction is not pleasure that the country is doing well but regret that they are doing so badly.
    Mrs. Sally Oppenheim: Is the right hon. Gentleman aware that consumers would not concur with him that this country is doing well? That is not what they find from their shopping baskets. When he trots out his moth-eaten alibis four and a half years after the Conservative Party was in power, and when he next boasts that the current rate of inflation is at or below that of our main competitors.

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    will he bear in mind that the annual average increase in inflation under this Government is not 8 per cent. but 16 per cent.? That is the level that matters to consumers and that is the level that he must compare with other countries during this period.
    Mr. Hattersley: The hon. Lady somewhat didactically refers to the appropriate figure for these matters. I think that her judgment on these matters will perhaps best be understood if I remind her that three months ago, when I told her that inflation would stay at or about 7·8 per cent., she described it as fraudulent, lying and a perversion of the truth. I think that puts her judgment in the proper perspective.
    Mr. Tebbit rose—
    Mrs. Sally Oppenheim: On a point of order, Mr. Speaker. Is it in order to ask the right hon. Gentleman to provide evidence of where I said this was a "lying" rate of inflation?
    Mr. Hattersley: Further to that point of order, Mr. Speaker. The reference is Hansard, 12th June, column 633.
    Mr. Speaker: Order. I could not have been in the Chair, or I would have asked for the word to be withdrawn.
    Mr. Tebbit: Will the Secretary of State tell us who was telling the truth in October 1974 when his predecessor the right hon. Member for Hertford and Stevenage (Mrs. Williams), in an election broadcast, expressed the view that there were no more price increases in the pipeline? Surely that suggested that no problem of inflation had been inherited from the previous Government at that time.
    Mr. Hattersley: I do not believe that that was the suggestion. [HON. MEMBERS: "Oh."] Had it been so, it would manifestly have been wrong on the evidence. The hon. Gentleman must say—though this afternoon will probably not provide him with the opportunity—whether the fiscal conduct of the Conservative Government between 1973 and 1974 is a record of which he is proud. It is to that to which I refer, and it is to that to which I shall continue to refer.

    Nationalised Industries (Consumer Protection)
    Mr. Ioan Evansasked the Secretary of State for Prices and Consumer Protection when he will introduce legislation to strengthen the consumer voice in relation to nationalised industries.
    Mr. Maclennan: My right hon. Friend hopes to do so early in the new year.
    Mr. Evans: I welcome my hon. Friend's answer and the commitment in the Queen's Speech. Will the strengthening of the consumer voice lead to a bringing together of the consultative committees? Does my hon. Friend agree that to have different consultative committees for the different energy industries does not meet the needs of consumers and that there could be one committee to cover the gas, electricity, coal and oil industries?
    Mr. Maclennan: That point was considered, but, as my hon. Friend will know, the Government intend to implement the provisions of the White Paper on the nationalised industries, which was published last March. We intend to set up, on a statutory basis, the electricity consumer council. That at least will give electricity consumers a voice at national level.
    Mr. Holland: Does the Minister's reply to the Question mean that whereas the general provision for consumer protection is adequate for the private sector his friends on the nationalised industries' boards are such rogues, vagabonds and con men that their customers need added individual and strengthened watchdogs.
    Mr. Maclennan: I do not think that the Government would ever take the view that the protection afforded to consumers by private sector industries could not be improved. The protection for consumers afforded by nationalised industries is a somewhat different matter. Most of these industries are monopolistic. Therefore, they require the external scrutiny provided by these bodies.
    Mr. John Ellis: Will the Minister strengthen the voice of the consumer in the nationalised industries in regard to independent television, because it appears that there is the danger of a monopoly

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    in the coverage of football? Will he tell his right hon. Friend the Member for Birmingham, Small Heath (Mr. Howell)—
    Mr. Speaker: Order. The hon. Gentleman is not entitled to ask Ministers to pass messages. He can ask him only about matters for which he is responsible.
    Mr. Ellis: Will my hon. Friend disavow the comment of my right hon. Friend the Member for Small Heath that it is acceptable that consumers should be cut down by 50 per cent. on their viewing of football?
    Mr. Maclennan: I do not wish to go into a textual criticism of what my hon. Friend said. However, I understand that the Director General of Fair Trading is making inquiries about this reported agreement in the context of restrictive trade practices legislation.
    Mr. Ridley: Is the Minister aware that the Government's creature—the Price Commission—has come to the conclusion that the best way to improve prices as well as the protection of the consumer is to increase competition? What plans has he for increasing competition in the public sector of industry, because that, by far, would be the greatest help that he could ever give to consumers?
    Mr. Maclennan: The Government's consideration of competition policy in general has been published in a Green Paper, which no doubt the hon. Gentleman has studied. on which we shall be glad to receive representations. But considerations affecting nationwide nationalised industries are somewhat different and it is appropriate to have external checks, which cannot be of the same kind as those provided by competition.

    Price Commission (Cost)
    Mr. Gowasked the Secretary of State for Prices and Consumer Protection what is the estimated cost of the Price Commission during the year ending 5th April 1979; and what proposals he has for reducing that cost.
    Mr. Hattersley: The 1978–79 estimate provision is approximately £7·3 million. Expenditure on the commission is kept to the minimum compatible with the need for it to discharge its functions efficiently.
    Mr. Gow: Bearing in mind that retail prices have more than doubled since this Administration came into office, is the Secretary of State satisfied that the Price Commission is worth £7·3 million a year? Is he aware that many Opposition Members believe that the public interest would best be served by the total abolition of the Price Commission?
    Mr. Hattersley: I am perfectly well aware of that. My answer to the question is: yes, I am satisfied that it is necessary and that it is doing a good job.
    Mr. Wigley: Is the Secretary of State satisfied with the mechanisms for monitoring the prices of overseas manufactures which may be dumped in the United Kingdom? Is he aware of reports today that Italian-manufactured washing machines may be threatening the expansion of companies in Wales and thereby losing jobs?
    Mr. Hattersley: That is not a matter for me.
    Mr. Madden: In considering these matters, will the Secretary of State arrange to have published a list of those occasions on which the Tory Opposition have either opposed or failed to support any legislation to control prices?
    Mr. Hattersley: The Conservative Opposition's record is well known. They opposed the Price Commission Bill. They have opposed every initiative that we have taken on this subject. Their entire role has been to complain on the basis of the selective use of figures. I believe that the opinion polls demonstrate that the public have rumbled them.
    Mrs. Sally Oppenheim: Is the right hon. Gentleman aware that the Price Commission's claim to have prevented about £121 million of price increases during its first year amounts to a reduction in the retail price index of about 0·1 per cent? If one deducts from that the millions of pounds that it has cost industry and the cost of the commission itself, that figure is probably 0·075 per cent. How can he claim that such a derisory figure is of any significance to consumers or that the whole paraphernalia of the Price Commission and the difficulties and uncertainties that are caused to industry warrant that kind of expenditure?
    Mr. Hattersley: The hon. Lady has confirmed what we all suspected on the Second Reading of the Price Commission Bill—that she does not understand the purpose of the Price Commission. The commission is intended to operate on a selective basis. Its role is to prevent unnecessary price increases, not to act as an across-the-board check. It has carried out that role with great distinction. I believe that it should go on, if necessary changing its powers by making them more effective rather than reducing them.

    Inflation (Price Control)
    Mr. Hugh Jenkinsasked the Secretary of State for Prices and Consumer Protection what is his estimate of the contribution of price control to the containment of inflation, as compared with that of income restraint.
    Mr. Gristasked the Secretary of State for Prices and Consumer Protection what effect on the retail price index the Price Commission's interventions have had over the past year.
    Mr. Hattersley: The main causes of the substantial improvement in the rate of inflation have been the moderate level of pay settlements and the Government's monetary and economic policies. The exercise of the Price Commission's powers results in a modification and postponement of many price rises and ensures that unjustifiable price increases are prevented.
    Mr. Jenkins: Does my right hon. Friend agree that in a mixed economy it is difficult to operate income restraint equitably? Will he therefore ignore the blandishments of the Opposition and place greater emphasis upon price restraint? Will he advise his right hon. Friend the Prime Minister—or, if he cannot do that, advise me and I will advise him—that if his three-legged stool is not to collapse it must be propped up by a further leg of price restraint?
    Mr. Hattersley: I understand the great attraction in calling for more price restraint, but those who ask for it rarely define the form in which it should come about. I am wholeheartedly opposed to an overall price freeze because I think that it would do a great deal of damage to industry and to employment. The
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    most effective form of prices policy is the selective one operated by the Price Commission. With the exception of the safeguard clauses, which cause some problems, we have a good prices policy which is being operated wisely and in a determined way.
    Mr. Grist: Does not the Secretary of State yet realise that the most effective control of prices lies in competition and that this affects prices more than any of the £7 million a year that the commission has been spending? As the right hon. Gentleman apparently begins to see, the actions of the Price Commission in putting up costs and putting down the profitability of private industry affect investment and, therefore, jobs. That is what results not just from a price freeze but from the actions of the Price Commission.
    Mr. Hattersley: I do not, of course, agree with the second part of the hon. Gentleman's supplementary question and there is no evidence to support what he has said. On his first point, the hon. Gentleman may have noticed that six months ago I issued a Green Paper outlining ways in which competition in British industry could be extended and made more effective. I hope that we shall have support for that Green Paper from the Conservative Party. We have not had any support yet. All we have had is criticism, particularly from the CBI.
    Mr. Whitehead: Does my right hon. Friend agree that the two-thirds or more of the people of this country who emphatically support the Government's counter-inflation policy believe that price restraint is easier to achieve if incomes are not dominated only by the casual brutalities of the market?
    Mr. Hattersley: Yes, Sir.
    Mr. Budgen: In view of the Secretary of State's earlier answer, when he attacked the previous Tory Administration, will he concede that he is now saying that the sole cause of inflation is an increase in the money supply and also concede that as a result of the 16 per cent. increase in M3 up to last April it is certain that inflation will be well into double figures by the end of next year?
    Mr. Hattersley: The convoy cannot always travel at the speed of the slowest

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    ship. I listed in a previous answer all the causes of inflation—not just that one—and I do not propose to list them again. I have already referred the House to the Treasury forecast for inflation next year and to the failure of amateur forecasters on the Conservative Benches. I have no reason to believe that we shall not have a successful year of counter-inflation policy in 1979.
    Mr. Kelley: Will my right hon. Friend consider issuing a White Paper setting out the efficacious methods that the Government could exercise to restrain prices in a free market economy, because that might go a long way towards getting acceptance of an incomes policy?
    Mr. Hattersley: I suspect that my hon. Friend is tempted by what I regard as the chimera of an overall prices freeze, which I do not believe would be in the interests of the economy or our policy for reducing the level of unemployment. The effective way for us to control prices—if control is the right word—in the sort of economy that we manage is, first, to run the right sort of economic policies, which we have been doing, and, secondly, to have a policy of selective restraint, which is organised by the Price Commission. That is what we must continue to do.
    Mr. Neubert: Will the Secretary of State now answer the Question asked by my hon. Friend the Member for Cardiff, North (Mr. Grist) and tell the House clearly and with absolute candour what effect in precise numerical terms the Price Commission's interventions have had on the retail price index in the past 12 months?
    Mr. Hattersley: It may be that the calculation of the hon. Member for Gloucester (Mrs. Oppenheim) was, for once, correct. That may be the figure. I have never made that calculaton.
    Mrs. Sally Oppenheim: Why not?
    Mr. Hattersley: Because it implies a role for the Price Commission that I have never assigned to it. The commission is not an agency for keeping the RPI down. It is an agency for preventing individual, unjustifiable price increases, and that is what it has done.

    Scottish Universal Investment Trust
    Mr. Canavanasked the Secretary of State for Prices and Consumer Protection whether he has had communication with the Monopolies and Mergers Commission since his referral to it of the proposed takeover of Scottish Universal Investment Trust by Lonrho Limited; and if he will make a statement.
    Mr. John Fraser: The conduct of a murder investigation—I mean a merger investigation—is a matter for the Monopolies and Mergers Commission and neither I nor my officials have had any communication with it about the substance of this investigation. I have, however, agreed to a request from the commission to extend until 11th February 1979 the time allowed for submitting its report.
    Mr. Canavan: Will my hon. Friend remind the Monopolies and Mergers Commission of the concern of the trade union movement in Scotland about the possibility of thousands of jobs being taken over and controlled by a huge multinational outfit such as Lonrho, headed by Tiny Rowland, a man whose sole aim is to maximise his own profits by exploiting workers—whether in Southern Africa or in Scotland?
    Mr. Fraser: It has long been a tradition that the Monopolies and Mergers Commission acts on an investigation pith independence and impartiality. I would be breaking that tradition if I made any reflection on the parties concerned. If parties have evidence to offer to the commission, I hope that they will do so directly. Obviously the commission will take them into account.
    Mr. Adley: Is the Minister aware that his use of the word "murder" was perhaps not so odd in relation to Lonrho as it might at first have appeared, because his right hon. Friend is doing his best to outdo the Foreign Secretary, who also has his knife into this company? When will the Government stop this mean and spiteful vendetta against someone who is merely trying to run his company properly?
    Mr. Fraser: There is probably no depth to which the hon. Gentleman is not capable of sinking. I made a slip

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    of the tongue. I preserve my absolute impartiality in this matter and make no reflection on the company in the context of this reference.

    Retail Prices
    Mr. Michael Spicerasked the Secretary of State for Prices and Consumer Protection what is his current forecast of the date on which the 12-month rate of increase in retail prices will rise above 10 per cent.
    Mr. Hattersley: There is no reason why the 12-month rate of increase in retail prices should return to double figures if pay settlements are consistent with the policy outlined in the White Paper "Winning the Battle Against Inflation".
    Mr. Spicer: If things should start to go wrong this winter—and there are fair signs that they might—may we assume that the Secretary of State will advise the Prime Minister to delay the General Election still further and, if so, will he be offering advice on which parliamentary groups to buy off this time and how?
    Mr. Hattersley: I am prepared to treat that supplementary question as if it were sensible and tell the hon. Gentleman that I do not believe that the forebodings implicit in it—forebodings for us, hopes for the hon. Gentleman—will come about. I believe that we shall have a sensible pay round and that the inflation rate will continue at or about the present level, give or take a percentage, for some months ahead. I say that without any doubt because of my belief in the common sense and public spiritedness of our trade unions.
    Mr. Pavitt: In my right hon. Friend's attempt to contain the increase in retail prices, will his Department have another look at recent changes in petrol prices? Is it not a nonsense that a motorist buying 10 gallons of petrol can get up to £1 difference in his change at various pumps? As we are supposed to have some influence with British Petroleum, can we not have a BP pool at a low price?
    Mr. Hattersley: I do not believe that petrol prices would be best held down by such a centralised scheme. The reason why petrol prices did not go up six months ago when it was feared that they
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    would, on the last occasion that it was threatened that discounts would be removed, was that the companies continued to compete against each other. I want to see a continuation of that competition and Conservative Members who regard that as a major revelation have either not read my Green Paper on competition or were not here when I referred to it four Questions ago.
    Mr. Michael Latham: How much more will prices go up because of the Government's failure to reach agreement with the TUC? If the answer is that they will not go up at all, why did the Government try to reach an agreement in the first place?
    Mr. Hattersley: I made a long speech on this subject on Saturday evening and I propose to punish the hon. Gentleman by sending him a copy. The short answer to his question is that I do not believe that there will be a significant difference in the level of wage settlements or in their effect on the RPI as a result of the TUC's eventual inability to subscribe to that document, but I believe that for the economic success of this country there needs to be a close working partnership between the TUC and the Government. The reason why I wanted that document to be endorsed by both parties was to give that close working relationship more form and detailed application.
    Mr. Heifer: I trust that my right hon. Friend will not send his speech to me as a punishment, because I have a feeling that I have read it before. Perhaps he would like to say a few words about the chairman of the TUC, who has argued that we ought to keep to the 5 per cent., whereas his union on the same day put in a claim for 25 per cent. Would that be a rapacious claim or a moderate claim? Is it not clear to my right hon. Friend, and to all his hon. Friends on the Front Bench that the 5 per cent. limit has now been broken and that we ought to get back to a sensible position of free collective bargaining, and at the same time—this I do accept—a recognition that the claims ought to be kept within reasonable bounds?
    Mr. Hattersley: That question is clearly not for me, but I would say one thing about it. The point that my hon. Friend makes demonstrates the consistency of

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    the attitude of the Post Office workers union. The point that has been made throughout is that, while many trade unions may want to initiate pay increases consistent with our inflation target, once one trade union begins to break the line it becomes almost impossible for others not to do the same. I think that the point that was made upstairs at a lunch last week is wholly consistent with all that that gentleman has said in the past.

    SMALL FIRMS (INNER CITY AREAS)
    Mr. Tilleyasked the Chancellor of the Duchy of Lancaster whether, in his study of the problems of small firms, he has come to any conclusions about the special problems of small firms, including producer co-operatives, which try to start up in inner city areas.
    Hon. Members: Where is the right hon. Gentleman?
    The Financial Secretary to the Treasury (Mr. Robert Sheldon)rose—
    Mr. Ridley: On a point of order, Mr. Speaker. Questions have been tabled to the Chancellor of the Duchy of Lancaster. May we be told why he is not here to answer them, because this situation is totally unacceptable?
    Mr. Speaker: I think that we are about to discover that.
    Mr. Sheldon: Perhaps it might help the House if I mention that the Chancellor of the Duchy of Lancaster was asked at short notice to lead a delegation to a conference being held in Madrid. He is speaking on the subject of London as an international finance centre and the services which the City has to offer. He will have an exchange of views at the conference with members of the Spanish Government, among others.
    I have been asked to reply to the Question.
    Mr. Ridley: Further to my point of order, Mr. Speaker. The Chancellor of the Duchy of Lancaster is, surely, responsible to this House, not to the Spanish Government. If he has an engagement to answer Questions in the House, should he not be here to do so? If the right hon. Gentleman were ill or indisposed, the House would be the first to forgive him.
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    But it is surely in contempt of the traditions of this House for the right hon. Gentleman to take on another engagement when he is scheduled to answer Questions in the House.
    Mr. Speaker: I usually take points of order at the end of Question Time. I really have nothing to say in reply to the hon. Gentleman, because I am not responsible for Ministers.
    Mr. Alan Clark: Further to that point of order, Mr. Speaker. Is the Chancellor of the Duchy of Lancaster representing the Government at Madrid? That was not made clear.
    Mr. Sheldon: Certainly. My right hon. Friend the Chancellor of the Duchy of Lancaster is doing what many of us consider to be a valuable task in asserting the role of our invisible exports, on which we are dependent. I should have thought that Conservative Members would be the first to realise the task which my right hon. Friend has taken upon himself, as well as his ability to undertake these tasks. Perhaps I may now reply to Question No. 40.
    Mr. Tebbit: Further to that point of order, Mr. Speaker.
    Mr. Speaker: Order. Question Time will be ruined. However, I call the hon. Member to raise his point of order.
    Mr. Tebbit: Surely if the Chancellor of the Duchy of Lancaster is not here Question Time is ruined. Would it not have been more tactful if he had sent the right hon. Member for Birkenhead (Mr. Dell), who appears to know a little bit more about banking? He could have represented the Government very well and the Chancellor of the Duchy of Lancaster could have remained here.
    Mr. Rost: Further to that point of order, Mr. Speaker. Surely this is even more unacceptable, bearing in mind that the Chancellor of the Duchy of Lancaster has been invited to answer Questions only once this Session before Christmas—and that is today. He normally appears only every five or six weeks under the ordinary timetable, and that probably gives him only four or five occasions throughout the whole of a Parliamentary year on which to answer Questions. Surely it is totally unacceptable that he should have accepted

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    an engagement in Spain on the one occasion when he ought to be here.
    Mr. Speaker: I have no doubt that the protests which have been made by hon. Members under the guise of points of order will he taken notice of.
    Mr. Marten: On a point of order, Mr. Speaker. In order to help things along, may we have an assurance from the Financial Secretary to the Treasury that when the Chancellor of the Duchy of Lancaster returns to this country he will come to the House and make an apology for his behaviour?
    Mr. Sheldon: I have been asked to reply to Question No. 40.
    The Government's Inner Urban Areas Act gives local authorities a range of new powers to help small and new businesses in inner city areas, and it contains specific provisions enabling local authorities to give grants and loans for the establishment of common ownership and co-operative enterprises. If my hon. Friend has any suggestions for further help in this area, my right hon. Friend the Chancellor of the Duchy of Lancaster will be happy to consider them.
    Mr. Tilley: I am grateful for that answer, but I am sorry that the Chancellor of the Duchy of Lancaster is concerned elsewhere with London as a centre of finance. I am concerned with London as a centre of employment. May I ask the Chancellor of the Duchy of Lancaster to press his colleagues in the Government —including the Financial Secretary to the Treasury—who share responsibility for small firms to ensure that a substantial proportion of the funds which are available for helping small firms are earmarked for workers' co-operatives, which experience has shown are particularly suited to the needs and conditions of inner city areas such as London? I hope that that message will be noted.
    Mr. Sheldon: I have no doubt that the tasks which can be undertaken by cooperatives in this area are very considerable. As my hon. Friend will know, because he had a part to play in it, the Co-operative Development Agency Act has some part to play in this matter and is able to offer some assistance. Under the Inner Urban Areas Act, specific help
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    for co-operatives can be made available by the district and county authorities which make use of this source of assistance.
    Mr. Richard Wainwright: Will the Minister convey to the Chancellor of the Duchy of Lancaster the feeling in some quarters that there is too much of a doll's house atmosphere about these proposals for the inner cities, in that the most dynamic business men are asking "What will happen when our small concerns grow big?" At the moment their big fear is that they will lose these concessions once they flourish and develop.
    Mr. Sheldon: I am happy to learn that the hon. Gentleman considers that the actions that we have taken will lead to small firms becoming large ones. Clearly, when such firms increase in size the assistance that they require is less. Our task is to help firms to start and to grow. Thereafter, the assistance which may be available to them will be provided in conjunction with the assistance which is made to industry generally.
    Mr. Pavitt: Will my right hon. Friend confirm that the Co-operative Development Agency has power to monitor and assist in the development of local schemes, which will help in this regard? Will he undertake to write to my hon. Friend, myself and other hon. Members who are interested to make quite clear the difference between the grant which he has mentioned and urban aid, because most of us are receiving applications under the two names?
    Mr. Sheldon: I shall certainly write to my hon. Friend. There are these two sources of finance and assistance and I hope that use will be made of both of them.
    Mr. Biffen: Is the right hon. Gentleman aware that we welcome the role that producer co-operatives can have in recreating the employment base for the inner city areas? In that context, will he join me in welcoming the private initiative which has led to the creation of job ownership, with access to private bank finance? Will he accept that the episode of the Kirkby Manufacturing and Engineering Workers' Co-operative, which was inspired by the zeal of the Secretary of State for Energy when he was at the Department of Industry, is

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    precisely the wrong way of setting about promoting industrial co-operatives and that that particular episode gives the idea a bad name?
    Mr. Sheldon: While offering my good wishes to the hon. Gentleman on his return to the Opposition Front Bench, I must say that he is not starting off in the best possible way. The Kirkby manufacturing enterprise hardly qualifies as a small firm. If the hon. Gentleman is to deal with the problems of small firms he will have to pinpoint the particular areas of his responsibility rather more closely than that.

    CHANCELLOR OF THE DUCHY OF LANCASTER
    Mr. Tim Rentonasked the Chancellor of the Duchy of Lancaster whether, as economic adviser to the Cabinet, he intends to visit other EEC capitals in the weeks immediately ahead.
    Mr. Robert Sheldon: I have been asked to reply.
    My right hon. Friend has no plans to do so at present, but he hopes that his colleagues will not find his advice any less acceptable on that account.
    Mr. Renton: Fortified by his visit to Madrid, what advice is the Chancellor of the Duchy giving to the Government about joining the European monetary system? Does he think that it would be to Britain's benefit to join from day1 and then argue as a participant about the technical details?
    Mr. Sheldon: The advice that my right hon. Friend is giving the Government is to the effect that as long as the European monetary system can be lasting and effective, and can promote stability and not be just a wider version of the snake, there are certain advantages. These are matters yet to be discussed, and I am sure that my right hon. Friend will play a prominent part in such discussions.
    Mr. Eldon Griffiths: When the Chancellor of the Duchy discusses these matters, will he reflect on the fact that on the last occasion when we were invited to join a great European enterprise and failed to do so we ended up joining later and paying a much higher price? Will he recognise that as the European train
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    leaves this particular station of monetary reform it must be wrong for the United Kingdom once again to be left behind, only to have to catch up later and pay very highly for the delay?
    Mr. Sheldon: It is important that the European monetary system, if and when it starts, should be seen to be successful and lasting. A great deal of damage could be clone if we do not have the right conditions for entry or for starting it. Our attention must be directed towards those points.

QUESTIONS TO MINISTERS
Mr. Eldon Griffiths: On a point of order, Mr. Speaker. It will be within the recollection of the House that the Secretary of State for Prices and Consumer Protection quoted to the House the Hansard record. I am raising this point of order because I believe that all Members will regard the integrity of the Hansard record as being of prime importance —as I am sure you do, too, Mr. Speaker.
The Secretary of State said that my hon. Friend the Member for Gloucester (Mrs. Oppenheim), speaking from the Front Bench, accused him of making "lying" predictions about the rate of inflation. I was very surprised that any occupant of the Chair would have allowed such a statement to be made in the House. Therefore, I obtained the relevant copy of Hansard and I found that what it said was rather different from what the Secretary of State averred.
My hon. Friend was not referring to the right hon. Gentleman or to his period in office. She said:
"Do they think that the people of this country have forgotten this Government's lies about the rate of inflation before the last election"—[Official Report, 12th June 1978; Vol. 951, c. 633.]
In short, she was referring to a period before this Government were formed and before the right hon. Gentleman occupied his present station. I do not ask him for one moment to agree with my hon. Friend —that would be too much—but I do ask him to correct the record of what he attributed to her this afternoon.
The Secretary of State for Prices and Consumer Protection (Mr. Roy Hattersley): Further to that point of order,

917
Mr. Speaker. I speak from memory but, of course, I looked up the quotation this morning. There is no doubt at all that included in the passage was a sentence which the hon. Member did not read out just now. That was the invitation from the hon. Lady to me to
"tell the truth for once."—[Official Report, 12th June, 1978; Vol. 951, c. 633.]
I do not know how that can be interpreted other than as a suggestion that on other occasions I lied.
Mr. Ginsburg: On a point of order, Mr. Speaker. Have you received a request from the Attorney-General to give a reply to Written Question No. 246 on the Order Paper, especially in view of public interest arising from the letter of the Director of Public Prosecutions to The Times on Saturday, dealing with immunity from prosecution for witnesses where the DPP indicated that the Attorney-General had handed over some of his statutory responsibilities to him?
Mr. Speaker: I have received no request from the Attorney-General to give an oral reply to that Question.
Mr. Gow: On a point of order, Mr. Speaker. I rise on the point of order which was raised earlier regarding the absence of the Chancellor of the Duchy of Lancaster. We might have understood if the Chancellor of the Duchy of Lancaster had been in a European capital today, because we are accustomed to Ministers being absent for that reason. Since he is in the capital of an applicant country, could we have a statement from the Financial Secretary to the Treasury as to the circumstances in which Ministers, particularly those who answer Questions very infrequently in the House, give priority to absences abroad? In this case, the absence with the Spanish Government has been given priority over and above the duty of the Chancellor of the Duchy of Lancaster to reply to Questions in this House.
Mr. Speaker: Order. I hope that the House will not pursue this point of order. There is no valid point of order for me in it. Which Ministry answers is not my responsibility. I will not take any further points of order about the absence of the
918
Minister today. Of course, there may be other points of order.
Mr. Pavitt: On a separate point of order, Mr. Speaker. Is it not a fact that in the recent courtesies of the House points of order are left until after the end of Question Time? Is that not your guidance to the House? Therefore, is it not an abuse of Back Benchers' time when time is taken from Questions by points of order which could have been taken at the end?
Several Hon. Members rose—
Mr. Speaker: Order. In this case the blame is mine. I should have asked the hon. Member who first raised the point of order to wait until after Question Time. Many hon. Members feel, on the spur of the moment, that they must rise to a point of order. I should have requested them to wait. I shall do so in future.
Mr. Buchan: On a point of order, Mr. Speaker. Will you give some guidance to assist us? Some of our Euro-fanatics seem to be describing countries such as Spain as "non-European".
Mr. Crouch: On another aspect of that other point of order, Mr. Speaker. I do not want to strain your patience, but I came to the House specially to hear the answer to Question No. 40. It is a pleasure always to welcome the Chancellor of the Duchy of Lancaster if only for 10 minutes once or twice a year. Could we in future be advised beforehand if a Cabinet Minister has to be absent, so that we can adjust our own attendance accordingly?
Mr. Speaker: I am sure that the hon. Member's words will have been noted.

