Sitting of 27 March 1980

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS
  BRITISH RAILWAYS BILL (By Order)

    DARTMOOR COMMONS BILL [Lords] (By Order)
    Orders for Second Reading read.
    To be read a Second time upon Tuesday next.

ORAL ANSWERS TO QUESTIONS
  HOME DEPARTMENT

    Metropolitan Police
    Mr. Cyril D. Townsendasked the Secretary of State for the Home Department when he expects the Metropolitan Police to reach its full establishment and when that establishment was agreed and last reviewed.
    The Minister of State, Home Office (Mr. Leon Britian): The force strength has increased by over 900 since the publication of the Edmund-Davies report in July 1978, but is still some 4,000 below establishment. It is not possible to say when the Metropolitan Police will reach full establishment, but it is likely to be some years before it is achieved. The last major review of establishment was in 1965.
    Mr. Townsend: Is my hon. and learned Friend aware that he has given an encouraging reply? The increase in police strength is no doubt partly due to the wise decision of the Government to allocate a 2½ per cent. increase to the forces of law and order. Is my hon. and learned Friend satisfied that the Metropolitan Police is adequately deploying those it has on its strength?
    Mr. Brittan: I am grateful to my hon. Friend for his first remarks. On police deployment, there has been a review of local policing arrangements by the Commissioner. As a result, I am pleased to be able to tell the House that as many as 1,200 officers should be redeployed from administrative duties. That is a very satisfactory outcome.
    Mr. George Cunningham: Will the Minister make sure that when the Commissioner intends to close local police stations—as he does so intend—there is the fullest consultation with borough councils in the London area? There is great concern among people about the closing down of what they regard as their local police station.
    Mr. Brittan: I know that there is concern when this happens. It is a matter for the Commissioner. I know that he is anxious that there should be full consultation and discussion before proceeding with any such proposals.

    Television Signals (Retransmission)
    Mr. John MacKayasked the Secretary of State for the Home Department what stage has been reached in deciding policy regarding the retransmission of television signals which would enable isolated, scattered communities to receive television; and if he will make a statement.
    The Minister of State, Home Office (Mr. Timothy Raison): We are considering with the broadcasting authorities possible arrangements for assessing the suitability of proposals for self-help schemes taking account of the UHF services already provided or planned in the area. My right hon. Friend hopes to make an announcement shortly.
    Mr. MacKay: I thank my hon. Friend for that reply. I hope that the announcement will not be too long delayed. Does my hon. Friend realise that in many mountainous areas, including my constituency, this kind of active deflector system offers the only hope for receiving television? Those people would be grateful for a favourable reply from the Minister.
    Mr. Raison: I understand the importance that my hon. Friend attaches to these schemes. But the Government need to be clear on resources and the technical

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    implications of the whole future policy for extending 625 line UHF coverage in this way. Available resources must be applied to the best effect.
    Mr. Hill: May I bring to my hon. Friend's attention a problem, not in an isolated area but in Southampton, one of the major cities? There is poor reception in all the areas surrounding the container port. The trouble is, obviously, the shadow of the container cranes. I have been trying for some years to get a solution. Can I call on my hon. Friend for help?
    Mr. Raison: That is another question. I shall write to my hon. Friend about it.

    British Broadcasting Corporation
    Mr. Canavanasked the Secretary of State for the Home Department when he expects next to meet the chairman of the British Broadcasting Corporation.
    Mr. Michael McNair-Wilsonasked the Secretary of State for the Home Department when he expects next to meet the chairman of the board of governors of the British Broadcasting Corporation.
    Mr. Parryasked the Secretary of State for the Home Department if he has any plans to meet the chairman of the British Broadcasting Corporation.
    Mr. Bestasked the Secretary of State for the Home Department when he intends next to meet the chairman of the board of governors of the British Broadcasting Corporation.
    The Secretary of State for the Home Department (Mr. William Whitelaw): I have no immediate plans to meet the chairman of the board of governors of the BBC.
    Mr. Canavan: When the right hon. Gentleman gets round to meeting the chairman, will he explain that there is widespread concern in Scotland about the possible scrapping of the BBC Scottish symphony orchestra and, also, the schools broadcasting service in Scotland? Will the Secretary of State ensure that the BBC gets enough money from the Government to continue these services, which are so important for the educational and cultural life of Scotland?
    Mr. Whitelaw: I do not believe that
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    words are needed from me to explain to the chairman of the governors of the BBC the strong feelings that have properly been expressed in different parts of the country about the BBC's proposals to cut its expenditure.
    The exact decisons—which have not yet been made—are, of course, a matter for the governors and not a matter in which I could, or should, in any way intervene.
    The hon. Gentleman, and others, should remember that when I raised the colour television licence fee from £25 to £34 there was an increase of some 36 per cent. for the two years. Interestingly enough, I did not hear many voices raised in the House at that time suggesting that I should put the licence fee any higher.
    Mr. McNair-Wilson: When my right hon. Friend next meets the chairman of the BBC governors will he express the growing disquiet about the lack of factual balance in a good number of BBC current affairs programmes where the object appears to be to put some organisation in the dock such as our security forces in Northern Ireland, the Thames Water Authority, the Atomic Weapons Research Establishment at Aldermaston and more recently the Army in the programme "Gone for a Soldier"?
    Will my right hon. Friend say to the chairman that the dictum that the BBC now appears to be following whereby controversy is considered more important than responsibility is not good enough?
    Mr. Whitelaw: These are matters for the governors of the BBC. Rightly, with the independent broadcasting arrangements such as we have—arrangements which I feel are right—they must make their decisions on balance and on taste. It is right for the House to express its views as forcefully as hon. Members wish to the BBC governors and it is absolutely open to the different parties to express their views—as they do—about balance to the BBC. That is the right way to proceed.
    The constitutional position, that the Home Secretary, who is responsible for the broadcasting authorities, should not express a personal view or a view on behalf of the Government, is right. Equally, I am entitled to say to the House that I have noticed very plainly the views that

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    have been expressed. I know that those views are appreciated by the governors of the BBC and they arc the people who must act in these matters.
    Mr. Best: Does not my right hon. Friend agree that there is another programme to be added to the alarming list mentioned by my hon. Friend the Member for Newbury (Mr. McNair-Wilson)? That was the recent Nationwide programme on arsonists in Wales. Does my right hon. Friend agree that a heavy burden of responsibility lies upon those whose ultimate charge it is to transmit such programmes to show a degree of investigative journalism and check the veracity of the facts put across? Otherwise such programmes can only be alarmist and do damage to the general public.
    Mr. Whitelaw: I appreciate the feelings of my hon. Friend and many of those who are concerned about this particular matter. Strong views have rightly been expressed to the chairman of the BBC governors and I noticed in the newspapers that he sought to reply. Further discussions have continued. I believe that it is essential that we in this House, while expressing our views strongly to the governors of the BBC, must respect their independent position and leave them to make the final decisions.
    Mr. Armstrong: Does the Home Secretary realise that many of us feel that it is his duty and responsibility to back up the chairman of the BBC governors in defending a public service that is independent of private sources of income? Does he further appreciate that any deterioration in the quality of BBC services to the Northern region will be regarded with great resentment? We have been the Cinderella for far too long. If there is any interference with the Mike Neville programme, there will be a rebellion in the Northern region.
    Mr. Whitelaw: I am grateful to the right hon. Gentleman. I did not think that I was doing too badly in the course that he set me. I thought that I was making it clear that I would certainly not pass any judgment on what the chairman of the governors of the BBC did or on what the BBC did. That is a matter for them. In taking that course I am taking the course followed by every Home Secretary in the past. It is the right course.
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    I certainly support the BBC, though I cannot, as an individual, be expected to support everything that the BBC does. Nor would the BBC expect me to do so. The Government strongly support the BBC, and I, as the Minister in charge of broadcasting, strongly support having an independent broadcasting authority in this country. We have one. We are entitled to criticise it as hard as we can, but we must respect its independence.
    Mr. Farr: In view of the requests that have been made to him today, will my right hon. Friend see the director-general of the BBC urgently and call his attention to the disquiet felt by many hon. Members about the way in which late evening programmes put out by the BBC have deteriorated in recent months? There has been a big increase in the screening of low quality, pornographic and second-rate material.
    Mr. Whitelaw: I note what my hon. Friend says. I see the chairman of the governors from time to time. I have no plans to see him at the moment, but he will be well informed about feelings on these matters when I next see him. Of course I am prepared—I am expected —to discuss these issues with him.
    Mr. Merlyn Rees: Will the right hon. Gentleman say whether the BBC financial presentation to the Home Office in preparation for the licence fee increase included a general indication that cuts were to be made in orchestras, education and local broadcasting? Arising out of that, is there not a way—since the BBC provides these excellent orchestras as a public service—in which the IBA could contribute some money to BBC resources so that the orchestras could be maintained?
    Mr. Whitelaw: I am grateful to the right hon. Gentleman. When the BBC made its presentation to us it properly made that presentation on the financial facts as a whole. Naturally, what it decides to do with the money it receives through the licence fee must be a matter for the BBC. As the right hon. Gentleman will appreciate, it is not for the Home Office to question how the BBC distributes its resources. Therefore, the BBC did not make that point. The provision of funds by the IBA and others to support the BBC orchestras is another matter, but it is fair to consider it.
    Mr. Beith: Does the Home Secretary agree—as the chairman of the BBC govenors seemed to agree when I last put it to him—that part of the BBC's public service obligation is to provide at least some form of local news and weather information on radio? Is the Home Secretary aware that in north Northumberland the BBC proposes to remove all the regional VHF radio bulletins although we have no local radio alternative?
    Mr. Whitelaw: I was not aware of that. Coming from the same region—though from the other side of the Pennines—no doubt I ought to have been aware that that was happening in Northumbria. It was probably happening in Cumbria, too. But nobody has yet told me that it is happening.
    Nevertheless, I agree with the hon. Gentleman that those of us who live far from London should have reasonable local services. I know that that is also the strongly held view of the BBC. Obviously, when the hon. Gentleman tells me of something about which the chairman of the BBC governors is inclined to agree it would be dangerous for me to assume that that was actually what the chairman of the governors was doing. That must remain a matter between the chairman of the governors and the hon. Gentleman.

    Penal System (May Report Recommendations)
    Mr. Dubsasked the Secretary of State for the Home Department if he is now in a position to announce his proposals on the recommendations in the May report on the penal system.
    Mr. Whitelaw: I hope to announce decisions on the recommendations of the May committee on Home Office organisation after Easter.
    Mr. Dubs: Does the Home Secretary accept that his recently stated views on the need to reduce the prison population are widely welcomed? Does he also accept not only the urgency of a debate in the House but the need for quick action in order to contain the growing crisis in our prison system?
    Mr. Whitelaw: I appreciate what the hon. Gentleman says. I wish the nation as a whole—and as a first step the House —to appreciate some of the problems inside our prisons. Those problems, if I may
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    say so, over many years, have been too little appreciated by hon. Members.
    I have plans which I hope will help but I do not accept that they will help as emergency measures. I hope that it will be necessary to take not emergency measures but measures which will have a clear effect. However, emergency measures can never be ruled out, though I hope that they will not have to be taken.
    Mr. Edward Gardner: Does my right hon. Friend agree that the only fully effective way of reducing the present critically large prison population is to use prison sentences for serious—and in particular violent—crimes only and to use alternative punishments for other offenders where it is possible?
    Mr. Whitelaw: I agree with my hon. and learned Friend. I have, as I think the House will appreciate, been a strong advocate of non-custodial sentences wherever possible, particularly for non-violent offenders. I will continue to stand for that principle since I am quite certain that it is in the interests of the nation. As my hon. and learned Friend will be the first to appreciate, in cases involving non-violent offenders shorter sentences—where thought appropriate by those administering them—would be valuable. In view of what some newspapers seem to say from time to time, that must be a matter for those who impose the sentences. It cannot he a matter for the Home Secretary.
    Dr. Summerskill: Will the Home Secretary bear in mind that he first announced proposals for his short, sharp, shock regime to the Conservative Party conference? Is he aware that last Friday he announced his preliminary proposals for prison reform to the Central Council of the National Union of Conservative and Unionist Associations? We may be a less appreciative audience, but will the right hon. Gentleman in future announce his proposals to the House, because hon. Members eagerly await a statement?
    Mr. Whitelaw: The hon. Lady makes a fair point. When I announced the proposals I had no responsibility, because at that time I was in opposition. When one is in opposition surely one is entitled to make statements outside the House, because one does not always hate the

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    opportunity to announce proposals to the House first.
    Dr. Summerskill: I am not speaking of when the right hon. Gentleman was in opposition.
    Mr. Whitelaw: The hon. Lady referred to my proposals for a short, sharp shock. I announced those during a by-election campaign in Birmingham when I was in opposition. I am not as good as some at remembering exact dates. I do not wish to be discourteous and I accept that I gave details to the Conservative Party conference. If I did wrong, I understand how the House might feel.
    I made a general statement about prisons. I was not describing the detailed proposals for organisation which I have now promised. They will be more extensive. The hon. Lady thinks that I had an appreciative audience when discussing prisons. She should have heard and seen the audience. I do not think that it was all that appreciative of a speech by me about prisons.
    Mr. Speaker: Order. With respect, it might be my fancy, but it seems that answers are becoming longer.
    Mr. Lawrence: As the prison population becomes more obvious and more alarming, should not the credit that the House pays to the prison officers for the splendid work that they do grow?
    Mr. Whitelaw: I entirely agree with my hon. Friend.
    Mr. Kilroy-Silk: Will the Home Secretary continue his welcome positive and constructive approach by reminding the House and the country that the annual cost of keeping a person in prison is £5,894, compared with the annual cost of £250 for probation supervision, £350 for a community service order and £31 for an attendance centre order? Does that not demonstrate the efficiency of the non-custodial solution? Will he continue to place the emphasis on that in order to reduce the cost of the prison service?
    Mr. Whitelaw: The hon. Gentleman will not expect me always to be grateful for his interventions, but on this occasion I am grateful to him and, rather exceptionally, I entirely agree with him.

    Rural policing
    Mr. Gummerasked the Secretary of State for the Home Department what discussions he has had with the chief constables of England and Wales about rural policing.
    Mr. Brittan: We are concerned to encourage the development and interchange of ideas on the policing of rural areas, especially on the relationship between police and public. Her Majesty's inspectors of constabulary discuss these issues with chief constables and their police authorities.
    Mr. Gummer: I thank my hon. and learned Friend for that answer. Is he aware that in many rural areas people are disturbed because, as increasing pressure is put on police resources in the urban parts of rural counties, policemen are withdrawn from the law-abiding villages and put on traffic and other duties in the towns? Is he aware that that means that police coverage is much diminished in such villages? Is he aware of the considerable public unrest? What can be done about it?
    Mr. Brittan: I understand the anxiety. The deployment of police is a matter for chief constables. Deployments can be, and are, discussed with inspectors of constabulary. I am sure that the chief constable involved will note my hon. Friend's question.
    Mr. Alexander W. Lyon: Has the Home Office discussed with chief constables community policing in rural and urban areas? What experiments in community policing are being conducted in metropolitan areas such as London?
    Mr. Brittan: The phrase "community policing" can be interpreted in a variety of ways. Different experiments in different parts of the country are taking place. Even within rural areas there is scope for different types of policing. Such matters are discussed with inspectors of constabulary and the police forces. If the hon. Gentleman has a particular case in mind, I shall do my best to deal with it if he writes to me.
    Mr. Best: Is my hon. and learned Friend aware that the chief constable in the rural area of North Wales has said that police inquiries have been set back by several weeks as a result of the recent showing of the "Nationwide" programme about arsonists in Wales? Is not that highly regrettable?
    Mr. Brittan: I have heard that expression of opinion. Of course I deplore anything which leads to police inquiries being impeded.