AMBULANCE SERVICE (WEST MIDLANDS)
Mr. Rookerasked the Secretary of State for Social Services if he will make a statement on the breakdown of ambulance services in Birmingham and the West Midlands.
The Under-Secretary of State for Health and Social Security (Mr. Eric Deakins): I should like at the outset to allay understandable public concern by saying that, according to information we have received this morning from the West Midlands

919
regional ambulance service, an emergency ambulance service is being maintained throughout the West Midlands area. The dispute, which affects Birmingham, Coventry, Solihull, Sandwell, Dudley, Wolverhampton and Walsall, has, however, worsened over the weekend.
Normally there are about 200 ambulances available of which between 38 and 43 are on emergency standby. I understand that there are 52 vehicles on station today and that, as I have said, this is sufficient to maintain an emergency service.
No out-patients are being conveyed by ambulance but all 999 calls are being answered, although in some circumstances patients may be asked to make their own way to hospital. I also understand that the number of 999 calls this morning was considerably lower than usual because of the help being given by the police and the commendable restraint being shown by GPs and the general public.
Officers of the regional health authority are currently discussing with their counterparts in the area health authority ways of increasing the service to provide some facilities for out-patients.
This complex dispute centres on the issue of anomalies and bonuses payable following the transfer of the service from local authorities in 1974. Since that time, ambulance men on routine calls have refused to cross local authority boundaries. In the last few weeks the West Midlands men have stepped up their action by refusing to cross boundaries even on 999 calls, by refusing to use radios when on the road and finally, last Thursday, by refusing to refuel their ambulances. Instances were reported of ambulances running out of fuel while on the road.
On Friday, the regional administrator, following consultations with the chairman of the RHA, decided that the ambulance service could not continue under such conditions and he therefore required each man to give an undertaking to work normally or be suspended. By this morning, 400 men out of a total of 650 had been suspended.
I undertand that the ambulance men who have been suspended are to hold a mass meeting today. Hon. Members may be assured that we shall keep very closely in touch with the developing situation.
Mr. Rooker: I point out, without disrespect to my hon. Friend the Under-Secretary of State, that I asked this Question of my right hon. Friend the Secretary of State.
Will my hon. Friend tell us whether any consultation took place with the Department on Friday before these men were suspended? He has confirmed that discussion and consultation took place in the West Midlands. Will he confirm that normal working for these ambulance men means working as they did before April 1974, four and half years ago? Will he tell us why no action has been taken by any of the Ministers in the Department in four and a half years to get this matter solved? The answer that my hon. Friend has given today is not good enough.
Mr. Deakins: I answered my hon. Friend's Question, which was about emergency services. I hope that I did my best. I must make clear to my hon. Friend and the House—and I am getting tired of having to make it clear—that I am responsible for this aspect of industrial relations in the National Health Service. If my hon. Friend feels that I am not up to the job, fair enough—he can make his own representations. As long as I am responsible, however, I shall continue to come to the Dispatch Box and answer Questions for which I have ministerial responsibility. My right hon. Friend knows the contents of the answer.
My hon. Friend asked about consultation with the Department. We were notified on Friday of the intention of the regional health authority to undertake the action that it has taken. I remind my hon. Friend and the House that arrangements for the provision of ambulance services are the responsibility of the regional health authority and not of Ministers, who are in close touch, of course, with members of that authority.
This is a complex dispute. My hon. Friend is right in saying that it has been continued since 1974. It is not a dispute that will be easily resolved. I do not wish to take up the time of the House by giving a very long supplementary answer on the ins and outs of the dispute, but I think that the point could be well met in a Written Answer for the benefit of the hon. Members concerned.
Mr. Eyre: Is the hon. Gentleman aware that great credit is due to the police and the St. John Ambulance Brigade and Red Cross volunteers who are striving to deal with crisis cases? But does he realise that the dispute about pay anomalies has lasted for more than four years? It cannot be allowed to drag on, or there could be serious loss of life. Would it not help if the TUC intervened to try to bring some quicker solution to the problem?
Mr. Deakins: I appreciate what the hon. Gentleman has said about the services being given by voluntary organisations. We are much indebted to them for their efforts during this difficult period. I must make clear that this is not a national dispute. There is a Whitley Council agreement on incentive schemes for ambulance men, and ambulance authorities throughout the country are trying to ensure that ambulance men who have transfer conditions from local government under the Health Service reorganisation in 1974 are transferred on to the new incentive scheme. However, the dispute is about the fact that many of the men, particularly in the West Midlands, do not want to be transferred to the new incentive scheme until the anomalies to which I have referred have been brought out. That is what the dispute is about.
Several Hon. Members rose—
Mr. Speaker: Order. As far as I can see, every hon. Member who has got up, except those on the Front Benches, has a constituency interest. If the questions are brief, I hope to call them all.
Mr. Park: My hon. Friend has drawn attention pointedly to the fact that he is responsible for industrial relations in the Department. That being the case, although this matter is one for the regional health authority, would he not agree that in exercising his responsibility, and since I raised this matter some two years ago on an individual case, he might well have taken an initiative himself before now? Will he now consider taking such an initiative?
Mr. Deakins: My hon. Friend is right. This is a matter primarily for the West Midlands regional health authority and the regional ambulance service. My Department is now fully involved with discussions going on with officials of the
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authority, and I hope that we shall come to terms with them shortly about a means of solving this very difficult dispute.
Mr. Norman Fowler: Does the hon. Gentleman understand that his statement will not allay fears in the West Midlands? Does he further understand that in a constituency like mine the ambulance service is totally dependent now on volunteers and the police? Does he also understand that, even now, strenuous new efforts are being made to widen the dispute and that Mr. Adamson, of the National Union of Public Employees, has said this morning that the dispute is essentially about the right to take this kind of industrial action? Will the hon. Gentleman say, therefore, that it is not justifiable to take this kind of industrial action, which places at risk the lives of patients?
Mr. Deakins: My right hon. Friend the Secretary of State has already, on industrial disputes, deplored the taking of action which places people's lives at risk or in peril in any way, and I have nothing to add to what he has said. I agree with the hon. Gentleman's comments about the use of voluntary services, and I hope that we shall not be relying on them for very long.
Mr. Litterick: Would not my hon. Friend agree that this is virtually a re-run of the firemen's dispute, which was settled in a remarkably short time once the firemen had taken direct action? He has bravely taken responsibility for the conduct of industrial relations in the National Health Service. The fact that direct action has had to be taken after such a very long time in which this dispute has festered surely indicates very significant managerial incompetence in the conduct of industrial relations in the National Health Service.
Mr. Deakins: I think the fact is that this has been an intractable problem. I must correct my hon. Friend on one thing. This is not direct action. This has been indirect action, since the men, by taking their indirect action, were still at work and getting full pay.
Mr. Lawrence: Is the hon. Gentleman aware that the matters about which he has been speaking have not been the only things to cause anger to ambulance men

923
in the West Midlands over a long period? Is he aware that they are also angry at continually being treated as the poor relations of the emergency services in relation to pension rights, long-service awards and their liability to prosecution for traffic infringements? Will he also take those matters into consideration with a great deal more vigour than he has done hitherto?
Mr. Deakins: I am well aware of the points that the hon. Gentleman has made, but they are not pertinent to this dispute.
Mrs. Wise: My hon. Friend said in reply to my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) that he did not wish to take up the time of the House by reading a long supplementary answer. Is he aware that in the opinion of many of us that was tantamount to declining to give any facts about the situation to the House of Commons? Will he accept that the action which has been taken in suspending these men simply escalates the difficulty and does nothing to secure an ambulance service for our constituents? Will he accept the responsibility of resolving this difficulty or ensuring that it is resolved?
Mr. Deakins: My hon. Friend has asked for information, and she shall have it. I hope that she will pay note to what I have to say.
The transferred ambulance men—we are talking about people transferred from the local authorities to the health authorities in 1974—had certain protected rights to retain ex-local authority conditions of service. They also retained earnings from inherited working practices. This has led to different rates of pay for the same work. The ambulance men's Whitley Council agreed a national incentive scheme under which it was intended that a common level of bonus would be achieved to replace the differences in earnings. Pay policy prevented this until 1977.
Phase 3 of the Government's pay policy gave us the opportunity to make progress by implementing the Department's bonus scheme. Accordingly, we have been attempting to negotiate with the ambulance men's trade union since April 1978. The main union concerned is adamant that the buying out of
924
anomalies must be treated as a separate issue from the bonus scheme, on which it will negotiate only after the anomalies have been removed. The management's latest offer, in October of this year, was a generous interim payment, to be absorbed by the phased introduction of the Department's bonus scheme, commencing within six months. That was rejected by the men.
Mr. Budgen: After this strike is settled, may I ask the Minister to give careful consideration to the contracts of employment that are entered into with those who carry out essential services within the Health Service? Will he consider requiring all those who carry out those essential services within the Health Service to agree to a "no strike" clause being inserted in their contracts of employment?
Mr. Deakins: We already have sufficient trouble in the National Health Service without going into the suggestion contained in the latter part of the hon. Gentleman's supplementary question as an attempted solution to our problem. I take note of what he said in the first part of his supplementary question. Terms and conditions of employment are obviously something about which management must always be concerned.
Mr. Gwilym Roberts: Does not my hon. Friend accept that, however complex the issue may be, four years-plus is too long? Would he not agree that he seems to be taking a far too complacent attitude to the situation? Is he aware that today a meeting is taking place which could result in this dispute being spread to the whole of the West Midlands regional health authority? Is he further aware that there is a possibility of nationwide support action in a matter of days?
Mr. Deakins: I said that I understood there was to be a mass meeting today. I hope that the outcome of the meeting will be favourable. Even if it is not, my officials are closely in touch with the regional health authority. It is in the interests of all of us, not only hon. Members but the general public, that this dispute —it is a complex one—should be resolved as satisfactorily and as speedily as possible.
Mr. Stokes: Is the Minister aware that, in spite of the intricacies of the dispute,

925
the main responsibility of the Government and this House must be towards the patients? Is he satisfied that the ambulance services can be kept going? If they cannot be kept going, will he consider using the facilities of Her Majesty's Forces?
Mr. Deakins: I do not want to say anything on that point or to answer hypothetical questions. At the moment the emergency service, which is the important service, is being kept going and steps are being taken to see whether the out-patient service, which, as the hon. Gentleman will understand, is very sketchy at the moment, can be improved.
Dr. Vaughan: The Minister must be aware of the appalling damage that was done recently by the strike of maintenance supervisors working in the National Health Service. Is he aware that this strike which we are now discussing has similar features? Is he further aware that undoubtedly the care of patients will suffer? Can he assure the House that there is adequate local negotiating machinery? For instance, is he aware that, as of last night, there were no arrangements for any meeting between NUPE and the regional health authority? Will he see that local negotiations are started immediately?
Mr. Deakins: To answer the hon. Gentleman's latter point, the negotiations will obviously have to depend now on the outcome of the mass meeting this afternoon. Even if that proves to be unsuccessful—that is, if the men decide to convert the action into an official strike—the regional health authority will have to get together with representatives of the men—the regional officials—to resolve the dispute. There is adequate negotiating machinery on pay and conditions of service within the service. There is the Whitley Council machinery. The Whitley Council has provided for the possibility of a solution to this dispute, but so far it has not been a solution satisfactory to the men.

OFFICIAL SECRETS ACTS
Mr. Christopher Price: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and
926
important matter that should have urgent consideration, namely,
"the use by the Attorney-General of his discretion in allowing prosecutions in cases under the Official Secrets Acts in the light of the verdicts and sentences in the case of Regina v. Berry, Campbell and Aubrey, which was settled on Friday."
I do not think that there will be any dispute that this is an extremely important matter, because it goes to the roots of press freedom and freedom of information in Britain. It arises out of a case in which three individuals, among them two journalists, have been harassed for 20 months on charges under the Official Secrets Acts which the House now knows have resulted, in the case of the two journalists, in mere conditional discharges.
This issue goes directly to ministerial responsibility, which is one of the points you have to bear in mind, Mr. Speaker, in the sense that the Attorney-General's discretion was deliberately included in the Official Secrets Acts by Parliament as a safeguard to avoid abuse of those Acts when, from time to time, they were passed by this House. It is worth remembering that the Official Secrets Act 1911, under which these charges were laid, was said at the time it was passed to be intended solely to deal with cases of espionage.
In addition, the Attorney-General has made it clear, both by his words and by his actions in the recent Gouriet case concerning the Post Office, that he considers himself answerable in his discretion in no way to the courts of justice but to this House. Those were his words. The day after the case involving Mr. Gouriet, he came to the House and made a statement about the use of his discretion in that case. Since he has not done so today, there is a strong case for the House demanding that he should. It is essential for him to explain what his policy now is in authorising prosecutions under section 1 charges—which, it is worth remembering, were dropped in this case after the judge had declared them oppressive—and section 2 charges.
Another point which you have to consider, Mr. Speaker, in deciding this issue is the opportunity which the House might have of debating the matter in future. Like the Chancellor of the Duchy of Lancaster, the Attorney-General comes to the House to answer questions for only 10 minutes

927
every two months. He has only recently done so and, therefore, will not be due back until about Christmas time. It is essential that we have the chance to call him to account in this absolutely vital matter very quickly.
I come now to the issue of urgency, which I have to prove to secure a Standing Order No. 9 debate. At the moment, members of the public, journalists and everyone else have been relying on the statement of the Home Secretary as to the Government's policy on prosecutions under the Official Secrets Acts which was made on 22nd November 1976. Having said earlier that the Government no longer considered mere receipt of information to be an offence, the Home Secretary said:
"It was important that the statement should be made so that the Government's intentions might be taken into account."
That is the intention that receipt of information should cease to be illegal.
"Although the operation of the Act is a matter for my right hon. and learned Friend the Attorney-General, it will no doubt be open to the Attorney-General to take into account the Goverment's intention to introduce legislation on the lines I have indicated in considering whether to bring proceedings under section 2. For that reason alone, it was vital that a statement should be made."—[Official Report, 22nd November 1976; Vol. 919, c. 1882.]
Everyone in this House assumed that that meant that there would be no more prosecutions under section 2 of the Act for receiving information. In this case, after the section 1 charges were dropped, after being categorised by the judge as oppressive, the judge went on to say that the Attorney-General could start prosecutions and he could also stop prosecutions. In my submission, that was an open invitation by the judge for the Attorney-General to drop not only the section 1 charges but the section 2 charges also.
The urgency is that until the Attorney-General explains the position no one knows exactly where he stands. The Official Secrets Act is breached daily within and without the Palace of Westminster. If mere receipt of official information is once more to become a prosecuted offence, no one—not merely journalists—will know where he stands. The Attorney-General must combat the
928
accusation that there has been oppressive discrimination in prosecuting procedures, which is so far explicable only in terms of influence over those prosecutions by those in the security service who are not answerable to the House.
You have indicated before, Mr. Speaker—for example, after the Tame-side judgment—that the aftermath of an important judgment such as the one to which l have referred is a proper occasion for a Standing Order No. 9 debate. put it strongly to you, Mr. Speaker, that there can hardly be a more important issue for the House to consider than freedom of speech. This is pre-eminently a proper issue for a Standing Order No. 9 debate.
Mr. Speaker: The hon. Member for Lewisham, West (Mr. Price) gave me notice before 12 o'clock noon that he would seek leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he believes should have urgent consideration, namely,
"the use by the Attorney-General of his discretion in allowing prosecutions in cases under the Official Secrets Acts in the light of the verdicts and sentences in the case of Regina v. Berry, Campbell and Aubrey, which was settled on Friday."
I listened carefully to what the hon. Gentleman said, and I repeat to the House once more that I do not decide whether a matter is to be discussed. My discretion is limited solely to whether the matter is of such a character that it must be discussed this night or tomorrow night.
As the House knows, under Standing Order No. 9 I am directed to take account of the several factors set out in the Order but to give no reasons for my decision. I have to rule that the hon. Gentleman's submission does not fall within the provisions of the Standing Order, and, therefore, I cannot submit his application to the House.

WELSH AFFAIRS
Ordered,
That the matter of the Welsh Economy, being a matter relating exclusively to Wales, be referred to the Welsh Grand Committee for their consideration.—[Mr. Foot.]

ORDERS OF THE DAY

  COMPANIES BILL
  Order for Second Reading read.
  4.4 p.m.
  The Secretary of State for Trade (Mr. John Smith): I beg to move, That the Bill be now read a Second time.
  The Bill has two main purposes: to implement the EEC second directive on company law and to give effect to the proposals in the White Paper "The Conduct of Company Directors", Cmnd. 7073, published in November 1977. The Bill also revises the penalties and modes of trial for offences under the Companies Acts and provides new powers relating to the fees charged by the Registry of Business Names.
  In introducing the Bill, I draw particular attention to the fact that there have already been wide opportunities for public examination and comment on its proposals. In addition to the White Paper to which I have referred, my Department issued a detailed consultative document on the EEC second directive in July 1977, the comments on which were of considerable assistance in the drafting of the legislation. And, of course, the Bill itself was published in draft form as a White Paper "Changes in Company Law", Cmnd. 7291, in July this year. But I am conscious that the House has not considered any of these documents and that today we are holding our first substantial debate on company law reform since the 1976–77 Session of Parliament, during which the Companies Act 1976 was passed.
  Before turning to the detailed provisions of the Bill, therefore, it may be helpful if I remind the House of some of the factors which influence the development of company law and which have contributed to the proposals in the Bill.
  First, there is the continuing review of company law which my Departmenet undertakes. This work is aimed at identifying important areas where the law needs to be strengthened and draws heavily on recommendations for reform from inspectors' reports into company affairs, the outcome of court cases and representations by the legal and accountancy professions
  930
  among others. The proposals in the White Paper" "The Conduct of Company Directors" were the result of this continuing review, and the Green Paper" The Future of Company Reports" was another.
  Secondly, there is the European company law harmonisation programme. This has a special place of its own, in article 54(3)(g) of the Treaty of Rome, which provides that, as part of the general programme of abolishing restrictions on the freedom of establishment, the legal safeguards in member States for the protection of the interests of shareholders and others concerned with companies shall be co-ordinated.
  The EEC second directive has been followed by the adoption of two further directives during the past few months: the fourth directive, which deals with company accounts, and the third directive, which is concerned with mergers. There are a number of further draft company law directives in various stages of negotiation or preparation, and the cumulative impact of the EEC programme on United Kingdom company law is likely to be considerable.
  The effect of these EEC directives on company law in most other member States—for example, on disclosure and auditing—is likely, however, to be considerably greater than in the United Kingdom, and the whole process is best seen as one which is gradually co-ordinating and improving the legal framework of the wider home market for United Kingdom companies, which is what the European Community provides. The United Kingdom has contributed to this developing framework and, of course, also benefits from the experiences of other member States.
  The third source of influence on company law is, however, perhaps the most important. It is the impact of wider economic and social developments which affect, for example, public expectations about the extent to which companies, particularly large companies, disclose information about their activities, and the expectations of employees who wish to play a great and increasing part in the decisions which affect their working lives and the success of their company. A further example which I should mention is the questioning of the principle of self-regulation by such groups as the Stock Exchange

  931
  and accountants who audit company accounts.
  But such is the importance of company law, as the basic legal framework for the majority of our industrial and commercial institutions, that it is necessary to consider all these different and important pressures and proposals to ensure that balanced and sensible progress is made. This consideration is normally undertaken by my Department, assisted every 20 years or so by a specially appointed committee.
  I no longer believe that an occasional inquiry is a sensible way to proceed but feel that it is necessary to have an independent and public body to advise on the development of company law. Accordingly, I am proposing to set up a standing advisory committee of company law, on which not only the professions but industry, the City and the trade unions would be represented, to undertake a continuing review of company law and to provide me with advice on both general developments and specific proposals. Although many details remain to be settled, on which I propose to hold discussions with the interested parties, I would expect that its reports and recommendations would normally be published.
  As I have already mentioned, a large part of the Bill is concerned with the implementation of an EEC directive. Parts I, II and III of the Bill, together with clauses 67 to 69 and clauses 74 and 75, deal with second directive provisions.
  Before discussing these provisions, I should perhaps first explain to the House why it is necessary to bring forward a substantial Bill to deal with the implementation of an EEC directive rather than use the order-making procedure provided in section 2(2) of the European Communities Act.
  There are two main reasons why a Bill is necessary. First, the directive deals with public companies only and imposes important new obligations on public companies. But our Companies Acts at present define only a private company, which has to comply with the tests set out in section 28 of the Companies Act 1948, which means that public companies at present form a residual category, and many of them could not be expected to comply with the EEC directive. The Bill therefore reformulates the definition of public and private companies. This
  932
  is a major change which is not suitable for subordinate legislation.
  The second reason is that the directive itself contains a number of provisions which we consider are desirable on general grounds and should be applied to all companies. An example is the right of existing shareholders to have first refusal of new shares issued by their company, the so-called "pre-emption" rights dealt with in clauses 16 to 18. The second directive also requires us to lay down clear rules about the distributable profit of public companies. Legislation on the distributable profit of companies generally is overdue and we have decided to introduce appropriate provisions for private companies at the same time.
  Mr. Graham Page: Surely a third very good reason for bringing this before the House in a Bill is that if it were done by subordinate legislation right hon. and hon. Members would not have the opportunity to amend it in any way.
  Mr. Smith: I am always grateful to have even stronger arguments put forward for my propositions than I am able to adduce myself. The right hon. Gentleman is right. That is obviously the case. In any event, I do not think anyone would seriously question that such a major legislative change could be done in any other way than the way proposed by the Government. The right hon. Member for Crosby (Mr. Page) is himself a member of an advisory Committee on the procedure of the House. I say that with some experience of legislation over the past two Sessions.
  As part of the process of adapting our law to comply with the second directive, we have also thought it sensible to introduce a number of useful improvements into the law at the same time, which are closely related to but not essential for implementation of the directive. This, too would not have been possible under the order-making procedure for implementing EEC directives.
  I turn now to part I of the Bill, which provides for the new definitions of private and public companies, for machinery for registration and re-registration of companies and for certain transitional provisions necessary during the bringing into operation of the new classification of companies.

  933
  Clause 1 defines public and private companies. A public company will be one which has been registered or reregistered under the Bill as a public company, and private companies will be those which are not public companies. The essential features of a public company will in future be that its constitution must meet the requirements of clause 2 and schedule 1, that its name must end with the designation "public limited company", or "PLC "—"CCC" in Welsh—and that in order to register under clause 3 it must have an authorised capital of not less than the statutory minimum, which is set in clause 74 at £50,000. The current requirements that private companies must restrict the right to transfer their shares and limit the number of their members to 50, set out in section 28 of the Companies Act 1948, will be repealed. The remaining restriction in section 28—namely, that private companies may not offer their shares or debentures to the public—is regarded as essential and is being retained in a different form in clause 14 of the Bill.
  The new requirements which public companies will have to fulfil in order to comply with the second directive mean that there are a number of tests which private companies will have to meet in future in order to become public companies. These tests are set out in clauses 5 and 6, while clause 8 deals with the position of existing public companies.
  I said earlier that public companies at present were a residual category. There are currently about 16,000 public companies and more than 600,000 private companies. Only a minority of existing public companies offer their shares or debentures to the public. Most are public companies only because they do not meet one or other of the current tests for a private company—for example, there are many residents' associations, formed as companies, with more than 50 members, which means that they are now public companies. Perhaps up to half of our existing public companies will become private companies under the Bill, and clause 8 provides for this. Only those companies which wish to offer their shares or debentures to the public are likely to want to remain public companies, and it is estimated that the main provisions of the second directive will
  934
  apply to less than 1 per cent. of all companies on the register. More than 99 per cent. will be private companies when the transitional period provided in the Bill is complete.
  Before leaving part I, I should also draw the attention of the House to the provisions of clause 10, which provides safeguards for minorities where a public company decides to become a private company.
  Part II of the Bill is concerned mainly with implementing the requirements of the second directive relating to the share capital of public companies. These requirements may be summarised as follows. First, the directors may not issue shares or other securities without proper authority, renewed at regular intervals, from the company in general meeting. This is provided in clause 13. Secondly, a company issuing equity shares for cash must first offer them to existing equity shareholders. This pre-emption right may be varied only with the consent of the shareholders. Clauses 16 to 18 deal with this.
  Thirdly, there are strict rules on payment for shares, which may be allotted only in return for money or moneys' worth. Shares must be paid up as to at least 25 per cent. of their nominal value, together with the whole of any premium, before allotment. Non-cash consideration for shares may include goodwill and know-how, but not an undertaking to do work or perform services. As a further safeguard, where shares are issued in consideration for a non-cash asset, this must first be the subject of a report by an independent expert as to its value. Detailed provisions covering these matters are set out in clauses 19 to 30.
  The basic principles behind these requirements are sound and are not fully reflected in our present law. We have therefore decided that certain of these provisions should apply to all companies, private as well as public. In particular, we believe that the provisions in clause 13 requiring consent to the issue of shares and clauses 16 to 18 giving preemption rights to existing shareholders on the issue of new shares will provide greater protection for minority shareholders in private companies against discriminatory increases in share capital, and these clauses therefore also cover private companies. The more detailed rules

  935
  relating to the payment of shares are, however, required only in the context of the strict capital maintenance provisions for public companies which constitute one of the central features of the second directive and are not considered appropriate for private companies.
  This capital maintenance concept also lies behind the remaining clauses, 33 to 37, of part II. Most of these apply only to public companies, but clause 34, which prohibits a company from acquiring its own shares, applies to all companies and is the statutory expression of an existing common law rule.
  Part III of the Bill lays down new rules concerning the distribution of profits to the shareholders of a company. Reform of the law relating to dividend distributions is long overdue, and this part of the Bill covers private as well as public companies.
  The intention in clauses 38 to 43 is to carry out an extensive reform of the law relating to distributable profits, and the provisions therefore embody not only the requirements of the second directive but also the relevant provisions of the fourth directive on company accounts. Furthermore, it is hoped that it will be unnecessary to alter the clauses when current cost accounting is adopted.
  Profits which are available for distribution are first defined in clause 38 as the accumulated realised profits of a company, so far as these have not previously been utilised, less the accumulated realised losses, so far as these have not previously been written off.
  Mr. Terence Higgins: The right hon. Gentleman said that amendment would not be necessary if current cost accounting were adopted. Presumably, at some stage the two systems—the present historic cost convention and current cost accounting—would overlap. Is the right hon. Gentleman convinced that there would be no need for transitory provisions to cover that?
  Mr. Smith: I hesitate to say that I am convinced about it, but I am advised that the provisions as drafted take account of the change. He would be a rash man who said, even in advance of a Committee discussion of the matter, that he was convinced. That is my advice, but no doubt the matter can be traversed at a later stage.
  936
  I was referring to the definition in clause 38 of profits. No distinction is made between capital and revenue profits or losses. It should be noted that, for the purposes of this clause, unrealised profits or losses are disregarded in determining the amount available for distribution. A new rule in this clause is that unrealised profits may not be distributed. At present our law on this is confused: distribution of unrealised capital profits has been ruled by English courts to be permissible but by the more prudent Scots to be unlawful. The Jenkins committee, in its report in 1962, recommended that the law should be changed to prohibit the distribution of unrealised capital profits. This is clearly an overdue reform, which, although not directly required by the second directive, would in any case have to be introduced to comply with the provisions of the fourth directive.
  Public companies will have to meet an additional test before they can pay dividends out of distributable profits as defined in clause 38. The second directive requires that a public company may not pay a dividend unless the net assets of the company after payment of the dividend are at least equal to the capital of the company plus any reserves which are not available for distribution. This is the capital maintenance concept applied to the dividends of public companies, and the rule is embodied in clause 39.
  This rule is also a new one in our law, and its effect will be that public companies which have met unrealised losses will be able to pay a dividend only if they retain sufficient realised profits to cover their unrealised losses.
  To summarise the main new effects of these clauses, they will, first, provide a new definition of distributable profit which excludes unrealised profits; secondly, require all companies to make good past realised losses before distributions can be made; thirdly, require public companies to maintain their capital and reserves in paying dividends, by requiring them among other things to make good any unrealised losses.
  The second directive acknowledged that special rules were required for investment trust companies, whose distributions cannot be governed by the capital maintenance concept. These special rules are set out in clause 40, which also provides

  937
  for a new certification procedure for such companies.
  Clause 41 sets out the necessary provisions relating to the accounts of companies and the duties of auditors in connection with the new distribution rules set out in this part of the Bill. This clause has been completely revised to take account of criticism of the draft published in July.
  I now turn to part IV. It deals with a number of proposals put forward in the White Paper "The Conduct of Company Directors". Clauses 44 and 45 codify the existing common law duties of directors. The first clause deals with the fiduciary duty of directors and the second with the duties of care and skill. Neither clause is intended to introduce any major change in the law.
  The object of clause 44 is to express, as succinctly as possible in the statute, the rules relating to a director's fiduciary duty as they have been developed in a wide variety of court decisions over the past 100 years. A statutory statement of this kind was recommended by the Jenkins committee in 1962 and endorsed by the Bullock committee in 1977. Formulation of this clause has not been easy, and the draft published in July has been criticised on a number of counts. Clause 44 has been modified to take account of some of the criticisms, and others are still being considered. I would welcome further representations on it, and I expect that it will be closely examined in Committee.
  Mr. Richard Wainwright: Several times the Secretary of State has referred to the White Paper "The Conduct of Company Directors". Will he confirm that the Bill does not contain the recommendation in that White Paper that directors should be required to send copies of the annual report and accounts to all employees?
  Mr. Smith: We have sought to include most of the recommendations that are in the White Paper, but that particular provision has not been included.
  I was referring to the duties of directors. It is no longer acceptable that company law should require directors to act solely in the interests of shareholders. This
  938
  does not reflect the reality of business operations in the twentieth century—or, indeed, the practice of responsible boards of directors. It is common ground between the two major parties at least, and perhaps others, that the law should be amended to reflect these changes. The Government's proposals were set out 12 months ago in the White Paper "The Conduct of Company Directors", in which we stated:
  "The Government … believes that employees should be given legal recognition by company law. The statutory definition of the duty of directors will require directors to take into account the interests of employees as well as of shareholders".
  Provision to this effect was included in the draft clauses published in July. It seems appropriate that this provision should be seen as part of the general statement of directors' duties. We have, in consequence, included the clause in the present Bill in place of deferring it for future legislation on industrial democracy.
  The effect of this clause is to create a positive duty on directors: it is not merely permissive. One major consequence will be that in future directors will not be at risk, in actions brought by shareholders, simply because they have taken account of the interests of employees.
  Mr. Dafydd Wigley: I welcome the move that the Government are making on responsibility for employees, but is the right hon. Gentleman satisfied that the wording of the Bill is sufficiently clear for the distinction to be drawn and to be operable, particularly in the courts, should the matter go that far? Is the definition in this part of the Bill consistent with the Government's thinking about further legislation on industrial democracy?
  Mr. Smith: The hon. Gentleman's second point rather begs the question before we have put detailed proposals on the matter into legislative form. However, hon. Members will wish carefully to consider the wording in Committee. It is positive, but questions about what could be done in the courts would depend on the type of action raised and upon the situation in which it was raised. I am advised that there may be some difficulties over that, but this is perhaps a matter which could be given further thought in Committee.
  Mr. John Lee: I wish to follow up that point. Is this provision intended to give the workers a standing comparable with that of a shareholder in an action for relief of oppressed minorities? Will they have the same status vis-aá-vis directors? Will they be actionable in that way? I think that that is what the hon. Member for Caernarvon (Mr. Wigley) was seeking to deal with, and it is what concerns me.
  Mr. Smith: That is a proper matter to raise, but I hesitate to give a detailed answer to my hon. Friend without knowing the type of action that will be taken. It is an important point, however, and I hope that we shall return to it in Committee. It is not easy to argue on the detail of it at this stage.
  Before leaving part IV, I should also mention the important new provisions relating to loans to directors, in clauses 49 to 51 and 53 to 56. These provisions replace sections 190 and 197 of the Companies Act 1948, which have long been recognised to be inadequate. The Jenkins committee recommended a strengthening of section 190, and investigations following the recent secondary banking crisis revealed a number of cases where abuses had occurred. The inspectors in their report on the London and Counties Securities Group recommended that the "banking exemption" in section 190 should be abolished, subject perhaps to some small individual limit to avoid the need to prohibit minor loans to directors. The accountancy profession has repeatedly made strong representations to the Department on the need for tightening up on loans to directors.
  The principal features of clauses 49 to 51 are that they extend their existing prohibition on loans to directors to cover, in the case of public companies, loans to a director's immediate family and to companies in which the director or his family have a substantial interest. Breach of these new provisions is to be a criminal offence where the company concerned is a public company.
  These provisions are subject to certain exceptions. In particular, the present banking exemption is being retained. But the total of any loans made under this exemption to a director and those closely associated with him may not exceed
  940
  £50,000 and no such loans may be on specially favourable terms, unless the loan is made under a house-purchase assistance scheme available to employees of the company.
  These new restrictions are backed up by more detailed disclosure requirements, in clause 53, where loans have been made to directors, their families or associated companies.
  Mr. Tim Renton: What is proposed to be done about existing loans, should there be any, to bank directors and their families if they exceed £50,000? I believe that this point may be covered by clause 53, but I am darned if I can understand the clause.
  Mr. Smith: I am sure that we do not intend to cover that. The hon. Member may be referring to clause 53(6), on which we have received some representations about whether it would have a wider effect than the clause intends. I understand that it is not intended to affect existing loans, which is generally in line with the principles of the legislation passed by this House. My recollection is that we have already received representations on the matter, but we shall look most carefully at it.
  Mr. David Mitchell: Is it still permitted for a private company to lend to its directors?
  Mr. Smith: These provisions change only the law relating to public companies. The law governing private companies remains unchanged.
  The provisions in clauses 57 to 63 concerned with insider dealing have probably attracted more comment than much of the rest of the Bill put together, and I therefore make no apology for dealing with them at some length.
  The central proposition contained in these clauses is that insider dealing should be made a criminal offence. The Government believe that the case for such action has been clearly established, and I note that in its recent statement the Council for the Securities Industry, speaking for a wide range of financial and business interests, has firmly and clearly supported this. One can analyse the phenomenon to show that it represents a threat to public confidence in directors and others closely associated with companies,

  941
  that it is unfair to other shareholders and investors and that it is frequently a breach of the person's obligations to companies. But one can put it simply: insider dealing is wrong. Within the existing framework of self-regulation in this area it is forbidden under the rules of the Stock Exchange and the City Panel on Take-overs and Mergers, but those bodies agree that more is called for and that criminal sanctions should be introduced.
  One must recognise, however, that the distinction between reprehensible conduct and innocent and, indeed, useful activities is one which it is easier to recognise in practice than to embody in statutory language. I therefore wish to make plain that, while the Government are firmly committed to the introduction of criminal sanctions, they do not intend to make it impossible for legitimate or desirable activities to continue. I have in mind, for example, shareholdings by employees and directors in the companies for which they work, the more active role for institutional shareholders, the role of investment analysts and the role of financial journalists in disseminating information and evaluating companies' performance.
  These proposals will, when enacted, be the first statutory steps into a complex area, and they are intended to be on the cautious side, for I do not want them to do more harm than good. I believe that as they are expressed in the Bill, they represent a fair and reasonable balance between deterring wrongdoers and not discouraging those who are doing no wrong at all, but I recognise also that comment—which, of course, the Government themselves invited—has revealed some differences of opinion about the particular drafting of some parts of the clauses. I have no doubt that these will be closely scrutinised in Committee, and the Government will listen with care to the arguments which will doubtless then be presented. I believe that in this area the publication of draft clauses in July was particularly valuable, giving as it did a much greater opportunity for interested parties to consider such points than is usually possible with the normal compressed parliamentary timetable.
  Mr. Hugh Dykes: The right hon. Gentleman has given way a number of times, but I hope that he can
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  help us a little further. I believe that the whole House will welcome his assurance that there will be thorough discussion at later stages of the Bill, if it is given a Second Reading, but it would help us to know whether that is tantamount to an assurance that as much care will be exercised over any definition of the concept of "insider" as over the concept of "insider dealing" when the Bill goes through its later stages.
  Mr. Smith: I have no doubt that the concept of insider, which is defined, I believe, in clause 63, will receive attention. I understand that the United States takes the matter much wider and that an insider there is anyone who possesses inside information. That has not been the view which has received acceptance in this country, I believe, and certainly in the Bill our definition is much narrower. I have given a general assurance. I do not want to push that any further, because what I have been indicating is the approach which the Government will take both to the representations which they receive and to the comments which hon. Members will make in Committee if the Bill receives its Second Reading.
  I turn now to the clauses themselves. Different solutions are proposed for transactions on a recognised stock exchange and other non-market transactions. In market transactions, the way in which the Stock Exchange operates, with jobbers acting as principals and an often random matching of buying and selling, means that, however careful a buyer or seller is, he cannot protect himself from the risk that the shares come from an insider who is seeking to make an illicit profit. Because of this, it is necessary to introduce provisions which protect him.
  Clause 57 therefore makes it an offence for persons who know that they are connected with a company, as they are defined in clause 63, to deal on a recognised stock exchange in the shares of that company when they know that they possess information which is not generally available and is likely, if it were so available, materially to affect the price.
  The clause applies also where the person connected with company A deals in the shares of company B when the price-sensitive information relates to a transaction linking the companies. A clear example is, of course, a takeover. It is

  943
  also made an offence to procure others to deal or to pass the price-sensitive information to them knowing that they will then deal on the Stock Exchange.
  Subsection (5) of clause 57 contains parallel prohibitions for people who are not knowingly connected with the company, within the terms of clause 63, but who receive the information from someone who is—the so-called tippee provision.
  Defences are provided in subsection (6) for trustees in bankruptcy, receivers and liquidators, who are all under an obligation to realise the assets under their control, and for anyone who deals when he did not do so with a view to using the price-sensitive information to make a profit or avoid a loss. This is a provision whose importance should not be overlooked.
  Mr. A. P. Costain: Has the Secretary of State given any thought to those who probably have the greatest amount of inside information which may affect the price of a share, namely, trade unions and trade union officials? Does this mean that no trade union fund may any longer be invested in the Stock Exchange?
  Mr. Smith: I am pretty sure that it does not, and if it does it is certainly a curious accident. We do not intend any such change.
  Mr. David Mitchell: May we expect a trade union exemption amendment during the passage of the Bill through Committee?
  Mr. Smith: Perhaps it would be wiser if, instead of giving way to some of these interventions, I got on with the Bill.
  Clause 58 contains similar prohibitions for Crown servants who receive price-sensitive information in that capacity.
  Clause 59 deals with the other set of circumstances—that is to say, transactions not on a recognised stock exchange. In this case, there is no unavoidable bar to a person seeking to protect himself from the risk of dealing with an insider. He can ask whether he is dealing with an insider, just as he can ask for other information about the company or the other party. However, with the introduction of criminal sanctions in clause 57 on market transactions, I think it reason-
  944
  able to require that in private transactions a person connected with a company—for example, a director or a professional adviser with access to price-sensitive information—should not deal unless he has made sure that the other person knows of his connection with the company. That is what clause 59 does.
  Breach of clauses 57, 58 and 59 is made a criminal offence by clause 60, punishable by up to two years' imprisonment and an unlimited fine. However, prosecutions in England and Wales can be initiated only by me or by or with the consent of the Director of Public Prosecutions. Of course, in Scotland consent is given by the Lord Advocate. I think that with the introduction of new offences it is valuable and, I hope, reassuring to have such control, which will deal with any apprehension of ill-founded but none the less highly damaging private prosecutions.
  Clause 61 provides additional civil remedies where in a non-market transaction a person does not disclose his connection with the company. As there will be a direct contractual relationship between buyer and seller in this case, it is possible to provide such civil remedies for the other party. But in market transactions there is no such relationship, apart from with the jobber, and so civil remedies in favour of the other party are not appropriate.
  Clause 62 empowers me to appoint inspectors to investigate suspected cases of insider dealing in market transactions. These powers, which are a development of my existing powers under the Companies Acts, are, I well recognise, considerably greater than the usual powers of investigation of criminal offences, but they are, believe, justified by the need to provide an effective means of getting to the bottom of suspected cases of insider dealing. They will be as valuable in permitting people to clear themselves or their clients of suspicion as in narrowing the field of suspicion.
  Furthermore, the categories of people who can be required to give evidence on oath are strictly limited by the clause, and if they refuse to answer any question the matter has to be referred to the court, which decides whether they should be required to answer or not. This is a valuable and necessary safeguard of an individual's rights.

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  An investigation may be put in hand either because the Department of Trade has received prima facie evidence, probably from the public or companies, that insider dealing has taken place or because the Stock Exchange, in the course of its regular monitoring of market transactions, has detected signs of insider dealing and drawn these to the Department's attention. In both cases, the assistance of the Stock Exchange will be essential in providing information about share dealings in the period in question. My Department has discussed the investigation procedures with representatives of the Stock Exchange and has an assurance of their full cooperation.
  Mr. Ian Wrigglesworth: In the view of many of us, this highlights the difficulties of regulatory procedures being carried out by the Government and voluntary regulatory procedures being carried out by the Stock Exchange and the Council for the Securities Industry. Will my right hon. Friend consider having Department of Trade inspectors actually working in the Stock Exchange and working with the Council for the Securities Industry so that the relationship between his inspectors and his Department, on the one hand, and the Stock Exchange and Council for the Securities Industry, on the other, can be close enough to ensure that they are successful?
  Mr. Smith: I think that I can go so far as to say that there will be very close co-operation. Indeed, I think that that co-operation is essential. But I should like to look a little more carefully at the precise proposal which my hon. Friend makes, while readily recognising the need for such co-operation. Certainly, in my Department there will be no inhibition in that regard.
  Clause 63 defines the terms used in these clauses, including the list of persons connected with a company. In addition, references to recognised stock exchanges include investment exchanges—that is, the ARIEL system.
  Like all criminal law, whether involving murder, fraud or parking offences, these provisions will not stop all breaches of the law, nor will all wrongdoers be tracked down. For the vast majority of law-abiding people, however, they will clearly underline the central point—that
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  insider dealing is wrong—and act as a powerful deterrent to potential wrongdoers.
  The Bill does not, of course, attempt to deal with wider issues of securities market regulations. But progress has been made on the measures announced by my predecessor in October 1976 with a view to improving the present combination of statutory and self-regulatory control. The whole question of supervision is one of the issues now being considered by the committee to review the functioning of financial institutions chaired by my right hon. Friend the Member for Huyton (Sir H. Wilson).
  Part VI of the Bill, despite its unpromising title—"Miscellaneous and General"—contains a number of much-needed amendments to the law as well as certain essential provisions relating to the earlier parts of the Bill.
  Clause 64 reverses a court judgment which prevented former employees of a company, including pensioners, from receiving payments when the business was closed down. I am sure—indeed, I hope—that it will command wide support. The case was that of Parke v. The Daily News Limited, which most people thought ended unsatisfactorily. That is dealt with specifically in clause 64.
  Clause 65 is intended to improve the position of minority shareholders whose rights are not sufficiently protected by section 210 of the 1948 Act. Under the new provisions in the Bill, minority shareholders will have the right to seek a remedy where they consider that a single action is unfairly prejudicial to their interests, whereas the present section 210 applies only when there is a continuing course of action which is oppressive to the interests of the minority and would justify the winding up of the company. Both these reforms are overdue, as are the revision of penalties and modes of trial proposed in clause 70 and schedule 2.
  I should also mention briefly clause 66, which widens my power to prescribe by regulation fees to be paid to the registrar of business names. The clause makes two changes. First, it removes the existing limits to charge fees payable on the registration of statements of particulars, for inspecting documents filed by the registrar and for certificates and certified

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  copies of registered statements. The registration fee of £1 is the maximum provided by the Fees (Increase) Act 1923, while the inspection fee of 5p goes back to the principal Act of 1916. Both fees are unrealistic by present money values and are quite insufficient to meet the registry's costs of administration.
  The second change empowers the registrar to charge a fee for services not statutorily prescribed but which he provides as a service to users. Two years ago the Government announced their intention to repeal the Registration of Business Names Act as an economy measure. The proposal aroused considerable opposition and, responsive as ever to public opinion, we decided to retain the registry but to put it on a self-financing basis. This clause will enable us to do so.
  As clause 78 makes clear, the Bill in its present form does not affect the law in Northern Ireland, but it has always been the Government's intention that provisions similar to those contained in the Bill should also apply there. On this basis, interested parties in Northern Ireland were consulted at the same time as those in Great Britain about the proposed changes in the law. It was always envisaged that the Northern Ireland law on this subject would be enacted by an Order in Council under the Northern Ireland Act 1974. But we now propose to link that Order in Council firmly with this Bill. In the normal way, such an Order in Council needs an affirmative resolution from both Houses before it can be made.
  We intend, however, to table a new clause in Committee which would allow the Order in Council under the 1974 Act to be made subject to negative resolution procedure, provided that it contains only provisions corresponding to those in this Bill. This way of proceeding, which has been used before with the approval of hon. Members from Northern Ireland, has the advantage of allowing them to take part in the discussion of this Bill in the knowledge that its provisions, including, of course, any amendments that may be made to it, will in due course apply in Northern Ireland in the same way as they do in Great Britain.
  The Bill which I have just described, unfortunately at some length, is a substantial measure of company law reform.
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  I have no doubt that Members on both sides of the House may feel that there are further measures that might usefully be included. But there are limits to the amount that can reasonably he included in any Bill to amend company law. What we have put forward represents priority measures in relation to directors duties, insider dealing, the structure of public companies and the payment of dividends. We shall be bringing forward separately proposals relating to company accounts and disclosure of information in a consultative document early next year. Other measures of reform, including two-tier boards, will be in the industrial democracy legislation.
  Once the Bill is passed, there will be a number of major Companies Acts. It is our intention to proceed to a measure of consolidation to deal with this, with the assistance of those who are associated with them. I hope that the House feels that this is a useful measure of company law reform, and I hope that in that spirit the House will agree to give it a Second Reading.
  4.45 p.m.
  Mr. John Nott: We shall miss the intelligence, integrity and rather ponderous good will of the right hon. Member for Birkenhead (Mr. Dell). It was always a pleasure to hear him in our debates. In our last encounter in the House, when we debated trade just before the recess, I described the right hon. Member—and I meant to be complimentary —as being like a single blade of grass rooted rather insecurely in the slagheap of Socialism.
  Therefore, it came as no surprise to me, although it seemed to surprise the press, that the right hon. Member found his surroundings so depressing that he sought greener pastures in the City. We wish him every success in his new field of endeavour where he will be required to add to his talents some of the entrepreneurial and dealing skills of his new patron, Lord Kissin. If he does not show some entrepreneurial skill, I fear that he is faced with another kind of slagheap which is already littered with the empty hulks of several other Whitehall heroes who have moved to the City in recent years.
  We welcome the right hon. Member's successor, the right hon. Member for

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  Lanarkshire, North (Mr. Smith). He comes to his new post with a high parliamentary reputation. He is respected on both sides of the House. We did not all agree with the devolution legislation, but we all admired the way in which he steered it through the House.
  In spite of the provocation which we can expect from the right hon. Gentleman's two bored and frustrated Under-Secretaries of State, I see no reason why we should not keep this area of trade policy fairly unpartisan. We can gain some national benefit from keeping it a dull area of politics. Certainly, in that last respect, the Secretary of State has made a promising start. At least, he did not read out all the schedules. We can thank him for that.
  The Bill probably involves the most substantial change in company law since 1948. I was glad that the Secretary of State did not make that boast. Apart from the qualifications that I wish to express about the Bill, there is a great deal in it which we can welcome. However, it introduces a far more prescriptive and tightly administered system, which is more akin to Continental practice, than has been the tradition of British company law. For that reason, it will need the closest scrutiny in Committee.
  Because of the burden caused by the continual flow of new legislation, it would have been more convenient for the House and for thousands of companies and their advisers if we could have awaited the consultations surrounding the fourth directive, decisions about inflation accounting and new auditing procedures and the third and the seventh directives before wearying the world with the largely unnecessary second directive.
  However, I accept reluctantly that, as this Government seek to cling to office for another year, parliamentary time is available now and that there are a number of mainly Socialist arguments for codifying the conduct of directors. There are also a number of EEC arguments for concluding the second directive at this juncture.
  I share the concern of all good men-I shall not define what I mean by that phrase in this context—at the endless stream of EEC directives which faces this
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  House. The EEC Commission is to my mind—I speak solely for myself—an increasing bore, and a bureaucratic bore to boot. If Mr. Roy Jenkins and his chosen lieutenant, Mr. Tugendhat, think that we have too much harmonisation, I think that it would be a very good thing if they started to put the matter right immediately.
  However, if we are to remain in Europe, which of course I favour strongly, and even if we were outside the EEC, I believe that there are still the strongest grounds for the harmonisation of European corporate legislation. It is irritating when our practices, which are already soundly based, have to be changed in order to compromise with often less satisfactory Continental practice. But the benefits to the free movement of capital, goods and people across national frontiers and the operations of international companies —and hence the frustrating of the petty-minded, anti-libertarian insularity of the Left—make it all very worth while, albeit, somewhat tedious, that we should proceed with the harmonisation of company law.
  It is the intention of the Conservative Party, when we come to office, to build upon aspects of this Bill, and in particular to use the fourth directive as a means of introducing an altogether new and less burdensome regime for small, normally proprietary, companies.
  It will also fall to us to produce a consolidation measure in the 1980s—a matter which the Secretary of State rightly offered to think about for action in a few years' time. However, I do not think we shall be able to embark upon that consolidation measure—a measure which I favour—until we have behind us at least seven directives, new auditing procedures, cost accounting and one thing and another, which will be some time hence. In the meantime, we shall do our best to improve this Bill, and we shall try to do so constructively.
  Before I comment on a number of aspects of the Bill, I wish to mention a few random areas where the Bill might have gone further. Naturally, I welcome the fact that greater protection will be given in the Bill to minority shareholders who have been—and I quote from the Bill—" unfairly prejudiced ". But I am not sure that the drafting of the sections on minority shareholders is correct, or

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  that the Bill goes far enough. We need to give a prescriptive opportunity to shareholders to vote in general meeting when the directors seek to dispose of substantial assets without reference to the owners of those assets—namely, the shareholders. There was a recent example in the City when the directors of a large company sought to take such action. Eventually they changed their mind through institutional pressure, and I believe that was right.
  Surely, too, we must provide a statutory mechanism to enable an oppressed minority of shareholders in a private company to sell their shares. This would not be easy, but I believe that more could have been done, following the Jenkins recommendations, to help minority shareholders in this and other respects, I feel that the phraseology "unfairly prejudiced", which will no doubt create a fair amount of case law in future, will require to be examined in Committee.
  The law surrounding section 54 of the Companies Act 1948 is technical and unsatisfactory. Whereas it may provide some minimal protection against the so-called asset stripper, the section drafted penalises the entrepreneur who is without independent finance. What I regret about the second directive, with its provision for a fixed capital base for companies, is that it would have brought substantial economic benefit if companies were enabled to buy their own shares in this country, as they do in the United States. I believe that part III will make that very difficult, and I regret it. The ability to purchase the shares of the company could have provided considerable benefits to the entrepreneur in various ways, which I have no time to go into now.
  There is also urgent need for fundamental reform in bankruptcy, receivership and liquidatoin. The Cork committee—now working, I assume, from the Mansion House—is not proceeding at a very great pace. I understand that this vital area of the law, which is crucial for the settlement of many of the industrial problems in this country, is not due to report until early 1980. If that is the case, I should like to have seen a number of changes in the laws of bankruptcy and liquidation. For example, I see no reason why the Crown should always emerge as a preferential creditor.
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  There are aspects of the Bill that worry me from the point of view of further powers being given to Department of Trade inspectors. There needs to be a change in the manner in which such inspectors conduct such investigations. There has been something slightly unpleasant and rather un-British about a number of recent reports. I am not criticising any particular report, but the role of an inspector is to produce a factual report, not a political or social tract. Senior accountants, barristers and solicitors live in a particular—some, though not I, might say peculiar—world of their own. I think that they are often inappropriate persons to make ex post facto judgments on the actions of entrepreneurs.
  I look forward—and I mean this somewhat in jest—to appointing Mr. "Tiny" Rowland as a Department of Trade inspector to examine the affairs of the Law Society, the Bar Council and the Institute of Chartered Accountants. if the learned professions, in their winged collars, are to hand down strictures on the entrepreneur —normally justified, and I make no judgment about the merits of the case—might it not also be interesting to ask an entrepreneur—I have chosen Mr. "Tiny" Rowland—to examine the restrictive practices of the learned professions and to report accordingly? The hon. Member for Birmingham, Handsworth (Mr. Lee) may have views on this.
  Mr. Lee: Surely the hon. Gentleman is taking the argument in the wrong direction. Is not one problem that now faces Department of Trade inspectors the fact that they are inhibited from commenting because of the laws of defamation—laws from which they should be wholly exempt? The present law does not give them the protection which they should enjoy.
  Mr. Nott: Even the hon. Gentleman, with his known and rather peculiar political views, surely must feel that some of the Department of Trade inspectors reports recently, if they have not defamed anybody's character, have certainly done people's reputations enormous harm. I think that that would be the view of many people. I am not entirely happy about the way in which these inspections are now being conducted.
  I wish now to deal with the most publicised and difficult section of the Bill.

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  I refer to the provisions relating to insider dealings. The Government have arrived at the same decision as did their Conservative predecessors, and intend to make such dealing a criminal offence, but the proposal is now to be tested for the first time in Committee.
  The improper use of confidential and specific information for the purpose of private gain is an abuse of trust. It involves an act of dishonesty and deserves speedy and effective retribution. But the question we have to decide, with the benefit of all the expert advice which has been submitted to us, is whether this should be made a crime. I wish to go into this matter in a little depth.
  I am prepared to accept that it may sometimes be necessary to extend the criminal law to embrace a new offence so long as that offence can be defined. Either it may be necessary to extend the criminal law because civil remedies provide inadequate sanction, or it may be desirable because civil remedies are too difficult to devise effectively. But Parliament should be very cautious about creating new crimes, particularly when it does so in response to political pressures, and when the forces of law are so fully stretched. If it suspects—and I refer to Parliament generally—that a criminal deterrent may be more rather than less difficult to enforce, and if there is insufficient consensus on how the crime should be defined, I think we should pause and consider this matter with very great care. Nothing could be more foolish than to contain within the definition of a new crime acts or omissions which are clearly not crimes, are not even sins, but are perfectly legitimate means of conducting business.
  Some hon. Members may not entirely agree with the ways in which business is now conducted, but that is a matter of opinion and is not a matter for the law. In this respect, I confess that I find the attitude of the Council for the Securities Industry rather unconvincing, and I shall explain why. For reasons which are perfectly well understood, it favours making insider dealing a criminal offence. I understand its reasoning entirely, but it then goes on to say that the definition must not harm legitimate share dealings, legitimate shareholding and legitimate share management.
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  As I understand it, the CS1, although in its submissions—which I have seen, of course—has suggested changes which need to be made in the definitions, it will not itself table and promote amendments. That, as I understand it, is to be for others.
  Mr. John Smith: It is for Members of the House.
  Mr. Nott: As I understand it, the CSI is making recommendations to the Government for changes but is not intending to suggest amendments to members of the Committee. It is a point of some importance.
  But I think that the attitude of the CSI begs all the questions, since the present drafting—and I emphasise the drafting—is unacceptable to almost everyone. If the City believes in the new extended system of voluntary regulation and intends to defend it against its critics—and there are many on each side of the House who criticise the self-regulatory system—the City must not retreat at the first whiff of political gunshot.
  Mr. John Smith: Is the hon. Gentleman signalling an intention on behalf of the Conservative Party to move backwards from the concept of making insider dealing a criminal offence, even though the Council for the Securities Industry agrees that it should be one?
  Mr. Nott: I have been speaking for 13 minutes and the Secretary of State made an interesting speech for about 35 minutes. I hope to be shorter, but I shall, of course, cover that very point in a few moments.
  The arguments in favour of self-regulation, backed up by civil remedies, are substantial. But they will, in my view, look increasingly feeble if resort is made to the criminal law to meet specific offences. In this case a far more consistent approach would be to arm the CSI with statutory back-up powers to cover a wide range of malpractices in the securities industries. If the CSI says "Yes, we want this particular activity to be a criminal offence", other people will say—and be perfectly justified in saying" Why not give the CSI statutory backup powers comparable with those now held by the Securities and Exchange Commission?" The argument in some City circles—" We must accept this one from

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  the politicians if we are to be allowed to regulate ourselves"—is a characteristically feable and counter-productive one, because the ratchet moves up another notch and the politicians are blamed, at endless City lunches, for the surfeit of legislation and regulation in our affairs. I make the point, therefore, if I may, once more.
  The logic of the situation is that we should either have a self-regulatory system, backed up by civil remedies, or we should look at the other alternative, which is to give the CSI statutory back-up powers. Those are the two logical cases to argue.
  I have heard it suggested by the former Secretary of State for Trade, who has just retired, that insider dealing is analogous to theft. He suggested in a speech that that is sufficient reason for singling it out as a criminal offence. I do not think that these analogies are very useful. I could argue equally convincingly—and, I think, equally foolishly —that Socialism is theft. It involves the expropriation of private assets for the private gain of politicians—power. But I do not wish to make Socialism a crime. I think that it is a sin against common sense and against society generally, but Socialism is not a crime. I prefer to rely on the civil remedy of a General Election to bring retribution to the offenders.
  In this House we have a rather wider responsibility than the lawyers and accountants who have submitted their advice. Most of the advice is absolutely admirable, and in particular the memorandum from the City of London solicitors is very helpful. But what we wish to do is, first, to encourage wider share ownership, and in particular the ownership of shares by shop floor workers, managers and directors in their own companies. That was the first point made by the Secretary of State. Secondly, we want to advocate, as he does as well, a more active interest by institutional fund managers in the management of British industry and commerce. Thirdly, we wish to preserve and enhance the reputation of the securities market and the standing of the City. Fourthly, we wish, as far as possible, to protect the general body of shareholders and individual citizens against dishonest men who, by abusing
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  a position of trust, are really gambling on a certainty for private gain. Finally, we want—again as far as possible—to recompense the victim and deter the would-be offender and actually apprehend and punish him when he is caught.
  These objectives—this is what the Committee stage will be all about—will be very difficult to reconcile. In my view, we must not abandon or dilute the first two objectives—they were two of the Secretary of State's objectives—in order to strengthen the fourth and fifth. The onus of making the reconciliation these five objectives which I have described lies upon those who wish to change the law. It lies upon the Government and upon the CSI and upon other bodies, for they exist for just this purpose. I do not believe that my right hon. and hon. Friends will wish to agree to a series of broadly drawn clauses, as we have at present, which make some of the present legitimate systems of share dealing, shareholding and share management, a prima facie offence, subject only to exclusions. It is wrong for current legitimate practices to be covered by exemptions from a general provision, because that will place the onus on the innocent to prove that they are not guilty, rather than the other way round and could, in my view, seriously harm financial markets.
  Mr. John Smith: The hon. Gentleman will be aware that the definition of insider dealing is in some ways a very fair one, in that it requires the concept of knowing to be embodied in it. But it seems to me —perhaps the hon. Gentleman will correct me if I am wrong—that what he is doing, in a rather elaborate and roundabout way, is to go through a process of resilement from a previous commitment of the Conservative Party, and signalling in advance that the Conservative Party no longer believes that an admitted abuse of trust should be made a criminal offence.
  Mr. Nott: I have now been speaking for 17 minutes and the Secretary of State spoke for over 35 minutes. I shall answer his question in my own time, if he will permit me.
  As I was saying, I think it is wrong for current legitimate practices to be covered by exemption, so what I am really saying is that I do not like the drafting of the clause, and in arriving at the right

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  decision I should like hon. Members in Committee to ask the following questions. First, is there any evidence to suggest that the practice of dishonest insider dealing is increasing or is widespread?
  Secondly, do the New York stock exchange and the German and the Swiss exchanges have a higher reputation than the London market as a result of the array of statutory powers which they possess? Thirdly, has the SEC found it easier to obtain evidence and pursue offenders because it possesses the sanctions of the criminal law? As far as I am aware, since 1934, the SEC has sought criminal sanctions only once or twice. Fourthly, given that there will be increasing reluctance to co-operate with the authorities or to volunteer information if criminal charges are being considered, will the Department of Trade inspectors and the City of London police be better equipped to track down offenders speedily than professionals who know their markets and work in them? I suspect that the answer to all these questions is "No".
  It is clear—and I am now about to answer the Secretary of State's question—that I confess to some personal prejudice against the proposals in the Bill. I am sceptical about whether it will prove possible to draft a criminal sanction without damaging legitimate business, not least because those close to a company's affairs, or those working in a company, must always be in possession of information which exceeds that available to the general body of shareholders. When will the employees of a company be able to buy and sell their shares? How will institutional fund managers go about their legitimate business?
  I must say to the Secretary of State that our statute book is overloaded with tax avoidance legislation which has done far more to complicate and hinder legitimate business than it has ever done to prevent tax avoidance. It is now overloaded with consumer legislation which is doing far more to raise prices, limit consumer choice and interfere with wealth creation than it has ever done to protect the consumer; and we are in danger of embarking on an aspect of company legislation which could do more harm to the vitality and personal involvement of people in
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  commerce and industry than it will ever do to deter the occasional dishonest act.
  I think that the right course of action that my right hon. and hon. Friends ought to take is to wait and see. The former Secretary of State, and now the new incumbent could not have been more helpful and more constructive in understanding the concern which is widely felt in the City and in all the representations that I have read with care. There could not have been a greater willingness to listen to and understand the concern which I feel strongly about the manner in which a criminal sanction may interfere with legitimate business.
  I made it clear that my prejudices lie against making this a crime, and the Secretary of State's prejudices lie in the opposite direction—
  Mr. John Smith: For good reasons.
  Mr. Nott: —for good reasons which he has argued. But if Ministers can put up a different set of words, can redraft these clauses and can meet our worry about the impact of these measures on legitimate business, we in Opposition will be quite prepared to accept—the advice will have to come from my hon. Friends on the Committee—that this criminal sanction should go on to the statute book. In such circumstaces, we shall allow the proposal, following consideration in the Committee, to go forward unhindered.
  The Under-Secretary of State for Trade (Mr. Clinton Davis): Would the hon. Gentleman accept that the Government are basing their view of the issues not on prejudice but on a reasoned analysis of the position? Why does he totally throw aside the evidence that is available in the United States, where, admittedly, the criminal law is buttressed by all sorts of draconian civil sanctions? Does he suggest that in the United States all these dire consequences have followed, that financial analysts have been prevented from carryout their duties and that honest transactions have been deliberately stultified?
  Mr. Nott: No, I do not, and I am very conscious of the way in which the 1934 legislation was drafted. It is, of course, very different from what is proposed here. But I know it quite well and I have worked myself in the United States in Wall Street.

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  I would reply like this. The principal penalties now used in the United States are civil sanctions, as the Under-Secretary said. However, I put it the other way round to him. The civil sanctions in the United States are buttressed by criminal sanctions which the SEC has sought to use only once or twice, and I think that the experience in the United States indicates, and many Americans would argue this—certainly people in the legal profession would do so—that the fact that that residual criminal sanction exists in the United States system has made it more difficult to find out who the offenders are. It has made people less willing to come forward with evidence and help.
  Mr. Nick Budgen: Will my hon. Friend confirm that in the unlikely event of a clear and satisfactory definition of insider trading not emerging from the Standing Committee, he will advise the Tory Party to vote against any clauses which would make uncertain insider trading a criminal offence?
  Mr. Nott: There is no way that I can advise my right hon. Friend and hon. Friend to agree to the clauses as presently drafted, since they would damage the legitimate business of share purchase, share management and share dealing That I could not do. So I confirm, I think, the answer my hon. Friend wanted.
  I hope I have made the position clear. We shall wait to see what happens in Committee. The onus lies on the CSI and the Government to redefine these clauses in such a way that legitimate transactions are not harmed. As presently drafted, the clauses would do great damage to our securities market and much more besides.
  Finally, I come to that section of the Bill which deals with the duties of directors. In some respects, although the Secretary of State called forth the Jenkins committee in support of his argument, the section on the duties of directors and the way in which it is phrased are contrary to the recommendations of the Jenkins committee. It is proposed here that the new statutory code should override rather than supplement the existing law. The Jenkins committee and our 1973 Bill never proposed that the new
  960
  codified law should override the existing common law.
  But it is clause 46, which concerns itself with the duty of directors towards employees generally, which has created the greatest interest, and I must make it quite clear where the Conservative Party stands. We do not favour legislation in the field of industrial democracy, as the Secretary of State will shortly find out, when he can agree among his colleagues what it is the Government wish to say.
  But we have stated repeatedly that we are in favour of giving legislative recognition through company law to the existing practice of every board of directors which, of course, has to have regard to the interests of the employees. But, as in so many other parts of the Bill, we do not like the drafting of the clauses. My hon. Friend the Member for Bosworth (Mr. Butler) published a Private Member's Bill recently which sought to achieve the same objective as the Government, who blocked it because they wanted to do it themselves. It is, I think, ironic that my hon. Friend's drafting was much more appropriate than the wording of this Bill, which is likely to cause quite unnecessary litigation and, rather than uniting directors, members and employees in the furtherance of the company's interests, to divide them.
  If directors are to conduct the affairs of a company in good faith and honesty —these are the terms used in the Bill—it would be intolerable if they were to subject themselves to a continuing risk of legal proceedings from an aggrieved employee. That is why we have always insisted that decisions should be taken by directors in what they believe to be the best interests of the company as a whole, taking the long-term view. These clauses need to be changed, either so as to read:
  "the duties of directors shall be towards the company generally having regard to the interests of shareholders and employees"
  or:
  "the directors should act in the best interests of the company as a whole and it should be lawful in considering those interests of the company as a whole for the directors to have regard to the interests of employees generally as well as the interests of members".
  Mr. Wigley rose—
  Mr. Nott: These are very important distinctions.
  Mr. Wigley: Can the hon. Gentleman clarify whether, in talking of the company as a whole, he is suggesting that employees should be regarded in due course as members of the company?
  Mr. Nott: That takes the philosophy of company law into new fields. It is an interesting proposition, and I am prepared to debate it on another occasion, but we do not want that fundamental change in philosophy at the present time.
  Mr. John Smith: Perhaps we may have the Conservative Party's attitude made clear on one point. One advantage of clause 46 is that a director would be able to offer as a defence to an action by a shareholder that he acted as he did in the interests of the employees. Does the Conservative Party want to deny the director that defence?
  Mr. Nott: Of course not. I am sure that, as he said in his speech, the right hon. Gentleman wants to listen to the representations that are made on the Bill. Many eminent members of his profession have spent years trying to arrive at a definition that does not cause conflict between directors and their employees and the members. What I am saying is that clause 46 as drafted is the worst way of going about what we all want to achieve—namely, for the law to embrace the interests of employees and to make de jure what is already dealt with de facto. That is what is required, but the drafting is wrong. I shall discuss it with the right hon. Gentleman afterwards, if I may.
  I conclude by taking clause 45(1) as an example of why we must be very careful in looking at new versions of company law, particularly when we are considering the more prescriptive and tightly administered system of company law that is heralded by the Bill. Clause 45(1) requires all directors
  "to exercise such care and diligence as could reasonably be expected of a reasonably prudent person".
  But does anybody know of a reasonably prudent person who has built a business from nothing? Would the founder of what is now called "BL" have been considered before the courts as a reasonably prudent person? Would Freddie Laker be deemed by the courts and by a bunch of lawyers to be a reasonably prudent man?
  962
  The world is full of prudent men holding high office in the State airline, men who saw fit to keep air fares beyond the reach of common citizens. It is because Freddie Laker is an imprudent man, prepared to take risks, and is as far removed as possible from the prudent man on the Clapham omnibus that the man on the Clapham omnibus can now afford to travel to the United States. But the prudent men on the board of London Transport are still ensuring that he can ill afford to pay his bus fares.
  The prudent men of the BBC—now I become very topical, but this is relevant to the Bill—combined with ITV to deny association football a market rate for televising its proceedings. An admirable, imprudent man in ITV has now bust that cosy little coterie of prudent persons in the BBC—and good luck to him.
  Business is about taking risks, not about reasonably prudent persons. Therefore, it is important that in Committee we do not become over-obsessed by the need for a reform of the law. I hope I have made it clear that in many respects I find the Bill entirely welcome. I hope, however, that the Secretary of State will also remember that in business there is such a thing as taking risks.
  We on the Conservative Benches want to help the entrepreneurs and we want to help employees, members of trade unions and managers to hold shares in their own company. We want to improve the way in which institutional shareholders and fund managers show an interest in businesses.
  All these matters must be examined with care in Committee. If the problems can be solved, we shall, of course, let the Bill go through and welcome it.
  5.24 p.m.
  Mr. Graham Page: I am sure that the House is very grateful both to the Secretary of State and to my hon. Friend the Member for St. Ives (Mr. Nott) for speeches on the Bill that have explained a great deal that one does not gather simply through reading the text.
  Perhaps the first observation to b$ made about the Bill is that it is not a consolidation measure—at least, not yet. One has only to look at the citation provision, in clause 78(2), to see that what will be called
  "the Companies Acts 1948 to 1978"