    Local Radio
    Mr. Michael Morrisasked the Secretary of State for the Home Department what discussions he has had with the British Broadcasting Corporation concerning its new style of local radio mini stations.
    Mr. Raison: The BBC's plans for local radio were discussed in the Home Office local radio working party on 29 February.
    Mr. Morris: Is my hon. Friend aware that the BBC has at last announced that Northampton is to have its station, but not until the end of 1982? Will he ensure that the Home Office working party makes an early announcement about the future of ILR stations and includes Northampton on the list?
    Mr. Raison: I am aware that the BBC expects that the station will be opened during 1982. The question of ILR stations in Northampton and elsewhere is a matter for the IBA. That body will consider representations in support of ILRs and will take them into account before putting proposals to the working party.
    Mr. Gummer: What is the point of increasing local mini broadcasting stations at a time when the BBC is cutting programmes on its own radio and, in Suffolk, cutting television programmes considerably?
    Mr. Raison: I am not sure what my hon. Friend means by local mini stations. However, the issue is for the BBC. It must make its decisions and then propose them.

    Civil Defence
    Mr. John Evansasked the Secretary of State for the Home Department
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    when he expects to announce the results of his review of civil defence provision.
    Mr. Brittan: We hope to be able to do so after the Easter Recess.
    Mr. Evans: In view of the Home Office's frequently expressed determination to protect civilians in the event of a nuclear holocaust, is it intended to instruct local authorities to start a crash programme in building nuclear shelters? If not, why not?
    Mr. Brittan: That matter can be better dealt with at the conclusion of the review than during the course of it.
    Mr. Allan Stewart: Is my hon. and learned Friend aware that many people are interested in providing their own nuclear shelters, despite there being no financial incentive and such shelters being subject to full VAT? Will he assure the House that that is being borne in mind in the current review?
    Mr. Brittan: I am aware that many people wish to provide their own shelters. The ways in which families can provide simple shelters at reasonable cost are under examination with a view to making advice on that subject available in due course.
    Mr. Cryer: Does the Minister accept that there is no civil defence whatsoever against a nuclear conflagration? Is he aware that the Secretary of State for Defence has said that in the worst circumstances only a few minutes' warning will be given? Is not the best defence to opt out of the nuclear weapons race?
    Mr. Brittan: I do not accept that for one moment. The best way to prevent nuclear conflagration is to be in a position to deter an aggressor. One must have a balanced view about civil defence. Of course there would be immense damage if there were a nuclear attack. That does not mean that nothing can be done to mitigate that damage if such a disaster were to occur.
    Mr. Nicholas Winterton: Will my hon. and learned Friend tell the House what funds are now available for nuclear fall-out shelters under the civil defence system? Will he indicate why it is taking so long for advice to be forthcoming on the specification of such nuclear shelters

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    when people want to provide them for themselves?
    Does he not agree that people are taking civil defence seriously, and regret the disruption that resulted from a previous Labour Administration?
    Mr. Brittan: People are taking civil defence seriously, and that is why my right hon. Friend instituted a review last year. The announcement of the review will come shortly. I am sure that my hon. Friend will wait until then. There is no money available at present for the purpose that my hon. Friend mentioned.
    Dr. Summerskill: May we take it from the Minister's remarks that he does not intend to raise public expenditure on civil defence in real terms? Unless he does that, it will be extremely difficult to increase provision.
    Mr. Brittan: The hon. Lady is entitled to her opinion and her speculation. I think that the House would wish to wait for a proper statement at the conclusion of the review.

    British Broadcasting Corporation
    Mr. Freudasked the Secretary of State for the Home Department whether, in order to enable the British Broadcasting Corporation to retain a competitive wage structure, he will reconsider his decision not to provide extra financing for at least two years.
    Mr. Whitelaw: No, Sir.
    Mr. Freud: Does the Home Secretary accept that with the introduction of channel 4—which he calls service 2—the competition will become tougher? Do not the Government accept that if people are able to spend El on a National Health Service prescription—which, presumably, is what the Government believe—they are willing to pay 11p a day—one-ninth of that sum—to receive a quality BBC service? Is he no longer worried about the popularity or credibility of his Administration?
    Mr. Whitelaw: I shall ignore the hon. Gentleman's last remark. The increase in the television licences that I authorised for both colour and monochrome will bring £1,000 million to the BBC for two years. That is a considerable sum. It is right that the BBC, like everyone else in the country, should consider economies
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    and the way in which it conducts its affairs.
    Mr. Stokes: Is my right hon. Friend aware that, unfortunately, the BBC is grossly overmanned? Is he further aware that if it employed fewer people it could pay larger salaries?
    Mr. Whitelaw: As I have already said very carefully, these are matters for the chairman and governors of the BBC. I make the same response to my hon. Friend.
    Mr. Hannam: Does my right hon. Friend agree that the BBC should look in the opposite direction to raise more revenue? It could easily raise the necessary £130 million by considering other methods of sponsorship, or by selling its excellent productions, which it does not do at present.
    Mr. Whitelaw: As my hon. Friend will be the first to appreciate, the Annan committee, which studied the matter, did not advocate those courses to the BBC. The BBC governors would have to decide whether they wished to change from the course that they are following. Many would doubt whether that was wise—certainly the Annan committee did so.

    Detention Centres
    Mr. Andrew F. Bennettasked the Secretary of State for the Home Department if he will ensure that medical records are available to the courts before a boy is sent to Send or New Hall detention centres for the short, sharp shock.
    Mr. Kilroy-Silkasked the Secretary of State for the Home Department if he will require courts to consider a medical report before committing a boy to Send or New Hall detention centres for the short, sharp shock regime.
    Mr. Whitelaw: The pilot project will be established within existing legislation under which courts cannot be required to consider a medical report or medical records before passing a detention centre sentence, although they have power to call for such reports or records. The medical officers at New Hall and Send detention centres will in all cases consider whether persons received from the courts are physically or mentally unfit for the regime, and if so arrangements will be made for transfer elsewhere.
    Mr. Bennett: Does not the Home Secretary agree that it is almost impossible to make these judgments purely on physical appearance? Does he not think that it is essential that medical information is available to the courts before they make a decision? Will not the courts be held in contempt if they send a person to one of the centres and the medical officer then recommends that he be transferred?
    Mr. Whitelaw: I do not accept the hon. Gentleman's last point. It is right for the medical officers at the centres to decide the matter, and I shall stick by that.
    Mr. Kilroy-Silk: Does not the Home Secretary recall a. recent article by the medical officer at Send, which indicated that depression, suicidal gestures and overdoses were common among the boys at that centre? Did not that article also indicate that anxiety and depression—sufficiently serious to warrant observation and drug treatment—were common to 5 per cent. of the boys? They should never have been sent to a detention centre, especially one where a tougher regime is imposed.
    Does not the right hon. Gentleman agree that if those medical facts had been known to the court in the first place, such an inappropriate sentence would not have been passed, and should not be passed in future?
    Mr. Whitelaw: The hon. Gentleman is criticising the existing regime. I believe that my proposal for medical officers is right and that we should see how it works.
    Sir Ronald Bell: Will my right hon. Friend bear in mind that one of the most successful forms of treatment for drug addiction in Singapore and Hong Kong is precisely the sort of regime that will be operated in the short, sharp shock centres?
    Mr. Whitelaw: I believe that my hon. and learned Friend is right, but we shall have to see how we proceed.
    Dr. Summerskill: Does not the Home Secretary agree that as he has not revealed the exact nature of the regime to the House, and as it is an experiment, nobody—the prison officers, the courts or the doctors—can predict what will be the mental and physical effects of the regime? Even with a medical report they will be left in the dark as to the effects of the regime on the offenders.
    Mr. Whitelaw: I have undertaken to announce the exact details of the projects before they begin.
    Mr. Lawrence: Is my right hon. Friend aware that there appears to be a campaign to misrepresent his proposals for a short, sharp shock as being an institution for physical and mental torture? Will he make it quite clear that the only object of the exercise is to provide a reasonable degree of discipline for young people who do not seem to know the meaning of the word?
    Mr. Whitelaw: I am grateful to my hon. Friend for his remarks. I have made my position on the matter very clear. I have said consistently that there must be no question of brutality in these regimes, because if there were they would not work.
    Mr. Arthur Davidson: Is it not time to stop calling the scheme a short, sharp shock regime? If it is to have any chance of success, it should have at least a proper title, otherwise "short, sharp shock" will become judicial phraseology. Those human beings who are sentenced will feel an understandable sense of grievance at being called by such an inelegant and inappropriate term.
    Mr. Whitelaw: I note the hon. and learned Gentleman's remarks. He should give the pilot schemes a chance to succeed. The way in which I have set them out is a reasonable basis from which to start.

    Violent Crime and Murder (Scunthorpe)
    Mr. Michael Brownasked the Secretary of State for the Home Department if he will call for a report from the chief constable of the Humberside police force about the number of unsolved cases of violent crime and murder in the Scunthorpe area.
    Mr. Brittan: I understand from the chief constable of Humberside that his officers have had considerable success recently in detecting violent crime.
    Mr. Brown: I pay tribute to the Humberside police force for bringing to account a criminal in a murder case. However, is my hon. and learned Friend aware of the grave public concern in my constituency about the large number of

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    crimes of violence that have not been solved, including one or two murders? Will he give the House an indication of whether his Department will be able to assist the Humberside police force in this respect?
    Mr. Britian: Naturally, there is concern about crimes of violence. I think that the House would like to know that the clear-up rate for all offences in Humberside in 1979 was 45 per cent., compared with 41 per cent. for England and Wales. For serious offences of violence the figure was 85 per cent. compared with 81 per cent. in England and Wales.
    Nevertheless, the best assistance that could be given would be for the police to be strengthened. The strength of the Humberside police at the end of January was 1,889, an increase of 112 since publication of the Edmund-Davies report. There is an application for approval of an interim increase in the establishment, which will be considered carefully.
    Mr. Marlow: Will my hon. and learned Friend tell the House how many people in Scunthorpe and other parts of the country received sentences of imprisonment for violence on the picket lines since the beginning of the steel strike?
    Mr. Brittan: That is a different question, but I shall write to my hon. Friend with details.

    Firearms
    Mr. Newensasked the Secretary of State for the Home Department if he is yet in a position to make a statement on the review of firearm matters currently taking place.
    Mr. Whitelaw: I refer the hon. Member to the answer that I gave in reply to a question by my hon. Friend the Member for Devon, North (Mr. Speller) on 6 March.
    Mr. Newens: Does the Home Secretary recognise that the more time that elapses before more stringent regulations for the possession of shotguns are introduced, the greater will be the number of deaths and injuries from their use in crimes of violence? Does he recognise that many members of the police, and the majority of the public, believe that action is long overdue to stop the abuse of the use of
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    shotguns in crimes which are totally unjustified in anybody's eyes.
    Mr. Whitelaw: I made it clear in the reply to my hon. Friend the Member for Devon, North (Mr. Speller) that I did not believe that legislation, which would involve a great deal of bureaucracy and more police time, was justified in this case. I therefore believed it right to proceed by means of a voluntary code on the safety of firearms with the various bodies concerned. That I have done. Those bodies have co-operated very willingly and are now producing those safety codes.
    Mr. Burden: Will my right hon. Friend extend his investigations to the use of the crossbow? It is a deadly and silent weapon which is being used more widely. Will he consider that matter to see whether some control can be exercised?
    Mr. Whitelaw: The crossbow, by its very nature, is not a firearm, but naturally I shall look into the matter that has been raised by my hon. Friend.
    Mr. Ford: Does the right hon. Gentleman agree that there is adequate evidence to show that if one punitively restricts the number of legitimately held firearms, it is not an automatic corollary that the number of unlawful firearms is thereby reduced?
    Mr. Whitelaw: I entirely agree with the hon. Gentleman. That was one of the reasons why I came to my decision in regard to legislation. It was also one of the reasons why I believed that a voluntary code of conduct on the control of firearms was the right way to proceed.
    Mr. Cyril D. Townsend: Does not my right hon. Friend understand that throughout the big conurbations the shotgun has now become the preferred weapon of the serious criminal? One of the most effective ways in which the Government can fulfil their pledge to protect the police is to have far more effective controls over shotguns.
    Mr. Whitelaw: I have made clear the way in which I wish to proceed without legislation, which is through a voluntary code of conduct which I hope will have the support of Opposition Members. I hope and believe that that is the right way to proceed, and I shall proceed with it as hard as I can.

    Parliamentary Boundary Commission
    Mr. Norman Atkinsonasked the Secretary of State for the Home Department how long he now expects the Boundary Commission to require to complete its work; and if it is his intention to include within the subsequent legislation other electoral reforms.
    Mr. Brittan: I understand that the Parliamentary Boundary Commission for England is likely to have completed its task of reviewing parliamentary constituencies by early 1982. It would not be appropriate to include in the Order in Council implementing the Commission's recommendations any provisions dealing with other electoral matters.
    Mr. Atkinson: Does not the Minister agree that it is the Government's intention to legislate separately for other provisions, such as the doubling of absent voters list? Bearing in mind that much time will be taken to settle the boundaries in respect of almost 400 separate constituencies, does not the Minister agree that it will leave little time for political organisations to implement those recommendations prior to the next general election?
    Mr. Brittan: I am glad to learn that I shall have the hon. Gentleman's support for the early and prompt implementation of the report of the Parliamentary Boundary Commission as soon as it becomes available.
    Mr. Fletcher-Cooke: Is it really the case that before the boundary commissioners can report on the Westminster divisions and their differences they must also report on any changes in the European constituencies? If that is so, is not that a ridiculous fetter on their obligations?
    Mr. Brittan: lit is the case that the law requires the Commission to submit a supplementary report on the European Assembly constituencies. I can well understand and appreciate the view that it is perhaps unnecessary for that to be required.
    Mr. George Cunningham: Does the Minister accept that the provision to which he has just referred is contained in the law of the land at present? Does he remember a speech which he made to
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    the Conservative Party conference last October in which he said that the Government intended to proceed with all haste on the implementation and pushing ahead of the Boundary Commission report? In view of the need to be entirely nonpartisan, can he give an assurance that there will be no short cuts and no amendments of the law which are designed purely to achieve objectives which may suit the Conservative Party while being in conflict with the law of the land as it stands?
    Mr. Britian: I think that the hon. Gentleman is confusing changes in the law and conflict with the law. I can certainly assure him that we shall proceed in accordance with the law of the land.
    Dr. Edmund Marshall: What is the present position with regard to the membership of the Parliamentary Boundary Commission for England?
    Mr. Brittan: The present position is that the new membership was announced on 10 March.
    Mr. Maxton: In view of the Minister's statement that he is not considering other electoral reforms, will he have a look at the implications of the Transport Bill, which is at present going through the House, with regard to the transport of electors to polling stations and the implications between the two?
    Mr. Brittan: I did not say that we were not considering other electoral reform measures, because, as some hon. Members will know, I have made a number of speeches indicating that we are considering other measures. What I said was that it would not be appropriate to include any other measures in the Order in Council implementing the recommendations of the Boundary Commission.