  963
  includes no fewer than eight statutes. The Secretary of State has said that he is considering at least two others to be included in that bunch. There are then the EEC directives, and more to come. If that makes any student of company law have kittens, he may be sure that the eight statutes will also have kittens, in the form of statutory instruments, and many of them—litters of them.
  It gives one something to worry about when there exist these vast and complex volumes of law and only one officer of a company is required to have any qualifications or training in company law or in anything to do with companies. That man is the auditor. He comes in only when trouble has occurred. He comes in only to shut the stable door when the horse has bolted.
  It is extraordinary that one can become a director, a manager, a managing director, a registrar and any other sort of officer in a company—above all, a secretary—without any qualifications. I am a little disappointed that the Bill has not included the provisions of an admirable Bill presented in the last Session by my hon. Friend the Member for Nantwich (Mr. Cockcroft) providing for the qualification of secretaries.
  The public need to be assured that there is a qualified and trained person sitting in the boardroom to advise the board and to look at the day-to-day administration of the company. One needs only to look at the other provisions of the Bill to see how much is now being added to the duties and responsibilities of the directors and other officers of a company and to realise that somebody there should be qualified to understand the whole business.
  For example, part I sets out a completely new classification of limited liability companies based on a new concept in United Kingdom law, the Continental concept of capital maintenance. In clause 4(2) we have to consider the "authorised minimum" of capital that a public company must have before it can in future be a public company—that sum is £50,000—and there is the provision that a quarter of it must be paid up. This is all a new concept. Under clause 5(3) the net assets are not to be less than the called-up share capital and undistributable reserves. Our new classi-
  964
  fication of companies is to be based on those criteria.
  Reclassification will not take place automatically. Old public companies, as they will be called, that is to say, existing public companies, which do not come up those criteria, will have to re-register. Quite a process will have to be undertaken. I am amazed to read in the explanatory and financial memorandum under the heading "Financial and Manpower Implications", that
  "Initially, a net increase of about 11 staff will be needed to adminster the provisions of the Bill".
  Is it really suggested that there will be an increase of only 11 staff to cope with the new re-registrations over the transitional period? We have been told that there are 16,000 public companies, and there is a large number of private companies, all of which will have to reconsider their position under this classification and many of which will have to apply to the companies registry for reclassification. I am surprised that the increase of staff is said to be only 11. What is the estimate of the re-registrations that will be required?
  In addition, there is the work of the issue under clause 4 of the certificate to do business. Incidentally, that does not seem to include the provision that a company shall not start to exercise its borrowing powers unless it has the qualifications to start business. I may have misread the clause, but it does not seem to provide for that very important matter.
  The duties of the officers of a company are greatly extended by the Bill. Therefore, the checking duties of the companies registry will involve the employment of far more than 11 staff. Obviously there will be much more work involved, particularly when one refers to clause 19, which deals with the payment for share capital and goes on to deal with the allotment of shares, no allotment unless one-quarter of the nominal value is paid and so on. I presume that there will also be the new return of allotment forms to be dealt with by the companies registry.
  The saving grace of those provisions is perhaps in part III. I think that at last we shall be able to work out different standards of accountancy for public and private companies. But more reforms are still required to deal with that. We

  965
  have already been given warning during the debate today that Sandilands and all that is to be dealt with in a future Bill.
  One important principle which emerges from the Bill—and one has to consider it in going through the many pages of the measure—is that when we are dealing with profits, although, as I have said, the new principle of the maintenance of capital has been accepted in the Bill, the measure is not concerned with the difference betwen capital and revenue. We are concerned only with realisation—what profits can be realised in order to ascertain what the assets are and what can be distributed. This must be borne in mind throughout many of the clauses of the Bill.
  Turning to the duties of directors, a matter which has already been discussed in the debate, and a matter of vital importance, I shall divide the duties of directors into two classes; first, the duties of loyalty and faith and, secondly, the duties of care, diligence and skill. There is an attempt to codify the duties of loyalty and faith in clause 44, but the whole provision is defeated by subsection (7) of that clause which says that the code shall be rigid.
  The duties of directors to have loyalty and faith to their company, to the members of the company, and, indeed, to the employees, is based on public policy and has been a living development in the law over the years, which has adjusted itself, to a great extent, to modern conditions. I fear that to lay down a rigid code, as clause 44(7) tries to do, may cause great difficulty and be nothing less than an invitation to litigation.
  Much the same happens with clause 45. My hon. Friend the Member for St. Ives gave an amusing dissertation on that clause regarding the reasonable acts of a reasonably prudent man. Again, the clause is endeavouring to codify a piece of the law which has been living and growing over the years. I fear that making it static and rigid now may not only prevent its development, but be difficult to interpret and, therefore, an invitation to litigation.
  Clause 46, with its reference to the interests of employees, seems to put an unwarranted priority on the interests of one section of the many interests in a com-
  966
  pany. I would much rather see that clause, if we are to have it in the Bill, put in words such as "The directors of a company shall, in the performance of their functions, act at all times in what they believe to be the best interests of the company as a whole, which shall include the interests of the company's employees generally as well as the interests of the members and the subsidiaries of the company." To mention only one interest will raise considerable difficulties.
  I have two points to make regarding conflict of interest and insider dealings, which are closely tied together from clause 54 onwards. In some respects, these clauses go too far, but in others they do not go far enough.
  They do not go far enough in the definition in clause 63. It has already been mentioned that information can be obtained by the trade union official, for example, who has a special relationship with the company because his members are employed by the company, but he is not included as one of those individuals, who, by law, is connected with the company. We ought to give consideration in clause 63, which is the interpretation clause regarding the person connected with the company, to whether there should not be included in that interpretation the official of a trade union representing employees of the company or a related company. That is where I think that "connected person" does not go far enough.
  The definition of a "connected person" goes too far in clauses 54 and 55. Clause 54(1) provides:
  "A director of a company shall"—
  and I presume from this that it means either a public or a private company because it does not say "director of a public company "—
  "if he is a director on the appointed day, within 28 days from that day, and in any other case, within 28 days from his appointment, disclose to the company, by notice in writing, the name of every person who he knows is connected with him."
  When one looks at the next clause to find out who is a
  "a person who … is connected with him"
  one finds a couple of lines, quite new to this legislation which have not appeared in company law before.

  967
  A person connected with him
  "shall include a reference to any child of that person who is illegitimate and has not attained that age".
  Did the draftsman of the Bill really think that a director will list, for the benefit of the company secretary or anybody else, his illegitimate children before he has had any of these dealings at all? That is what the Bill provides.
  I give this example only to show that, although I welcome the Bill—it has many provisions which we wish to see on the statute book—it needs very careful consideration in Committee.
  5.38 pm
  Mr. John Lee: This ought to be a debate on the unpleasant and unacceptable face of capitalism. Indeed, it ought to be an opportunity for my hon. Friends to be thinking in terms of using change in company law to lead to the end of the capitalist system. But they have kept out of the debate because they appreciate that the Bill is limited and has, from their point of view, largely irrelevant functions.
  I congratulate the Secretary of State on his elevation. I am glad to see him there. I am even more glad to see his predecessor gone, not that I say that unkindly. My right hon. Friend the Member for Birkenhead (Mr. Dell) is a nice man, but his weak-willed views on import controls are well known and deplored by my hon. Friends below the Gangway.
  The present Secretary of State, with his usual competence, zipped through the Bill in a 40-minute speech covering a number of important matters which, as he indicated, will still leave many matters unresolved. Later this week we shall have a Bill dealing with banking law. In many respects, it would have been more appropriate if that measure had been incorporated in this Bill. There will also be further legislation later and, as is typical of the way in which things are done these days, this Bill is introduced as a side wind to a piece of Common Market legislation. It is not central to it, but it is the excuse for introducing the Bill.
  There have been three major pieces of company law in this century—in 1907, 1929 and 1948—and there were two Bills in the preceding century. Each was a
  968
  massive piece of legislation and, although cumbersome, they at least had the advantage of restating the law as a whole. This Bill is an untidy way of setting about the problems that need to be resolved.
  I agree with the right hon. Member for Crosby (Mr. Page) that it is startling to see in what is ostensibly a piece of consolidation legislation a complete redefinition of how public companies are constituted. It seems that the number of public companies will be drastically diminished. I understand that we shall suddenly find a shrinkage in the number of public companies. They will find themselves, willy nilly, redefined as private companies, probably before they realise it.
  The most important matters in the Bill are the proposed changes in regard to directors' duties and insider dealings and I shall concentrate on those aspects.
  I foresee, but do not necessarily regard it as a bad thing, that directors will find themselves facing problems of conflicting obligations. My interventions in the speeches of the Secretary of State and the hon. Member for St. Ives (Mr. Nott) anticipated what I have to say about that. The definitions in clause 46 and adjoining clauses will provide a source of conflict, but I should still like to know whether that will be a reality.
  I hope that the Minister who replies to the debate will tell me whether workers seeking to nudge the policies of directors towards the interests of workers will have the advantage of legal aid. I suspect that if they do not the advantage of being able to bring directors to book and influence their policies by motions comparable with those that used to be the preserve of shareholders will be an illusory advantage.
  I echo what the right hon. Member for Crosby said about the difficulty for a director in seeing exactly where his main duties lie. I find it odd that the Conservative Party, or at least the non-Poujardist element of it, seems to be interested in industrial peace and is said to be interested in involving workers increasingly in the running of companies, but should shy away from a provision which marks a tentative step in that direction. I do not know which wing of the Conservative Party is talking—the Poujardists represented by the thinking of the right hon.

  969
  Member for Leeds, North-East (Sir K. Joseph) or those whose thinking is represented by the right hon. Member for Lowestoft (Mr. Prior). I suspect that it is the former.
  On the insider dealing provisions, why is there a requirement that the initiating of criminal proceedings should be restricted to the Secretary of State or the Director of Public Prosecutions? The duties of those offices are considerable enough anyway. The DPP has quite a lot on his plate already. I am tempted to add that it is a good thing that the Attorney-General is not involved, in view of the rather unfortunate experiences that his office seems to be having in regard to the administration of the criminal law at present.
  Where an improper transaction occurs, it will not be void on grounds of public policy, whatever other civil sanctions may obtain and whatever other penalties it may attract. That is an unusual departure. When an act that is clearly illegal is perpetrated it is, as a general rule, void on grounds of public policy. Why has there been a rather surreptitious departure from that position?
  I should also like to know why restrictions on loans to directors are not extended to banking companies. If there is anything that has given rise to a need for a drastic revision of the law in regard to banks, however they are defined, it is the scandal of the secondary banks. If there were ever an activity that required stringent statutory provision, it is banking. One of the consequences of the extraordinary episodes that we refer to as the saga of the secondary banks between 1970 and 1974 was the demonstration of the weakness of the controls over them.
  I appreciate that the Consumer Credit Act and, to a lesser extent, the Banking Bill that we shall be considering on Thursday will do something to reduce the chances of the grosser abuses recurring, but they do not go far enough. It is odd that this provision should be included in relation to an activity which, far from requiring relaxation of the law requires its more stringent application.
  There is another matter that I anticipated when I was provoked into intervening in the speech of the hon. Member
  970
  for St. Ives, namely, reports. I understand that there was a serious point behind his jibe about giving Tiny Rowland the right to investigate the professions. The hon. Gentleman is really saying what some of us echoed in relation to police inquiries. We thought that it was wrong that those who inquired into alleged abuses by the police were policemen. That was a weakness in the law.
  The hon. Gentleman has taken up that challenge and said that it can apply to almost anything when one confines an area of inquiry to the sort of people who may feel that they have too much in common with those whose conduct they are investigating. I understand the hon. Gentleman's strictures on that aspect, but it does not make sense to suggest that those who inquire into abuses should not be allowed to comment upon what they find. If that is the situation, the reports will be of less value.
  There have not been all that many inquiries under the provisions of section 165 of the 1948 Companies Act. But when they have occurred they have been noted for some pretty straight talking about the kind of policy adopted by and the conduct of the directors. I think that that applies to the case referred to by the hon. Member for St. Ives and to the inquiry into the activities of Mr. Robert Maxwell. In many cases what has happened has fallen short of any form of criminal activity, but nevertheless the inquiries revealed a pattern of reprehensible behaviour which most people would have regarded as such. It seems to me only right that inspectors should be free and capable of undertaking such inquiries.
  I should like an assurance that provision will be made, either in the Bill or in a subsequent measure, to give inspectors the kind of exemptions from defamation proceedings which apply to a court of law. It cannot be right that inspectors are appointed to inquire into abuses and they then have to curb their tongues for fear that someone will threaten to take proceedings of defamation against them. It seems to me as important that there should be exemptions from defamation for such persons as it is for courts of law and for this House to have that safeguard.
  This is a wide-ranging debate, and I know that many Conservative Members

  971
  wish to take part. I do not wish to say very much more. But one thing that I want to mention—it has not been referred to so far—relates to the whole question of the power to wind up a company.
  Mr. Clinton Davis: Before my hon. Friend departs to a new point, will he indicate to the House, and to me in particular, whether he has any evidence that inspectors have found themselves constrained or circumscribed unreasonably by the fact that they do not enjoy absolute privilege? After all, the proof of the pudding must be in the eating.
  Mr. Lee: I have no particular instance in mind, but I seem to remember that Mr. Robert Maxwell threatened proceedings against the inspectors, which was a pretty cheeky thing to do when one considers the circumstances in which the reports on his companies were made. What I am getting at—I should have thought I would have carried my hon. Friend with me—is that it cannot be right for inspectors to feel themselves under a threat that proceedings will be taken against them. As a countervailing argument, it cannot be reasonably argued that an inspector, freed from the inhibitions which the law of defamation imposes, would launch forth into a malevolent outburst of an unjustified kind.
  It might be said that occasionally some of Her Majesty's judges sound off and say things which they perhaps ought not to say. I suppose it is possible that inspectors might do the same, but I cannot really see it happening. I do not think my hon. Friend really believes that the sort of sober and responsible people appointed to these inspection duties—normally senior silks and senior chartered accountants—are the kind of people who would use it as an opportunity to make licensed defamatory remarks about people who cannot answer back. Therefore I cannot see any real objection to this change, even though in the past it may not have caused all that much difficulty.
  I turn briefly to the question of winding-up proceedings. At present winding up is normally at the behest of creditors or shareholders and occasionally where a company finds itself in a state of deadlock where it cannot function any further. There are rare instances when the Government have the power themselves to wind up a company. As he is a dab hand
  972
  at company law, I know that my hon. Friend will know of such instances.
  There is one provision which I should like to see, and it would surely not be a particularly revolutionary innovation within the parameters of company law as we accept it. This is a provision for the statutory regulation of the capitalist system, which Labour Members are ultimately trying to supplant. I do not think it could be regarded as a particularly drastic innovation if the Government had the power, on a far greater scale, to introduce winding-up proceedings on their own motion.
  I should like to give an example. My hon. Friend the Under-Secretary of State is well aware not only of the secondary banks scandal but of the secondary mortgage and pyramid selling episode which created such a nasty smell a few years ago. That particular series of events has largely come to an end. It was the occasion of a great deal of hardship to a lot of people. A lot of activities were undertaken by people operating through various companies which, in any common sense terms, would rightly be stigmatised as "fraudulent". It was difficult for the victims concerned to take proceedings against those people because of the expenses and uncertainties of civil litigation. In some cases no civil remedy was really available.
  The law of defamation made it difficult for journalists to investigate, although I know of a number of newspapers in the Midlands, in and around my own constituency, which took up the cudgels on behalf of the victims. But, clearly, anyone standing back would have seen that what was going on was a particularly nasty, mean and anti-social form of fraud.
  It ought to be possible for Governments to take action to wind up companies which engage in such activities. It ought also to be possible for directors to be disqualified from performing the duties of a director thereafter, as a consequence of winding up in such circumstances.
  I pass this out as a suggestion to my hon. Friend. I hope that it is something that will be considered, if not in regard to this Bill, in regard to other pieces of legislation. But as a general observation —I say this not to be tiresome or querulous about the matter—I feel that because the Bill has been introduced

  973
  probably for no other reason than that we have a Common Market directive, I am tempted to challenge a Division on it at the end of the day.
  5.58 p.m.
  Mr. John Wakeham: I listened with interest to the hon. Member for Birmingham, Handsworth (Mr. Lee). I thought that the point about inspectors' reports was not so much that they had not felt able to comment pretty freely on the matters that were under inquiry, but rather that a number of us were concerned that they sometimes widen their comments to make remarks that could not really be considered to be strictly matters of concern under the section of the Companies Act under which they were appointed. Indeed, I think the accountancy profession itself has recognised this in producing a code of practice for inspectors to concentrate their remarks on matters which are particularly under review.
  As the Secretary of State said, this new Companies Bill heralds a new look at our company law. That must be good and I am sure that it is welcomed by all of us. Indeed, I feel that we as a House, and as Parliament generally, have something to answer for because of the low priority which we have given to company matters over the years. If we are to bring the law up to date, I am sure that will be welcomed. The undertaking that we shall have a consolidating Act as soon as we get to a relevant point in these changes is also practical and sensible.
  It is important to look at the Bill in the light of the principles that are emerging—some of them encouraging, some not. I welcome wholeheartedly three aspects of the Bill. These are, first, the attempt to define the duties of directors; secondly, the attempt to arrive at a definition of profits; and, thirdly, the attempt—which, as my hon. Friend the Member for St. Ives (Mr. Nott) said, is pretty weak, but nevertheless important—to strengthen the position of minority shareholders.
  The strengthening of the position of minority shareholders will help those who are not at present minority shareholders. In many small companies particularly, the lack of such shareholders is a serious problem. Under the present legislation many people are quite rightly deferred
  974
  from ever becoming minority shareholders just because of their position. Therefore I see changes in company law doing some positive good there in the future.
  I welcome the attempts to define profits and to define the duties of directors. This is not because there is much evidence that there are many directors who are not carrying out their duties as set out in these proposals. Indeed, the overwhelming evidence is that virtually all the directors in the country are trying their best to do their duties in carrying out their difficult tasks. In fact, there is much evidence that many companies are preparing their accounts with a view to paying out as dividends sums of money which should not properly be paid out. I do not believe that there is a great deal of evidence that there is much seriously amiss in this area.
  However, I believe that a continuation of the present system is likely to cause a breakdown in the auditing system of the country. I speak as a company director and as an auditor. I consider that the present situation is serious and I hope that Parliament will take steps to improve it. There are very few villains in the case, but there are many difficulties.
  Auditors are faced with more and more complex guidance from more and more sources—Royal Commissions, professional bodies, Government regulations, interpretations of court judgments, interpretations of inspectors' reports and overseas practice. Therefore they are becoming more and more cautious because they are finding it increasingly difficult clearly to establish the accepted and best practice to adopt.
  This has resulted in an increasing number of companies having their audit reports qualified by their auditors for all sorts of reasons. Many of these qualifications are purely technical, but even that causes considerable heart searching and difficulties in the boards of companies and the audit firms concerned. In these cases the auditors agree with what the company has done but feel that it is not in accordance with some accounting standard or other—perhaps mandatory or perhaps best practice.
  In other cases where differences arise, but are not of a technical nature, they are often well within the area of legitimate debate. However, in many cases the

  975
  auditors understandably take the line that is, in the opinion of many people practising in commerce and industry, so far removed from the commercial world that there is danger of communication between auditors and directors, and consequently shareholders, breaking down.
  All this is quite understandable. I doubt whether there is a top firm of London accountants that does not have several multi-million pound law suits on its hands for professional negligence of one sort or another. The fact that all of them—or I hope all of them—are properly insured is not much comfort to those who have tried to maintain high professional standards but are finding it more and more difficult to do so.
  It is important, when we look at this problem of uncertainty in the law, to realise that even the most junior partner in the most obscure office of a firm of chartered accountants, who may not even know of the existence of the client—he will when the writ arrives, of course—is put at risk for every penny of his assets, including his private house and his furniture. This is very serious and I understand the caution now being exercised by the accountancy profession in looking at company accounts.
  The situation is becoming very difficult, if not to say impossible in some cases, for auditors and directors who are trying to deal with the obscurities of company law. Far too much time is spent on negotiation over points on which it is possible for honourable men to have different views. Therefore the attempt in the Bill to define the duties of directors and to define profit should help. Auditors should be able to redirect their energies into the key areas where disputes occur.
  In future, auditors should be able to ask themselves not whether the opinions of the directors are right—in most cases the auditors' opinions in these technical matters are not expert opinions—but whether the directors of the company have addressed their minds properly to the problem in accordance with the law and whether they have made the right investigations and explained the position truthfully to their shareholders. In this way progress can be made and company law can begin to produce prosperous companies rather than stifling them as it does at present.
  976
  In some areas the Bill is inadequate and needs much improvement in Committee. We must recognise that company law is not designed just to control and regulate, but to promote growth and change. In this respect the second directive gives only part of the story. It recognises two divisions of company—private and public. In practice there should be a much wider definition. In practice there are two sorts of public company in the commercial world. There is that sort which is basically the home of institutional funds—the bigger type of public company, probably in practical terms with a market capitalisation of £10 million or more—and there is the smaller type which we should encourage, or at least not make it too difficult for people of enterprise and initiative to engage in over-the-counter trading. Of the smaller companies, there are, in practice, two types. There are the small private companies, and there are the very small private companies, which are not much more than one-man businesses. In the Bill scant recognition is given to the realities of that situation.
  The major inadequacy of the Bill is that it fails to recognise the importance of company law in the growth of business in two key areas. One is the very small private company starting up in business —and we must look at the regulations to see what encouragement can be given—and the other is where a business is too big to be a private company, but too small to be the sort of place into which institutions are likely to put very large sums of money. Here again I believe that our company law should allow an opportunity for the City of London to find ways of encouraging capital into these areas.
  6.10 p.m.
  Mr. Richard Wainwright: I, too, welcome the Secretary of State to his new post. He brings a healthy and recent experience of widespread consultation on Government measures, including consultation across the Floor of the House on a multilateral plane, to a Department which has an honourable record of consultation with the various interests and parties involved. In dealing with his wider responsibilities he will, we hope with some confidence, be as firm and intelligent in resisting the

  977
  rising voices of protectionism as his predecessor has been.
  There has already been comment that the Bill has been preceded by a substantial amount of consultation in relatively good time, not only on the EEC second directive, adopted as long ago as December 1976, but on the White Paper "The Conduct of Company Directors", published a year ago, and on the draft Bill issued last July.
  In the light of that early consultation, it is disappointing to me that at the very last minute, including this weekend, there have been substantial negative attacks from eminent bodies which one would have thought would have contributed to the argument long ago. However, I do not often ignore these last-minute attacks, because, as so often when people are defending a weak position, they reveal quite a lot about their own situation. Some of that is disturbing. I hope that some of the things said by critics of the insider-dealing part of the Bill will be remitted to the new and welcome standing advisory committee of which the Secretary of State spoke this afternoon.
  For instance, from the attacks which have been made on the insider-dealing proposals, there appears to be in existence now a sort of grey area of temporary insider status which is fairly frankly revealed by the Council for the Securities Industry in its statement dated 1st November. In objecting to the Bill's use of the term "information not generally available ", it says:
  "There is a wide range of information which is not generally available but which is not necessarily confidential".
  It goes on to describe how investment managers of private companies, pension funds and unit trusts
  "diligently seek such information regardless of the fact that it is not usually available to the ordinary run of shareholders."
  It had always been my evidently naive supposition that investment managers were entitled to form impressions—for instance, to size up the calibre of directors—which are purely subjective matters for their own investigation. But I was not aware that blatantly the world would be told that these people actually get "information which is not generally available". However, I am sure that that aspect can
  978
  be further investigated by the new standing advisory committee.
  I want to comment not so much on the carefully discussed and prepared proposals in the Bill as on those which, regrettably, have been left out. One consequence is that the nation will have to wait for a very long time for a consoldiation measure. I expect it to be several years, alas, before the overworked company secretary and company accountant can expect a consolidation measure, because we proceed by such very modest instalments.
  For instance, although the Liberal Party takes the view that a Companies Bill is not the right vehicle for the main thrust of measures of industrial democracy, I would have thought that this Bill could at least open the door a little with some permissive legislation, so that if eventually two-tier boards are commended to the House and approved by the House, in certain circumstances, the company law would be waiting to receive the device without further legislation, at any rate in principle.
  Again, since the Bill splendidly grasps the nettle of having regard to employee interests, it would have been reasonable and not imprudent or reckless to indicate that where such employee interests were to be sought was first of all in the voice of any democratically elected works council in existence in the company. This would help a little to solve a dilemma: how are directors to have regard to employee interests? Are they to have regard to insistent demands by one particular union in part of the concern, or to pay attention to an agitating union of lesser stature which is trying to get members among the employees?
  One helpful answer to directors who will be put into difficulties by the Bill would be to say that where there is a democratically elected works council within the company it should be regarded in the first place as the authentic representation of the interests of the employees.
  It is also most regrettable that the Government have not come up with some proposals for the company that is thoroughly private in every conceivable sense of the word and not merely in the obscurely technical sense of not being

  979
  public. I refer particularly to family companies, not so much one-man companies, because it is often in the circumstances of the family that the company is the appropriate device. I do not think that one man on his own really needs in normal circumstances a company structure.
  The great device of a company is not to try to ward off creditors but to enable shares in the business to be adjusted, if necessary, at half-yearly intervals without going through the appalling task of drafting a new partnership agreement. So it is family companies with very restricted shareholdings which demand, and in most advanced countries receive, a different structure with different responsibilities.
  I am ready to concede that a small family company may owe a greater responsibility to creditors and potential creditors than the multi-billion pound company, in which case let those stricter conditions be imposed. Generally, however, the family company cries out for a less burdensome structure.
  The excuse so often given—I hope that we shall not hear it in the reply tonight, but it has been in the Government's mind in these last few months—is that there is no satisfactory definition to encompass the small family company. I submit that it has been a great mistake in the past, and a blemish on our present patchwork of company law, that the attempt has always been to define the small family company mainly in terms of money—the size of its turnover or the total of the net assets. This approach is misconceived, especially in a time of rapid and hectic inflation.
  Surely the most significant item for the main substance of definition of a small private company is the number of employees. I shall not give a hostage to fortune by mentioning a figure. I merely suggest that the number of employees that the directors may expect to know personally and to be able to handle personally should be the hallmark of a small private business, and that when that is allied with a very restricted shareholding we have the amalgam which makes, generally speaking, a small private company which ought to have separate treatment.
  Mr. Cecil Parkinson: Has the hon. Gentleman con-
  980
  sidered the EEC's fourth directive approach, in which there are the three criteria of employees, turnover and assets? If one meets two of the criteria, again one qualifies. Would that commend itself to the Liberal Party?
  Mr. Wainwright: Certainly in theory—if we were able to live in a world of theory in family affairs—that would be marvellous. I do not think that it can be seriously faulted in logic. I was saying that the main criterion in present conditions should be the number of employees. I do not dissent from what the hon. Member has said in theory.
  Mr. Clinton Davis: The hon. Member will not have lost sight of the consultative document "The Future of Company Reports", which alludes to this problem. notably as it concerns disclosure, and suggests for consultation the possibility of creating a structure with three different types of company—the large company which would have fully to disclose, the small company which would not have such an imposition laid upon it, and the medium company, somewhere in between for disclosure requirements. It is suggested that a large company might be considered to be one employing more than 500 people or with a turnover exceeding £5 million. I would add that the consultations are by no means concluded over an important area.
  Mr. Wainwright: It is the last few words of the Minister's intervention—I know that it was intended to be helpful —which so much depressed me. Why are the consultations not yet complete? This is a matter which has been with us since the limited company began. I would have thought that by now there would be the opportunity to include some relief—not the last word—for the family company in this legislation. If we are to wait for the long run, then companies, as well as people, will be dead.
  Some family companies are taking the bold course—I believe it is sad that they should have to do so—of giving up their incorporation and returning to partnership status. That is open to them, but it is going back to early Victorian times and is denying them the advantages of limited company status. In particular, and I would have thought that this could be settled by now, such companies are

  981
  often embarrassed by having to go through so much disclosure to larger competitors. I know that if they are very small they are spared some of the disclosure requirements, but, even so, the disclosure of trading profit year by year by publishing the profit and loss account is quite unnecessary if the balance sheet is produced so that creditors can see—as far as a balance sheet ever shows it—the viability of a company.
  Similarly, small family companies are greatly embarrassed by the appalling costs of a full-dress audit, under the formidable audit provisions which this House and the professions have combined to create. I am not suggesting any profiteering, but the audit fees made necessary for small family shops as a result of exposing them to the whole thrust of the provisions for auditing much larger companies are becoming intolerable. This is an impasse which ought not to be ignored.
  I would hope soon to see a special provision for a new type of proprietary company in which a full audit was compulsory only every three years, or perhaps five years. In the intervening years the audit could be restricted mainly to those matters which the directors requested, subject always to the fact that any sensible business will want such a certificate on its accounts as will make the inspector of taxes reasonably happy. At least these companies would be spared having to pay for an enormous amount of redundant inquiry every year.
  Mr. Ronald Bell: I am glad that the hon. Member has made that point, because it is a powerful one. Would he go a little further and agree that to the proprietors of such a business—it may be simply a family calling itself a company —there is no advantage whatever in an audit as prescribed by current legislation?
  Mr. Wainwright: In fairness to others who wish to take part in the debate, I must not be diverted too much. I repeat that the inspector of taxes is interested in what the auditors have to say. It would be a foolish family business which so restricted its auditors as to deny itself a certificate which would be useful in dealing with the tax office.
  I am rather surprised that the Government have felt it wise to propose in the Bill extending some parts of the EEC
  982
  second directive to private companies when the Community does not require us to do so. I do not see what relevance clause 13 has to the family shop incorporated as a limited company. Since my party, among others, has for years pressed for a new type of proprietary company to meet this case, and since the Chancellor of the Duchy of Lancaster has been urged —in his capacity as the Minister with special responsibility for small businesses —to intervene with the Department of Trade in this matter to try to get this legislation more advanced, I cannot entirely commend the Bill because of its lack of something which could perfectly well have been attended to by now had there been the political will inside the Government.
  6.27 p.m.
  Mr. David Mitchell: I suggest that we should consider first of all the philosophy which ought to lie behind the attitude of a trading nation towards private enterprise in terms of its company law, and then consider whether the Bill fits into that philosophy. I ignore those who believe that private enterprise should be abolished. I am much more concerned with those Lilliputians who would ensnare Gulliver in a network of regulations.
  The philosophy which ought to lie behind our public policy should be, first, to seek to encourage people to set up in business. Secondly, there should be the minimum amount of regulation that is necessary to tie them down in the interests of safeguarding the public.
  There are two areas in which the public should be safeguarded. The first relates to the investor and the shareholder, who need to be safeguarded and who need to have knowledge of what is being done with the money which they have put into the enterprise. Secondly, when a company's trading activities are big enough to affect the national economy, or to affect the employment of the region, I believe that there is a legitimate public interest in what is going on in its activities and a public right to know about them. Beyond that, I do not believe that it should be within our general philosophy as a trading nation to seek to interfere.
  It is interesting to note that in part this philosophy is already accepted. We allow sole traders and partnerships to

  983
  operate with the minimum of regulations and formalities. There is almost no company law affecting them. I am a little uneasy in mentioning that in case it should inspire a new section to the Labour Party's manifesto for the next General Election, once it is realised that there is some part of our national life which is unregulated and uncontrolled. It is, perhaps, dangerous to mention this. The fact is that for the sole trader and the partnership there is a minimum of formality.
  What is the position of the unlimited company? Again, there is a minimal requirement. However, as soon as a company becomes limited it suddenly has to contend with a great mass of legislation. Almost all sections of company law apply to it as soon as it becomes limited. It faces that requirement although it becomes no larger than an unlimited company. By way of example, the hon. Member for Colne Valley (Mr. Wainwright) referred to family grocers and small family businesses.
  My criticism of the Bill is that it is a piecemeal addition to previous legislation. Secondly, it fails to provide simple and separate company law for the small business. That opportunity should have been taken by the Government. Thirdly, it has failed to ease the burden on the small business.
  For example, the Bill introduces a new company structure—namely, the investment company. However, it has failed to introduce a new company structure for the very small business, the proprietary company concept with which my hon. Friend the Member for Gloucestershire, South (Mr. Cope) is connected and for which he has done a tremendous amount of pioneering work. There are others from the Small Business Bureau who have done a great deal of work in that direction, especially Mr. Hayton and Mr. Sandy. That is an area where there is a pressing public need for action to be taken to reduce the load on and the barriers around the small organisation that is setting up in business.
  I was surprised that the Secretary of State did not comment on the research and inquiries that his Department has been making. I welcome the statement of my hon. Friend the Member for St. Ives (Mr. Nott) that he expects to intro-
  984
  duce legislation in that way in the life of the next Government.
  The second and fourth directives are of considerable importance. We should not accept them as alibis from the Government for taking action that we do not consider to be in the interests of companies as a whole. The directives have come into being only with the concurrence and support of the Government. It has been largely unrecognised by the Government and their spokesmen that there is a great difference between British companies and companies on the Continent.
  In Britain there is enormous pressure on business men—this does not exist on the Continent—to turn themselves into trading companies. I disagree with the comments made by the hon. Member for Colne Valley about the one-man company. With inflation at the levels that we have seen over recent years, there is an enormous need for a company to retain more funds, to plough back more of its profits and to put more money into itself merely to enable it to keep its capital structure intact against a decline in the value of money. It is that fact, coupled with the fact that if a person is not a company he can make that provision only from post-tax income after deductions at his personal rate of tax, that creates the pressure on business men to turn themselves into companies. It means that if someone is only the least bit successful in business he is compelled to turn himself into a company to reduce the tax rate on retained profits to 42 per cent. or 52 per cent.
  Those factors do not apply on the Continent, where there are not the high levels of tax that apply in Britain. Therefore, the identical trading operation on the Continent is carried out by an individual whereas in Britain it is carried out by a company. I urge the Minister to recognise that that is an enormously important difference. It means that the same trading operation on the Continent is carried out without all the company law with which it is necessary to comply in the United Kingdom. That makes it doubly necessary that we should find a way as soon as possible of exempting the very small business from having to comply with the requirements of company law. I have in mind the requirements contained in this Bill and in Acts that are now on the statute book.

  985
  I am reinforced in my view by the figures for private and public companies. In 1976 there were 643.364 private companies and only 16,700 public companies. I calculate that on that basis public companies represented only 2·4 per cent. of the total number of companies and the private companies 97·6 per cent. It is private companies with which we should be more concerned. It is significant that it is the private companies that are not given any concessions of significance in the Bill. The House should be concerning itself very much with the 97·6 per cent.
  I discovered today a horrifying fact. The accelerating decline of the small business sector is illustrated by the fact that the 643,000 private companies in 1976 had last year shrunk to 581,360. That is a dramatic drop in the number of small trading companies. It is a serious matter that underlines the fears and worries to which other hon. Members have also given expression.
  An unlimited company may trade in exactly the same way as a limited company, it may do exactly the same job, it may be of exactly the same size and have exactly the same number of employees, the same number of creditors and the same number of activities, but it will not require disclosure. The moment that it becomes a limited company, it will require disclosure. What is it that has so suddenly changed? The introduction of limited liability was for the purpose of encouraging outside investors to place their money in a business. Surely that is something that we should try to encourage. We should not erect barriers as soon as someone puts his money into a business.
  The exempt private company status was abolished in the 1967 Act. That was a retrograde step. It is interesting to read the reasons that led the Jenkins committee to take that view. The report states that it was
  "necessary to protect those who trade with and extend credit to limited companies."
  What led the committee to that conclusion? Reference is made to a "practical argument" that was put to it from the National Association of Trade Protection Societies. Apparently that society would find it embarrassing if it had to ask for
  986
  individual companies' accounts rather than obtain them at the companies registration office. In other words, for the convenience of a series of companies that give credit ratings we have introduced the requirement of filing and disclosure for small family businesses.
  That may appear a small matter, but I assure the House that it is not. For example, competitors from abroad are able to calculate the exact profit margin of a large one-product company. They will know exactly how much to undercut it while the one-product company will not be able to obtain that information about its competitors' activities. That is a powerful case for the Government to get off their backsides and start tackling the problem instead of going on and on consulting.
  I began by saying that the sole trader and the partnership have only the minimum of Government interference. Clause 66 enables the Government to start charging fees for the registration of a business name. On what basis will the fees be charged? Will the Minister explain when he replies?
  I have a horrible suspicion. I feel that the Minister will tell the House that the fees to be charged will be such as will recover the costs of the companies registration office. We have already had a horrible experience in that area with the consumer credit licensing system. It costs £45 to issue one licence for three years. That is justified on the ground that that is the cost of running the office. There is no pressure for efficiency. A vast organisation may be built up and. whether it is efficient or inefficient, no pressure is put upon it. The bill is picked up by the chap who wants to have a licence.
  I hope that the Minister will say whether the same is to happen with business registration. If it is, that is highly unsatisfactory. Perhaps he will also assure us that the level of fee increase will be in accordance with the Government's own control over prices and be limited to 5 per cent., or whatever may be the appropriate figure.
  I come now to the other question which I wish to ask the Minister. Clause 46 says that directors must have regard to employees. Clause 64 empowers directors to take account of employees and

  987
  reverses the Parke v. The Daily News Ltd. case. Does that mean that in the winding up of a company employees may have some form of right in terms of the assets of the company either as a prior charge over or equal to that of the shareholders? If it does, it is introducing a very serious new concept. It is particularly serious because anyone who is considering investing in a company will say to himself "If this goes wrong, not only will I not get back as much as I expected, but what is left will have to be split with the workers in the business." The House is entitled to a clarification of the extent to which the Parke v. The Daily News Ltd. case is reversed and the effect of those two clauses taken together.
  With those comments, I urge the Minister to come forward as soon as he can with some protection for the smaller trading company.
  6.40 p.m.
  Mr. Dafydd Wigley: May I join in the general congratulation and welcome to the new Secretary of State for Trade? He must be feeling very much at home in this debate having the empty ranks of his own party behind him. That became a familiar scene for him in the devolution debates last year, and presumably it shows that there is not much enthusiasm for this Bill among Government supporters any more than there was for the devolution Bills.
  I welcome the Bill in general, though there is very much a mixture of contents in it. I suggest that the Bill probably lends itself better to Committee stage work than to a Second Reading debate since it has such a variety of elements within it. I have no doubt that in Committee at least there will be more Government Back Benchers present than there are to take part on Second Reading.
  I welcome particularly the clamping down on insider dealing which has been the subject of so much discussion. I also welcome the Parke v. The Daily News Ltd. reversal in clause 64. although it opens a hornets' nest of questions when taken in association with clause 46. I can see us getting into considerable difficulty about how we interpret clause 46 in that context and in a number of others.
  The protection for minority shareholders and the prohibition of the distribution
  988
  of unrealised profits are both obviously to be welcomed.
  I notice that much of the Bill follows the EEC second directive, and, of course, there is much of that which commends itself in terms of reorganisation within a European dimension. But that in itself does not necessarily create a wider home market, and a wider home market in itself is not necessarily good. We read in today's newspapers, for instance, about the implications for the washing machine industry in certain parts of Wales as a result of imports of Italian models, possibly at below commercial price. We can get problems as well as benefits from having a so-called home market on an EEC dimension.
  We have been paying attention to the second directive in the Bill, but the question that comes immediately to mind is what has happened to some of the other directives which are in the pipeline. We have a hotchpotch of directives and legislation which have either just come or are about to come in relation to company law. They will result in a piecemeal situation for a number of years, and it will be very difficult for those who are responsible for applying the law.
  Somewhere in the pipeline, we think that there is a Bill on industrial democracy. Inevitably that will have repercussions on the thinking behind clause 46 in this Bill—the responsibilities of directors towards employees as well as towards the holders of risk capital. But, until we know which way we are moving in that industrial democracy context, inevitably there will be a question mark hanging over the implications of clause 46, and there will be a need for a massive consolidation of company law when we have got through not only this Bill and the Bill on industrial democracy but also however many draft European directives become firm European directives. I suggest that after we have had two or three years of doing this we shall need a period of legislative truce to try to get the laws into perspective.
  I want to pay special attention to clause 46, which touches on a matter of Gargantuan proportions and is a very much overdue change. The law in relation to employees' rights is a generation behind the times. The reality of industrial life is that a director would be plain daft if he did not consider the interests of

  989
  the employees. This is the reality of life, and it reflects a failure of a majority of companies to recognise that it has to be embodied in legislation even though it is embodied in a wishy-washy way in clause 46.
  Historically, we have an unacceptable position where directors are answerable to shareholders and to shareholders only. The term that was used fairly widely in discussion of the Companies Act was "stakeholder". If we think in terms of a stakeholder rather than a shareholder, there can be very few who would doubt that the employee was as great a stakeholder in the company as someone with a limited amount of risk capital in that company. I suggest that the work force, by which I mean the employees—bluecollared and white-collared, managers and managed—have a greater stake in a company's well-being than do most of the shareholders.
  Let us consider the man who is 50 years old and who is put on the scrap-heap because of the closure of a factory. He stands to lose more than a man who may have £10,000 in equity in that company. The redundancy provisions which have come through the Employment Protection Act and other legislation largely exist in recognition of this fact. It is not good enough to compensate men because the present structure of companies is loaded against them.
  We see an example of this thinking in the Bill. We see the reversal of the Parke v. The Daily News Ltd. case, but we are still playing with the manifestation of a wrongly structured economic system rather than trying to get a genuine radical answer which will go to the heart of this problem.
  Even now, a majority of the shareholders in what will be known as public companies know nothing about the companies nor care very much about the employees. They are distant shareholders of the large companies to which we are referring—the "public companies" as they will be known after this redefinition. Very often these are institutional investors. Others are among the plethora of remote equity holders.
  Although shareholders theoretically elect and dismiss directors, in the over-
  990
  whelming majority of companies we have a self-perpetuating oligarchy which goes on from year to year and from generation to generation—[HON. MEMBERS: "Oh!] That seems to amuse Opposition Members. However, they must know that it is true. Unless something goes wrong in a company, there will be very little involvement from the individual shareholders in the election of new directors I suggest that they are self-perpetuating.
  Clause 46 exists because the Government and possibly the Opposition are uneasy about the present answerability and responsibility of directors. But the clause is ineffective because the Government are unwilling to act meaningfully to change the status quo in a radical way. Clause 46 is a hotchpotch of wishy-washy good intentions and deliberately avoids a radical shift of responsibility.
  It is a great pity that some of the thinking in the draft fifth directive cannot be taken into account. In the larger companies—those with more than 500 employees—we need a fundamental change in definition so that the employees can be regarded as having a very pertinent say. The draft fifth directive suggests that at least one-third of the supervisory boards of such companies should be elected by employees. That has not been welcomed on this side of the Channel. I suggest, however, that that at least is looking towards a radical answer. The answer should be in that direction or in that of making employees members of the company or something along those general lines, rather than having the present wording in clause 46 where there is some sort of responsibility put on directors but where it is not spelt out. When it comes to trying to sort it out in the courts, I do not know how it will be done. For every Daily News case that there has been before, there will in future be a dozen cases trying to get sense out of these provisions.
  Mr. Parkinson: Before the hon. Gentleman sits down, will he do the House a favour and pronounce those words in section 69 which are the Welsh for "public limited company", because they have been puzzling me?
  Mr. Wigley: I am sure that there will be plenty of opportunity in Committee to pronounce not only those words but

  991
  a number of amendments that we can put forward to ensure that there is adequate Welsh content. We are delighted to see the interest of the Conservative Front Bench in this matter. I hope this interest will become evident in other directions as well.
  By the European draft fifth directive, companies which employ fewer than 500 people will still be appointed by the meeting of shareholders. I would suggest to the House that the only effective way of ensuring that
  "the interests of employees generally"
  are given due regard is for the directors to be appointed by an electoral college in which employees have a majority of voting power. Safeguards to ensure that at least one director is a nominee of the shareholders in the same way as one director is the nominee of employees should be built into the procedure, but the balance should be elected as the best men to steer—I use the term used by the Conservative Front Bench—the company as a whole. An effort should be made to get the men who are most acceptable to the company as a whole from an electoral college which includes a majority of employees but also includes the voting power of share capital. Until we get that sort of restructuring in the long term, I do not believe that we shall have industrial harmony. I believe that we have to eradicate the fundamental causes of divisiveness enshrined in company law in the monopoly of power given at present to shareholders.
  I want to see a reform of the economy where we have work people employing capital rather than vice versa in what might be called the mature bureaucracies within our very large companies and corporations.
  Mr. George Robertson: It is most refreshing to hear such radical talk from a nationalist party. It is something we would find very unusual in my part of Great Britain. How does the hon. Gentleman square these radical aspirations with the fact that the primary justification for his party is home rule for a part of the country and that that would be even less likely to introduce radical innovations in company law than would the Parliament of the United Kingdom?
  Mr. Wigley: Obviously, the hon. Member is not very familiar with Welsh politics. If he were, he would know that
  992
  much of the radical thinking that has pervaded not only Wales but his own country, Scotland, has emanated from Wales. I would mention only Robert Owen, who went up to Lanarkshire. What we want is the power to get on with those radical policies in Wales. We believe that we would obtain a much greater majority for that in Wales than in this House or in the Scottish Assembly.
  I am talking about devolution of power, bringing power as close as possible to the people in industrial terms just as we seek it in constitutional terms. This trend is going through the whole of the Western world, it is a movement away from vast centralised organisations, economically and politically. It is a trend against mass economic organisations in terms of nationalised corporations and supranational companies. This is a trend that runs right across previous patterns of the economy and political structure.
  The time has come when we shall see movement in this direction. I am advocating giving much greater power to employees over directors, effectively and constitutionally. That is the converse of centralised State ownership. It maximises the devolving of power to the hands of individuals, away from Governments and City institutions. There need to be safeguards for small companies, and the Government have recognised the need for special treatment of small companies in some of the incentives of which we have heard in the last few days. This is something that more and more people are recognising.
  It is only when we face up to the reality of industrial power as it exists in our major manufacturing companies that we shall get legislation which makes sense and will be acceptable. Clause 46 is a charade. It is a cosmetic clause giving the appearance of dual responsibility but providing no mechanics for its application. I hope that this can be strengthened in Committee, and I wish the Bill well. I hope that the time will come when we can consolidate the Companies Acts to answer the problems of the 1970s, although it looks as though it will be the 1980s before that happens.
  For the benefit of those on the Conservative Front Bench, I shall refer to clause 16, line 21, which reads:
  "(c) the alternative for 'cyfyngedig ' is the abbreviation 'cyf.'; and

  993
  (d) the alternative to ' cwmni cyfyngedig cyhoeddus ' is the abbreviation ' c.c.c.'."
  which, I assure them, is the correct Welsh pronounciation.
  6.57 p.m.
  Mr. Ian Wrigglesworth: I should like to welcome the Secretary of State to his new office on the Front Bench. My only disappointment is that he has arrived too late for me to convince him of some of the things of which I was not able to convince his predecessor.
  I join other hon. Members in welcoming the Bill. I am sorry that it was not possible to introduce it earlier. It contains measures which are long overdue, particularly those in part V to which I want to refer, and also a number of other items which have been awaited for a long time and which will be widely welcomed.
  Before going on to comment on part V, I should like to refer to clause 46, which the hon. Member for Caernarvon (Mr. Wigley) discussed at some length. Some of his criticisms and comments were probably premature. Certainly in the trade union movement, in my experience, and wider afield than that, the provisions contained in the clause, recognising as they do the rights of employees, will be widely welcomed. It has been felt for a long time that the position of shareholders has been much too prominent in company legislation and that, in this day and age, reference to employees was long overdue. Clause 46 puts that right and will be welcomed.
  It is premature to discuss the whole issue of industrial democracy, but I hope that before long in this Session of Parliament we shall have an opportunity to do so. I shall want to say a few things about issues like single status within industry and many other matters that affect employees in companies and the future prosperity of companies in relation to their management and control. I should declare an interest as a member of the co-operative movement and a Co-operative-sponsored Member of Parliament. The co-operative movement broadly welcomes the Bill and has a number of points to make, but these are more appropriate to the Committee stage.
  However, the Co-operative Productive Federation has made one point that I should like to raise. It is one of the
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  functions of the Co-operative Development Agency, which has been established, to explore ways and means of converting conventional enterprises into co-operative enterprises.
  The Industrial and Provident Societies Acts and the Companies Acts provide for the conversion of a company into a cooperative, but co-operatives and companies are, of course, different organisations in law. It would therefore be a convenience if a change were made to company law so as to create a special class of co-operative company.
  I believe that the Bill will stop the formation of new companies limited by guarantee with a share capital, as this form of organisation is not, I understand, often used. It would be wise for the Minister to take another look at the clause since that form of company may be ideal for the purpose of converting companies to co-operatives,' which matter is frequently raised these days, and not only when companies are in difficulties. If that form of company could be used as a halfway house between a joint stock company and a co-operative enterprise it possibly ought to be retained. I hope that my right hon. Friend the Secretary of State will look at that in consultation with representatives of the Co-operative Productive Federation.
  The provisions of part V are of the greatest interest to me. For a long time I have felt, with certain of my hon. Friends, that there is a need for a statutory body to supervise the securities industry in this country. I was disappointed when the Government decided not to establish a statutory body but to allow the Council for the Securities Industry to be responsible for supervising and policing the Stock Exchange and the other parts of that industry.
  I was disappointed to see that, the CS1 having been established, the Stock Exchange recently seems to have been backtracking on its commitment to the need for the legislation contained in part V. In case hon. Members have any doubts let me remind them what the takeover panel and the Stock Exchange said on the matter in 1973. A statement issued read:
  "In cases where inside dealing is suspected. however, both the Panel and The Stock Exchange are hampered not only by nominee trading but by the absence of any statutory power to interrogate or demand production of

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  documents as well as by the fact that no statutory defence of qualified privilege yet exists to protect any possibly defamatory public statements they might make in connection with these matters. It is to he remembered also that the Panel only has jurisdiction over dealings occurring in the context of a takeover or merger."
  The statement went on:

  "The Panel and The Stock Exchange believe, however, that the new provisions, which they suggest should be introduced into the criminal law, should be enforced in the same manner as other criminal offences under the Companies Acts—that is to say, by the Police authority which in London would often mean the Fraud Squad."
  I remind hon. Members of that statement because there has been some suggestion that the Stock Exchange's commitment to part V is now somewhat weaker and that it has some doubts about these provisions. I greatly welcome the provisions. I do not agree that there is no need for them or that they will be ineffective. I hope that any suggestion to that effect will be adequately refuted by the quotations that I have given from that 1973 statement.
  One of the problems highlighted by part V is the difficult relationship which may arise as a result of there being both a voluntary and a statutory method of supervising the securities industry. If this dual function is to be allowed to come into operation—I oppose it because I prefer it to be wholly statutory—we have to ensure that the right relationship exists between the two respective bodies from the start.
  We have to consider where jurisdiction begins and ends. I understand that the Stock Exchange carries out about 2,000 investigations into price movements, and one wonders who will initiate action by the Board of Trade inspectors and what means there will be of deciding whether action is to be taken under part V, given the existence of the Stock Exchange Council, the takeover panel and the Council for the Securities Industry. I hope that my hon. Friend the Under-Secretary of State will comment on the sort of relationship that he envisages between statutory and voluntary bodies.
  People might refuse to co-operate with the voluntary bodies so as not to prejudice legal proceedings. How would that problem be overcome? Does my hon. Friend envisage that Department of Trade staff will work in the Stock Exchange or with the Council for the Securities
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  Industry on price monitoring work and other operations affecting this area? Or does he envisage that there might be a joint committee to decide when action should be taken and by whom? There is an area of uncertainty here which could jeopardise the success of the proposals in this part of the Bill and the activities of the voluntary bodies.
  One other factor which may well jeopardise the success of this part of the Bill and allow insider trading and other activities to occur is the foreign secrecy laws. If one considers the number of cases which have recently occurred—in particular I refer to the Dunford and Elliott takeover case—one realises that there are grave difficulties when people are purchasing shares in a company through institutions that are shrouded in the secrecy of foreign banking and company law.
  With the Dunford and Elliott takeover the Stock Exchange investigation found that 105,000 Dunford and Elliott shares had been bought by three Swiss banks. The Stock Exchange explained that in correspondence over many months the takeover panel executive had been told by each of the banks concerned that the Swiss banking laws prevented them from disclosing to third parties the identity of their clients without the clients' permission.
  At the request of the panel the banks sought the permission of the clients for their identities to be disclosed, but in each case the clients refused to grant their permission. The banks thus have had no alternative but to decline to name their clients.
  That clearly makes it virtually impossible for the takeover panel or the Department of Trade inspectors to discover who is responsible for such transactions.
  Mr. Anthony Nelson: The hon. Member is dealing with a most interesting matter. What is he proposing? In Switzerland in particular, there is some change afoot with regard to criminal dealings or criminal deposits which may be placed in Swiss banks, in order to provide a degree of openness which hitherto has not existed. However, with civil problems any openness has been strongly resisted. The hon. Member seems to be proposing that where there is no suggestion of either criminal or civil discontent

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  the holdings should in some way be open. Surely that would be impossible and improper.
  Mr. Wrigglesworth: I shall be dealing with the solution in a moment. I believe that the situation to which the Minister referred earlier this month is that the Securities and Exchange Commission in the United States has an agreement with the Swiss Government, but that it applies only when either side is pressing criminal charges. That, of course, may not be possible unless the information that is being sought is obtained. It would therefore be impossible to pursue the matter unless some other policy was adopted. I wish to come to that now.
  Mr. Clinton Davis: My understanding from certain discussions which I had with some SEC officials in New York was that they believed that there was some prospect of improving the situation as a result of the dialogue which they were having with the Swiss authorities, but I am not sure how far that has been taken by the SEC. What I have agreed to do is to write to it to see what progress is being made. Naturally, if some progress can be made from its point of view, there is no reason why we should not be able to do likewise.
  Mr. Wrigglesworth: I am grateful to my hon. Friend for that information. Clearly, if the present state of affairs persists, there will be a major loophole through which people could use Swiss bank accounts to launder deals which would go straight outside the provisions of the Bill. It seems to me that the Government must obtain an agreement with the Swiss Government that the information required would be provided. I suggest that the sort of deal which the SEC has been discussing with the Swiss Government would probably not be adequate, and historically, certainly, there is no reason to suppose that our Government would be able to come to an agreement with the Swiss authorities on this matter.
  What I suggest, therefore, as the only solution to this problem is for the Government to introduce a measure to stop deals in British-registered securities by institutions which are not prepared to recognise our disclosure laws. That would take care of it. It might give rise
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  to difficulties and, obviously, there would have to be consultation about it, but if the Government were to ban deals in British-registered securities by institutions which were not prepared to recognise our disclosure laws the problem would be overcome. I say frankly that if we are to stop a coach and horses being driven through these provisions, I foresee that action of that sort by the Government may well be necessary, and I shall be grateful to have the Minister's comment about it.
  As I say, I regard the provisions of part V as most important and necessary. I am glad that the Government are pursuing this matter now. I wish that it had been possible for them to agree to having a statutory body, and I hope that the relationships between the Department of Trade, on the one hand, and the Council for the Securities Industry, the panel and the Stock Exchange, on the other, will be so good and will work so smoothly that my fears prove to be unfounded. I shall be delighted to give them a fair wind and see how they operate, but I shall watch closely to see whether loopholes of the kind which I have just described —the lack of co-ordination and the foreign secretary laws—give rise to the problems which I foresee. I hope that it they do the Government will not be unwilling to look at the proposal for a full statutory body at some stage in the future.
  7.12 p.m.
  Mr. Paul Dean: I was interested to hear what the hon. Member for Thornaby (Mr. Wriggles-worth) said about the difficulties which could well arise under the Bill with the relationship between the voluntary system and the proposed statutory system. He made some noteworthy points on that matter, and, although I believe that he and I may arrive at somewhat different conclusions, I shall return to it later
  My first question is whether the Bill will work. It is one thing to enunciate general principles, but it is quite another to translate those principles into practical and sensible rules.
  There has been a good deal of discussion already in the debate about the position of company directors. I accept, as do most of those who have spoken thus far, that there is a case for codifying

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  in statute law the duties of company directors. Indeed, it may well be tidier to have provisions such as those in the Bill than to have the present combination of statute law, common law and case law. But again I ask: can these provisions be sufficiently flexible to cover all the many aspects of the working life of directors? Many doubts have already been cast on the answer to that question, and I share those doubts, including those expressed by my right hon. Friend the Member for Crosby (Mr. Page) with his great legal knowledge of these matters.
  The subject of insider dealing has figured prominently in the debate. We all accept, of course, that the improper use of confidential information for personal gain is wrong, but is it possible to define insider dealing so that the guilty are caught but not the innocent? Can we set a legal definition which will stop the misuse of confidential information without gumming up the proper working of the financial markets? My hon. Friend the Member for St. Ives (Mr. Nott) made some telling points about that.
  Plainly, the definition of information in clause 57 is unacceptable. I believe that to be generally agreed. It is too wide, it is too general, and in its present form it will almost inevitably call in question the legitimate and, indeed, essential activities of investment advisers and analysts, institutional shareholders and others.
  Quite rightly, in my view, the Council for the Securities Industry and the Stock Exchange have made a powerful case for a much tighter definition. But I go further. I doubt that it is possible for any legislation to distinguish satisfactorily between the proper use of information and abuse. I believe that the road on which we are setting out under the Bill, with the best of motives, may well lead to more harm than good. I should prefer to see us build on the long-established disciplinary procedures and codes of practice which already operate in the Stock Exchange, in the Panel on Take-Overs and Mergers, and now, of course, in the new Council for the Securities Industry.
  Surely it is reasonable to give that system time. What is the answer to the question put by my hon. Friend the Member for St. Ives, which I now repeat: if more power is needed—I
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  accept that that is so—why not give statutory back-up powers to the CSI? May we have an answer to that? Has that approach been considered, and, if it has, what were the reasons for its rejection?
  To put it in another way, my view is that there is no effective substitute for the personal responsibility and ethical standards which an individual in a position of trust imposes on himself and which his conscience monitors. It is that rather than the law which is the key, and has been over the centuries, to the reputation and the success of the City.
  Of course there will be a few bad hats, but the first line of defence should be the professional bodies concerned. Discipline by the professional bodies over their own members is better than regulation from without. It is quicker, it is less remote, and there is a strong personal interest on the part of the professional bodies on the old principle that one bad apple can turn the whole barrel bad unless effective and speedy action is taken.

  What I suggest, therefore—this is where I take an approach different from that adopted by the hon. Member for Thornaby—is that the law should be used to reinforce and not to supplant the sanctions which are imposed by conscience and by the professional bodies.
  This is very much a Bill for Committee, but I wish briefly to make four general points. The first concerns company directors. A lot of doubts have already been expressed about this part of the Bill, but if it be right to attempt to codify in statute law the duties of company directors, what about pension trustees? I am a company director and a pension trustee, and I have no doubt from my experience that under comparatively recent legislation I am far more accountable as a company director than I am as a pension trustee.
  I am not suggesting that the Bill should be extended—it is perhaps too ambitious a project already—but I put one suggestion to the Government: if they think it right to make this attempt to codify the law governing company directors, some action, surely, is required in regard to pension trustees, the law here being much more obscure and more complex. My proposal is that the Government should ask the Occupational Pensions Board to

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  draw up a code of practice to assist in guiding pension trustees in the large and growing responsibilities which they have in modern times.
  My second general observation is about drectors and employees with shares in their own companies. I presume that the House welcomes the concept of wider share ownership in industry. But it will be extremely risky under the Bill for directors and employees to own shares in their own companies. There is a real danger that this highly desirable development which we all wish to see extended will be discouraged. One of the problems about saving these days is that the overwhelming proportion of saving is done through institutions. That is good in itself, but we wish the individual to play a more prominent role.
  Dr. Oonagh McDonald: I was interested in what the hon. Member had to say about occupational pension schemes. I accept what he said. However, some of his aims could be achieved by trade union representatives being on the management of occupational pension schemes. Is he prepared to accept that idea? How many trade union representatives are involved in the occupational pension scheme of which he is a manager?
  Mr. Dean: I am sure that I should be out of order if I strayed too far into that area. However, I wish to see the widest possible participation in the management of occupational pension schemes, as long as they are not dominated by trade union representatives and exclude representatives who do not belong to trade unions.
  My third general observation is about the position of the institutional shareholder under the Bill, particularly under part V. I am thinking in particular of insurance companies and pension funds. These giants—which is what they are these days—are beginning to stir. They are beginning to take an interest in the policies and efficiency of the companies in which they invest. That is right. It is a development which is controversial, but it is right.
  Surely, that development will be hindered because of the Bill. Let us take the example of a pension fund with a typical portfolio. It will have a wide
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  spread in its portfolio, and if it is of any size it will have professional investment advice. Almost certainly it will have information which is not generally available. What thought has been given to the position of pension trustees who believe that it is right to take a greater interest in the companies in which they are investing? They will be in a difficult position because of part V of the Bill.
  My fourth general observation concerns the international implications of the Bill. It is a truism that the City is an international market. In many respects it is the centre. What thought has been given to information given to overseas investors or the activities of overseas employees? How will they be affected by the Bill? We have not had an explanation. We must remember that we rely increasingly upon invisible exports and financial services overseas to earn our living as a nation. We cannot afford to put those valuable assets at risk.
  My instinct tells me that there are so many bad and unworkable provisions in the Bill that it would be best to vote against it and throw it out now. But my head tells me that there are so many complex issues involved that the Bill would benefit from further parliamentary scrutiny, provided that the Government have an open mind. The Secretary of State showed that he had an open mind. For that reason more than any other I shall give my head the benefit of the doubt.
  7.26 p.m.
  Mr. Peter Viggers: I regret that company law yet again is to be reformed on a piecemeal basis—if "reformed" is the correct word. This time the signs were more favourable. An extensive consultation process was put in hand with accountants and solicitors in the City. The Bill was then wrenched into the parliamentary forum. It was needed to fill the void in the Government's legislative programme. Like Macduff. the Bill
  "was from his mother's womb Untimely ripp'd".
  Yet again we are tinkering rather than reforming. People who are dealing with legislation must examine the Companies Acts of 1948, 1967, 1976 and soon the Act of 1978, if it is passed. Complication

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  proliferates and legislation increasingly becomes by reference to other Acts. Surely it is time that table A of the Companies Act 1948 was revised and republished to take account of revisions. it is most unsatisfactory that we should be putting professional advisers in such a difficult position.
  The Secretary of State said that that company law should be codified. The question is, when? It is never the right time to reform company law. A timetable should be laid down so that we know when it will happen.
  There is a need for consultation with the legal profession, accountants and the Stock Exchange. Many hon. Members have said that there will be much discussion in Committee. We hope that it will be open-minded.
  May we have an assurance that the Bill will not proceed through Committee without proper documentation and proper distribution of it? We are working with a draft of the Bill which is what I call the "wheelbarrow" edition run off on a photocopying machine. The Bill is heavy and cumbersome, and it is not readily available outside the House.
  A number of solicitors and accountants have told me that they would like to comment on the Bill but have found it difficult to get hold of a copy. A partner in one of the largest firms of accountants in the City told me that he had one copy of the Bill. He was not sure where it was but he was waiting for a chance to see it. That is unsatisfactory. We must have an assurance that the Secretary of State will not seek to push the Bill through Committee without copies of the Bill being readily available. After all, the Government have a wider duty than to push through their legislation. Both Ministers involved are lawyers. I hope that they will respect their duties to the profession. I am sure that they will.
  The section of the Bill on the duties of directors has received the most attention. In practice, directors have had regard to the interests of employees. It is right that that duty, which is already recognised, should be codified and put into legislation. As the law stands, remarkable though it may seem, it is contrary to a director's duty to the members of the company for him to pay regard to the
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  interests of employees, if that should deprive the shareholders of an interest in the company.
  I have always believed that it is arguable that a company's pension scheme may not be of great long-term benefit to shareholders, because employees do not perhaps recognise the value of a pension scheme. Therefore, whenever I have been involved in a company—I have been involved in several, as I am now—my first duty has been to ensure that the company has as good a pension scheme as possible. I believe that that is right and proper. It is arguable that a director who insists on these matters is acting contrary to the interests of the members of the company —that is, the shareholders.
  Similarly, there is a duty, which most directors recognise, to ex-employees of a company—for example, to its pensioners. Let us consider, for example, a widow who, because the pension scheme which was in force when the husband was working for the company made no provision for widows, is left in poor circumstances. If the directors of the company quietly and anonymously give some money to the widow of an ex-employee, they may be acting outside their duties to the shareholders, the members of the company. I believe that that is quite wrong. I have always believed it to be wrong that the "members" of a company should be defined as its shareholders.
  I believe that it is wrong that a person can work for a company for 20 or 25 years and yet have no right to attend an extraordinary general meeting of the company when its future is being discussed. I should like to see the category of "member of the company" extended to include those who have worked for the company and those who are working for it. I appreciate that that matter goes wider than the provisions in the Bill, and I do not press it now, but I believe it is wrong that for so long we have allowed the definition of "members" of a company to continue. I believe that it should be extended.
  The question whether clause 46 is correct is a matter of detail. I would prefer to see included in the Bill a clause to the effect that directors should further the interests of the company having regard to the interests of shareholders, employees, pensioners, consumers and the general public. I think that clause 46 is still too