    PRIME MINISTER (ENGAGEMENTS)
    Mr. John Browneasked the Prime Minister if she will list her official engagements for Thursday 27 March.
    The Prime Minister (Mrs. Margaret Thatcher): This morning I presided at a meeting of the Cabinet. In addition to my duties in this House, I shall be having

    1645
    further meetings with ministerial colleagues and others. Later this afternoon, I shall be greeting Chancellor Schmidt on his arrival in this country for bilateral talks.
    Mr. Browne: Will my right hon. Friend take time to note that many people, particularly in Winchester, will welcome the Budget as extremely realistic, particularly the enlightened provisions for the rejuvenation of our inner cities and small businesses? However, many people will feel that a monetarist Budget can work effectively only in a free economy. Therefore, will my right hon. Friend reassure the House of her dedicated efforts to break down the ill-effects of the two cartels, namely, the public employers and trade unions which operate a closed shop without a secret ballot?
    The Prime Minister: I am grateful to my hon. Friend. I believe that many people will welcome the Budget, which protects the weak, is fair to all and offers enterprising proposals for the vitality of the economy. I agree that we must reduce the role of the State, particularly as an employer. As my hon. Friend knows, we are passing denationalisation measures into law. I agree with him that we must deal with the power of the trade unions. As he knows, important proposals on the closed shop are now contained in the Employment Bill.
    Mr. David Steel: How does the Prime Minister square two proposals in the Budget with her commitment to the incentive society, namely, the failure to uprate child benefit in line with inflation and the abolition of the lower rate band?
    The Prime Minister: As the right hon. Gentleman knows, the lower rate band was the top rate only for people who on the whole work only part time. The Chancellor took the view, I believe wholly rightly, that the most important thing was to increase personal allowances. I believe that will have the biggest possible effect. Child benefit, as the right hon. Gentleman knows, has been increased by some in 18¾ per cent., which is a considerable increase. If he looks at the overall effect of the Budget, he will find that it offers least help to single people—if I may put it that way—more help for married people and most help to families.
    Mr. McQuarrie: When my right hon. Friend today meets her ministerial colleagues and Chancellor Schmidt, will she discuss with them the question of yet another contravention by the French, by fishing for herring when fishing for that species is banned? That is causing serious concern to the British fishing industry which is standing by the EEC regulations.
    The Prime Minister: I am aware of some of the allegations which have been made about herring fishing contraventions, which are perhaps permissible if they are very small in relation to a much larger catch of big fish, but which on other grounds are wholly outside the ban which our fishermen operate in the North Sea. I shall convey those strong feelings to Chancellor Schmidt.
    Mr. James Hamilton: Will the Prime Minister today take time to tell the people whether the Budget will increase unemployment or decrease it? Will she also tell the trade unions that the Government have no time for them and that they are proving that conclusively by the legislation which they are passing through the House?
    The Prime Minister: The hon. Gentleman heard my right hon. and learned Friend the Chancellor of the Exchequer say yesterday that, unfortunately, we expect unemployment to rise. Unemployment rose heavily during the lifetime of the previous Labour Government. Indeed, it more than doubled. Certain cases of overmanning must be reduced. The hope for future jobs must come from the vitality of small businesses. The Budget was very forthcoming about that.
    Mr. Dykes: Will my right hon. Friend reflect that although it was extremely irritating when the Italians announced the postponement of the European summit, there is a chance that that will assist in reaching a settlement? Will she further reflect that Chancellor Schmidt may intervene?
    The Prime Minister: We were expecting to have bilateral talks with Chancellor Schmidt during these two days. I agree that we must use the interim profitably in order to reach a settlement of Britain's genuine budget complaints earlier than we had hoped.
    Mr. James Callaghan: When the right hon. Lady gives an account of the progress of unemployment will she include the fact that there was a month by month reduction in the level of employment during the last 18 months of the previous Labour Government? Does she not agree that that was coupled with a substantial reduction in inflation? If she is to bandy figures, she should include that in the record. Why are the Government cutting measures to assist the unemployed, including skillcentres?
    The Prime Minister: I shall not quarrel with the right hon. Gentleman about the figures that he presented earlier. He knows that the Labour Government inherited about 600,000 unemployed and that that figure more than doubled during the lifetime of that Government. As regards skillcentres, some of the places were not fully taken up. It did not seem right and proper to allow those places to continue.
    Mr. McCrindleasked the Prime Minister if she will state her public engagements for 27 March.
    The Prime Minister: I refer my hon. Friend to the reply that I gave a few moments ago.
    Mr. McCrindle: Has my right hon. Friend the Prime Minister seen reports today to the effect that broadcasting organisations are planning to spend £3 million on covering the Moscow Olympics? As the BBC is having to bear considerable expenditure cuts, including the possible wind-up of some of its famous orchestras, will the Prime Minister make any recommendations to the BBC about such great expenditure?
    The Prime Minister: I am grateful to my hon. Friend for raising that point. I understand that the BBC has issued a statement to the effect that no final decision has been taken on the coverage of the Moscow Olympics. That decision will depend upon sports news value at the time and, therefore, on the number of people who go to the Moscow Olympics. The BBC will reconsider the issue nearer the time.
    I share my hon. Friend's views about the proposals to reduce the number of orchestras. I am glad that private help
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    is being given to keep those orchestras in being.
    Mr. loan Evans: As the Chancellor admitted yesterday that the rate of inflation had doubled and that it was likely to be 20 per cent. next year, does the Prime Minister feel that he is justified in making a five-fold increase in prescription charges? Is it not a tax on the sick?
    The Prime Minister: The rate of inflation will rise a little. As the hon. Gentleman noticed, my right hon. and learned Friend was careful not to increase the retail price index by very much in the Budget. A number of people had expected much higher increases in taxes and charges.
    By the time the prescription charge of £1 comes in in December, the cost of a prescription item will be about £2½90. That is almost three times the amount paid. Some 66 per cent. of prescriptions go to those who pay nothing as a result of exemptions.
    Mr. Waldegrave: Thank you, Mr. Speaker. I am glad that we have finally got together—
    Mr. Speaker: Order. Although the hon. Gentleman's remark was meant kindly enough, it was his own fault last week. He had been jumping up, but did not do so when I called him.
    Mr. Waldegrave: My remark was meant as an indirect apology. I shall make it more direct. Does my right hon. Friend agree that although some of her colleagues may wish to argue about individual items in the Chancellor's broad programme, that in no way reflects the fact that the enormous majority of her party are firmly behind the Chancellor's broad strategy?
    The Prime Minister: I wholly agree. It is the only strategy that will bring Britain back to prosperity and self respect.
    Mr. Campbell-Savours: The right hon. Lady has referred to "fairness". Is it fair that steel workers should be offered 8 per cent. while local authority workers arc offered 14 per cent. and the rate of inflation is nearer 20 per cent.? Does she not realise that Underground fares in London have risen by 45 per cent. in the past 12 months? Does she not accept

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    that prescription charges have increased five-fold over a 12 month period? Where is the consistency?
    The Prime Minister: As the hon. Gentleman knows, consistency is found in the fact that people must earn their keep. No one can expect that keep from anyone else. I had thought that the hon. Gentleman was in favour of responsible free collective bargaining. Earnings vary according to the circumstances of an industry. I have already replied to a question on prescription charges. Perhaps the hon. Gentleman will recognise that prescription charges did not go up for a very long time.

    LITTLEPORT
    Mr. Freudasked the Prime Minister if she will pay an official visit to Little-port.
    The Prime Minister: I have at present no plans to do so.
    Mr. Freud: Some of my constituents will be very sorry to hear that. What they would have liked to ask the Prime Minister, after her oft-repeated support for small businesses and her help to small businesses in this Budget, is how she would expect a sub-postmaster with one employee to pay that employee eight weeks' sick pay, as he would have to do. They would also like to know who will become rich as a result of his having to pay tax and employer's contribution for both employee and the replacement.
    The Prime Minister: I would be very surprised if a sub-postmaster with one employee had no alternative source of income. I was brought up in a shop with a sub-post office [Interruption.] I was brought up in such a shop for many years. A large sub-post office has a good deal of income or it has another shop. Perhaps the hon. Gentleman will raise such issues of detail when the appropriate Bill is laid before the House.

    ELDERSLIE
    Mr. Allan Stewartasked the Prime Minister whether she has any plans to visit Elderslie.
    The Prime Minister: I have at present no plans to do so.
    Mr. Stewart: Since Elderslie is a centre of the carpet industry, would my right hon. Friend assure those employed in that industry that she will lose no opportunity to draw the attention of our EEC partners in the Commission—at the highest level—to the fact that the Department of Trade has immense support from all parties? Does she accept that we should press for urgent action at Community level in order to deal with unfairly priced American imports?
    The Prime Minister: I am very well aware of the problems facing the carpet industry as a result of cheap imports from the United States and Canada. I am also aware of the problems that face my hon. Friend's constituency. As he knows, my right hon. Friend the Secretary of State for Trade secured some quotas for polyester yarn and nylon yarn. Unfortunately, he did not do so for carpet imports. The Commission and the Department of Trade are monitoring the situation very closely. They would not hesitate to take further action if that were thought necessary.

    CRUISE MISSILES
    Mr. Cryerasked the Prime Minister what representations she has received regarding the siting of cruise missiles in the United Kingdom.
    The Prime Minister: I have received two petitions and about 400 letters.
    Mr. Cryer: Does the Prime Minister accept that the £10 million spent on installing cruise missiles could be better used to increase mobility allowance by at least £1 per week and the single-parent premium by at least 50p per week for 12 months or more? Does the right hon. Lady agree that, since Parliament was ignored, the people who live within 30 miles and preferably a wider radius around the proposed cruise missiles sites should have the right to vote on whether they accept them, with an 80 per cent. vote as for the closed shops, for example? Alternatively, does the right hon. Lady believe that freedom of choice exists only when she has the choice?
    The Prime Minister: The hon. Gentleman asked a similar question before. As he knows, no freedom would exist

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    in this country unless there were a Government prepared to defend it. It is the task of the Government to make such provision as they believe appropriate, debated before Parliament, to provide for the proper defence of this country to deter any enemies at all levels. The provision of cruise missiles is one of those levels.

BUSINESS OF THE HOUSE
Mr. James Callaghan: Will the Leader of the House please state the business for next week?
The Chancellor of the Duchy of Lancaster and Leader of the House of Commons (Mr. Norman St. John-Stevas): The business for next week will be as follows:
MONDAY 31 MARCH—Continuation of the debate on the Budget Statement.
TUESDAY 1 APRIL—Conclusion of the debate on the Budget Statement.
Consideration of Lords amendments to the Competition Bill.
WEDNESDAY 2 APRIL—Consideration of Lords amendments to the Education (No. 2) Bill.
Remaining stages of the Limitation Amendment Bill (Lords).
THURSDAY 3 APRIL—It will be proposed that the House meets at 9.30 am, takes questions until 10.30 am and adjourns at 3.30 pm until Monday 14 April.
Mr. Callaghan: Is the Leader of the House aware of the dissatisfaction about the public expenditure White Paper and the way in which it was presented? We have not had time to consider it before the debates. A number of issues are emerging. For example, it appears that council house building is likely to stop completely during the next year or so. In view of that and other matters that could be raised, will the Leader of the House undertake that we shall have a debate on the White Paper in the week following the Easter Recess?
Mr. St. John-Stevas: Many hon. Members have found it convienient that the public expenditure White Paper and the Budget proposals should be considered together. After all, one is dependent on
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the other. I cannot at this point give the right hon. Gentleman an undertaking. I shall consider the matter, but I believe that it is more likely that the debate will be later than the first week after the recess.
Mr. David Price: In view of the importance of the engineering profession to the future of this country, will my right hon. Friend undertake that shortly after the Easter Recess we shall have the long-awaited debate on the Finniston report?
Mr. St. John-Stevas: An inter-departmental committee is considering the recommendations of that extremely important report. After it has made its recommendations the Secretary of State for Industry will make a statement.
Mr. J. Enoch Powell: Has the right hon. Gentleman's attention been drawn to early-day motion No. 529, standing in the name of a right hon. Member, with regard to the future leave of absence for the Chair?
[That this House will hereafter give its indulgence and leave of absence to Mr. Speaker by resolution and not otherwise; and the Clerk, in announcing such absence to the House in the customary manner shall hereafter refer to Mr. Speaker's absence as by leave of the House' and not as 'unavoidable'.]
Will the right hon. Gentleman make arrangements for the matter to be considered through the usual channels and in any other appropriate way?
Mr. St. John-Stevas: I have seen the right hon. Gentleman's motion. The first part proposes a departure from a longstanding practice, and one would wish to consider the implications of that important suggestion. I have sympathy with the second part. I shall see what can be done to meet the suggestion. I believe that the right hon. Gentleman knows that it would involve an amendment to paragraph 2 of Standing Order No. 105.
Mr. Speaker: If it will help, I promise not to ask for a day off for a long time.
Mr. Nicholas Winterton: I do not believe that my right hon. Friend mentioned a recess motion. We normally have a recess motion before this House goes into recess. Will my right hon.

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Friend indicate when the Adjournment motion will take place? It is a good opportunity for Back Benchers to raise matters of importance to their constituencies. The Government have failed to provide time to debate the textile industry, and I wish to raise the continuing problems of that important industry.
Mr. St. John-Stevas: My hon. Friend is right in saying that a recess motion is normal. It will take place from about 3.30 pm on Wednesday 2 April. It is equally well established, as my hon. Friend will know, for that announcement not to be contained in the Business Statement.
Mr. English: The BBC cuts in local radio, television orchestras, and so forth will be decided on 17 April. Will the House have an opportunity in the first three days after the recess to express a view, say, in a three-hour debate?
Mr. St. John-Stevas: I cannot answer questions on the business for succeeding weeks during this week's business questions. That is, technically, what the hon. Gentleman's question amounts to. The BBC is responsible for the cuts that it makes. I share the hope that the hon. Gentleman latently expressed in what he was saying, that there will be no discrimination against the arts.
Mr. Lawrence: My right hon. Friend the Home Secretary said this afternoon that he would be putting forward the Government's proposals on the recommendations in the May report after the recess. May we have a debate before those proposals arc put before the House?
Mr. St. John-Stevas: We must await my right hon. Friend's statement before deciding that.
Several Hon. Members rose—
Mr. Speaker: Order. I shall call the right hon. and hon. Members who have risen. I say to hon. Gentlemen who have tried to catch my eye that I know that the House is anxious to get on to the main business of the day.
Mr. Jay: The Financial Secretary to the Treasury withheld a relevant document from the House during the debate on the EEC budget on Monday. May we have an assurance from the Leader of the House that there will be adequate time soon to discuss that important document?
Mr. St. John-Stevas: I understood that there was some difficulty about that during my absence at the enthronement of the Archbishop of Canterbury. I do not believe that the right hon. Gentleman is entirely fair to my hon. Friend the Financial Secretary. My hon. Friend did not quote from the document; he referred to it. It was made available to hon. Members on Tuesday. The matter will be examined by the Scrutiny Committee. If the Committee recommends a debate, we shall certainly have one.
Mr. Nelson: Will my right hon Friend confirm that in the previous Parliament it was the practice for the Government to have a debate on the defence White Paper and for there to be three separate debates on the Army, Royal Navy and Royal Air Force on Supply days? Is it the intention of the Opposition to follow the same practice, and will time be found for separate debates on each of the three Armed Forces?
Mr. St. John-Stevas: The defence White Paper will he published on 2 April. After an interval to consider it, there will be a full debate in this House. The arrangements have not been finalised, but we shall certainly consider my hon. Friend's suggestion.
Several Hon. Members rose—
Mr. Speaker: I propose to call only those hon. Gentlemen who had risen before I made my statement earlier.
Mr. Armstrong: As the BBC Governors appear to be accepting the Government's insistence on cuts that some of us believe will do irreparable damage to a great public service, will the right hon. Gentleman assure us that there will be a debate in the House before the cuts are implemented?
Mr. St. John-Stevas: I cannot give that assurance. However, I believe that whatever cuts the BBC has to make because of the financial limitations within which it moves should be evenly and fairly distributed and that there should not be discrimination against orchestras. I echo what my right hon. Friend the Prime Minister said about how welcome it is that £250,000 has been raised from private industry for the Scottish National Orchestra.
Mr. Douglas: Will the right hon. Gentleman bear in mind the reply that he

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gave to my right hon. Friend the Member for Battersea, North (Mr. Jay) about the document on the European budget and convergence? Does he recognise that his responsibilities are to the whole House, and that he should ensure that documents that are in the possession of the press are in the possession of hon. Members?
Mr. St. John-Stevas: I agree with that. I discussed in detail the events surrounding those documents and I was satisfied that no action was taken that infringed the rights of hon. Members.
Mr. Alton: Has the Leader of House seen early-day motion No. 502, which deals with the new building regulations and fees?
[That an humble address be presented to Her Majesty, praying that the Building (Prescribed Fees) Regulations 1980 (S.I., 1980, No. 286), dated 3rd March 1980, a copy of which was laid before this House on 11th March, be annulled.]
Is he prepared to accept the plea from Members of the three major parties for a debate before those fees and building regulations are implemented? Does he consider it right that they should be implemented before a debate on the subject?
Mr. St. John-Stevas: I have seen the motion on the Order Paper. It is an important matter, but I cannot see my way to providing time for a debate before the recess.
Mr. Mike Thomas: With regard to the Budget debate and the information provided to the House, why does the Red Book not contain any prediction of the growth or otherwise in manufacturing output for the next 12 months? Is it because the Government expect a decline and are not prepared to tell the House?
Secondly, why is the energy section in the public expenditure White Paper wholly based on the situation that prevailed several months ago in respect of the nuclear power programme? When will the Government tell the House the truth about that?
Mr. St. John-Stevas: I am flattered that those questions should be directed to me. They are not remotely connected
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with next week's business. They are important and I am willing to do what I can to answer them. However, I am not the Chancellor of the Exchequer at the moment. I am the Chancellor of the Duchy of Lancaster—a rather more important post.
The contents of the Red Book are the responsibility of my right hon. and learned Friend the Chancellor of the Exchequer, He indicated that he expected a rate of growth of 1 per cent. over the next few years. He wisely put it at a low level instead of inflating it to an artificial level as previous Chancellors have done.
The point made by the hon. Gentleman about nuclear policy is important. That policy is under review and there will be a statement in due course.
Mr. Ennals: May I wish the right hon. Gentleman success in his ambition to become Chancellor of the Exchequer?
More seriously, has he noticed the growing support of many hon. Members for the motion that expresses concerti about the future of the Westminster hospital and Westminster medical school?
[That this House, conscious of the great service provided by the Westminster Hospital to the citizens of Westminster, its great medical achievements with a worldwide reputation in teaching and research and the quality of sevice provided for many years to Members of both Houses of Parliament, expresses its deep concern at the proposals published by the London Health Planning Consortium which propose the closure of 410 of the 510 beds at the Westminster Hospital, thus reducing it to a small support hospital without facilities for teaching or research; and calls upon the Secetary of State for Social Services to give an early assurance that Westminster Hospital will continue.]
May I press him to provide time as soon as possible for a debate on the Flowers report on medical education in London, and the London health planning consortium's report on hospital beds in London?
Mr. St. John-Stevas: I agree with the right hon. Gentleman that those matters are important. We are still awaiting the report of the University of London and the reflections of the health authority on the matter. We can consider the matter when we have that knowledge.
Mr. Maxton: The Criminal Justice (Scotland) Bill is receiving its Third Reading in the other place today. Will the right hon. Gentleman announce when the Bill will be read a Second time in this House, or will he make an announcement today that, in view of the savage attack on civil liberties contained in the Bill, he will now withdraw it?
Mr. St. John-Stevas: We must separate the two parts of the question. Logically, I shall reverse the order. It is not the intention of the Government to withdraw the Bill. That paves the way for answering the first part of the question. In response to the hon. Member's soliciting. I shall try to bring the Bill before the House at an early opportunity.
Mr. Dubs: When will the Leader of the House be in a position to bring forward proposals on the changes decided by the House on Members' secretaries' pensions and allowances?
Mr. St. John-Stevas: I have given an instruction to the Fees Office that it should pay those new rates of allowance for secretarial and research assistants to any hon. Member applying for them, backdated to 14 February. I have today answered a question on the subject tabled by my right hon. Friend the Member for Taunton (Mr. du Cann), and I hope that that will help hon. Members. There are some difficult questions with regard to pensions, and we are investigating the technicalities, with a view to making rapid progress. Meanwhile, I hope that hon. Members will be pleased to know the first part of my answer.
Mr. Shore: The Leader of the House will have read the further accounts about the situation in Cambodia, to which reference was made under Standing Order No. 9 yesterday. Will he arrange for an early statement to be made by one of his colleagues in the Foreign and Commonwealth Office?
Mr. St. John-Stevas: The situation in Cambodia is serious, as the right hon. Gentleman knows. I am pleased to say that, with the support of the House, the Government have made £7 million available for the relief of famine there. The position has grown grave again. My noble Friend the Foreign Secretary is reviewing the position, and if he has a further development in policy to announce,
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it will be made in the other place and the Lord Privy Seal will make a similar announcement here.
Mr. Speaker: I remind hon. Members that on the motion for the Adjournment of the House on Thursday 3 April up to six hon. Members may raise with Ministers subjects of their choice. Applications should reach my office by 10 p.m. on Monday next. A ballot will be held on Tuesday morning and the result will be made known as soon as possible thereafter.

SOCIAL SECURITY BENEFITS (UPRAT1NG)
The Secretary of State for Social Services (Mr. Patrick Jenkin): I will, with permission, Mr. Speaker, make a statement about next November's increases in social security benefits, and about the other changes foreshadowed in the Chancellor's statement yesterday.
The retirement pension for a single person will go up by £3·85, from £23·30 to £27·15, and the rate for a married couple by £6·15, from £37·30 to £43·45. These increases match the full 161½ per cent. expected movement in prices between the last uprating and the next, which, under clause 1 of the Social Security Bill passed by this House and now in another place, has been fixed for 24 November.
Other benefits which will be similarly price protected include widows' pensions, war and industrial disablement pensions, non-contributory invalidity pension, new scheme additional pensions and graduated pensions, attendance allowance and invalid care allowance. There will be a special improvement in mobility allowance—from £12 to £14·50 a week—an increase of 21 per cent.
Supplementary pensions will be increased and aligned with the new basic retirement pension.
As announced yesterday, child benefit will be increased by 75p to £4·75 a week for each child. The premium for one-parent families will go up by 50p to £3 a week. Thus, a single parent with two children will get £12·50 for the children, compared with £10·50 at present.
Family income supplement for lower paid workers will be raised in November

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by an average of one-third, thus considerably improving the real value of this benefit. This includes an extra amount for fuel costs—to which I shall return later.
Most of the long-term contributory benefits that I have mentioned so far are taxable. In contrast, the short-term benefits and invalidity benefit have hitherto not been treated as part of taxable income, although it has been common ground on both sides of the House that they should, in principle, be taxed. As my right hon. and learned Friend said yesterday, proposals to achieve that will be put before the House in due course, so that these benefits will be treated as part of taxable income from April 1982, or as soon as possible thereafter. This is necessary to restore a fairer balance between incomes in work and out of work.
As an interim step, these untaxed benefits will be increased next November by 11½ per cent.—5 per cent. less than the increase in the taxed long-term benefits. Accordingly, sickness and unemployment benefit will go up by £2·15 a week for a single person, and by £3·45 a week for a married couple, to £20·65 and £33·40 respectively. Invalidity pension will be increased by £2·70 to £26·00 for a single person, and by £4·30 to £41·60 for a married couple. The dependency increases for children paid with these benefits will be increased by 16½ per cent., offset by the 75p increase in child benefit.
The Government are determined to maintain the safety net for the poorest people and accordingly the scale rates of short-term supplementary benefit will be fully price protected by increasing them in line with the 16½ per cent. forecast.
The cost of this uprating will be about £3 billion in a full year. About two-thirds of that will be met out of the national insurance fund, and I shall review contribution rates as usual in the autumn. Any necessary changes will take effect from April 1981.
For the convenience of the House, I am circulating details of the new rates of benefit in the Official Report, and copies will be available in the Vote Office.
The social security programme costs about £20 billion a year. It accounts for about one quarter of all public expenditure. It has grown, in real terms, by £7,000 million over the last 10 years, and
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now costs the equivalent of £1,000 for every household in the land. Continuing growth at this rate cannot be sustained, particularly at a time of nil or falling economic growth. Even after making the savings announced by the Chancellor yesterday, this programme will still rise next year by about 2½ per cent. in real terms. Moreover, given the need to contain the size of the public sector borrowing requirement, it is inescapable that this programme must bear some share of the necessary economies.
The savings that we have identified affect primarily those on short-term benefit, above the supplementary benefit level. Though I cannot pretend that they will be welcome, I must stress again that the "safety-net"—the short-term supplementary benefit level below which none shall fall—retains its real value.
The changes affect the earnings-related supplement, the linking rules for sickness and unemployment benefit, eligibility of occupational pensioners for unemployment benefit and the limit for the retirement pensioners earnings rule.
First, earnings-related supplement: I propose that from January 1981, the 15 per cent. rate of supplement on earnings over £30 a week, paid with short-term incapacity, unemployment and widowhood benefits, should be reduced to 10 per cent. and that, a year later, in January 1982, the supplement as a whole should come to an end.
The supplement was introduced in 1966, since when circumstances have considerably changed. Redundancy payments are now more generous and the rapid development of employers' sick pay schemes means that the supplement—which has been allowed by successive Governments to decline in real value—is much less significant than formerly.
Next, the linking rules: the changes we propose will tighten the rules in relation to very short spells of incapacity, or repeated spells off work. We propose to shorten the linking period from the present 13 weeks to six weeks. In addition, we propose that benefits should not be paid for spells lasting three days or less. Both rules have, in the past, given scope for abuse. In particular, the operation of the 13-week rule has led to people getting the higher invalidity benefit after a succession of widely spaced but short spells of minor illness—a circumstance

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for which it was never intended.
Thirdly, unemployment benefit for occupational pensioners: these are, by definition, people who have retired and taken a pension. The proposal we make is that from April 1981 unemployment benefit will be reduced, pound for pound, for those whose pensions exceed £35 a week. The House has, on no fewer than three occasions, rejected this change, and I myself have spoken and voted against it. Yet, when economies in the social security budget must be made, it is not now reasonable to protect entitlement to a year's unemployment benefit for people who have retired and are in receipt of significant occupational pensions.
Finally, in the context of the economic situation as a whole, it is difficult to justify further increases in the earnings limit at this stage. At a time when other groups are having to make sacrifices, we believe that it is right to hold the earnings limit at its present level of £52 a week for the time being. However we remain firmly committed to ending the earnings rule as soon as circumstances allow.
The overall effect of this group of changes, including the 5 per cent. abatement, will be to save at current prices £270 million in 1981–82 and £480 million in 1982–83, less than 2 per cent. of the social security budget as a whole. But, I repeat, this programme will still be growing at a time of falling output.
Legislation will be needed to implement these changes. A Bill will be published tomorrow, which will also cover the changes in supplementary benefits for strikers' families, outlined by my right hon. and learned Friend yesterday.
I come now to help with fuel costs for consumers who are hardest hit. The supplementary benefit heating additions usually go up in line with fuel costs and, of course, the main scale rates of benefit take account of fuel costs with other living expenses. But this year we recognise that this would not be enough, and I am therefore proposing a special package.
First, the basic rate heating addition will be nearly half as much again, increasing from 95p a week to £1·40—that is, to £72·80 a year. Secondly, the middle and upper rates will be not only increased but merged into a combined rate
1662
of £3·40 a week, worth £176·80 a year. This will simplify the scheme and will mean an increase of almost 80 per cent. for some 350,000 people, largely the sick, the disabled and the old.
In addition to these substantial increases, the basic rate heating addition of £1·40 a week will be paid automatically to supplementary pensioner households above the age of 70—this winter's scheme was confined to the over 75s—and to supplementary benefit families with children under 5. Although most severely disabled people on supplementary benefit already qualify for a heating addition, there will be a "fail-safe" arrangement to pick up any who do not. Furthermore, in order to help low income families in work, a special addition of £1 per week will go to FIS families, on top of the £1 already added for fuel this winter.
We are taking other measures outside the social security schemes. Needy pensioners will be helped to save fuel by raising the grant under the home insulation scheme from 66 per cent. to 90 per cent. of the cost. Ministers are also launching an urgent study into ways of helping the old and disabled to save fuel, by insulating their homes, by draught proofing and by making better use of heating appliances. Such a scheme could involve the voluntary bodies and could use younger unemployed people under existing Manpower Services Commission powers. The fuel industries, too, are being encouraged to play their part by sensitive handling of the problems of poor consumers and by developing and extending their easier payment arrangements.
This is, by any standards, a substantial package of extra help. Expenditure on supplementary benefit heating additions, apart from the special measures we announced for this last winter, is running at about £100 million a year. The continuation of this winter's measures adds about £20 million the measures I have just announced add a further £85 million. We shall thus be spending in total over £200 million a year on special help for those least able to cope with rising fuel costs.
In a very difficult year we are protecting benefits for the elderly, preserving intact the safety net below which none shall fall, providing worthwhile help for

1663
lone parents and low income families with children and giving substantial new help with fuel costs to the needy.
The Government came into office committed to help those in the greatest need, and that is what we are doing. By next November, lone parents will have benefited by a 50 per cent. increase in the child benefit addition, by entitlement to the higher long-term rate of supplementary benefit after one year instead of two, and by a more generous sliding scale of disregard for earnings. Low income earners with children, including single-parent earners, will have been helped by doubling the family income supplement.
The disabled will have been helped by a 45 per cent. increase in mobility allowance, as well as by getting the longterm supplementary benefit rate after one year instead of two. The married pension will have gone up by £12.25 per week. No fewer than 2 million needy people will receive help with their fuel bills. That means £20 million more, in real terms, than in the last year of the previous Government. These are not the actions of a Government who do not care. But caring is not just: coping with the present; it is safeguarding the future. If we do not make this country more prosperous, the people we want to help the most will be the very people who will suffer most—the old, the sick, the disabled and the poor. It is on their behalf that I commend this package to the House.
Mr. J. Enoch Powell: On a point of order, Mr. Speaker. Is there any device whereby it is possible to avoid a Minister having to make to the House a statement lasting a quarter of an hour which is difficult for right hon. and hon. Members not in possession of the text to absorb and still enable the facts to be dealt with in debate by this House?
Mr. Speaker: The content of the Minister's statement is, of course, a matter for his judgment. I cannot help the right hon. Gentleman.
Mr. Orme: The closing remarks of the Secretary of State cannot hide the fact that the Budget and the statement he has made today are a fundamental attack upon millions of working people and the unemployed. The last time that unemployment benefit was reduced in real terms was in 1928. The present reduction, along with
1664
the proposed reduction in invalidity and sick benefit, will mean a five-point reduction—or one-third—of their entitlement. What will the Secretary of State do to protect the people he will now put below the poverty level? How many more people now will be forced to go on supplementary benefit, a benefit that we want to see phased out and reduced?
I think that the House should note that invalidity benefit was introduced by a previous Conservative Government and has now been changed from a long-term benefit to a short-term benefit. Along with the invalidity payment, will the noncontributory invalidity pension, invalid care allowance and the housewives' noncontributory invalidity pension have to take account of the five-point reduction that the right hon. Gentleman is proposing? Perhaps he would inform the House about that.
Let us consider the effect on the low paid workers of the removal of the lowest rate tax band. By abolishing the reduced rate band of tax and failing to increase child benefit in line with inflation, the Secretary of State has actually helped to reduce incentives for the low paid and has widened the poverty gap. Perhaps he would answer that point. The House should also note that by fixing the date of payment as 24 November he has actually taken £34 million in benefit away from people which would have been paid to them if the date had been 17 November, and he ought to account for that. That is a lot of money for people on benefit.
I now turn to the removal or deeming of £12 in relation to strikers' families. We see this as a direct attack upon the trade union movement. Law-abiding families are being treated on a different basis from families of convicted people. It is right to treat families of convicted people decently, but this Government are making an example of the families of those who are on strike.
I turn now to the health charges. I am glad to see that the right hon. Lady the Prime Minister is present. On 18 April 1979 she said:
"Let me make this clear: the Conservative Party has no plans for new National Health Service charges."
What is the charge for the eye test other than a new charge under the National Health Service? Where does the Prime