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  narrow. This is a complicated point and ideally suited to discussion in Committee.
  There are other significant points that need to be dealt with in Committee. No reference has been made in this debate to clause 16, which deals with the equity of a company. I regard the restriction in that clause as too broad, because it prevents the issue by a company of equity other than by way of offering it to its shareholders, unless the shareholders have first consented in detail to the way in which their equity is to be issued. I believe that this would be unduly restrictive for companies, many of which wish to follow an acquisition policy based on a limited number of issues of shares to those who are selling assets to the company.
  My right hon. Friend the Member for Crosby (Mr. Page) referred to clauses 54 and 55, which provide that a director must state the name of every person who is known to be connected with him and must take this action within a certain period of attaining office. Among the persons whom a director must state as being connected with him are illegitimate children. However, he does not have to state that the mother of those illegitimate children is connected with him. No doubt it will be only a matter of time before some cynic refers to this clause as a mistress's charter.
  We need to encourage shareholding by employees. I believe that there is common ground among moderate opinion on all sides that the Bill will discourage employees from holding shares in their own companies. The model clause for directors issued by the Stock Exchange requires directors only to buy and sell shares during certain periods. I believe that it is fair that directors should accept that limitation on their movements, because they are privy to special private information. I think that is a reasonable requirement to expect of directors.
  However, we are at the same time hoping to encourage people to buy small parcels of shares in their own company to give them an interest in the concern and a sense of belonging. It may well be inconvenient for an individual well down from board level to inquire whether any
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  information he possesses concerning the company is such as to be regarded as inside information which might prevent him from buying or selling more shares. That person may need the money to buy a house, but he may be prevented from selling his shares because he may believe that he has access to inside information. Therefore, we should look with a jaundiced eye on any extension of the concept of insider trading.
  I wish to congratulate my hon. Friend the Member for Basingstoke (Mr. Mitchell) on a most lucid speech in which he pleaded for special recognition to be given to the very small company. What the Government have done in the Bill as it is drafted is to recognize the distinction in German company law between the concept Gesellschaft mit beschränkter haftung" and "Atkiengesellschaft". However, what we have not done is to recognise the small private company, the corner shop—the company which has been set up because it is more convenient to transfer shareholdings from person to person than through a partnership vehicle. I hope that my hon. Friend the Member for Basingstoke will have a further opportunity to extend his view.
  My hon. Friend also stated that the Bill has a negative approach. It is scarcely credible to me that, of the 130-odd pages in the Bill, 34 pages seek to increase the offences for different types of act relating to companies. This shows the negative style of the Bill. I have already said that I regret that, once again, we are legislating on company law without making a comprehensive attempt to codify and simplify.
  However, there is one particular area where this piecemeal approach is to be regretted. I refer to the Government's failure to grapple with employee participation in a meaningful way. Surely it must now be clear that employee participation is not a concept which can be rigidly imposed by pattern. On the contrary, the better approach is by enabling legislation, permitting and encouraging companies to bring forward ways of involving their own employees in the company's activities. For too long the shrill demands of the far Left and the inflexibility of the far Right have masked the fundamental fact that should be in the forefront of all our minds. I refer to the

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  overwhelming desire among decent, hardworking, moderate people for a feeling of belonging, a knowledge that their views are taken into consideration and their interests safeguarded. After all, the decisions of the employers have an effect on the way of life of the employees, the satisfaction which they derive from work and even their sense of dignity and autonomy as human beings.
  A great deal of the Bill has been sparked off by European proposals. I hope that we can benefit from discussion in the European arena. We need a new spirit, and all those involved in this important debate might find that new spirit in Europe.
  7.38 p.m.
  Mr. George Robertson: I wish to associate myself with what has been said about my right hon. Friend the Secretary of State for Trade, whose appearance at the Dispatch Box earlier today I unfortunately missed. I went to the same school as my right hon. Friend and I have the privilege of representing in this House another area of Lanarkshire. In view of what my right hon. Friend was able to do for our country's constitution, I hope that he will be able to employ the same radical thinking to reform our nation's business life.
  If I had any doubts about speaking in this debate, I was galvanised into a desire to speak by a report in The Times this morning, in which a deputy director general of the Confederation of British Industry described the Bill as
  "another imposition on industry by political theorists whose ideas of business management are largely unsupported by practical experience."
  Perhaps the small and elite group of us here this evening is an indication of the number of us who are either the political theorists or are under attack by the CBI. Many hon. Members on each side of the House share considerable experience of industry, on whatever side, and intemperate comments such as those put forward by the CBI last night do no good to the reputation of that body when it comes to making detailed changes to serious company legislation, which are generally agreed to be necessary at this time.
  However, Mr. Bryan Rigby did not stop at that point. His major preoccupation with the Bill seems to be with clause 46 and the obligation on companies to take
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  into account the interests of their employees as well as their shareholders. The report states:
  "Mr. Rigby said that the Bill unnecessarily sought to place on directors a duty to their workers as well as shareholders. 'We do not want to open the possibility that every board decision could be legally challenged by disaffected employees. There should not be recourse to law just because an employee disagrees with a director's commercial judgment'."
  I think that in British industrial life the debate on industrial democracy is reaching a point where hon. Members on both sides of the House agree that, even if it were not for EEC draft directives, there would be a need to bring into effect some form of co-determination in industry and that our country's future ability to compete internationally may yet depend on our ability as a House and as a country to find a correct formula for involving employees in the affairs of the companies which employ them. I think that the truculent attitude of the reactionaries in industry, who would block every conceivable item of progress which gives workers responsibilities as well as rights, is only holding back the progress which this country desperately needs.
  I came into this House in June of this year, only five months ago, having served for almost nine years as a full-time trade union official with a close interest in the affairs of industry, having served also for almost three years as a member of the largest commercial holding company in Scotland, the Scottish Development Agency, and therefore having seen at close hand some of the examples of industrial mismanagement which exist, perhaps, on both sides of industry in that part of the world.
  At the end of his tirade Mr. Rigby said that employees should not have the same rights as shareholders because this in some way would conflict with a director's commercial judgment. How many times have Department of Trade inquiries over the past few years shown that commercial misjudgment has created conditions in which the employees, unbeknown to themselves, and without any power to change the position, have found that they were the unwitting victims of the mismanagement of the corporation or company in which they were employed?
  I believe that the principle contained in clause 46 is crucial to the future

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  development of the debate on wider participation in industry. It has been comforting to hear from the Opposition Benches, in this very sparsely attended House, comments which show that, although there may be disagreement in detail with the trend that is apparent in British industry, at least it is agreed that the general principle is correct.
  With my experience in industry as a union official, deeply involved in the private sector, I believe that there is a desperate need for a common identity of interest within industry. This applies not just in the private sector but throughout industry as a whole. Unless we are capable of breaking down the class barriers which pervade our whole industrial society, our ability to compete will be in question. It is unlikely that it will appear at all.
  We have industrial relations today which are neolithic because the class base in industry is reinforced every day by those in power and those with the ability to make changes. Until the status quo is changed the ability to initiate in industry will not lie with the trade unions. At present it lies solely and completely with the directors of companies and the management of companies who could, if they wished, take the initiative today. The very fact that we have to build these safeguards into legislation such as today's Bill is due to the fact that industrialists as a whole have not taken the initiatives that most of us would regard as being in the common interest of all members of our industrial community.
  It is unfortunate, perhaps, that the Bill does not go as far as might have been suggested by the White Paper, paragraph of which suggests that the responsibility towards employees should include their statutory right to see the company's annual report and accounts. At the moment that is a statutory right of shareholders. Perhaps it was felt by those who draft these Bills that such a thing is self-evident, but my experience as an economist, employed as a trade union official over many years, was that although it would have been in the best interests of companies commercially to have involved their employees even in this minimal way, they scarcely ever took the trouble to go
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  out and show their employees what was the condition of the company.
  The most common exception to that generalisation was when a company was in trouble. At such times there were many briefing sessions for the unions and meetings with the shop stewards. Accountants were brought in from every direction to explain why the company was going wrong and why "You, friends, are in the sole position of being able to ensure that we get out of the mess." But for the large number of companies that I dealt with that was the exception rather than the rule. It was one company out of 15 that bothered over those years to make sure that its employees were fully aware of the economic circumstances of the company and how their future was integrally tied up with the commercial future of the company.
  Perhaps those who felt that this was an unnecessary detail to go into the Bill will reconsider their attitude. Perhaps it can be done in Committee. This is a small step which would perhaps stimulate some company directors into considering that their employees are as much members of the company as is any shareholder.
  Mr. Tim Smith: Does the hon. Gentleman really think that most employees want to receive about 40 pages of accounts and notes on the accounts? Would they not much prefer a simplified version of the accounts—as is produced now by many companies—which tries to explain in four or perhaps eight pages what the company has been doing over the past year and the position at the end of the year?
  Mr. Robertson: There is a very simple answer to that question. They should get both. In fact, they should get more than that. Employees are entitled not merely to the information that goes to shareholders, and not just to whatever simplification is necessary to make that information digestible for most people in the company. Apart from the financial directors, there are many other directors in companies for whom company accounts are just as much a jungle as they would be to the average employee. Employees should receive as much information as is humanly possible about the company by which they are employed.

  1011
  I hope that the provisions of the Employment Protection Act 1975, which allow extra information to be provided for collective bargaining purposes, will start to work a lot better than they did during the last nine months when I was a trade union official and was attempting to get, from recalcitrant employers, simple basic information with which employees should have been provided years ago. There are companies which provide information, and some have commendable records in this respect, but a vast section of British industry does little or nothing to inform employees about the circumstances of the company. There is an urgent need for that to be done.
  Perhaps it is possible to say that clause 46 is only a small step forward and that more radical measures are needed. Let us hope that the Administration will bring forward more comprehensive proposals for participation and industrial democracy. But it is important to make the principle clear and to have it established within this Bill so that there is no dubiety when the wider debate starts as to which form is more appropriate for participation.
  I have spoken at some length about one small part of the Bill, a part in which I have a considerable interest, as many of my colleagues do. I believe that it is a fundamental part of the Bill and that the principle is not just desirable at this stage but vital for the country's future.
  7.51 p.m.
  Mr. Robin Hodgson: The hon. Member for Hamilton (Mr. Robertson) used one phrase with which I think we can all agree—the need to create what I think he described as a common identity of interest. I am sure that all of us on both sides of the House will understand its importance in British industry.
  I was sorry that the hon. Gentleman went on to describe Mr. Rigby as being truculent. I read the article in The Times to which the hon. Gentleman referred, and I do not think that he was entirely fair. I am sure that Mr. Rigby was not referring to the companies which have been investigated by the Department of Trade for malfeasance of one sort or another. I do not think that anyone in the House or outside would defend that. I think that he was considering the position of a com-
  1012
  pany with, say, two plants of equal size, one of which must for various reasons—a change in the world market or whatever—be closed. The employees in the plant to be closed would undoubtedly disagree with the directors' commercial judgment. The question is how that would be treated under clause 46. I think that Mr. Rigby was referring to that sort of commercial decision. Certainly hon. Members who have spoken on this point were referring to this type of dilemma and difficulty.
  Therefore, I do not think that the hon. Gentleman was entirely fair, though I understand what he was driving at, when he categorised those who opposed clause 46 as being interested only in returning to the dark ages of industrial relations. But I take his point about the common identity of interest. I should like to expand it a little, because it seems to me that one of the themes underlying the Bill is the need for incentives.
  We on the Conservative Benches have been agreed for years on the importance of small business and the need to increase the rate of small business formation. We are convinced of the need not only to create small businesses but to grow small businesses into big businesses —in the hackneyed phrase, to create the blue chips of tomorrow. Therefore, when we consider the Bill we must think how those two processes—the creation of small business and the creation of bigger business out of small businesses—will be affected by its proposals.
  Two points are worth making here. The first concerns the lack of exemptions for private companies. We have already talked extensively about clauses 44 to 46. My hon. Friend the Member for Gosport (Mr. Viggers) referred to clause 16. I would extend what he said to cover clauses 13 to 16. It seems to me that the pre-emptive rights set up by those clauses are not applicable to the company with private status. Clause 54, giving the definition of insiders, also seems to be inappropriate to private company status.
  The Minister may say that some of those clauses are required even for private companies because it is necessary to protect the minority shareholders, and I understand the force of that argument. But the Secretary of State referred to clause 65, which, he claims is intended

  1013
  to build up the statutory rights of minority shareholders and to improve their protection at law. Rather than try to broad-brush all small companies with these rather onerous provisions, it would be better to concentrate on improving the protection at law available to minority shareholders through the operation of clauses like clause 65
  I am particularly disappointed in the light of what the Under-Secretary said earlier about the forthcoming potential changes in company reports whereby there was a possibility—admittedly, he said only a possibility—of creating three stages of companies: full public company, an intermediate stage and private company, that there has been no way of creating a similar three-tier status within the legal framework in the Bill before us.
  It is a big step from one stage to another, from being a private company to being a PLC, as it will be known, in future. I wonder how much this may act as a disincentive to the entrepreneurs, to the managers who are running the small private company and who may think of moving to PLC status—" It is one more hassle, one more set of forms, one more set of regulations to comply with." It would be easier to do this in two stages rather than one, thereby perhaps easing the way for the growth of smaller companies into larger ones.
  But we also need incentives within our large companies. Here I take some issue with the increasingly onerous provisions placed upon directors. With the Bill as it now stands, in many cases it might be better to be a senior manager of a large industrial company than a director, because the step up from being the senior manager to being a director could involve severe additional penalties and responsibilities. I am sure we all agree that it is very important that ambitious, able people with drive and brains should be encouraged to go right to the top of British industry rather than have disincentives that would cause them to restrict their careers before they had reached their fulfilment.
  The second major consideration which I want to raise concerns drafting and definitions. The broad nature of the drafting has many weaknesses. There are plenty of examples. The only one that I should
  1014
  like to refer to in detail is in clause 19(1), where there is reference to "goodwill and know-how" in dealing with the payment for share capital. Since the use of goodwill and know-how as a means of paying up share capital has been a loophole extensively used in the past by company promotors, there is considerable work to be done to improve the definition. I find no definition of goodwill and know-how elsewhere in the Bill to overcome that weakness. There are many other such weaknesses of a similar nature elsewhere which will no doubt be considered in Committee.
  I turn now to part IV concerning "Duties of Directors". Those duties have been mentioned extensively by other hon. Members and, therefore, I shall refer to them only briefly. Clauses 44 to 46 tend to fall between two stools. Clauses 44(1), 45(1) and 46(1) seem to try to give a quick summary of the situation, giving a broad-brush application, but further subsections are appended which tend to try to specify the effects of the main clause. This muddies what might have been a clearer, concise statement of intent.
  In any case, some of the clauses have undesirable consequences. It seems to me that clause 44, dealing with the fiduciary duty of directors, and particularly subsection (2), emphasises the role of the director as a trustee rather than as a business man. It says:
  "A director of a company shall not do anything or omit to do anything if the doing of that thing or the omission to do it … give rise to a conflict, or might reasonably be expected to give rise to a conflict".
  That seems to me to emphasise trustee status rather than entrepreneurial drive and ambition, and it will require considerable refinement in Committee.
  My hon. Friend the Member for St. Ives (Mr. Nott) said all that needed to be said about the phrase "reasonably prudent person". A director must be more than merely a "reasonably prudent person". He has access to information. He has skills and experience which are not expected from the "reasonably prudent person". One has only to consider the range of decisions, the expertise and knowledge required to take decisions about a multi-million-pound investment in, say, a chemical complex to know that there must

  1015
  be a considerable extension of the words "reasonably prudent person".
  Now I return to what the hon. Member for Hamilton said. In clause 46 we need a definition of employees' and members' interests. I can see a situation in which a board will be under fire in deciding between a 20 per cent. pay increase to the employees and a dividend increase to the members, the shareholders in the business. A director could be attacked on one side by a trade union or workers' organisation and on the other be the subject of a minority shareholders' suit.
  What would be the position of the auditors in certifying the accounts if they had reason to believe that the directors might not have taken full cognisance of the requirements imposed on them by clause 56? My hon. Friend the Member for Maldon (Mr. Wakeham) referred to that as a breakdown of communication between companies and shareholders and between managers and employees. I wonder whether it is not greatly accentuated by the way clause 46 has been drafted.
  Insider trading also has been extensively aired, so I shall touch on it only briefly. I join the condemnation of the phrase relating to information that is "not generally available" as the basis for prohibition in dealing with securities. The phrase seems to be far too harsh and to rest on far too strict a definition. A shareholder or potential investor should not be prohibited from or restricted in digging. If I choose to spend my time travelling around the country checking how certain products are selling in supermarkets, that is my business. If, as a result of my conversations with girls on check-out counters or supermarket managers, I am able to get certain information about what is happening to a company, that is something that I am entitled to gain by reason of my inquiry. The phrase "not generally available" is inappropriate. I would prefer to have it replaced by words such as "confidential to a company".
  If this problem applies to members of the general public, it applies even more to directors, particularly of small companies. An article in the Financial Times on 20th October said:
  "Directors of ICI and BP—large companies, actively dealt in and followed by armies of analysts—would not tave to worry. But for
  1016
  directors of Warrington Widgets, it could be a different matter."
  A small company, perhaps a one-product company, selling to a limited range of customers, is always in a vulnerable position because there is only a fairly limited amount of information to be gathered. Once one is able to obtain information from customers and suppliers by diligent searching, one is in an insider position. That is unnecessarily harsh and restrictive.
  Finally, there are two omissions which I regret. The first is the question of introducing the concept of no par value shares which has been fluffed time and again in the past and is fluffed once more in the Bill. This concept would get us away from some of the difficulties experienced over rights issues at a discount; for example, where a company has got into financial difficulty, its shares have gone below par value and it is unable to raise fresh finance because it would have to issue shares at below par value.
  The Under-Secretary may say that there have been plenty of problems in the past and that certain additional difficulties would be caused and loopholes provided if we created no par value shares. However, I suggest that most of those loopholes exist if a company is prepared to use partly paid shares. I wish that the nettle had been grasped by the clear creation of the no par value share concept.
  The second omission relates to companies being able to buy in shares—in effect, run a capital distribution scheme of their own—on the basis of the concept of Treasury stock as used in the United States. I accept the need to prevent any fraud on creditors by stopping the owners of a business draining out cash and thereby defrauding creditors or preventing their due payment, but the present legal method is far too complex to allow it to he used effectively.
  It should be easier to get money back to shareholders on a capital basis if the business is successful, or, more important, if it starts to find that the market for which it was created is declining. There are plenty of instances in this country where the industrial sub-structure of the country would have been much better served if the original capital subscribed to

  1017
  a business had been returned to shareholders for them to invest in faster-growing enterprises.
  Both sides of the House have accepted this concept as regards income with the creation of the advanced corporation tax and dividend tax credit schemes which mean that, since there is encouragement to companies to distribute profits and get them into the hands of shareholders, the shareholders are able to reinvest the money more effectively. We need to set up a more effective mechanism for parallelling the ACT example in profit and loss accounts with a similar basis for capital and allowing a company to buy in its shares.
  One of the reasons for the flood of acquisitions in recent years is that large companies have built up cash balances which they have had to spend somehow. If they had been able to distribute that cash to their shareholders and use it to buy in their shares, we would have had, potentially, a far more effective regeneration of British industry instead of allowing large companies to continue to buy more and more small companies, many of which have little or no connection with the original business for which the large company was set up.
  The Under-Secretary will no doubt refer to some of the legal consequences of such a departure from past practice, but EEC countries have mechanisms for such schemes. Holland, in particular, has a method of allowing companies to buy in their shares. As a last shot on this issue may I say that I cannot understand why a company should be allowed to buy in its own fixed interest securities, even securities convertible into ordinary shares, and not be able to buy in the ordinary shares that underlie that convertible stock?
  The Secretary of State said in his opening remarks that expectations in the area of company law are altering fast. However, the House should not allow itself to be stampeded into altering the law in response to synthetic anger, often whipped up for political reasons. The need to preserve the balance is not always apparent in the Bill. There must be a balance between shareholders and employees, between directors and managers and between public and private companies.
  1018
  If the Secretary of State gets the balance wrong, he will do a great deal of harm to the country's industries in the broadest sense and he will have to accept substantial amendments to the Bill in Committee if the balance is to be maintained.
  8.8 p.m.
  Mr. John Cockcroft: I declare an interest because I work part-time for a firm of stockbrokers and have a happy relationship with the Institute of Chartered Secretaries and Administrators. I also introduced a Private Member's Bill in the last Session dealing with the duties and rights of company secretaries.
  The Bill before us deals a good deal with company directors, but I hope that the position, duties and qualifications of company secretaries will not be forgotten during its passage. No one can prove that if there had been legislation defining the qualifications for company secretaries, some of the company disasters which have occurred might have been avoided. But it seems to be common sense to realise that that may have happened, and it is normal for people in demanding jobs to have been educated or qualified up to a certain standard in order that they may perform their functions. I am not saying that such a provision needs to be tightly drawn or limited to any particular professional body.
  On the question of insider dealing, I feel a real concern that employees and directors may fear to hold shares in their companies or to buy or sell them, and that investment analysts could be inhibited from doing their jobs by the provisions of the Bill. The type of offence would be more specifically defined in this context. It is virtually impossible to define exactly by statute what is "legitimate information". As to journalists, information is often given to investment analysts informally—maybe over a meal —for their background guidance, not necessarily for publication and certainly not for their own personal gain, or for the gain of the firm for which they work.
  It is humanly very difficult, if only in terms of time, to tell all investment analysts and economists working in the City exactly the same things in the same terms. The result could be that directors of public companies could be limited to formal press conferences and seminars,

  1019
  and that they would have to decline informal invitations on the ground that they might let slip something informally which was not intended to be published or to be used for improper gain.
  These matters are generally already dealt with by the rules and disciplinary procedure of the Stock Exchange, especially in relation to company directors. I ask the House to bear in mind the efficacy of analysts and economists in the City and, more generally, the efficiency of the capital market, which is one of our priceless assets. These things are at stake, and they must be carefully considered during the passage of the Bill.
  8.11 p.m.
  Dr. Oonagh McDonald: I and my hon. Friends generally welcome the Bill. However, we recognise that it is triggered off mainly by the need to conform with the EEC's second directive on company law. We also feel that although it provides important alterations and amendments to company law it still deals with that whole area in a piecemeal way. I hope that when the Labour Party is returned to office with a large majority we shall be able to undertake a more fundamental overhaul of company law.
  I want to confine my remarks to two or three aspects of the Bill. I want to talk about the duties of directors, insider dealing and the relationship between directors and employees. Directors' duties are described in clause 45. Providing some sort of definition of the duties of directors is perhaps a step forward, yet Conservative Members have rightly reminded us of the skills necessarily exercised by directors of large multinational companies, for example, when taking decisions involving the investment and control of millions of pounds.
  Clause 45 might be regarded as one which urgently needs clarifying and strengthening in Committee. For example, quite simple but important questions are left unanswered. Presumably Ministers expect these questions to be clarified in case law. For example, there is the question of attendance of directors at board meetings, the delegation of directors' duties, and so on. These questions are left unanswered by the way in which the clause is expressed.
  There are further questions which are left unanswered by the clause. It simply
  1020
  requires a director to exercise care and diligence and to be reasonably prudent. In the past, judges taking that kind of definition into account have been unwilling to substitute, as they have expressed it,
  "their hindsight for directors' foresight",
  and therefore they have been unwilling to regard directors as perhaps being guilty of negligence. The time has now come to regard directors as people who exercise professional skills, to demand from them a high degree of responsibility and perhaps to alter the clause in such a way as to make it possible to accuse a director of negligence. This would discourage people who are asked to and accept a directorship of this or that company for decorative purposes rather than for the exercise of skills.
  What we must bear in mind in looking at the Bill is that when we talk about companies we are often talking about large companies whose decisions affect the lives not only of many employees but of many people living in this country. Indeed, they can even affect the interests and policies of this country. It seems to me that this clause will require careful attention in Committee to make clear the duties and standards to be expected from directors in the way in which they carry out their duties.
  I now turn to the question of insider dealing. The Government have rightly decided to make this a criminal offence and to legislate in such a way as to prevent the occurrence of insider dealing, or at least to catch those who engage in it. At first, legislation of this kind was welcomed throughout the City, but it now appears that there has been a certain change of heart. The somewhat cool reception which this proposal has received from the Conservative Party makes it clear that there are strong doubts in the City and among its friends about whether legislation of this kind should exist at all. For example, the chairman of the Stock Exchange has suggested that now that the City has a new watchdog—the Council for the Securities Industry—there is less need for legislative action.
  It is believed that that new body gives the City more of a chance of putting its own house in order and of practising self-regulation. The Stock Market and the main City bodies are represented on this council. As a result, it is felt that there

  1021
  is no need for legislation and that the City can look after its own affairs. The trouble is that the council seems to move slowly. Very little has been heard from it since its formation earlier this year. When we hear nothing but silence from it we can perhaps have doubts about the City's efforts at regulating itself.
  Others argue against the need for legislation because, they say, we must protect the investment analysts, the stockbrokers, the merchant bankers and even the financial journalists. There are fears that they could be caught by this legislation and that it would be unfair to catch them in this way.
  Mr. Nott: And employees of companies.
  Dr. McDonald: I thank the hon. Gentleman. Access to information not generally available is thought to be too wide a definition and it is felt that this should be narrowed to specific items of information which are not generally available.
  On the one hand, the City declares with at least one of its voices, that this legislation is not necessary and that it will be ineffective, while, on the other, investment analysts and so on suggest that it might be too effective and catch too many people. When one gets different voices such as those complaining about a piece of legislation and coming to quite opposite conclusions, one naturally looks further. With conflicting cries such as those coming from interested bodies one can only assume that they are protecting their own vested interests and are not thinking of the good of the community as a whole. After all, insider dealing can lead to suffering not just by wealthy people but by the small investor. It has done so in the past and therefore Labour Members support this legislation.
  As to the way in which the legislation is framed, it must be borne in mind that those who wish to bring actions on the basis of the Bill when it becomes law will have to think carefully about what they are doing, because there is nothing frivolous about bringing a case to criminal trial. Such actions are not brought unless there is a serious case to answer. Therefore analysts, financial journalists and others need not have too much to
  1022
  fear, unless for some reason they are feeling guilty.
  Mr. Nott: I congratulate the hon. Lady on the skilful and professional way in which her speech is put together. But is it right that the employee of a company—the foreman or the trade union member—who may wish to hold shares in his own business should, under the terms of the Bill, have to prove that he has not committed a criminal offence by buying that share at that time? It would be better if he could buy his shares at that time without having to prove that he is innocent.
  Dr. McDonald: I do not think that that is the way in which the employee would have to answer the charges. There would have to be some strong reasons for supposing that he had inside knowledge which he had used to his own advantage. Those strong reasons presumably would be other than that he happened to have knowledge of a particular kind. According to the Bill as it is framed at present, it must be proved that this was done intentionally in order to get a particular private gain and not that it was done in an accidental way.
  We welcome this legislation. It is high time that we heard from the City, which is all too ready to look at the sins of others—the sins of workers in their many and various aspects. It is high time that the City looked at its own activities and was prepared to say not that it wants to regulate itself, with the suspicion that that engenders in the eyes of others, but that it is prepared to act within the framework of the law as proposed in the Bill.
  There is one matter that concerns me in the Bill as it stands, and that is the policing of insider dealings. I would have liked to see proposals to set up a body similar to the American Securities and Exchange Commission. This could have various advantages over the proposals contained in the Bill. The Securities and Exchange Commission, or the equivalent body, could act with the speed and flexibility which is needed in an area where abuse is found and where circumstances change rapidly.
  Such a commission—let us call it a companies commission, as was once proposed by the Labour Party—would be an independent agency and would be seen to

  1023
  be functioning independently. It would have a continuing role in the control and regulation of company activities. It would oversee the work of self-regulating bodies such as the Panel on Take-overs and Mergers. It would also decide the rules under which such bodies operate, subject, of course, to Parliament's final authority. That would give a degree of flexibility and speed of action which the present proposals lack.
  Such a commission's activities could be extended. The Bill marks only a small extension of company regulation. The freebooting financial climate of 1972–73 and various scandals since then, some of which the Department has investigated but has not quite carried through to the end, indicate the need for more information about company activities. Companies must be made more accountable to their shareholders, their employees and the public. A companies commission would be able to carry out these functions. Perhaps the Government will consider establishing such a body, if not now, at some time in the future.
  The point that we must stress again and again is that companies play an important role in the country's economy. This role is played, in many cases, by a small number of large companies which seem to have considerable freedom to operate, as we have seen over the breaking of oil sanctions against Rhodesia. It is high time that the Government caught up with the activities of such companies and that they did so not out of any desire to do companies down, but to act in accordance with the public interest. After all, the activities of these companies affect the whole of this nation, and not just their own employees or shareholders.
  Clause 46 discusses the relationship between directors and employees, and it has been welcomed on both sides of the House. It rightly says that directors should take account of their employees' interests as well as those of shareholders. It is too easily forgotten that, whereas shareholders invest money in a company, employees very often invest the whole of their working lives and it is not too late in the day for the Government to recognise that fact in the Bill.
  The clause could do with further clarification. How are the interests of employees to be weighed against those of
  1024
  shareholders in any particular situation? Will the Government provide any general guidance or code of practice? Will they add to the Bill by introducing proposals to ensure that employees know whether the directors have considered their interests in the decisions that they have taken? Although directors are required to do so, employees will have to guess whether all the decisions have been announced to them. Would employees have cause to complain if they felt that their interests were not taken into account by the directors? Complaining would require knowledge.
  Mr. Leslie Spriggs: Before my hon. Friend the Member for Thurrock (Dr. McDonald) leaves the point about the relationship between directors and employees I should tell her that a number of hon. Members from this side of the House met the director and chairman of a large company and discussed items which concerned many thousands of workers. We did not get answers to our questions at the time but the chairman of directors told us that he would write to each one of us with the information requested. I asked him one question about one of his factories in St. Helens. It concerned the lack of information that was being passed down from the board to the shop floor. I was promised an answer many months ago and I am still waiting for it. Can my hon. Friend understand the position of workers in an industry such as that? They are asking one simple question—does the firm intend to keep the factory open? Some of those workers have been employed by that firm for 20 or 30 years and they still do not know whether they will be made redundant next week or next year.
  Dr. McDonald: I thank my hon. Friend for those remarks. They bear out what I was saying, because I am requesting that, as well as providing guidance, the Government should add to the Bill by ensuring that employees have the right to know whether their interests were taken into account when the directors came to their decisions.
  My last point relates to something that was in the White Paper but is not in the Bill and this is the provision of copies of the annual report and accounts. Copies of these should be provided to all employees. This would be a small but