1665
Minister stand in regard to that statement?
The new prescription charge is a direct tax on health. Surely it is outrageous that, before it has been increased to 70p, the increase to £1 has already been announced. I ask the Secretary of State whether he will make any further exemptions to assist those who will feel the weight of this new charge. It is no good Conservative Members laughing because—
Mr. Peter Fraser: What did the Labour Government do?
Mr. Orme: We did not increase it to £1.[ Interruption. ] It is the working poor who will feel the effect of this increase to £1 and I hope Conservative Members take note of that.
I assume that the Secretary of State wants to act legally but why has he not given the uprating, based both on earnings and prices, in line with the 1975 Act? The Social Security Bill is not yet law and he has no right to give the uprating based on prices only. The Bill has not even gone to another place and we are entitled to know why the 1975 Act has not been implemented. We have had difficulty with the Secretary of State on previous issues.
In regard to pensioners, if a shortfall is forecast, will the Secretary of State make it good and not act as he did on the previous shortfall? [ Interruption. ] I think I am entitled to ask these questions. If the Government make these changes, we are entitled to ask searching questions.
The abolition of the earnings-related benefit is absolute robbery, because people have contributed to the earnings-related benefit since 1966. What percentage of people actually receive redundancy payments, and what percentage of their contribution based on their average earnings goes towards earnings-related benefit? Will contributions now be reduced to take account of the benefit that the right hon. Gentleman is removing?
Finally, I come to a subject that will interest Conservative Members—child benefit. Will the Secretary of State confirm that £1.20 is the correct amount to meet the rate of inflation by November this year? Is he aware that by not raising child benefit by £1.20 he is hitting the families of this country, cer-
1666
tainly those on lower incomes, and is devaluing child benefit? The right hon. Gentleman has paid lip service to child benefit time and again. Twice in their manifesto the Conservatives stated their adherence to the principle of child benefit, yet it is being reduced. What will the Secretary of State do to protect the family during a period of inflation and rising unemployment?
I believe that we are entitled to an answer to the questions that I have put to the Secretary of State.
Mr. Jenkin: At the beginning of his questions the right hon. Member for Salford, West (Mr. Orme) engaged in what can only be described as a piece of political hysteria. To describe the package that I announced to the House as a fundamental attack on millions of working people is sheer rubbish. The right hon. Gentleman linked that with the 5 per cent. abatement of the short-term national insurance benefits. He will know that he was fully committed in principle to the taxation of short-term national insurance benefits. He wrote me a letter in 1976, and I was so impressed with it that I had it put into Hansard. He wrote that there was little doubt that in principle all such benefits should be taxed.
Mr. Orme: Finish it.
Mr. Jenkin: The right hon. Gentleman went on to refer to administrative difficulties. I am happy to tell him that we are coping with the administrative difficulties.
The right hon. Gentleman asked me how many people would be added to the supplementary benefit list. In 1981–82, the first full year during which all the measures that I have announced will take effect if the abatement of earnings-related supplement is included, the addition is about 30,000.
NCIP, attendance allowance and invalid care allowance are not subject to abatement.
The right hon. Gentleman mentioned the reduced rates of tax and incentives. The Budget as a whole improves the "Why work?" position for those in receipt of national insurance benefits. As we are maintaining the safety net for the poorest in the land through supplementary benefit, there is a marginal reduction in incentive for those at that level. That position is being helped by

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the large additions that we have made to the family income supplement.
The right hon. Gentleman queried the date of payment. My right hon. and learned Friend the Chancellor of the Exchequer said yesterday that 16½ per cent. is the anticipated rate of inflation between the previous uprating and the next. Therefore, inflation has been taken fully into account.
It is suggested that the measures concerning strikers' families represent an attack on the trade union movement. The amount of supplementary benefit which has been paid to the steel strikers to date is over £8 million. The Iron and Steel Trades Confederation has not—[ Interruption. ] £8 million—and the unions at the centre of that strike have paid not a penny piece in strike pay to their members. If our proposals had been in force, the supplementary benefit payments would have been about half those that have been paid.
I shall deal with health charges and prescription charges on another occasion as we are now discussing social security. I stress that 66 per cent. of prescription charges go to those who are exempt. That includes all those who would be hard hit by the increase. There is the annual £12 "season ticket" arrangement from 1 December.
The right hon. Gentleman had his fun about legality when talking about earnings and prices. The order effecting the uprating that I have proposed cannot be brought before the House until the Social Security Bill is enacted. The whole thing will be lawful.
We have given a categorical undertaking that pensioners will be protected against rises in prices. The right hon. Gentleman knows that entitlement to the earnings-related supplement in any calendar year rests on the applicant having a contribution record in the preceding fiscal year ending 31 March. The entitlement rule is being fully observed in the abolition of the earnings-related supplement in 1982.
Mr. Rooker: What about contributions?
Mr. Jenkin: The reduction and the ending of the earnings-related supplement will be one of the factors that the Government Actuary will have to take into account when considering the con-
1668
tribution rate. As the hon. Gentleman knows, it is a pay-as-you-go scheme.
I move on to child benefit. In a difficult year, when it has not been possible to maintain the full value of the effect of the tax allowances, the combined effect of the measures that my right hon. and learned Friend announced yesterday was an overall 11 per cent. increase on an annual basis of personal allowances. That is exactly equivalent to the annual rate of increase of child benefit of 18¾ per cent. over 19 months as equivalent to 11 per cent. over 12 months. The figures are closely in line. Therefore, we are entitled to call this a family Budget.
Several Hon. Members rose —
Mr. Speaker: Order. I understand that it is the intention to debate these matters on Monday next, when they will be the main burden of the debate. To be fair to those who are to participate in today's debate, I propose to call four hon. Members from each side of the Chamber before moving on to other matters.
Mr. Paul Dean: My right hon. Friend has announced a package that means a substantial increase in real terms for the social security budget. Does he agree that the extravagant language from the Opposition Front Bench is wholly irresponsible and unrealistic?
Mr. Heffer: It is the Government who have been irresponsible. This is disgusting.
Mr. Speaker: Order. We must restrain ourselves. This is a time not for debate but for elucidation of the statement. The debate will come later.
Mr. Dean: Does my right hon. Friend agree that, in view of the package, the line drawn between short-term benefits and long-term benefits will be of great importance, especially for those who have been out of work and sick for a long period?
Mr. Jenkin: I accept what my hon. Friend says. I am grateful to him for his remarks about the whole package. Many right hon. and hon. Members will know that many invalidity beneficiaries choose not to move to the pension because the pension is taxed and long-term invalidity benefit is not. That makes a

1669
nonsense of the failure to tax benefits, including the invalidity benefit. As the figures that I announced indicated, it is a much higher rate. Equally, it is right that it should be treated as part of taxable income.
Mr. Ennals: Does the right hon. Gentleman recognise that, apart from the decisions that he and his right hon. and learned Friend the Chancellor of the Exchequer have taken on prescription charges, his decision to cut back in real terms on unemployment benefit, invalidity benefit and child benefit means that he is no longer able to fulfil the proper responsibilities of the Secretary of State for Social Services, which are to protect those who are least able to protect themselves? In view of all that he said before the election, especially on child benefit, does he believe that he should continue to hold his present post?
The Prime Minister (Mrs. Margaret Thatcher): Yes.
Mr. Jenkin: My right hon. Friend kindly said "Yes". That is the answer to the right hon. Gentleman's question. I am grateful to my right hon. Friend. The package that I have announced goes the whole way to protect those in the greatest need. As the right hon. Gentleman was equally committed with his right hon. Friends to tax short-term benefits, he has no right to quarrel with the 5 per cent. abatement.
Sir William Clark: Is my right hon. Friend aware that the proposal on strike pay and the deemed £12 a week is widely welcomed in the country because it has been considered extremely unfair that those who are on strike should benefit from the taxpayer? Does he agree that the deemed £12 a week will mean that the taxpayer is picking up some of the cost of this social payment? Does he accept that it is high time that the Opposition realised that union funds and the contributions that ordinary trade unionists make to those funds should be used when members are called out on strike by their leaders?
Mr. Jenkin: I am happy to agree with my hon. Friend. I have no doubt whatever that this change will be widely welcomed in the country, not least by many
1670
trade union members who believe that it will make their unions act more responsibly.
Mr. Penhaligon: Does not the Minister realise that to deem that people have had money when they have not received it is unprecedented and must in some cases be outrageously unfair? Would it not be better for the Government to take powers so that they can work out the total sum involved and then send the bill to the trade union involved—or is the Minister afraid of the trade unions?
Mr. Jenkin: I suggest that the hon. Gentleman waits for the Bill tomorrow. Neither my right hon. and learned Friend the Chancellor nor I said anything about deeming. We are simply saying that the amount of supplementary benefit to which a striker should be entitled for his family will be reduced by £12. It will not he deemed. It will be reduced by £12. It will apply to all strikers. It is reasonable to assume that they will have made, either through their unions or individually, provision to cover themselves in the event of a strike.
Mr. McCrindle: I welcome the generous fuel assistance package announced by my right hon. Friend. First, will he confirm that it is intended that this should be paid not only to those on supplementary benefit but to those in work who are low paid and who therefore receive FIS? Secondly, will be confirm that, unlike past fuel assistance schemes, it does not depend on a particular fuel being used, but will be payable whether gas, electricity or solid fuel is used?
Mr. Jenkin: One of the great advantages of the more limited scheme this winter and the greatly expanded scheme of next winter is that they cover all fuels. It is a help to those in the greatest need with their fuel costs, whatever fuel they use. My hon. Friend is absolutely right. The help going to those in work—that is, families with children who are entitled to family income supplement—as with all FIS payments that continue, once awarded, for a year, operates as a considerable incentive for those who return to, or remain at, work.
Mr. Heffer: Is the Minister aware that most people, certainly working people, will regard these policies as sheer class policies and think that the Government are acting in a mean and callous fashion?

1671
The people will get the Government out of office at the earliest possible moment. I hope that the trade movement takes the strongest possible action to do that.
Mr. Jenkin: I am not sure whether the hon. Gentleman is advocating that the union should engage in political strikes against a democratically elected Government. If so, I should have thought that he, as a good Member of the House of Commons, would be unwise to pursue that course. The constituents of the hon. Gentleman, as much as those of any other Member of Parliament, are thoroughly fed up with the sight of people being better off out of work. The Budget and the changes I announced make a start on dealing with that.
Mr. Grieve: Referring to the contribution that may be expected from the unions towards the strike pay, is not ours the only country in Europe in which hitherto the whole of the support for those on strike has been extracted from the taxpayer? Does not this change enable us to look to the unions for a reasonable contribution and, as a result, a much greater measure of responsibility?
Mr. Jenkin: My hon. and learned Friend is right when he says that ours is the only country to do this. This is one of the measures which the Government are taking in fulfilment of their pledge to even up the balance between employers and unions.
Mr. Andrew F. Bennett: Does the Secretary of State recoil last week's debate on the Social Security Bill, and especially that on child benefit? Was not he pressed strongly by his own Back Benchers? Did not he seem to agree that child benefit was the best way to reduce the poverty trap? Did he make any attempt in the Cabinet to get more than 75p this time?
Mr. Jenkin: The hon. Gentleman would not expect me to answer that question. Perhaps I could say that the 75p is the equivalent of an increase in child tax allowance of £130. I suspect that if my right hon. and learned Friend had announced an increase in the child
1672
tax allowance of £130, he would have been applauded by hon. Members on both sides of the House. When we come to convert this into weekly payment, it is made to look much smaller.
The advantage of the child benefit is that it goes to people who are below the tax threshold and who would not be able to obtain the advantage of a child tax allowance. Therefore, it is a great improvement on that. If we increased the child benefit by the figure of £1.20, the subject of the amendment on the Report stage of the Social Security Bill, it would have cost £90 million more in the current year and £250 million more in a full year. Anybody who advocates that course must be prepared to say where that money should come from.
Several Hon. Members rose —
Mr. Speaker: Mr. Orme.
Mr. Orme: I thought that you were about to call another member of the Opposition, Mr. Speaker.
Mr. Speaker: Order. I called four hon. Members from either side, as I said I would. I always conclude with a Front Bench Member.
Mr. Orme: When the Secretary of State refers to the reduction in unemployment benefit in real terms, that has nothing to do with the principle of taxation, which would be on a fair basis and which would enable the threshold to be raised. What are the Government doing? As I stated, the Secretary of State is making a reduction in real terms. Is it not the first reduction of that kind since 1928?
Mr. Jenkin: As the right hon. Gentleman would know if he studied the public expenditure White Paper and table 5.13, at the back, the yield from taxing these short-term national insurance benefits would have been £430 million. The yield from the 5 per cent. abatement that we suggest is about £133 million, which is about one-third as much. As he was committed in principle to taxation, he cannot complain about a 5 per cent. abatement yielding one-third of the revenue.

Following is the information:

MAIN INCREASED CONTRIBUTORY AND NON-CONTRIBUTORY BENEFIT RATES

Existing weekly rate

Proposed weekly rate

£

£

Child benefit:

Each child

4·00

4·75

Child benefit increase:

First or only child of certain lone persons

2·50

3·00

Standard rate of retirement* and widows' pensions, and widowed mothers' allowance:

Single person

23·30

27·15

Wife or other adult dependant

14·00

16·30

Standard rate of invalidity pension:

Single person

23·30

26·00

Wife or other adult dependant

14·00

15·60

Invalidity allowance payable with retirement pension:

Higher rate

4·90

5·70

Middle rate

3·10

3·60

Lower rate

1·55

1·80

Invalidity allowance payable with invalidity pension:

Higher rate

4·90

5·45

Middle rate

3·10

3·45

Lower rate

1·55

1·75

Standard rate of unemployment and sickness benefits:

Beneficiary under pension age:

Single person

18·50

20·65

Wife or other adult dependant

11·45

12·75

Beneficiary over pension age:

Single person

23·30

26·00

Wife or other adult dependant

14·00

15·60

Widows' allowance (first 26 weeks of widowhood)

32·60

38·00

Maternity allowance

18·50

20·65

Attendance allowance:

Higher rate

18·60

21·65

Lower rate

12·40

14·45

Retirement pension for persons over pensionable age on 5 July 1948 and for persons over 80*:

Higher rate

14·00

16·30

Lower rate

8·40

9·80

Non-contributory invalidity pension, invalid care allowance

14·00

16·30

Increase of non-contributory invalidity pension and invalid care allowance for a wife or other adult dependant

8·40

9·80

Mobility allowance

12·00

14·50

Guardian's allowance, child's special allowance

7·10

7·50

Rate of benefit for children of widows, invalidity, non-contributory invalidity and retirement pensioners, invalid care beneficiaries; unemployment and sickness beneficiaries when claimant is over pension age

7·10

7·50

Rate of benefit for children of all other beneficiaries

1·70

1·25

* An age addition of 25p is payable to retirement pensioners who are aged 80 or over.

MAIN INCREASED INDUSTRIAL INJURIES BENEFIT RATES

Existing weekly rate

Proposed weekly rate

£

£

Injury benefit*†

21·25

23·40

Disablement benefit (100 per cent, assessment)*

38·00

44·30

Unemployability supplement‡

23·30

26·00

Special hardship allowance (maximum)

15·20

17·70

Constant attendance allowance (normal maximum), exceptionally severe disablement allowance

15·20

17·70

Industrial death benefit:

Widows' pension during the first 26 weeks of widowhood

32·60

38·00

Widows' pension now payable at £23·85 rate

23·85

27·70

Widows' pension now payable at £6·99 rate

6·99

8·15

* The rates for beneficiaries not over the age of 18 will also be increased.

† Increases for adult dependants and children will be the same as those payable with unemployment and sickness benefits, where claimant is under pension age.

‡ Invalidity allowances and increases for adult dependants and children will be the same as those payable with invalidity pensions.

MAIN INCREASED SUPPLEMENTARY BENEFIT RATES

Existing ordinary weekly rate

Existing long-term weekly rate

Proposed ordinary weekly rate

Proposed long-term weekly rate

£

£

£

£

Supplementary benefit:

Husband and wife

29·70

37·65

34·60

43·45

Person living alone

18·30

23·70

21·30

27·15

Non-householder:

Age 18 and over

14·65

18·95

17·05

21·70

Age 16–17

11·25

—

13·10

16·65

Any other person aged

13–15 years

9·35

—

10·90

11–12 years

7·70

5–10 years

6·25

—

7·30

Under 5 years

5·20

Existing weekly rate

Proposed weekly rate

£

£

Non-householder housing addition

1·70

2·15

Heating additions to supplementary benefit

0·95

1·40

1·90

3·40

2·85

Dietary additions to supplementary benefit

1·05

1·20

2·50

2·80

Blindness addition to supplementary benefit

—

1·25

Addition for claimant or dependant over age 80

0·25

0·25

MAIN INCREASED WAR PENSION RATES

All ranks receive the same increases, officers' rates being expressed in pounds per annum.

DISABLEMENT BENEFITS

Existing weekly rate

Proposed weekly rate

£

£

Disablement pension for private at 100 per cent, rate

38·00

44·30

Unemployability allowances:

Personal allowance

24·70

28·80

Increase for wife or other adult dependant

14·00

16·30

Increase for child

7·10

7·50

Comforts allowance:

Higher rate

6·60

7·70

Lower rate

3·30

3·85

Allowance for lower standard of occupation (maximum)

15·20

17·70

Constant attendance allowance:

Special maximum

30·40

35·40

Special intermediate

22·80

26·55

Normal maximum

15·20

17·70

Half and quarter day

7·60

8·85

Age allowance with assessments of:

40 and 50 per cent.

2·65

3·10

Over 50 and not exceeding 70 per cent

4·10

4·80

Over 70 and not exceeding 90 per cent

5·90

6·85

Over 90 per cent

8·20

9·60

Exceptionally severe disablement allowance

15·20

17·70

Severe disablement occupational allowance

7·60

8·85

Existing annual rate

Proposed annual rate

£

£

Clothing allowance:

Higher rate

51·00

59·00

Lower rate

32·00

37·00

DEATH BENEFITS

Existing weekly rate

Proposed weekly rate

£

£

Widows' pension—private's widow: widowers' pension:

Standard rate

30·20

35·30

Childless widow under 40

6·99

8·15

Rent allowance

11·50

13·40

Age allowance for elderly widows:

Ages 65–69

2·95

3·45

Age 70 and over

5·90

6·90

Adult orphans

23·30

27·15

FAMILY INCOME SUPPLEMENT

Existing weekly level

Proposed weekly level

£

£

Family Income Supplement:

Prescribed amount for family with one child (income below which FIS is payable)

56·00

67·00

Increase in prescribed amount for each additional child

4·50

7·00

Maximum weekly amount for a one-child family

13·50

17·00

Increase in maximum amount for each additional child

1·00

1·50

BILL PRESENTED

  PORT OF LONDON (FINANCIAL ASSISTANCE)
  Mr. Norman Fowler, supported by Secretary Sir Keith Joseph, Mr. Secretary Prior, Mr. Secretary Heseltine, Mr. Secretary Nott, Mr. Nigel Lawson and Mr.
  1678
  Kenneth Clarke, presented a Bill to provide financial assistance for and in connection with measures taken by the Port of London Authority to restore the profitability of their undertaking by reducing the number of persons employed by them: And the same was read the First time; and ordered to be read a Second time tomorrow, and to be printed. [Bill 176.]

  ORDERS OF THE DAY
    WAYS AND MEANS
    Order read for resuming adjourned debate on Question [ 26 March].

    AMENDMENT OF THE LAW
    That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of—

    (a) any amendment with respect to value added tax so as to provide—

    (i) for zero-rating or exempting any supply;

    (ii) for refunding any amount of tax;

    (iii) for varying the rate of that tax otherwise than in relation to all supplies and importations; or

    (iv) for any relief other than relief applying to goods of whatever description or services of whatever description; or

    (b) any amendment relating to the surcharge imposed by the National Insurance Surcharge Act 1976 and applying to some only of the persons by or in respect of whom the surcharge is payable.—[ Sir G. Howe.]

    Question again proposed.

    BUDGET RESOLUTIONS AND ECONOMIC SITUATION
    4.27 pm
    Mr. Denis Healey: I make no complaint about the style of the Chancellor's Budget Statement. The reason why it was the dreariest speech for many years is that every proposal of significance except one—the infamous increase of prescription charges to £1, of which I shall have more to say later—had been assiduously leaked to the press over previous weeks by Ministers and officials. Apart from those leaked proposals, it was a dismal catalogue of trivia, of little consequence. However, the fact that the Budget consists entirely of stale food makes it no more appetising. It is essentially another enormous dose of a medicine that has already made the patient as sick as a dog. The result will be to turn the 1980s—a decade that should have been golden with the benefits of North Sea oil—into a re-run of the hungry 'thirties.
    Today ours should be the most prosperous economy in the Western world.
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    North Sea oil is already adding 5 per cent. to our GDP. It is giving us a benefit of £8 billion to our balance of payments and adding £4 billion to Government revenue. None of those advantages was enjoyed by the prev;ous Government, which suffered a cut of 5 per cent. in GDP because of the first oil price increase on taking office and an increase in our balance of payments deficit of £2½ billion. Instead of our prospect being better than that of our competitors, it is infinitely worse. The United Nations Commission has just shown that the rest of Western Europe can expect an increase in output of 2½ per cent. this year—or 2·4 per cent. to be precise. Her Majesty's Government expect a fall in output in this country of 2½ per cent. Instead of a massive surplus on our current account the Government expect a deficit of £2¾ billion.
    Even those figures appear in the forecast only after a long process of massaging by Ministers. Even if we accepted them as true, what a prospect this offers for the rest of the economy, in which nearly all British men and women must earn their living. In the rest of the economy outside the sector that involves North Sea oil there will be a fall in output of at least 5 per cent. in the coming year and a current account deficit of over £10 billion.
    The main victim of this fall in output will be manufacturing industry. The fall will not be so severe in the service and distribution industries, but the fall in output in manufacturing industry is bound to be well over 5 per cent. in the coming year, and may be as high as 10 per cent.
    Here I come to an interesting detail which nobody seems to have picked up. The Red Book, "The Financial Statement and Budget Report", always in the past gave an estimate of the increase in manufacturing output expected in the coming year. That estimate has been suppressed in this year's forecast. All previous forecasts have given an estimate of the breakdown between private and public capital investment. That estimate has been suppressed this year. There can be only one reason, and that is that the estimates are too horrific to he revealed.
    The Government have left us no light whatever at the end of the tunnel because they have also published—greatly, I

    1681
    gather, to the Chief Secretary's dismay—medium-term forecasts that show the gross domestic product growing at only 1 per cent. a year for three years after this collapse in output in the year immediately ahead. In other words, after four years we shall scarcely have recovered the loss in output that the Government think we shall suffer this year, and to the extent that we do we shall owe it entirely to growth in the output of North Sea oil.
    The fact is that the Government are asking the House of Commons to approve a programme for the terminal decline of British manufacturing industry. There is nothing to look forward to at the end of the tunnel except the prospect—dear, no doubt, to the Prime Minister's heart—of a £3½ billion tax give-away in an election year, and if the Government try to buy votes in 1984 by this means they know that the money will all be spent on imports, because by then large areas of our manufacturing industry will have disappeared for ever and what is left will be incapable of meeting demand, because investment will have been falling for five years; it will face the future with clapped-out machinery.
    Yet this is the Budget that the spokesman for the CBI welcomed yesterday as tough but fair. I wonder when he is going to stop acting as the Prime Minister's poodle and start representing the interests of the industrial companies that form his membership.
    The fact is that manufacturing industry—every hon. Member on the Government Benches who has any contacts in industrial business will know this—is now facing an asphyxiating cash squeeze and the prospect of massive and mounting bankruptcies before this year is out. Indeed, the only firms in Britain that can look forward to an improvement in their prospects are those specialising in insolvencies and those specialising in debt collection—so I was told when I attended the Institute of Credit Management's annual luncheon only last week.
    Even for a devotee of market economics and monetarist dogma this prospect must be a disaster. Last year the Chancellor made what I think we all agree now was the crass error—I said so at the time—of doubling the rate of value added tax, under the impression, as he repeated the other day, that that
    1682
    was a once-for-all increase in prices. I hope that he has had a chance to read the Bank of England paper on this matter which was published last week and which shows how fatuous an illusion that was.
    This year the Chancellor is making an even more crass error, because he is starting what he genuinely wants, I believe, to be able to see as a four-year recovery programme with a stunning karate chop to the neck of British industry from which it may never recover. The first year of this Government's presence in charge of our affairs saw a doubling of the rate of inflation, interest rates raised to an all-time record and held at that peak for longer than interest rates had ever peaked in the past, unemployment rising in the last six months by 150,000, and the worst strike record since 1926.
    This reflects a policy that had scarcely been launched last year. If we look at the consequences of the Budget this year and the programme to which Her Majesty's Government are committing themselves for the next four years we see that the outlook is far grimmer than the misery that the British people have already suffered since the last general election. Indeed, if the Government believe, as they are supposed to believe, in the theory of rational expectations, I ask the Chancellor to reflect on the fact that he is presenting the British people with a prospectus of decline. How can he, on his own theories of the importance of psychology in our economic affairs, expect the supply side of the economy to grow when he has told industry that output is to collapse this year and that there will be no recovery in manufacturing output for at least four years from now?
    The prospects of an improvement on the records of the last 12 months are dim indeed. The Governor of the Bank of England talked the other day only about hoping to achieve lower nominal interest rates in future years. When the Financial Secretary was questioned about this statement he said that the Government had concealed the nature of the forthcoming Budget from the Governor of the Bank of England and for that reason the latter had made a more pessimistic forecast than was justified. I should be very surprised if that were indeed the case. But the other governor,

    1683
    the governor of the Chancellor of the Exchequer, the Prime Minister, said only last week in an article in a German newspaper that interest rates must remain high for possibly another two years. Is this the prospect to which the right hon. Gentleman is treating a British industry that he wants to galvanise into entrepreneurship, if I may quote the words of the Secretary of State for Industry some time ago?
    The fact is that these intolerably high interest rates have done nothing so far to control the money supply. Their purpose is to reduce bank lending to companies—that is what the Chancellor told us—yet bank lending to companies remains high and is likely to go higher, precisely because of the effects of the Budget itself on companies' cash flow. The only real result of the exceptionally high interest rates is to worsen industries' cash position still further by making it more expensive for them to hold stocks—they are not going to invest anyway in this situation—and make it more difficult for them to compete both at home and abroad by keeping the value of the pound far above the level that is justified by our comparative economic performance. In other words, these high interest rates are driving two more heavy nails into the coffin of British industry.
    There is no disagreement, I think, on either side of the House on the reason for this appalling prospect. It is that the fiscal and monetary policy of the present Government is far more severe than any other Government in the Western world thinks necessary. The Government have so far applied their monetary policy with unparalleled incompetence. The last year before the election, up to April 1979, as the Red Book shows us, sterling M3 rose by 10.7 per cent.—about the middle of the range that I had set for it. It rose a little faster in the last six months, but was still within the upper limit of 12 per cent., according to the Red Book. It was under 12 per cent.
    During the first six months after the Chancellor came to power it rose by over 14 per cent., and we have had to add to that, according to the Red Book, 2 per cent. or 3 per cent. because of evasion of the corset by acceptances, bills and other means—a practice that developed real economic importance only after May
    1684
    last year, according to the Red Book. [ Interruption.] I am quoting the Red Book published by the Government, and the Financial Secretary to the Treasury must take responsibility for the truth of all the facts that I have just laid before the House.
    The Government are sensibly—although they have rather disguised this—somewhat relaxing their monetary targets in the Budget by rebasing the 7 per cent. to 11 per cent. range on February. As the Financial Times points out this morning, that means that the money supply will grow 2½ per cent. to 3 per cent. more than it would have done if the Government had stuck to the proposals that they put before us last November, and it will have to, because the compulsion of the corset will bring flooding back into the published figure the money that has been disguised under "acceptances" in the past.
    Nevertheless, the money supply targets are far too high still for a period when the retail price index is set to increase to above 20 per cent. I do not believe that the Government will achieve these targets any more than they have achieved the targets that they set themselves over the past 12 months.
    The biggest error in the Budget economically this year is the fiscal error of aiming to cut the public sector borrowing requirement in money terms at a time when inflation has risen by 20 per cent., when the economy is working far below capacity, and when the savings ratio, according to the Central Statistical Office publication two days ago, rose to 18½ per cent. in the last quarter of 1979—a staggering figure of which the Chancellor seemed to be unaware when I questioned him on it in the House last Thursday.
    No intelligent monetarist would justify so rigorous a PSBR in this situation. The London Business School, from which the Chancellor has recently drawn his chief economic adviser, has published its views that the PSBR in the coming year should be set at £10 billion if the fall in output is expected to be 2 per cent., and should be set higher if the fall is expected to be greater. as indeed it is even in the Government's forecast.
    It is very difficult for me and for the monetarists of the London Business