  1025
  important step forward, and a provision to that effect should be included in the Bill. We should ensure that all employees have such a right. The hon. Member for Ashfield (Mr. Smith) asked whether employees wanted such information. He wondered whether they would understand it. But it would be a beginning and, as the employees studies the reports or, indeed, the popular versions which some companies provide, they would begin to understand the workings of their companies.
  Sometimes the popular versions of the annual reports are disregarded by employees, because some of these versions are rather more sophisticated than the hon. Gentleman realises. When employees are offered a popular version which suggests that much of the company's revenue goes towards paying them and that there is just a little left over for investment or for providing new stock, they are perhaps just a little suspicious.
  A sensible company would provide its employees with as much information as possible, beginning with company reports and widening out the process so that its employees not only begin to know what kinds of reports and accounts are offered by the company but begin to ask for, and hope to get, more and more detailed information about the way in which the company works. If we are ever to break down the hostility between the two sides of industry, we can do so only by making sure that there is full disclosure of information—barring what might be necessary to conceal for strictly limited commercial reasons—to employees and involving them in company decision-making, thus making use of the investment which they have made of their lives, and the energy and skill which many of them have and could bring to bear on the decisions affecting the future of their company.
  It is a pity that the Bill does not make that step forward. It would be a useful and important complement to what is to be provided, I hope, in the Bill dealing with industrial democracy. It would be a beginning to providing a legislative back-up to disclosure which some companies already engage in, and it would be an important step forward for the future of industry.
  8.32 p.m.
  Mr. Tim Smith: I agree with much of what the hon. Member for Thurrock (Dr. McDonald) said about disclosure of information to employees. I am company secretary to a group of engineering companies which has nine shareholders and 1,500 employees, so I spend a good deal more time dealing with employee interests than I do with shareholder interests.
  My hon. Friend the Member for Basingstoke (Mr. Mitchell) pointed out that out of the almost 600,000 companies in the register only about 16,000 are public companies and the rest are private. I think that the existing distinction between public and private companies is useless and unhelpful. I am not sure that the new distinction introduced in the Bill is any more helpful, except that it will require that a public company must have a capital of at least £50,000.
  Has not an opportunity been missed to bring in new categories of company which reflect the realities of the business world? The accountants in their evidence said that:
  "all trading and investment companies above a certain size should be required to fulfil the responsibilities of a public company."
  That seems a sensible proposal, which could meet the point put by the hon. Member for Thurrock about the accountability of companies. If all companies above a certain size were public companies, they could have special requirements relating only to them concerning disclosure and many other aspects of policy relating to employees. It could also meet the point made by my hon. Friend the Member for Basingstoke about the very small companies, to which different considerations clearly apply.
  In the context of what I have just said, the Green Paper promised in the next year by the Department, which apparently will propose three-tier disclosures, will be very welcome, because it is clear that when the EEC's fourth directive comes along it has to become part of company law. Therefore, something like this will be essential, otherwise it will not be worth small companies having limited liability any more. There are a number of disadvantages at the moment, and soon they will outweigh the advantages of incorporation. No doubt we shall

  1027
  get more details when the consultative document is published next year. I hope that that document will take into account the points made in this debate.
  It is right that small companies should still be required to prepare a profit and loss account. They would probably have to do that in any event for the inspector of taxes. It is right to require an audit. There has to be some quid pro quo for limited liability. Nevertheless, I have considerable sympathy with the points made by my hon. Friends.
  There has been reference to dormant companies, which must constitute the majority of companies currently registered, although we do not know how many are dormant. I understand that they will be allowed to produce an unaudited balance sheet. That is a welcome proposal. The Department could do more to publicise the fact that it is not difficult to get rid of a dormant company. The registrar will make it easy. It is not necessary to go through the ins and outs of liquidation. It is possible, under section 353 of the 1948 Act, to get rid of a company. That fact should be publicised more than it is.
  My second general point relates to what is not in the Bill and what might possibly be included in it, although I appreciate the point made by the Secretary of State that there is obviously a limit on what can be included in one Bill. There are, nevertheless, a number of outstanding proposals from the Jenkins committee. There is the Green Paper dealing with the future of company reports, as well as the fourth directive and current cost accounting. I would not want all those points to be dealt with in one Bill.
  We must recognise that we are in a new situation. We shall have one companies Bill per year, or something of that sort, for the next few years. We have had a commitment that a consolidation Bill will be introduced. I do not think that we can wait until all these measures have gone through, because once this Bill has been implemented, we shall have four Acts and we shall need a consolidation measure. The job of those who have to advise companies—company secretaries and directors—is becoming impossible to carry out because of the weight
  1028
  of legislation. If the companies Bills which are to come forward deal with these matters there will still be some outstanding issues, although they are further away in time. There are the third directive on company law and the seventh directive.
  My next point concerns whether changes in company law should be made by principal legislation or by statutory instrument. Under the European Communities Act there is a procedure for introducing directives by statutory instrument. It is particularly important to have principal legislation when dealing with company law. We already have three Acts and this Bill. There are already 44 statutory instruments. That is a sufficient number for people to have to deal with.
  If we incorporate disclosure figures into the principal legislation, it means that they are difficult to amend. I should like to see some of the disclosure figures amended because they have been decimated by inflation in the past few years. However, the main point stands. We should seek to change the law by way of primary legislation.
  Because the Bill in its first three parts implements the second directive, we have a much more prescriptive approach to company law than we have previously seen. There is a tendency to lay down strict codes and rigid formats and a tendency to tighten administration which, although we have had some opportunity to influence the second directive, is inevitable because this legislation emanated from Europe.
  Uniformity for its own sake is undesirable. We should seek to retain as much flexibility as we can in this legislation, to the extent that it does not prejudice consistency or comparability. The new schedule 8, which is to be introduced eventually to incorporate the Green Paper and the fourth directive, will have to be extremely flexible if it is to incorporate current cost accounting. It will be interesting to see how that works out in practice.
  The new distinction between public and private companies is substantial. For that reason, and because the obligations of public companies will become more onerous, we shall see the number of public companies decline over the next few years.

  1029
  The proposed legislation on the distribution of profits constitutes a significant improvement on existing law. The redefinition of general fiduciary duties of directors is welcome, although it does not go as far as some have suggested. It is merely a restatement of existing case law.
  Although I agree with the criticism of clause 46, I welcome the concept. We now recognise existing best practice in industry and commerce. We recognise that directors have a duty towards their employees as well as their shareholders. It would be difficult for the director of a company to do his job properly if he did not take account of his employees. He is required to do so by recent legislation in such matters as pensions, health and safety, contracts of employment, employment protection generally, equal pay and sex discrimination. It is hard to see how a director can do his job adequately and comply with existing legislation and not have some regard to the interests of his employees.
  It seems that we are all agreed on the problem of insider dealing, although it would be wrong to exaggerate the size of the problem. There are those who abuse their position, and the special knowledge that that position gives them, for financial gain. There are a few who are guilty of abuse. The object of the exercise is agreed—namely, to eliminate that abuse. It is difficult to determine how that should be achieved.
  It seems that what is proposed in the Bill is a compromise between two possible solutions. One approach is to introduce the equivalent of an SEC. That has found favour on the Labour Benches. The other approach is to reinforce the present voluntary arrangements. It is proposed in the Bill to have voluntary arrangements and alongside them statutory proposals. I am not sure whether that is the right way to proceed. We must avoid creating a sledge hammer to crack a nut. The present drafting is too wide and too vague.
  I am sure that the Bill as it is presently drafted will encompass many legitimate activities connected with the proper and orderly functioning of a stock market. It is misconceived to suppose that we can place on a par, on the one hand,
  1030
  the stockbroker's analyst in the City of London who, for example, specialises in oil affairs and advises pension funds accordingly, and, on the other hand, a retirement pensioner in Bournemouth who owns 100 BP ordinary shares. It is the job of the financial press to try to narrow the gap that will exist in any event.
  The relevant question is whether the information is of such a nature that it would not have been given to any shareholder as a specific answer to a specific question. The way in which the information is often acquired is by exactly that process. If the shareholder in Bournemouth took the trouble to go to the telephone to ask the question, the information would be given.
  I should be in favour of a much narrower definition to deal with the only eventuality that we should be considering —namely, where somebody knows very well that he has information that is not generally available and he uses it for financial gain. If it does not prove possible to introduce such a definition, and it is clearly incumbent upon the Government to do so, I agree that we should not proceed with the clauses as drafted.
  With those comments, I welcome the Bill.
  8.44 p.m.
  Mr. Tim Renton: I remember two and a half years ago, on 19th May 1976, the Under-Secretary of State saying
  "I see the next few years as being the greatest period of radical reform in company law in the history of this country."
  Mr. Clinton Davis: That is still my view.
  Mr. Renton: That was a characteristic understatement on the hon. Gentleman's part. He continued:
  "The hon. Member for Mid-Sussex seems to be highly amused by that."—[Official Report, 19th May 1976; Vol. 911, c. 1639.]
  I remain amused. There have been five years of gestation. The right hon. Member for Birkenhead (Mr. Dell) has found the whole business of parturition so exhausting that he has twitched his mantle blue and gone off to the City. Now, at last, the mountain has given birth. If it is not a ridiculous mouse, certainly it is not a radical mouse which has been born and which we are debating tonight.

  1031
  As many of my hon. Friends have said, in many respects the Bill is more significant for what it leaves out than for what it includes. It contains nothing about restrictions on the issues of new non-voting shares. There is nothing about the enfranchisement of companies with nonvoting shares. There is nothing about no par value shares. As for the right of companies to buy in their own ordinary shares, the Bill takes a step backwards.
  All this is disappointing, and the most obvious omission lies in the fact that nothing has been done to lift some of the burden of disclosure off the smaller private company. About half the Bill is concerned with the EEC second directive. Parts I to III show a minimum subscribed capital for public companies. It reformulates the definition of public companies. But, at the end of the day, the major effect of this part of the Bill is merely to ensure that public companies are called something different in future from what they are called now. They are to be public limited companies instead of ordinary limited companies.
  This is not a very significant departure. What is in a name? That which we call a rose by any other name would smell as sweet. It will not matter two pins to ICI whether it is called ICI Limited or ICI Public Limited. But this would have been an opportunity to help remove the burden of legislation which weighs on the shoulders of private limited companies. As we progress the Bill through Committee, I think that we ought to look at the example of the GmbH in Germany and the SARL in France, where, as private limited companies, either no statutory audit is needed for the smaller company or accounts do not have to be filed. These are two possible exemptions for private limited companies which are well worth considering.
  In the brief time remaining to me, I wish to comment on two aspects of what the Bill contains. The first is part IV, which defines and expands the duties of directors. In general terms, this is common sense and it enshrines what is common practice in all well-run British companies. The principle behind clause 46 does not worry me, although it could be better drafted to ensure that the best interests of a company as a whole are of paramount importance.
  1032
  Having regard to the interests of employees is one of the factors which, rightly, directors take into account in pursuing the best interests of their company as a whole. But the Bill must not be so drafted as to allow sectionalised interests to argue in court whether a decision taken by the board is in their interests.
  That leads me to clause 44(2). It is almost inevitable that a conflict of interests will arise between the duty that a worker director will owe to the company as a whole and the duty that he will owe to those who have elected or nominated him. If it does, clearly it will be in contravention of what is required by clause 44. This would be especially difficult for trade union directors. It is impossible to say that when on the board of a company they will not have a duty to forward the interests of the unionised employees or those of the union itself.
  Indeed, if the trade union director does not have that duty, why is he on the board at all? Trade union members will not consider that they put him there in order to join in the election of a managing director, such as a Michael Edwardes, who is going to cause massive redundancy, or a managing director who will double the dividends of the shareholders. There is, therefore, an innate conflict of interest for the trade union-nominated director, between his duty to the company's interest as a whole, and the fact that the duties to the company must not be in conflict with the duty that directors owe to any other person as enshrined in clause 44.
  This is particularly significant when one considers that in the original trade union proposals to the Bullock committee it was suggested that the trade union directors on the board of a company should not be paid by the company, should not receive any normal directors' fees, but should continue to be paid solely by their unions. This enshrines a conflict of interest. It is a great pity that we do not have available before us the industrial democracy Bill. We should be studying that hand in hand with this part of the Companies Bill. We all know why we do not have it. The Government cannot agree with the trade unions on the wording, and that will not make our consideration of this legislation any better.

  1033
  Part V is obviously the hardest part of the Bill. I respect and agree in general terms with the Government's wish to make insider dealing a criminal offence. Insider dealing is a mischief. At times it is a criminal mischief, and, like the Conservative Party in its 1973 Bill, the Government are seeking to do something about it. What is most important is that the cure must not be worse than the disease. Is this why part V of the Bill comes last, I wonder? Is it that the Government expect a General Election to be called and that they will have fallen by the time the Committee comes to deal with this part of the Bill?
  The present wide definition will have three bad effects. It will stop some people from dealing who otherwise might legitimately deal. I am thinking particularly of managers and employees who would like to buy shares in their company but who fear that if they did they could be committing a criminal offence. They will seek legal advice but frankly, the advice that they receive will be doubtful and uncertain. Rather than run the risk, they will therefore not deal.
  Second, the legislation will incorrectly catch some people who in hindsight will have become insiders by virtue of making a lucky purchase of their company's shares without much inside knowledge but in a way which subsequently would prove to be well timed. Such people might find themselves becoming insiders and being unable to sell when they wish to do so.
  The third category is those who are determined to use insider information and who will still do so. Such a person will deal in the name of his wife's dog, he will register the nominee shares to an offshore bank, and he will never be discovered. No legislation will ever catch such persons.
  I believe, therefore, that the definition of a criminal offence in clause 57 and the clauses that follow must be much more narrowly drawn and defined if it is to be acceptable and if the Bill is not to cause much more mischief than it cures.
  I have two further suggestions. The first is that there should be a register examined by auditors and open to inspection by shareholders of all dealings
  1034
  by directors and senior executives and their families in a company's shares. That would be a development of the present custom. Secondly, any profit taken within six months by insiders ought to be returned to the company, as in the United States. Most inside information is of a short-term nature. I believe that those two steps would check the greater part of insider dealing.
  I remind the House that, as Dr. Johnson said,
  "There are few ways in which a man can he more innocently employed than in getting money."
  The first essential for us in this place is to forget Karl Marx and to remember Samuel Johnson. One hundred years ago in the United Kingdom entrepreneurs made money—a great deal of money—shareholders were glad of it and, by and large, the community benefited. In reforming our legislation bearing on companies, on shareholders and on employees, we should seek to restore that state of affairs. Our overriding aim should be not to make life more complicated and laws harder to understand but to make life more productive and profitable and thus, for the greater part of the community, a great deal more enjoyable.
  8.56 p.m.
  Sir Brandon Rhys Williams: I rise really to do little more than stake out my claim to take part in the Committee proceedings on the Bill, which, I hope, will prove extremely interesting. I feel that the Government have fallen short of what the House might have hoped from the Bill, because there is so much talk from the Government Benches of the crisis of capitalism yet the Bill does not present any effective solutions to the major problems which we know to exist.
  There are major problems—alas, it is all too plain—in the relationships between management and workers, and also, perhaps as a result of the euthanasia of the rentier, between management and shareholders. Solutions have been found for these problems in American law or in German law, but the Government do not seem ready to come forward with their own guidance to management.
  I hope that in Committee we shall be able to have a useful discussion on the role of audit committees. In my view,

  1035
  we need also to look closely at the omission from the Bill of any provision for very small firms.
  The discussions on insider trading will inevitably, I believe, take up a lot of time, but I hope that they will not be altogether unfruitful if they help the institutional shareholder to see what useful role he can play, possibly by organising his proxies together with other major shareholders to secure the appointment of people to boards who will act in the interests of shareholders without needing to disclose information to the market.
  I hope that it will also be possible in Committee to contemplate the emergence of what one might call a "Table B" company, a totally new and British animal perhaps—a compromise, in which in return for worker representation at board level the work force might undertake to accept a guaranteed contract of service.
  At all events, I hope that when it conies back to the House on Report the Bill will be a much better measure and will give much clearer guidelines to management in the difficult circumstances of today.
  8.58 p.m.
  Mr. Peter Brooke: The hon. Member for Thurrock (Dr. McDonald) said that it was high time that we heard from the City, and although she was not, I know, speaking of. myself, I am grateful for the opportunity to intervene before the debate ends.
  It is already apparent that the Committee stage of the Bill will be important, not least so that we can reach specific and unequivocal definitions on a number of subjects, particularly in the context of insider trading. For my part, I detest insider trading in the same way as I detest obscenity, but it will be just as difficult to find an adequate definition which does not harm ordinary business as it has always been for the House to find a definition of obscenity.
  What concerns me in particular is the definition of inside information rather than the definition of insider itself, which is, I think, adequately covered in clause 63. I shall return to that matter in a moment. I wish first to respond to the hon. Member for Thurrock, who had comments to make about the City's self-
  1036
  government I imagine that she was one of the signatories of the early-day motion saying that the City could not be relied on to self-govern itself. I suspect that she signed that motion before we had any experience of the Council for the Securities Industry and that therefore her remarks about that council's silence were perhaps made somewhat prematurely.
  The City has a genuine interest in self-government to preserve its own name. Senior policemen will say that nobody dislikes a bent copper more than do the police. In the same way the City has the most to lose if its reputation for integrity is lost. The City has never been kind to those who have lost their good name for straight dealing. It never will be kind to them, because the City loses in that context.
  Legislation which is directed to that problem has never worked effectively anywhere in the world. It inhibits ordinary, decent people and it does not discourage criminals. The hon. Member for Thornaby (Mr. Wrigglesworth) and my hon. Friend the Member for Mid-Sussex (Mr. Renton) reminded us of the Swiss bank nominees and the problems which are caused thereby.
  I turn to the question of the interference with ordinary business. The trend towards employee ownership has been stressed in the debate. Clearly, a potential interference arises out of the Bill, which the Government recognise.
  I wish to deal with the conversations between analysts and companies in terms of the information which is provided. I understand that subjects such as orders in hand, major new investments, research and development expenditure and short-term borrowings will be regarded not as confidential but as subjects about which information would emerge in response to questions by individual analysts. I should regret it if questions about such matters could not be asked. The hon. Member for Colne Valley (Mr. Wainwright) said that an analyst had only to look at a company to see the quality of management. But the only way that one can find out about the quality of management is by asking questions.
  I hope that it will be possible to find a way of dealing with offenders more rapidly than we deal with those who are guilty of harassment in the private rented

  1037
  sector. In that sphere, few cases come to the courts. When they do they come too late and when the issue is dry and behind us.
  Mr. Deputy Speaker (Sir Myer Galpern): I propose to call the hon. Member for Wolverhampton, South-West (Mr. Budgen) so that he too can stake his claim for membership of the Committee.
  9.3 p.m.
  Mr. Nick Budgen: I shall be brief. I declare an interest because I have practised in the criminal courts for some years, but I do not know much about the details of company law. I wish to discuss the proposals to make insider trading a criminal offence.
  There are two conditions precedent to the making of a new criminal offence. First, there must be general public consent that the mischief should be made a crime. Secondly, the proposed crime should be capable of clear definition.
  The debate has indicated clearly that there is no general public consent to the proposition that insider trading should be made a criminal offence. Every argument, whether from this side of the House or from the Government Benches, has indicated the grave difficulties involved in properly defining insider trading.
  I note with interest that the first time an attempt was made to define insider trading was before 1973. Even recently, when the right hon. Member for Birkenhead (Mr. Dell) announced the Bill which he later abandoned because of his resignation, he described the attempt to define insider trading as a first attempt. If he could not define it after five years, there is not much chance of finding an adequate definition. There is little chance that the Bill will emerge from Committee with a clear or satisfactory definition of insider trading.
  One of the best indications that the Government of the day are uncertain about the efficacy of a criminal offence which they are introducing is when they suggest that there should be a sifting mechanism through either the DPP, the Attorney-General or a Secretary of State.
  The essence of the criminal law is that it should be enforced wholly impartially. It is a most dangerous precedent to have
  1038
  an arrangement by which the political discretion of a Secretary of State, of the Attorney-General or of the Director of Public Prosecutions is interposed between the public and the enforcement of the criminal law. It is the factor which, for instance, brought the recent race relations legislation into disrepute. That was new criminal legislation which was ill defined and which, I believe, did not have the general support of the public. Therefore, to avoid our legislation being brought into disrepute, this sieving mechanism was introduced. It is the very existence of that sieving mechanism that makes me feel that it will be impossible adequately to define insider trading, and in my opinion it will be impossible to drum up general public support for the proposal to introduce this as a criminal offence.
  I hope that the private arrangement in seeking to safeguard people who trade on the Stock Exchange will continue. I hope that the emphasis will be on civil remedies and that we shall not litter the statute book with further unenforceable legislation.
  9.7 p.m.
  Mr. Cecil Parkinson: My hon. Friend the Member for City of London and Westminster, South (Mr. Brooke) mentioned the rather strange intervention of the Liberal spokesman, the hon. Member for Colne Valley (Mr. Wainwright), referring to the grey area occupied by analysts. The hon. Gentleman said he had always realised that people who were analysts went to see companies to make up their minds about them, but then he said they did not ask the directors any questions. Presumably, an analyst looked at the directors to see what kind of suits they were wearing, decided whether they could afford a good tailor, spoke to them about their golf handicaps and left. That is the kind of world which the hon. Gentleman, who is now absent from the debate, appears to inhabit. I cannot imagine how one measures the performance of a company except by asking questions. This seemed to surprise the Liberals, but it is true to say that the Liberals never cease to surprise the rest of us.
  This is the sixth Companies Bill which has been introduced since 1929, if we exclude the abortive Bill of 1973. It is a strange fact that they have all been

  1039
  introduced by Labour Governments. I do not know whether this proves that the Labour Government are radical or whether it means that the state of our present company law is entirely their responsibility.
  What is interesting is the increasing frequency with which we are legislating on company affairs. Previously a new Bill was brought forward roughly every 20 years. We have now had three in the last 11 years, two in the last two years, and we know that there are more Bills to follow. As various speakers have pointed out, in the next few years we can expect a succession of companies Bills as we seek to meet our obligation to bring our company law more generally into line with that of our Community partners.
  Those of us in Parliament who are interested in company law will develop a kindred feeling with the painters on the Forth Bridge who were alleged to finish painting the bridge in time to begin repainting the other end. Perhaps a better comparison would be with those who work on the motorways in my constituency in Hertfordshire who, when they are not digging them up, are busying relaying them prior to digging them up again. I am sure that we shall see a procession of company legislation through this House.
  We know that eight draft directives have been issued to date and that four have been approved by the Council of Ministers, but in the Bill we are implementing only the second of those directives. Their aim is to produce a legal structure for companies within each Community country which ensures their acceptability in all. The Community seems to be approaching the problem in a helpful and constructive fashion. The aim is not uniformity for the sake of uniformity, and there is a recognition that, provided that the laws of member States contain certain essential features, there should be scope for national variations. I welcome this approach.
  Several of my hon. Friends have discussed matters which in their view ought to be covered by the Bill but are not and which they hope to be able to insert in the Bill in Committee. My hon. Friend the Member for Basingstoke (Mr. Mitchell) talked about the importance of the proprietary company and the need to simplify the statutory pressures on smaller businesses. In making that speech
  1040
  he paid tribute, as I do, to the work of my hon. Friend the Member for Gloucestershire, South (Mr. Cope), who has done a tremendous amount in respect of the proprietary company. I know that he was expecting to speak today, but he was unable to get into the debate.
  There is a widespread feeling, as my hon. Friend the Member for St. Ives (Mr. Nott) said, that a mistake was made in the 1967 Act in getting rid of the exempt private company and in imposing on all but the smallest companies the same statutory duty to file information. Many small companies still feel that they are put at a commercial disadvantage by that Act and that the 1976 Act, which tightened up the rules about the filing of statutory information and increased the penalties for non-compliance, was a further unnecessary burden.
  The accountancy profession, as my hon. Friend the Member for Maldon (Mr. Wakeham) pointed out, is also concerned that it is forced to carry out a full audit at an increasing and maybe unnecessary expense to the client. Various ideas are being canvassed within the profession to deal with this problem. The aim is to reduce the expense to the client, to reduce the liability of the accountant and to reduce the comprehensiveness of the auditor's report.
  The first part of the Bill marks a small step in the right direction by the way in which it defines the difference between the public and the private company and makes the private company the residual form of company. The process is continued in the fourth directive, which recognises that the amount of information which a company should have to disclose should depend on the size of the company. Who knows, Mr. Speaker? By 1982, when companies have to comply with the fourth directive, we may have succeeded in progressing with the smaller company to a position similar to that which existed prior to 1967. All change is certainly not necessarily progress, and we seem to be actively retracing our steps towards the position which existed in 1967 and creating something akin to the old exempt private company. I welcome the move in that direction.
  My hon. Friend the Member for Kensington (Sir B. Rhys Williams), in his

  1041
  brief speech, mentioned the audit committee. I am sure that that is a subject to which we shall be returning in Committee, and at some length. In the 1976 Act, the Government set out to try to strengthen the links of the auditor with the members who appoint him. It is still too early to dismiss the attempt as a failure, but I suggest that Turquand Young's experience in the Sime Derby case implies that the auditor's position has hardly been improved by that 1976 Act. My hon. Friend the Member for Kensington argues that one of the answers is the audit committee of non-executive directors. I think we would all agree, even if we do not agree with every detail of his proposals, that the present position of the auditor is unsatisfactory.
  The auditor is appointed by the shareholders to report to them. Almost invariably they do not know him or his firm and they have little chance of contact with him. Their only physical contact is at the annual general meeting. I am sure that we have all been to annual general meetings where an anonymous gentleman, usually a senior partner in the audit firm, stands up and quickly reads a very short report about his work. It is a rather strange fact that the more prestigious the firm, the shorter the report. That is the members' only chance of contact with their representative who is supposed to be reporting to them on how the directors and the management have dealt with the members' assets.
  The shareholders' representative is supposed to report to them on the activities of the directors and managers. In fact, he finds himself reporting to the people he is supposed to be reporting on—the directors—and often only a minority of them, the executive directors. That is totally unsatisfactory. There is a problem. Whether the audit committee is the answer remains to be seen. We shall debate this further in Committee. We must all agree that the present arrangement is totally unsatisfactory.
  There were other points raised in the debate that I found particularly interesting. First, the Secretary of State confirmed that he will be moving an amendment to bring Northern Ireland within the ambit of the Bill. The Opposition will be happy to support that amendment.
  Mr. John Smith: It is not quite that. We shall apply the negative resolution procedure, which will allow Northern Ireland Members to participate on the basis which is well understood by them.
  Mr. Parkinson: I thank the Minister for that intervention. However he does it, we join him in his objective of underlining the fact that Northern Ireland is a part of the United Kingdom.
  We also heard a very interesting comment from my hon. Friend the Member for St. Ives about the need to reform the laws of bankruptcy and liquidation. The Under-Secretary and I have been in correspondence on a number of occasions about this. The present laws are totally unsatisfactory and a disgrace, but we should not contemplate waiting until the 1980s for the report of the committee looking into the matter. No action could be taken for several years after that. This is far too long a delay.
  My hon. Friend the Member for Mal-don talked about the problem of auditors and how the audit was becoming an unbearable expense, particularly for the smaller company. I think that that is true. When we implement the recommendation of the fourth directive, it should be possible to introduce a form of modified audit for the smaller company. We certainly should be considering it.
  It is important to remember that with the Bill we shall be changing the structure of more than 600,000 companies, roughly 20,000 public companies and 580,000 private companies. Millions of employees will obtain rights against thousands of company directors. The Bill makes major changes. Its highly complicated nature should not be allowed to disguise that.
  I wish to comment briefly on the five parts of the Bill. I begin with part I, dealing with the reclassification of companies. The most important change brought about by this part is the change in the requirements for a private company. There were previously three qualifications for the status of private company —the restriction on the transferability of shares, an optimum number of shareholders and the fact that one must not offer one's shares or debentures to the public. Only the third qualification remains. As a result of the Bill, all companies will be private unless they meet

  1043
  the criteria for public companies. As I have said, we look forward to the next stage, which will come with the implementation of the fourth directive.
  I was interested to read in the CBI's representations to the Department that there is little support for the designation "public limited company", but there was little agreement about an alternative. The Minister will probably agree that that is a fairly widespread reaction to various parts of the Bill.
  Part II, which deals with the share capital of public and private companies, is a relatively uncontroversial area of the Bill, but there are three points that I wish to make. It is interesting that the Stock Exchange rules for listed companies already insist on the pre-emption rights for existing shareholders, which are included in clause 16, and that a new issue of shares needs not only a resolution of the directors but the approval of a company in general meeting—another provision included in the Bill.
  That demonstrates that the private sector is often ahead of the Government in imposing on itself duties and obligations and in setting for itself standards of behaviour. There have been suggestions in the debate, particularly in the few speeches by Labour Members, that the Government are always the pacemakers. In fact, many of the suggestions in the Bill—clause 46 springs to mind—and the procedures and spirit of the legislation are already being implemented by many of our best companies.
  I found clause 33 interesting. It suggests that if a public company has lost half its capital it must have a general meeting and report to its shareholders. That is a welcome innovation and makes the directors of ailing companies accountable to their shareholders while there may still be time to take action.
  My hon. Friends the Members for Mid-Sussex (Mr. Renton) and for Walsall, North (Mr. Hodgson) asked why we needed clause 34 and why companies should not be able to buy their own shares. I shall be interested to hear the Under-Secretary's comments on that matter.
  It is interesting that the further one moves into the Bill, the more controversial it becomes. It starts in a quiet fashion and builds up to insider dealing.
  1044
  Perhaps that is because the Under-Secretary hopes that by the time we reach that part of the Bill in Committee he may have some ideas for its improvement.
  The aim of part III is to make sure that the companies pay dividends only out of available, realised surpluses and not out of unrealised profits or, effectively, out of capital. The legislation hopes to ensure that the capital of a company is maintained. I agree that present arrangements in the United Kingdom under which distributions can be made out of current profits, without necessarily providing for past losses, are unsatisfactory, but the proposed arrangements seem to be unnecessarily cumbersome in relation to the payment of interim dividends.
  It is overdoing things to suggest that it the free reserves of the last five years' accounts were not sufficient, a fully audited set of accounts must be tiled before an interim dividend can be paid. That imposes a further duty on the auditor and further expense on the company and creates more paperwork for the Government to file. In the overwhelming majority of cases that work would be totally wasted, because a prudent board of directors would not wish to make such dividends unless the company could afford it, and most boards of directors are prudent.
  Clause 42 is also rather impractical. How can one prove that a member knew or should have known that he should not have received a dividend? It seems to me to be a bit of unnecessary window dressing.
  We move to duties of directors in part IV of the Bill. It is widely accepted, as the White Paper "The Conduct of Company Directors" pointed out, that there is a growing and important role for the non-executive director in our corporate structure. I suggest that clause 44(2) is so widely drawn that it could actively discourage the non-executive director from accepting office. The essential feature of the non-executive director is that he has other interests and other expertise. As my hon. Friend the Member for Mid-Sussex pointed out, the Government hope that trade union directors will soon be on the hoards of some of our major companies. As he also pointed

  1045
  out, in the original Bullock proposals the trade union directors were not supposed to be paid, in order to underline the fact that although they were directors of the company their duty lay with their trade unions.
  I suggest that under clause 44(2) there is virtually no point in a trade union director joining the board of a company. Under this subsection, if he acts he may be caught, and if he does nothing he may be equally wrong. Many people might draw the conclusion that it is simply not worth getting involved. That would be a pity. In my view, the clause as it stands could damage rather than further the interests of the companies concerned by discouraging a wide range of eligible people from taking office.
  Clause 46 is another objectionable clause. The original intention of the clause in the 1973 Act and in the Bill of my hon. Friend the Member for Bosworth (Mr. Butler) was to right the finding in the Parke v The Daily News Limited case. I suggest that that particular judgment has in any case been overtaken by events. For example, the Redundancy Payments Act and the Employment Protection Act give employees statutory rights enforceable against the company which did not exist at the time of Parke v The Daily News Limited. In any case, clause 64 clears up any residual doubts on that score. Clause 46 imposes a much wider duty, and in my view an unnecessarily wide one.
  The Secretary of State's rather ingenuous claim that clause 46 is designed to provide a director with a defence, and not to extend his liability, rang rather hollow. I do not think that the intention behind clause 46 is that it provides directors with a defence.
  Mr. John Smith: It does.
  Mr. Parkinson: It extends the range of their liabilities very considerably. I suggest that the main motive behind that clause is to extend their responsibilities and not to provide them with a defence.
  A number of organisations—the Institute of Chartered Secretaries and Administrators, the Institute of Directors and the CBI among them—have argued that a director's duty should be to the
  1046
  company as a whole, to members, employees, customers, creditors and the community. In my view, the whole thinking behind this clause, which could possibly give an employee rights against an individual director and give rise to many contentious and time-wasting legal actions, is wrong. Directors should take action for the good of a company as a whole and not with emphasis on the specific interests of any one group.
  In part V we move on to what is by far the most controversial aspects of the whole Bill—the part which deals with insider trading. I want to conclude by talking briefly about this. In his opening remarks, the Secretary of State repeated the assurance of his predecessor that the Government did not wish to damage the workings of the securities market or discourage directors or employees from holding shares in the business they worked for. He admitted that many of those who favour the principle of making insider dealing a crime, and who have excellent credentials for investigating and pursuing market manipulators, are unhappy about the details of the proposals and not at all sure that they will help.
  My hon. Friend the Member for St. Ives, in his usual inimitable fashion, was more outspoken about his reservations. He feels that the flaws in the legislation as drafted will discourage the genuine investor and provide no real threat to the cheat.
  It was interesting to listen to the hon. Member for Thornaby (Mr. Wrigglesworth), who illustrated the problems that could be caused by this part of the Bill. He pointed out that all that the Government might succeed in doing was driving the would-be insider underground—or at least overseas—and making him more crafty in his activities. I hope that we shall be able to improve this clause in Committee.
  I share my hon. Friend's detestation of insider dealing. As we seek to encourage the spread of share ownership, and as the numbers of small shareholders increase, it is absolutely vital that the small shareholder should have confidence in the workings of the market. I had proposed to illustrate my point by telling the House of my experience of insider dealings and talking about an incident that happened to a client company when

  1047
  I was in practice as an accountant. However, there is not enough time to do so, and I shall save it for Committee.
  My hon. Friends and I all agree that insider dealing, as an activity, should be stamped on. The only difference between us and the Secretary of State is about the most effective method of obtaining this objective. I have formed the impression from listening to the debate that the Committee stage will not be short. The Bill is important and merits the most careful scrutiny. We on the Opposition Benches are determined that it will receive just that.
  9.32 p.m.
  The Under-Secretary of State for Trade (Mr. Clinton Davis): The House has been unanimous in one thing, and that is in welcoming my right hon. Friend the new Secretary of State to the Dispatch Box today. He opened the debate in an interesting and very informative way. It now falls to me to try to wind up a debate which has covered a wide variety of different topics. I shall try to cover as many points as possible, but of necessity I shall spend 10 minutes or so on the most controversial area, that of insider dealing.
  I was interested in the comments of the hon. Member for Hertfordshire, South (Mr. Parkinson) who regarded the Bill as one that proposed major and significant changes. His hon. Friend the Member for Mid-Sussex (Mr. Renton) on the other hand, likened it to a mouse. It is not for me to intervene in a family dispute, but I note that the hon. Member for Hertfordshire, South will be leading for the Opposition in Committee and that he will be helped, if that is the right word, by his hon. Friend the Member for Mid-Sussex. They will have to sort out that problem between them.
  The hon. Member for St. Ives (Mr. Nott) who opened the debate for the Opposition did so in his characteristically entertaining manner. He was diverted to a great extent by a huge number of irrelevancies—also characteristic. Nevertheless, I am bound to say that he provided certain strange views of bipartisanship.
  The hon. Gentleman was concerned about the unsatisfactory nature of section 54 of the existing Act. He wanted to
  1048
  know why companies should not be able to purchase their own shares. This was echoed by a number of hon. Members. It has been long established by case law in this country that a company cannot normally purchase its own shares. The reason for that, as I understand it, is that it would amount to the return of capital to shareholders, something which has always been closely controlled in the past, and all that clause 34 does is to restate the common law rule.
  It is true that in the United States there is no such prohibition, but there are different circumstances and it would be unsafe to try to graft on to our own law the experiences of the United States. There are considerable dangers in allowing companies to return capital to shareholders in an uncontrolled way and we could not envisage any such scheme without the most rigorous safeguards. I think that there has been no major demand for it, as far as I am aware, since the Jenkins committee came down against the change which was proposed. Perhaps this is a matter for the standing advisory committee to consider, and no doubt it will take it up.
  The other point of interest that the hon. Gentleman raised related to inspectors' reports. He was right. The object of an inspector's report is to investigate a particular situation which has arisen and has given rise to public concern, and then to produce a factual report. Inspectors who are disposed to condemn or criticise someone in a report should clearly give that person the first opportunity to correct or contradict what is said. We in the Department now take special steps to bring these principles to the attention of inspectors on their appointment. Recently, I chaired a conference of inspectors who have acted for the Department at various times and these principles were debated at considerable length.
  There has been criticism of some particular reports, but the instances of legitimate criticism are few. The criticisms sometimes come from people with an axe to grind, I suggest, and I think that the changes in procedure to which I have just referred should help to avoid the situation where gratuitous remarks are made by inspectors which add nothing to the factual report which they are supposed to provide.