    1685
    School to understand why the Government should have defied this type of advice, which is coming to them from many quarters. As far as I can judge from what the Chancellor said, the reason is that he seems to think that there is a direct and predictable relationship between PSBR, the growth of money supply and interest rates. Let me tell him that that is bunk. I had a PSBR running at nearly twice the present rate as a percentage of GDP in 1974 and 1975, but I kept the money supply at 10 per cent. each year, and interest rates fluctuated between 9 per cent. and 13 per cent.
    In 1978–79, the last year I was in office, which the Government now describe as one of unparalleled profligacy—I have demonstrated how much less profligate it was in money supply terms than is the Chancellor's record in his first year—the PSBR was 6·4 per cent. of GDP, 50 per cent higher than the Government are now planning, yet the money supply was kept at 10·7 per cent. and interest rates averaged about 10 per cent.
    Japan has always had a fiscal deficit far larger than ours. In 1978 it was 13·6 per cent. of GDP. Yet Japan has always succeeded in having extremely strict control of her monetary growth. It is because the Government seem to be totally unaware of these facts that I describe them as being devoted to punk monetarism. People have asked what "punk monetarism" is. I will tell them. "Punk monetarism" is a monetary policy based on a half-baked understanding of half-baked dogmas. The Government are crucifying the British people and British industry on a completely false dogma, attachment to which would not justify an A-level in economics. The Chancellor would not even have got through the 11-plus examination.
    The only compensation that the Chancellor offers to the business men whom he is about to bankrupt is that they will be able to start up again in their back yard a little more easily than would have been the case a year ago, or, if they happen to live in an area of great dereliction, they will be able to make a beeline for one of his new combat zones. From what he said yesterday, we understand that he is planning to set up in Britain a series of Californian mining towns in which "everything goes". He is to litter the country with Sohos. About the only
    1686
    advantage that we shall derive from this experiment is that it may at last become possible to get a passport to Pimlico.
    I turn to the method that the Chancellor has chosen for cutting the public sector borrowing requirement. It is mainly to be achieved by further cuts in public expenditure, although what emerges from the Red Book—the Chancellor modestly concealed this from us yesterday—is that the Budget is quite highly deflationary. It involves deflation of £2 billion altogether, £1 billion through a failure to index taxes in line with inflation and another £1 billion at least through public expenditure cuts. But if his cash limits bite, as he says they will, expenditure cuts will be Eli billion, even without the cosmetic £500 million from the sale of assets, which does not convince anyone, not even his warmest supporters in the City of London.
    Some of the cuts are phoney, like the sale of assets; some will not happen, like the cuts in bureaucracy that the Government promised a year ago and of which we had illustrations in Committee recently. Some—this is more serious—are indiscriminate, because by holding cash limits at a level that according to the Government's figures will be at least 2 per cent. below the level of inflation and I guess will turn out to be 4 per cent. or 5 per cent. below the level of inflation, he will force all public authorities—national, local, nationalised industries, the National Health Service, the lot—to make further spending cuts if they take his advice.
    Many of those spending cuts will be achieved—such is the topsy-turvy world in which he lives—by increases in charges. It will mean another big boost to the retail price index through increases in rents, rates, fuel and electricity charges and fares, because there will be no other way in which those authorities are able to achieve the savings. We are set for another great increase in the RPI as a result of this indiscriminate tightening of cash limits—
    Mr. John Bruce-Gardyne rose —
    Mr. Healey: What is more serious is that in some cases these cuts in cash limits will be achieved through cuts in capital spending, which, in the case, for example, of the Central Electricity Generating Board, will mean forgoing investment in new sources of energy that the country desperately

    1687
    requires. The public expenditure White Paper shows that many of the cuts will be achieved by savage reductions in the standard of the public services. The local authorities tell us today that there can be no net new council building over the next four years. All the leading education authorities—not just the NUT, but the associations of head teachers and deputy teachers—say that there will be a further decline in education standards just at the moment when the Government's own strategy desperately requires an improvement.
    The biggest single thrust in the public expenditure White Paper is to put the burden of savings on those least able to bear it—the old, the sick, children, the poor and the unemployed. The Secretary of State for Social Services has just explained in detail how he proposes that this shall be done.
    Mr. Bruce-Gardyne: I am most grateful to the right hon. Gentleman for giving way. I should like to bring him back to the point where I was trying to intervene. He talked about the proposition that cash limits should be used to some extent to not make good the going rate of wage increases in the public sector. He will recall that his right hon. Friend the Member for Heywood and Royton (Mr. Barnett) proposed exactly the same 15 months ago and was roundly denounced by the then Prime Minister for his pains. Will the right hon. Gentleman now tell the House—he did not at the time—whether his right hon. Friend the Member for Heywood and Royton had his support in what he was doing then? If so, why does he object to a similar policy today?
    Mr. Healey: With respect, the hon. Gentleman is entirely wrong in his interpretation of what my right hon. Friend said. I see my right hon. Friend sitting in his place, wreathed in his normal geniality. I have no doubt, Mr. Deputy Speaker, that his charm and ebullience will lead you to give him an opportunity of explaining to the House later precisely what he said, precisely what he did, and precisely what followed. [HON. MEMBERS: "Answer".] I have just answered.
    Mr. Peter Bottomley rose —
    Mr. Healey: I shall give way in a moment.
    Sir William Clark rose —
    Mr. Healey: No, I shall not give way. Let me run over—[ Interruption]—I am well aware, Mr. Deputy Speaker, that have been running over a number of Conservative Members. I should now like to run over the ways in which the Government are planning to punish the weak and the poor.
    The first example is the unforgivable further increase in prescription charges to £1 next December. We shall be debating this matter in more detail on Monday. I would merely say now that this increase, in the strictest sense of the word, is cheating the sick. The Conservative Party stated in terms, when it fought the last election and was seeking votes from whoever might be prepared to give them—I quote from a statement issued by the right hon. Gentleman, who is now Paymaster General:
    "Lie No. 9: There are Tory proposals for higher prescription charges.
    Truth: 'We have no intention of increasing … such charges' says Mrs. Thatcher."
    There could not be a clearer example of straightforward electoral deceit than the Government's announcement on prescription charges and what they have already done twice since taking office.
    The next cheat that the Government are carrying out is to cheat families by increasing child benefit by only 75p, after 18 months without any increase, when at least £1.20 is needed to keep pace with inflation. I know that the hon. Member for Woolwich, West (Mr. Bottomley) has asked for an increase of £1.40.
    Mr. Peter Bottomley: Does the right hon. Gentleman feel at all responsible for this course of events? Where was he on 7 July 1975 when all the Labour Members present voted against indexation of child benefit?
    Mr. Healey: We increased child benefit continuously after we first introduced it. We undertook to increase it last November. The present Government made no increase last November. We made absolutely clear that we would increase child benefits at every Budget by at least the amount by which child tax allowance would have increased had it remained.
    Mr. Tim Eggar rose —
    Mr. Healey: Oh, sit down.
    Mr. Eggar: On a point of order, Mr. Deputy Speaker. I seek your guidance. Is it in order for the right hon. Gentleman to refer to hon. Members in that way?
    Mr. Deputy Speaker (Mr. Bernard Weatherill): Unusual. I would say.
    Mr. Healey: I apologise most humbly to you, Mr. Deputy Speaker, for appearing to address you. As you may recognise, my remarks were addressed to another.
    The refusal to raise child benefit in line with—
    Mr. Peter Bottomley: You all refused.
    Mr. Healey: No, we did it. We may have voted against indexing—
    Mr. Bottomley: That is it.
    Mr. Healey: But we raised family allowances in line with inflation. This is what matters. We were prepared to do more. We committed ourselves to do more, but the Government won the last election on a series of lies. I should perhaps say "the Conservative Party". I am not sure how the doctrine of collective guilt applies to Members of Parliament after they have been elected.
    The fact is that the Conservative Party told a series of lies before the last election. The best way this can be expressed is by quoting the remarks of the Secretary of State for Social Services in June 1977 before the election in stating that his party was committed "without any ifs or buts" to a full child benefit scheme. The right hon. Gentleman said:
    "first, because that is the way to restore the position of families. Secondly, it is the best way to ease the poverty trap. Thirdly, it is the best way to help the poorest families in work—those who earn their poverty. Fourthly, it is the best way to reduce the nonsense of people being much better off out of work. Fifthly, it is the best way of reducing the dependence of families on means tested benefits."
    We agree with all those statements. We acted when in power to fulfil them. The present Government could have done so this year without any economic disadvantage to their plans. They could have raised child benefit to £1·20 simply by imposing a gentle levy on the excess profits of the clearing banks. They have chosen not to do so, although, in his
    1690
    voyeur capacity, the Chancellor of the Exchequer said once again that he is going to look at the matter. I ask the hon. Member for Woolwich, West not to show courage but simply to point out to the Chancellor that there is still time, while the Finance Bill is going through the House, to speed up his look at the profits of the clearing banks, impose a tax on those excess profits and spend the proceeds on an increase in child benefit. I hope that when we make this proposal he and the 60—I think that is the figure—of his hon. Friends who share his views will have the wisdom, as well as the courage, to support us.
    Mr. Peter Bottomley: One point that a number of hon. Members have been trying to discover is how long it takes. administratively, to put forward an increase in child benefit. Can the right hon. Gentleman tell the House?
    Mr. Healey: My own experience—I have a good deal—is that it takes about five months as a rule, although I was surprised to discover, as was the Chancellor, that it is sometimes possible to twist the arms of civil servants and get a change of this nature carried out faster. We did that in the case of the first increase in old-age pensions after taking office in 1974. We did something similar in making one of the increases in the national insurance surcharge. It may be possible, therefore, to act in a shorter time. It would certainly be possible to take a decision in the next month or so to make an adequate increase in November. There would be no bureaucratic obstacle whatever to that.
    I come to another aspect of Government cheating—cheating the old. The Government have told us that they have decided that they do not propose to restore the 1·7 per cent. which the law required them to pay in addition to what they paid last year because they underestimated the increase in earnings. Secondly, they are raising the old-age pension in line with the rise in prices last year in a year when the rate of inflation will be not 16½ per cent. but something like 20 per cent. Thirdly, the effect of the abolition of the lower rate band will be to require over 1 million pensioners to pay an extra 5p in the pound on every little bit of extra income or earnings they manage to obtain. That means a severe

    1691
    fall in the living standards of many pensioners.
    The Government are also cheating the sick and the unemployed by cutting £1·50 off the increases in sickness and unemployment benefit which they would otherwise be allowed. They are dong the same with young mothers by cutting the maternity allowances to the same extent. They are cheating those who paid earnings-related supplement in the expectation of having their unemployment pay raised in relation to their income. The result will be that the 500,000 additional men and women who will be thrown out of work in the next 12 months by the Government will see their income cut at a stroke, through no fault of their own, from £98 a week on average to £40 a week.
    The final proposal of the Government in this context is to punish the families of men and women who are on strike in a way in which no Government—not even this Government—ever proposed to punish the families of murderers, rapists and thieves. I can tell the Conservative Party that the Government are doing this for no economic, social or industrial reason; they are doing it out of sheer vindictiveness.
    The best proof of that is that when the proposal was put to the Conservative Party conference in 1973 the present Secretary of State for Industry, no less, said that to adopt that proposal would be to return to the social standards of Mr. Bumble and Mr. Gradgrind. He was right. If Conservative Members have no moral compunction and choose to ignore the disastrous effect on industrial relations that this proposal will have, I ask them to reflect on what the Secretary of State for Industry said to that conference on 12 October 1973 when he was appealing simply to Conservatives' sense of political interest.
    I quote the right hon. Gentleman's words because they are well constructed and give a revealing insight into the general attitude of intelligent Conservatives to these problems. The right hon. Gentleman said:
    "Withdrawing a bone from a dog's mouth has its difficulty particularly when the dog has a wife and children. This Conference would be the first to howl if we really did have pictures on television of children going hungry for lack of benefit—perhaps because their striking fathers were on low pay and had
    1692
    not been able to save, perhaps even because their striking fathers had not made the necessary arrangements for saving for the purpose. But this Conference would object strongly if children were shown going without food."
    I hope that the Conservative Party is still capable of listening to appeals of this type. If it is not, it is not worthy to represent the people of this country.
    Mr. John Biggs-Davison: So that we may be able to form a fair judgment, will the right hon. Member tell us what is the position in other countries, including countries with social democratic Governments?
    Mr. Healey: If the hon. Member was prepared to follow me in copying the practices of social democratic Governments in other countries in all respects, I would consider following their practice in this respect. In this country an attempt to legislate in the way proposed by the hon. Gentleman—which was rejected by Conservative Ministers only eight years ago for reasons I have just described to the House—would be a disaster and would bring moral obloquy upon them. I make that prediction without any fear of being disproved in the event.
    This consistent attack on the weak and under-privileged through public expenditure cuts is being carried even further in the Government's tax proposals, which involve an increase, according to the Red Book, of £1 billion in the real burden of taxation. There is not much left of the Chancellor's first Budget, is there?
    The Red Book points out that the abolition of the lower rate band cuts the value of the increases in the indexing required by the Rooker-Wise amendment from 18 per cent. to 11 per cent. The whole of the tax advantage for ordinary people is cancelled out by the increase in duties on drink, tobacco and petrol. That is happening at a time when in April there will be massive increases in rents, rates, gas and electricity charges and prescription charges.
    The only real benefit—and the Government's figures show this clearly—from the present Budget will go to people earning over £15,000 a year and, of course, that benefit will increase substantially in money terms for everybody above that level. It is easy with benefits of this nature to be able to afford, as could the young man I heard speaking on the radio this morning, the glass of pink

    1693
    champagne when one is flown to New York on Concorde. This inequity is carried further by cuts in capital transfer tax and cuts in capital gains tax, both of which give further uncovenanted benefits to the wealthy.
    The most symbolic of the Government's actions is the decision to increase DHSS staff by 1,000 in order to recover a few million pounds from the people they call the scroungers on social security. It was discovered by my hon. Friends a day or two ago when questioning the Minister concerned about this that the figures the Minister had were bogus to a disgraceful degree. He was basing figures for social security scrounging on the amount of pilfering that takes place in Marks and Spencer—a store which, incidentally, none but the middle class can afford to frequent these days.
    At the same time, I hear that the staff of the Inland Revenue is to be increased by 1,500 to collect tax from people who are deemed to have been paid £12 by their trade union when they were on strike. The head of the Inland Revenue staff federation, however, thinks that it will be well nigh impossible, for practical reasons, to implement that collection.
    At the same time as the Government are increasing the staff in the DHSS and the Inland Revenue in order to pursue the families of strikers and those on benefit, they are cutting the numbers of staff who are devoted entirely to recovering some of the billions of pounds which are lost every year through tax evasion.
    While all this agony is being inflicted on the poor and weak in our society, the Government have announced two surprising decisions in their White Paper. The first is to increase defence spending by 3 per cent. a year for the next four years in real terms over a period when there will be no real growth in our economy. When the Minister replies I hope that he will tell us—no doubt his advisers in the officials' box can scrabble for the figures immediately—whether it is not the case that, as a result of this White Paper, Britain will be spending before 1984 a higher percentage of GDP on defence than the United States.
    According to the White Paper, the Government are taking no account of a reduction in our contribution to the Common Market budget. I assume that the
    1694
    Government have set themselves a target of a reduction of about £1,000 million—£200 million or £300 million below the net cost to us which the Prime Minister promised to get rid of.
    I am sure that the Chief Secretary will view the following suggestion sympathetically. Why do not the Government announce now that a £1,000 million reduction in our Common Market contribution will form a firm basis in the Government's Budget calculations for the next four years and that they will make good any shortfall which arises in negotiations by an appropriate reduction in our VAT contribution?
    The Prime Minister has already said that she is prepared to do that if she cannot get what she wants by any other means. She used the words "in the last resort." Why do not the Government give meaning to that undertaking by including that calculation in the Budget arithmetic? I cannot see anything to prevent that. I can see nothing that would more powerfully concentrate the minds of those with whom we are about, some day, somewhere, to negotiate.
    I have explained why I think that the Budget will have a catastrophic effect on the economy. Its effect on our society will be no less catastropic. It contains a succession of mean, vicious and vindictive measures which are calculated to cause unnecessary suffering to the poor, the old, the sick and the unemployed. They are calculated to enrage those who are close to the poor, the old, the sick and the unemployed. The effect can be only to divide our nation at a time when we need unity; to create despair and apathy when, above all, we need hope and determination.
    Until I heard the Chancellor yesterday, I thought that the House agreed, without party distinction, that the duty of any British Government is to wage war on poverty, on unemployment and on sickness. However, the Government have set themselves the task of waging war on the poor, the unemployed and the sick. It is no wonder that a Conservative Member said, at the meeting held after the Chancellor sat down yesterday, that it was a "real Tory Budget at last".
    The Tory Party fought the last general election on an appeal to fear and greed. It has dropped the appeal to greed because it has nothing to offer the greedy