  1049
  Some reference was made to the Cork committee, but this is not wholly germane to the debate. The Cork committee has to cover a wide ambit in the considerations that it has to offer. Not only does it have to consider the insolvency laws, which are in need of quite dramatic transformation, but the change proposed in the EEC. It is working to quite a tight timetable and I do not think it practicable to ask it to speed up its inquiry to the extent that the hon. Gentleman suggested, much as I should like that to be done.
  The hon. Gentleman went on to talk about clause 46 and a number of other hon. Members also concentrated on it. Very significantly, the hon. Gentleman said that the Conservative Party does not favour legislation relating to industrial democracy. We shall debate that on a future occasion—this is not the best time to do it. The hon. Gentleman is against all fall-back provisions. He is against dealing with the laggards who are prepared to do nothing. That, in my submission—and no doubt he will disagree—is a prescription for making little or no progress in this direction.
  Mr. Hodgson rose—
  Mr. Davis: I shall give way in a moment.
  The hon. Gentleman also talked about clause 45. This is merely a restatement of the law. He prayed in aid Sir Freddie Laker in relation to clause 45. What happened there has nothing to do with clause 45, but it was one of the irrelevancies to which I referred earlier. What the hon. Gentleman wants to do is to overthrow the present well-established law, which is a very unusual posture for a Conservative.
  I feel that what the hon. Gentleman was arguing for in relation to clause 46 was an adulteration of the proposals to the extent either of causing malicious damage to the defence that we are proposing to construct or of doing away with that defence altogether. This is a critical part of clause 46. It is a significant change in the law. In future, directors will not he at risk in any action by shareholders simply because they have taken into account the interests of employees. That is a significant change. I have no doubt that some of the points which have
  1050
  been raised will be closely examined in Committee.
  My hon. Friends the Members for Thurrock (Dr. McDonald) and for Hamilton (Mr. Robertson) and the hon. Member for Caernarvon (Mr. Wigley) had a great deal to say, in my view justifiably, about the need to involve workers much more closely in their company's affairs. The speech of my hon. Friend the Member for Hamilton summarised the position with great clarity. He argued that there should be a much greater common identity of interest for the sake of efficiency and better industrial relations. Who can pretend that we have, or have ever had, over the past 20 years or so, an ideal state of industrial relations? My hon. Friend was right to allege that the class basis upon which industry still rests in too many instances is ruinous.
  Too often, when a company is in trouble, the directors appeal to employees saying "It is our company, we have to remedy the situation." But when the company is doing well it is no longer "ours", it is "mine". It is this which needs to be changed. The hon. Member for St. Ives, who seemed to share some of the views of the spokesman of the CBI as reported in today's newspapers, offered some intemperate comments. What is the CBI on about? What is so radical about these proposals that its members are running around like scared mice? Will they really bring down the whole constitution simply because we shall, we hope, enact clause 46? It is one signpost pointing in the right direction, designed to lead us towards a better relationship in industry. It is a vital step which needs to be taken.
  I come now to the comments of the right hon. Member for Crosby (Mr. Page). He raised what he described as an omission from the Bill, namely, any reference to the qualification of secretaries, which is required because of new and onerous duties laid upon directors. This point was also raised by the hon. Member for Nantwich (Mr. Cockcroft). I am not unsympathetic to this issue, but I do not believe that legislation is necessary. We can leave it to the prudence of directors to select secretaries who are able to undertake these duties. It has not given rise to any noticeable criticism on the part of inspectors looking into companies. Most major companies have highly qualified secretaries. Whether they are highly

  1051
  qualified in terms of examinations I do not know. For the most part, efficient people are employed.
  The staffing implications of the Bill have also been raised. For private companies, and the overwhelming majority are private, there will not be any dramatic effect. I do not believe that we misstate the position when we refer to the need for only another 11 staff. This is something which can be explored later.
  My hon. Friend the Member for Birmingham, Handsworth (Mr. Lee) made a number of interesting comments. He wanted to know why it was necessary to restrict criminal action under the insider dealing provisions. He wanted to know why it had to be restricted by the fiat of the Secretary of State or the Director of Public Prosecutions. My right hon. Friend gave the answer in his opening remarks. It is necessary, especially in the initial stages when engaging in an experiment in the law, that we afford some protection against ill-founded but what could be highly damaging private prosecutions. I do not think that we want to encourage the sort of strike action that now exists in the United States. It is necessary to have some protection.
  Mr. Budgen rose—
  Mr. Davis: I said earlier that I would give way to the hon. Member for Walsall, North (Mr. Hodgson). I am prepared to do so now.
  Mr. Hodgson: I do not wish to intervene now.
  Mr. Budgen: If the legislation is properly defined and has public support, will the hon. Gentleman explain why a private prosecution should in any way damage the legislation? If it is not based on proper evidence, will it not merely mean that the private prosecutor will end up paying the costs?
  Mr. Davis: Not necessarily. We should be cautious in that regard, and that is what I am counselling. The Bill contains a necessary safeguard.
  My hon. Friend the Member for Hands-worth wanted to know why the Bill had not been extended to other banking companies. If he reads my right hon. Friend's speech tomorrow morning—that is. if he can obtain a copy of Hansard—he will
  1052
  understand why we have made the qualification.
  The hon. Member for Maldon (Mr. Wakeham) spoke about the problems affecting accountants and auditors. He said that they faced the risk of litigation as a result of action that could be brought against them by dissatisfied clients, largely as a result of a company failing, who perhaps thought that they could not get their proper remedy against those responsible, the real malfactors, the directors, for such a situation.
  There is a danger. It is a danger that was made clear to me by a number of leading accountants when I visited the United States. They are worried about the deep pocket theory, as they call it, where people go for the professional advisers who are well insured. That is something to which we must give attention. However, our civil law is not faced with problems similar to those which exist in the United States, where there are class actions, derivative actions, and all the other paraphernalia.
  I am glad that the hon. Member for Colne Valley (Mr. Wainwright) welcomed the early publication of our proposals. His remarks to some extent answered the complaint made by a number of hon. Members that they could not obtain copies of the Bill. Most of the material provisions of the Bill are annexed to the White Paper.
  The hon. Gentleman was concerned about the omission of certain items. We hope to deal with two-tier boards when we come to the industrial democracy legislation. As for the structure of small companies, I sought to deal with that specific matter in an intervention.
  I must devote the remainder of my remarks—I apologise to hon. Members whose comments I have not specifically dealt with—to insider dealing, about which the hon. Member for St. Ives waxed eloquent. The hon. Gentleman seems to have been unduly influenced by the endless City banquets that he attends with barefooted stockbrokers who are in constant complaint about the law.
  I am reminded of the experience narrated by Nye Bevan. He was approached by a junior Minister in the 1945 Government who said that scarcely a day passed without his being invited to lunch, to

  1053
  dinner or to both. Nye's response was "You are not so much a Minister as a gastronomic pimp." I hesitate to liken that situation to the one in which the hon. Member for St. Ives finds himself.
  The hon. Gentleman concluded that insider dealing was wrong. I am glad that he comes to that conclusion. That is common ground. The Government believe that it is a serious breach of those fiduciary duties which we seek to spell out in clause 44. We believe that it undermines public confidence in those involved with companies. We believe that it is inequitable that people who are apprised, through the positions they enjoy, of confidential information should then deal on the basis of that information.
  We have come to the conclusion that insider dealing should be made punishable as a criminal offence. We are not alone in that view. I recall that the Conservative Party took the same view in 1973. The Stock Exchange has taken that view in the past as have the Law Society, the TUC and business interests. Even in 1976, when we were debating the Companies (No. 2) Bill, the Opposition were calling for this to be made a criminal offence. Now they are involved in some prevarication. The hon. Member for St. Ives seems to have been influenced by the speech made from a distant clime in Sao Paulo by Mr. Goodison. Why anyone has to talk about insider dealing in Brazil, I do not know. The Brazilians have enough problems of their own, I should have thought. But that was the chosen venue, and that is where he expressed his second thoughts. Now the hon Member argues that Mr. Goodison is right.
  The hon. Member for St. Ives reminds me of a story which is told by my right hon. And noble Friend the Lord Chancellor about a Welsh jury. The foreman was asked about the jury's attitude towards crime. He replied "We are against crime, but we are not too dogmatic about it". That summarises the view of the hon. Member for St. Ives. He is against insider dealing, but he does not want to be too dogmatic about it. He argues that these provisions simply will not work. He goes on to argue that they will work and that their consequence will be too dire. We have a strange dichotomy of view expressed by the same individual.
  1054
  There are those who say that we should trust the City and that the City will always get it right. I give them this assurance: all that we are doing on this occasion, in effect, is to cut the cards. It is salutary and reasonable to do so. I do not believe that that is incompatible with the continuation of legitimate or desirable transactions. No evidence has been adduced today to make out the case against it. There is no desire on the Government's part to discourage directors or employees from holding shares in their own companies. There is no evidence that the far more draconian penalties and requirements in the United States than those which we are imposing here have had that effect. Even with the regulations of the SEC there has not been that effect. Nor have the fairly draconian requirements of the Stock Exchange here had that effect on companies affected by those requirements.
  The same goes for the anxieties expressed about institutional shareholders, investment analysts and financial journalists. The Goverment have set out the ingredients of the offence. They require three criteria which I do not need to spell out because hon. Members are familiar with them. It is no use settling on just one of the criteria. One has to recognise that all three will have to be embraced for the offence to be committed. That applies not only to the insider but to the position affecting the tippee.
  Having said all that, we shall, of course, consider constructive criticisms. But the strategy of the Opposition in all this is very strange. It seems that they have been trying to find loopholes in our proposals. Our problem is finding a proposal in their loopholes, and we have significant difficulty in that.
  We do not believe that these proposals will provide a complete answer to the problem, and my right hon. Friend the Secretary of State dealt frankly with that. They will, however, provide a deterrent. That has been the lesson in the United States. The authorities there have been unable to eliminate fraud or insider dealing, but I believe that directors there think very carefully before contemplating a course of that kind. In the same way, I think that people here will think twice before indulging in dubious activities which hon. Members on both sides of the

  1055
  House have condemned. We are proposing to take action, whereas the Opposition prefer to sit and do nothing.
  Unfortunately, I shall be unable to participate in Committee. There is the Merchant Shipping Bill with which I shall have to deal. However, my hon. Friends the Under-Secretaries of State for Trade and for Prices and Consumer Protection will do justice to the proposals and will serve the Committee well. We shall be interested to hear in Committee about the role of the audit committee as envisaged by the hon. Member for Kensington (Sir B. Rhys Williams).
  I know that it must have been most frustrating for the hon. Member today to have been able to utter only one sentence on the subject. He has introduced eight Bills and shown great perseverance in the matter. I have a great deal of sympathy with his point of view. But it is premature for legislation to be enacted at this stage about non-executive directors and audit committees.
  A number of important anxieties were related to me when I was in New York discussing the subject recently. Those concerned in the United States and Canada are going through a difficult experimental period. We should examine carefully what is happening there, not with a view simply to imitate it, but to examine the experience gained and consider how it can fit in with the requirements of United Kingdom law.
  I know that the hon. Member for Kensington will have many powerful comments to make about that. Let me offer one word of caution. I know that the SEC in the United States is concerned that non-executive directors are by and large the appointees of management. It believes that that is full of difficulty and certainly will be in the future. I believe that there is a danger that a malleable body of non-executive directors, or an inadequate, inefficient group of members of an audit committee, can do more to authenticate abuse by the powerful manipulator of a company and thereby mislead people than is healthy. We must consider that carefully before embarking upon legislative proposals.
  This has been a valuable debate. A number of hon. Members have said that they are reserving their points for more detailed discussion in Committee. That
  1056
  is a pleasure that will befall my hon. Friends. I am glad that this has been the baptism of my right hon. Friend the Secretary of State. He has survived it well.
  Question put and agreed to.
  Bill accordingly read a Second time.
  Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).

  COMPANIES [MONEY]
  Queen's Recommendation having been signified—
  Resolved,
  That, for the purposes of any Act of the present Session to amend the law relating to companies, it is expedient to authorise the payment out of money provided by Parliament of any administrative expenses incurred by the Secretary of State and any increase attributable to the provisions of that Act in the sums so payable under any other Act.—[Mr. Walter Harrison.]

WAYS AND MEANS

  COMPANIES
  Resolved,
  That any Act of the present Session to amend the law relating to companies (the present Acts may—

  (1) require the payment to the registrar for the purposes of the Registration of Business Names Act 1916 of fees in respect of matters specified by regulations made under the present Act;

  (2) authorise that registrar to charge fees for any services provided by him otherwise than in pursuance of an obligation imposed on him by law;

  (3) provide for the payment into the Consolidated Fund of fees payable to that registrar in pursuance of the present Act and of any increases attributable to the present Act in the sums received by the registrar of companies.—[Mr. Walter Harrison.]

  COAL INDUSTRY (SOUTH WALES)
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. John Evans.]
  10.0 p.m.
  Mr. Ioan Evans: I am pleased to have this opportunity to raise the subject of the general situation and

  1057
  future of the coal industry in South Wales. In addition to referring to the general situation, I wish to refer also to two problems which concern my constituency, the first being the threatened closure of the Deep Duffryn colliery in Mountain Ash and the second being the future of the Phurnacite plant in Aberdare.
  I pay tribute to the work of my right hon. Friend the Secretary of State for Energy and my hon. Friend the Under-Secretary of State who is to reply to the debate. I know that they have worked to ensure that coal will have a vital role in meeting our energy needs in the years ahead. I know also that my hon. Friend the Under-Secretary of State is fully conversant with the problems of the industry, having worked for over 20 years at the Lochhead pit in Fife before entering Parliament. In fact, there is a connection between my constituency and Fife in another context as well, because Keir Hardie was associated with the coal industry in Scotland before coming down from Fife to become a Member of Parliament, the first Labour Member of Parliament for Merthyr Burghs, of which Mountain Ash became part.
  The Government's Green Paper on energy policy gives expansion of the coal industry strong endorsement. This consultative document supports the coal industry's case. It assumes expanding production from 135 million tons in the mid-1980s to 170 million tons by the end of the century, as proposed in the industry's "Plan for Coal".
  I pay tribute also to the South Wales area of the NCB as well as to the National Coal Board. Reviewing the industry's progress this year, Sir Derek Ezra said:
  "The coal industry's financial results for the year 1977–78 will again be satisfactory even after paying considerably higher interest rates on loans for investment. It means that in spite of many difficulties caused by inflation and recession in the economy, the industry has had three consecutive financially successful years."
  In quoting what Sir Derek Ezra said, I realise that there are special financial problems in the South Wales coalfield. There have been financial losses, but these losses, I submit, should not lead to action which would be regretted by future generations. In the past in South Wales we have already had closures of pits some
  1058
  of which, if they had remained open, would have been producing coal today and contributing to our energy resources.
  I wish in particular to refer to the future of the Phurnacite plant in my constituency. I ask the Government, if they are approached by the National Coal Board or by National Smokeless Fuels Limited, which is a wholly owned subsidiary of the NCB, for financial support for investment in the new process at the Phurnacite plant in Abercwmboi, to give that application sympathetic consideration.
  I understand that consideration is being given to introducing a new ANCIT process at this plant. The future of the plant is of particular importance to the people in the Cynon valley. There has, of course, been a pollution problem in the area of which we are well aware, but I understand that the new ANCIT process would not only ensure the production of smokeless fuel over the coming years but would go a long way to deal with the pollution problem.
  There are six pits in the area—the Deep Duffryn, the Mardy, which is in the constituency represented by my hon. Friend the Member for Rhondda (Mr. Jones), the Under-Secretary of State for Wales at present on the Front Bench, the Penrikyber, in my constituency, Tower and Fernhill, which we share in both our valleys, and Merthyr Vale—which are supplying coal for the Phurnacite works.
  The Phurnacite works will have a major effect on the future of pits in these areas. The social consequences involved in the future of that plant are such that it requires immediate financial support. The National Union of Mineworkers and the miners' lodges have said that they will co-operate fully with the Board in seeking ways to improve the complex.
  I turn to the threatened closure of some of the pits in South Wales. I am concerned in particular about the proposals to close the Deep Duffryn nit at Mountain Ash. There has been an investigation by the National Coal Board, the regional NUM and the miners' lodges into possible development of resources at the pit. The geographical situation in the area has been studied fully. The situation as it will affect the viability of the mine in the immediate future and in the long term has also been examined.

  1059
  I understand that there is a proposal to set up a Government working party involving the area NCB and NUM to examine the future of the industry in South Wales. Surely, closures should be postponed until that examination has been completed. I hope that the Minister can give us some information about that working party, which is regarded with hope by the miners of South Wales.
  The miners recognise the problem which flows from the operating loss in South Wales. Some suggest that there should be a separate Welsh coal board. That is nonsense which we reject.
  Mr. Dafydd Wigley: Why?
  Mr. Evans: It would be a step backwards to break the regions into separate units. We need a unified coal policy for the whole of Britain. I have met the South Wales officers of the NUM. They have presented a reasonable and responsible case. The union believes that the Board should approach the Government to provide financial aid for a number of years to give the area an opportunity to reap the benefit of the investment which has taken place in the last four years. Certain projects are still not completed. The union believes that Government support could be given along the lines of that given in Scotland where there have been similar problems affecting the production market. My hon. Friend the Member for Bolsover (Mr. Skinner), who is present in the Chamber, will know that the NUM's policy has been to develop resources throughout Britain.
  What action should we take on the various types of coal? On the power station pits, the NUM believes that support for the burn of Welsh coal should be given, including stocks, for a period of time. An adjustment in price might mean that the power stations would take more of the stocks than they do at present.
  For the coking coal pits such as the Lady Windsor pit and the Abercynon pit in my constituency, there is a need for financial support, first so that the pits realise the benefits that are on hand and secondly to discourage the import of such fuel into the country. The British Steel Corporation, a publicly owned body, should be encouraged to use indigenous coal.
  1060
  One must realise that the loss of availability of anthracite must lead to imports. If the quota is not produced from the anthracite pits, the fuel will be imported. Consumers might have to adjust their heating appliances at great cost.
  The union regards the Phurnacite pits as the main problem. Without them, the associated Phurnacite works would lose feedstocks and about 1,000 jobs would be lost. The pits are neighbours of one another, as they are of the Phurnacite works. These are in an area that is already over-burdened with too much unemployment.
  The miners' unions and the lodges in my constituency are making a reasonable request to the Government. They have the support of the Labour Party in Wales and of the trade unions. The miners from the Deep Duffryn lodge met the industrial committee of the local authority, and the Abercynon borough council is giving the miners its full support. The miners in my area support the National Coal Board in any approaches to the Government which will result in more financial support for South Wales in the next few years while investment is pursued to enable better financial results to be achieved.
  I have a large number of questions to ask my hon. Friend the Minister, and I wish to give him plenty of time in which to answer them. First, what is the future of the Deep Duffryn pit in Mountain Ash in view of the claim that there are substantial coal reserves? What is the Government's attitude to the threatened closure of other pits in South Wales? What future is there for the Phurnacite plant in Aberdare? Will that plant be given investment for the new process? If the money is forthcoming, it will meet the growing demand that exists for smokeless fuel, and it will also deal with local pollution problems.
  What action will be taken to cope with the special financial problems of the South Wales coal industry? The people of South Wales and the whole mining community in the area have played their part in the industrial revolution. I believe that the nation owes a great deal to the valleys of South Wales, because the people in that area have given so much to the country in the past.

  1061
  When will my hon. Friend set up the promised working party? Great hopes were raised among miners at the possibility of such a working party. I hope that my hon. Friend, who has a reputation for being sympathetic to the coal industry —he has worked in the industry and knows it very well—will maintain that reputation by giving a good response to my questions.
  10.13 p.m.
  The Under-Secretary of State for Energy (Mr. Alex Eadie): I congratulate my hon. Friend the Member for Aberdare (Mr. Evans) on his enterprise in initiating this important debate. I am sure that the whole House will be grateful to him. I can hear the echoes of those thanks in the valleys of South Wales, an area in which I take a great deal of interest and to which I am greatly attached.
  I listened with great interest to my hon. Friend, who put forward his case with feeling and compassion. I am grateful that he has allowed me sufficient time to endeavour as best I can to answer the important points he has made.
  The coal industry in the United Kingdom has seen many changes. It has witnessed the boom of the post-war years and the optimism which followed. It has also seen the severe problems of contraction in the late 1950s and 1960s in the face of harsh competition from cheap and plentiful supplies of oil, the effects of which are still very much with us at present. We are now witnessing what I believe is another exciting period in the history of the industry.
  The Labour Government recognised from the outset the important part to be played by the coal industry in any future energy policy in the United Kingdom. On taking office we established the tripartite coal industry examination to look into the problems and prospects of the industry, to set about helping the industry to reverse the decline of the previous decade and a half, and to face the formidable task of preparing the foundation of the modern, efficient, and competitive coal industry that we believe is necessary for the future. The outcome was the endorsement by the Government, the management and the trade unions of the NCB's 10-year investment programme Plan for Coal ". At the same time, while we gave our support
  1062
  to the financial framework within which the Board could pursue its new objectives. we recognised
  "the special burdens of the past, the need to provide safeguards against short-term fluctuations in the price of competing fuels, and the need to take appropriate action if other public policies prevent commercial pricing or impose exceptional burdens on the Board"
  "Plan for Coal" was reviewed in 1976, when the NCB looked ahead to the prospects for the rest of the century and put forward its suggestions for further strategic planning objectives. Although less of a contribution from new mines was now expected under "Plan for Coal", the target of 135 million tons output in 1985 was still considered valid and the Government confirmed its support for the plan.
  But there are many uncertainties in planning to meet demand 10 or 20 years ahead. A soundly based and widely accepted framework for a national energy strategy is necessary to give the flexibility needed to meet changing circumstances. The Energy Commission set up at this time last year by my right hon. Friend the Secretary of State for Energy was established to advise and assist in the formulation of such a strategy. Its first task was to discuss a paper on future energy strategy and its comments on this were included in the Government's Green Paper "Energy Policy—A Consultative Document", published in February.
  The Green Paper confirmed the need for the Government to be prepared to give operational assistance to the NCB. It also made clear the difficulties that the United Kingdom would experience in balancing energy supply and demand in the long term without a substantial contribution from United Kingdom coal. It went on to say:
  "The coal industry could also have short-term problems. Production cannot be varied rapidly and the industry must maintain adequate capacity and manpower on the base of which it can expand to cope with increased demand in the long run."
  With their endorsement of "Plan for Coal", the Government demonstrated their confidence in the future of the coal industry by making available the capital funds that the NCB needed to implement its ambitious programme. Last year the NCB's capital investment was more than £300 million, and since 1974 investment of more than £1 billion has been approved.

  1063
  But we did not forget the heavy social burden of the past. Since taking office the Government have provided almost £400 million in grants to the coal industry to assist in bearing this cost. Another £70 million has been provided to help overcome short-term operational difficulties. Some £100 million was given as a grant for a pneumoconiosis scheme set up between the NCB and the unions.
  I make no apology if so far I have ranged much wider than the issues which my hon. Friend has raised. I wanted to demonstrate the commitment and determination of the Government to ensuring that our coal industry will continue to play a major role in the future energy strategy of this country.
  My hon. Friend is concerned about the future of the coal industry in South Wales. South Wales has a very proud coal industry. It is one of the oldest established areas of the industry, with reserves having been worked for over 150 years. It produces some of our prime coking coals and is the sole producer in the United Kingdom of anthracite. There can be little doubt, therefore, that the industry in South Wales will have a vital part to play in the continuing future of the coal industry in the United Kingdom.
  South Wales has, I agree, suffered contraction together with the rest of the United Kingdom coal industry. But there has been plenty of investment in the coalfield under "Plan for Coal". In fact, some £80 million has been invested there in the last three years. The new mine at Betws, which began production in May, is designed to produce 500,000 tonnes per year of anthracite at two and a half times the national average for productivity. The colliery should then enable the whole of the United Kingdom demand for anthracite to be met from indigenous sources. Valuable coking coal reserves have been proved in the Margam area.
  But we must also bear in mind that one-third of the collieries in the coalfield are more than 4 century old, and over half of the total are over 75 years old. As with all extractive industries, the reserves of a particular pit cannot last for ever. In addition, where the geology is difficult the most accessible and easiest-won reserves are exploited first, and this must mean that some mines will find it difficult to contain costs to an acceptable level.
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  The coalfield has made increasing losses over the past three years, after taking Government grants and profits from opencast operations into account. This, of course, places a tremendous burden on the National Coal Board if it is to meet its statutory objectives of breaking even one year with another.
  My hon. Friend asked about the general outlook for the industry, not only in South Wales but in the whole of the United Kingdom. To some extent I have nailed my colours to the mast in relation to the Government's commitment towards coal. My hon. Friend asked how the Government proposed to try to deal with the problem of South Wales. I am pleased to be able to tell the House that I have the authority tonight to say that, with the agreement of the National Coal Board and the mining unions, the Government intend to put in hand a tripartite study of the South Wales coalfield.
  This will be undertaken by a sub-committee of the coal industry tripartite group. I will cover both the difficulties currently being experienced in the coal field and the positive prospects for the future. We are in touch with the Board and the unions about the details with the intention of launching the study as soon as possible. The outcome of the study will be taken into account by the Government in their general review of the strategy for the coal industry early next years as part of the updating of the fore casts of all the fuel industries. I hope my hon. Friend will agree that to some extent that meets his question about what the Government intend to do. I suggest that I have made a constructive response
  My hon. Friend also asked a specific question about the Phurnacite plant in his constituency. I am pleased to confirm what he said, that there is a continuing demand for Phurnacite and that National Smokeless Fuels is interested in the process he mentioned the ANCIT process. It would like to replace the Disticoke batteries with ANCIT batteries as the former reach the end of their natural lifespan.
  My hon. Friend also made some comparisons with other countries and spoke about how they approached the question of giving sustenance and aid to the mining industry. I should like to give some comparisons with the European coal

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  industry. I refer to a recent report by the European Commission on State aids for members' coal industries for 1978, document no. COM(78)367 Final. It shows aid to current production in Belgium as £24 per tonne, with production costs at £52 per tonne. The figures for France are £14 and £38 and for Germany £12 and £38.
  We in the United Kingdom are entitled to hold up our heads when we talk about production costs in relation to Government help and sustenance, for here the first figure is 56p. That is an updated figure, reflecting decisions taken since the publication of the Commission's report. The production costs are £22 per tonne. That demonstrates that we have the cheapest coal production in the EEC and are subsidising our industry less than any other EEC country is subsidising its industry.
  My hon. Friend also asked about Deep Duffryn colliery, in which he had a personal interest because it is in his constituency. The mine was sunk in 1850 and is the oldest surviving colliery in South Wales. The colliery employs 470 men, and because of mining difficulties, production stopped for several months in 1974–75 to re-establish face room at a cost of about £1 million. In spite of this effort, the collierly continued to make a loss.
  In recent years, many meetings between management and unions have examined the possibility of extending the life of the colliery. Various proposals have been examined and costed in detail, but all efforts have failed to determine reserves of coal in a suitable geological environment for the successful operation of a modern coal-getting system.
  The development of these unsuitable areas of reserves would be extremely expensive and could not provide any possibility of the necessary return on expenditure, if one looks at the matter only in
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  terms of expenditure and cost. During a recent joint examination, it was agreed that a final face changeover would mean the cessation of output for at least seven weeks. In view of the high losses incurred in previous years—the figures that I have are a loss of £5·5 million in the past four years and £7·50 per tonne in the current year—the area director announced on 2nd November that, in his view, there was no further point in attempting to continue coal production in this mine.
  Officials of the NUM referred the matter to their national executive, which will decide whether to appeal at national Board level against the closure. If the colliery closes, there are alternative jobs at neighbouring collieries which will be available for any of the men who wish to remain in the industry.
  My hon. Friend mentioned the procedure for colliery closures in South Wales. The industry's agreed colliery review procedures provide for the unions to be consulted by the NCB on possible closures and allow them to appeal up to national Board level. That procedure is jealously guarded by the mining unions and I am sure that my hon. Friend would not want me to say anything that might usurp the rights of the unions to enter consultation and conciliation in this matter.
  I think that I have answered all my hon. Friend's main points. They were important points. He initiated the debate with enterprise and initiative, and I hope he will concede that the fact that I have announced the setting up of a working party to investigate the whole of the South Wales coalfield demonstrates that the debat has been worth while.
  The Question having been proposed at Ten o'clock and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
  Adjourned at half-past Ten o'clock.

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