    1695
    any more. There is nothing left but the appeal to fear. I ask the House to reflect on the words of Aneurin Bevan, who said:
    "Which is the more productive—the discipline of fear or the sustained energy of confidence?"
    We have no doubt about our choice, and I believe that the country supports us.
    5.13 pm
    The Chief Secretary to the Treasury (Mr. John Biffen): Budget debates have enduring characteristics. One of them is the contribution that we expect and receive from the right hon. Member for Leeds, East (Mr. Healey). His speech was a blend of pugnacity, foreboding and very selective charm. To that was added humour. We heard the slightly aged joke about punk monetarism. As the right hon. Gentleman elaborated his policies I felt that the judgment was coming from Johnny Rotten himself.
    Another characteristic is that in the last 20 years there has been an increasing anxiety about inflation. It has come to dominate economic debates. Naturally, in the Chamber that issue underlines political differences, as it should. I should be the first to accept that a mindless consensus is the enemy of clear-sighted government. None the less, there is evidence of shared, albeit limited, assumptions, that could serve us well in the debate.
    I was struck by the remarks of the Governor of the Bank of England at the recent presentation to The Guardian "Young Business Man of the Year". He said:
    "Monetary policy cannot be divorced, any more than other forms of policy, from the hurly-burly of politics. But it is, perhaps, useful to remind you that our present monetary policy has more than an accidental resemblance to the policy pursued under previous Administration's."
    Of course, that is true. The watershed in post-war economic debate is marked by the speech of the Leader of the Opposition in the somewhat unpromising circumstances of a Labour Party conference on 28 September 1976. He said:
    "We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists and that, insofar as it ever did exist, it worked by injecting inflation into the economy."
    Mr. Russell Kerr: Sid Vicious.
    Mr. Biffen: I was quoting the Leader of the Opposition and he is now reviled as "Sid Vicious". I may have to turn to the Chair for protection.
    Shortly after that Labour Party conference the right hon. Member for Leeds, East said:
    "We must, therefore, aim at a steady and continuous reduction in the size of our PSBR."—[ Official Report, 30 November 1976; Vol. 921, c. 716–7.]
    The following month, when the right hon. Gentleman was penning his essay to the International Monetary Fund, he said:
    "A reduction in the PSBR will go a long way to improve our ability to control the rate of growth in the monetary aggregates, and will help to reduce the level of interest rates"
    All that resembles a litany of economic rectitude. There was a moment when I hoped that the right hon. Member for Leeds, East would follow the traditions of that other great Yorkshire Socialist Chancellor, Philip Snowden. I feel a shade disappointed this afternoon. Despite the evident opportunism displayed by the right hon. Gentleman and the Labour Party in their release from office, I assert that there has been a broad understanding about the need to redirect taxation, public spending and borrowing as a means of reducing the rate of inflation.
    The Budget is significant. It is related to the borrowing and spending issues. As Chief Secretary, it is appropriate for me to speak briefly about the public expenditure White Paper which, by coincidence, appears with the Budget. I understand that the Leader of the Opposition is worried because the White Paper appeared with the Budget. It is a House of Commons matter and the House generally should make its views known.
    Let us consider some of the key spending programmes. I do not wish to be unduly provocative but I should like to reflect upon Aneurin Bevan's words. He said:
    "The language of priorities is the religion of Socialism"
    The White Paper is no bible of Socialism. It considers the key issues of public spending in the context of making a choice of priorities. That choice, however difficult, is the unavoidable and mature responsibility of the Government. No Government can abdicate that and have

    1697
    any responsibility for public spending, at whatever its level.
    Mr. Eric S. Heffer: Is the Minister aware of another Bevan statement, to the effect that Labour Governments have to be bold and audacious in dealing with the capitalist system?
    Mr. Biffen: Yes. The hon. Gentleman was addressing me although I was the proxy for his Front Bench. Bevan also said that people who walked down the middle of the road get run over.
    Mr. Helfer: That is right.
    Mr. Biffen: We could have an entertaining teach-in on what messages might be provided by that great, democratic Socialist. I hone that i shall be excused if I turn to a less entertaining prospect, namely, public spending.
    The right hon. Gentleman referred to defence. The expenditure White Paper indicates that the Government intend to fulfil their election commitment to increase defence spending. In February of last year, the right hon. Member for Sheffield, Park (Mr. Mulley) issued the final defence White Paper of the former Labour Government. One passage was especially striking. It read:
    "as seen by Western eyes, the growth in quantity of the Soviet forces … together with continued qualitative improvements, has extended their capability well beyond what can he considered necessary for purely defensive purposes."
    With the subsequent developments in Asia, who can doubt the wisdom of those observations? It is always a matter of balanced political judgment about what premium of national security should be paid for by the defence budget. We are resolved that, in the increasingly uncertain world of today, that premium must be increased.
    On health, we have stood by our election pledge to keep to the level of spending planned by our predecessors. In constant prices, the gross figure rises from £7,900 million in 1979–80 to £8,500 million four years hence. These gross amounts are partly offset by income from charges.
    Since 1948 the proportion met from charges has varied. In 1969–70, the last year of the then Labour Administration, it was 3·3 per cent. In 1980–81 it is
    1698
    expected to be 3·35 per cent. Thus, all that the present Government have one is to return to a position barely different from that which the Labour Government left in 1970.
    We wish to encourage private voluntary effort in the Health Service.
    Mr. Frank Hooky rose —
    Mr. Biffen: I shall give way in a moment. The Budget speech pointed to substantial changes in the tax arrangements for charities. We hope that the Health Service will benefit fully from these concessions.
    Mr. Hooley: No doubt the Minister is aware of the demographic change and the substantial increase in elderly people, who make considerable extra demands on the Health Service. Has he taken that into account when giving his percentages?
    Mr. Biffen: That is a fair point, but one that does not affect these statistics. They demonstrate that a Labour Government—throughout whose life the right hon. Member for Leeds, East was the Secretary of State for Defence—had their public health spending supported by charges broadly similar to those that are envisaged by my right hon. and hon. Friends.
    The Health Services Bill now before Parliament will facilitate the raising of local funds and continue efforts to streamline and make the Health Service more efficient. That could result in the release of more funds for direct patient care.
    Expenditure on the fight against crime is planned to increase in real terms. Police recruitment is up following the implementation of the recommendations of the Edmund-Davies inquiry into the pay of the police. The plans allow for a continuing increase in numbers.
    In the prison service we are continuing to provide for improvements in conditions and art increase in capacity.
    I turn to social security. The Budget embraces both protected welfare spending, such as retirement pensions, and programmes where we have sought economies. In 1980–81 expenditure on the social security programme will be nearly £20,000 million at 1979 prices. That is 25 per cent. of total public expenditure. Ten

    1699
    years ago it was £12,000 million, or 18 per cent. of total public expenditure.
    Making allowance for the replacement of child tax allowances and family allowances by child benefit—which distorts the picture somewhat—expenditure on social security has grown by 50 per cent. since 1970–71, while total public expenditure has grown by about 30 per cent., and national income by 15 per cent.
    I recognise that that is partly because the number of beneficiaries, the pensioners and the unemployed, have increased. But the trend is worrying. It must be curbed if the social security budget is not to crowd out other legitimate public spending and impede tax reforms.
    That means that we have to shape our social security policies to direct help to the old and those in greatest need. Thus, we have retained price protection for pensioners, increased the rates of supplementary benefits in line with the expected rise in the cost of living, given more to those on family income supplement and one parent families, and increased child benefits.
    The increase in child benefit to £4.75 will disappoint those who wanted to see it indexed to the movement of prices—actual and expected—from April 1979 to November 1980, or those who wanted to see real improvement. My right hon. Friend the Secretary of State for Social Services gave the answer to the critics in the debate at Report stage of the Social Security Bill, when he drew attention to public expenditure costs. That is the main answer to the point.
    We have responded to the widespread call for changes to curb social security expenditure. To this end, we made the decisions announced by my right hon. Friend the Secretary of State for Social Services earlier this afternoon. As the House well knows, these concern the future of earnings-related supplement and restricting the increase in the adult rates of certain benefits to five percentage points below the movement of prices. These are matters of acute controversy, and that I fully recognise. They will naturally feature in the continuing debate next Monday, when my right hon. Friend will speak.
    I wish to make these observations from a public expenditure point of view. The decisions have not been taken out of atavistic hostility towards the Welfare State.
    1700
    They rest on a simple truth that everyone must acknowledge, namely, that expenditure on social security must be related to the nation's taxable capacity.
    Even now, on current expectations, expenditure in 1982–83 on social security will be higher than at present. We have sought to check the movement upwards and have stabilised the level of expenditure. Within that, we have concentrated help on the most vulnerable sections of the community. I must repeat that the ability to spend more on social security rests on the country's ability to increase its prosperity.
    Finally, in respect of the White Paper, I wish to consider some of the programmes where we have sought to make significant economies. One major programme that will provide savings is education, where the reductions are assisted by the expected fall in school numbers. There will be 800,000 fewer children in schools in 1983–84 than in the coming year, which represents a 9 per cent. reduction in three years. Expenditure on education is planned to fall from £8,500 million to £8,000 million during this period, but, because of the falling numbers, that does not imply any deterioration in educational standards.
    On housing, public expenditure will fall from £4,700 million to £2,800 million over the years of the survey period. The Government attach great importance to housing, but housing conditions have improved greatly over the past 30 years and there is now a much better balance between dwellings and households. Our housing standards compare well with those of our more successful industrial competitors. In housing, more than in most other public services, we can look to the private sector to meet people's demands.
    Over the past 30 years, home ownership has grown from 31 per cent. to 55 per cent. of households, and our measures will further encourage that. We are also taking measures to help the private rented sector and to encourage home owners and tenants to let or sublet spare accommodation in their homes. Therefore, there is no longer the need for a public sector house building programme of the size of the early 1970s. Indeed, under the previous Government, housing authorities already recognised that, and

    1701
    between 1976 and 1979 the level of new house building approvals in the public sector dropped.
    While housing capital expenditure under the previous Government halved in real terms, expenditure on rent subsidies increased by about one-fifth, again in real terms. By the time the previous Government left office, council rents were a lower proportion of earnings than at any time for at least 20 years. That is why, over a period of years, a further reduction in the level of housing subsidies is both justifiable as well as necessary. These proposals make an important contribution towards two objectives—the achievement of the expenditure savings which we need and the move towards a housing market which is less constrained by political intervention and is more responsive to people's needs.
    In the Department of Industry's programme, too, we are greatly reducing the extent of State intervention. Expenditure will be halved over the survey period—falling from just over £1,000 million to about £500 million in 1983–84. We intend to restrict industrial and regional assistance, and to concentrate it on those parts of the country with the most intractable problems of unemployment. We shall not be putting the taxpayers' money into the promoting of public ownership, and we have made substantial reductions in the provisions for expenditure by the National Enterprise Board.
    We have also looked to the employment and training programme for a contribution towards the reductions that we require. We shall continue to support cost-effective measures, particularly those which help groups, such as the young people, which are hardest hit by unemployment. For example, we have provided for expansion of the youth opportunities programme from 210,000 entrants this financial year to between 250,000 and 260,000 in the next. But we must hold expenditure to a level which we can afford, and that involves reversing the trend of recent years which has seen the programme more than doubled in size since 1974.
    We have dropped the previous Government's plans for an expensive new short-time working scheme. We plan over the next four years to reduce the total
    1702
    expenditure on the programme by 20 per cent.
    Those comments on some of the individual parts of the total programme are only one part of the consideration of the White Paper. There is the whole question of the totality of that expenditure. I am the first to admit to my hon. Friends that this is not a White Paper which is redolent with high drama in regard to reductions in public expenditure.
    Mr. Healey: Cruelty.
    Mr. Biffen: I should like to compare this Government's aspirations with the performance delivered by the right hon. Gentleman. We have in prospect a projected rise of 4 per cent. in total public spending in real terms over the survey period from 1980–81 to 1983–84. [Hon. MEMBERS: "A reduction."] I am sorry a reduction. Let there be no misunderstanding on that point.
    Some of my hon. Friends who are more charitably disposed to the right hon. Member for Leeds, East than I am may ask me to consider his achievement in 1977–78 over 1976–77, when he achieved a 6 per cent. drop. Indeed, there was a drop of 35 per cent. in the combined programmes of industry, energy, trade and employment, a drop of 14 per cent. in roads and transport and a drop of 11 per cent. in housing. Thus the right hon. Gentleman is a prize candidate for the Hayek award for the quick dash to freedom.
    However, before I place the laurels around him, I must add that the following year he increased public spending by more than 5½ per cent. Therefore, one was practically back to where one was before dislocations of the sudden and dramatic drop of the proceeding year. That is the roller coaster approach to public expenditure. It may have its drama, and it may get its headlines—[HON. MEMBERS: "It has style."] That may be, but we are hoping for a more consistent and stable approach in the remorseless winding down of the levels of public spending.
    There will be no quick dash for freedom with regard to this subject. That is because I do not believe that inflation can be killed by a cavalry charge. Even if I thought that, there are no Prince

    1703
    Ruperts on this Treasury Bench.—[ Interruption.] If that was a delayed action joke, I hope that punk monetarism will be interred for all time. We might call it a draw.
    At the heart of my right hon. and learned Friend's programme is a very clear message, which is the necessity for this Parliament to live with and through the time cycle which is essential for the success of a sound monetary policy. The Chancellor is courageous in making that appeal, because time is the commodity most grudgingly conceded in politics. Yet I am absolutely certain that he has widespread support, both inside the House and outside, for the enterprise on which we are now engaged, and I believe that there is a deep anxiety that we persist to the end.
    Obviously, there have been criticisms of this policy, as one would expect, and the House of Commons is the appropriate forum for debate and criticism. I should like to say a few words about the criticisms that have been expressed by some of my hon. Friends, and then I should like to comment on the speech of the right hon. Member for Leeds, East.
    My hon. Friend the Member for Aldershot (Mr. Critchley) has, in the most elegant fashion, put his own misgivings about the policy. I think that I fairly represent him when I say that he believes that it lacks an incomes policy. Indeed, he said:
    "We need a permanent economic machine or machinery to try to determine what incomes should be".—[ Official Report, 28 February 1980; Vol. 979, c. 1657.]
    That was a point which was reinforced by my hon. Friend the Member for Loughborough (Mr. Dorrell) in an interesting article in The Observer last weekend.
    Although one may set out hoping that this time round incomes policies can do the trick, I must point out that we are not without experience at trying that road. We ace foolish to suppose that it can be limited to incomes and not extended to prices. That which sets out with good intentions by exhortation all too often ends with the necessities of law and an industrial impasse. What may have commenced as a summer's picnic all too often ends as a Passchendaele. We are not immediately attracted to that auxiliary to our main policy.
    Mr. David Steel: In considering the history of all the previous incomes policies of recent years, is it not true that all Governments have introduced one against their wills, against their pre-election pledges and as a panic economic measure? Surely that is different from the argument put forward by some Conservative Members and others. They say that long-term incomes policy should be thought out ahead as a positive part of economic planning.
    Mr. Biffen: No matter how much thought precedes the action, it is its enforceability that has always put the policy to its test.
    Mr. Eggar: Before leaving that point, would my right hon. Friend comment on the idea that something could be learned from Germany's concerted action programme? Does he not agree that that might be relevant to Britain?
    Mr. Biffen: That programme bears no comparison with anything that can be described as an incomes policy for the purposes of this debate.
    Mr. loan Evans: The right hon. Gentleman said that the Government did not have an incomes policy. The steel strike has gone on for three months. The Secretary of State for Industry said that there are certain cash limits. He has said that he will not intervene. Surely those cash limits provide the most direct form of intervention. The dispute has cost hundreds and millions of pounds to the Exchequer and has caused losses to the Coal Board, the CEGB, the Gas Corporation, British Rail and a host of other industries. Certain parts of the private sector have also had to close down.
    Mr, Biffen: That is nonsense. My right hon. Friend has pointed out that he will not underwrite any pay settlement other than that specified in the Government's cash limits. He has not sought to tell management what wages should be paid.
    The right hon. Member for Leeds, East is clearly moving with great delicacy. He is disengaging himself from his previous stance. I was particularly interested in a speech that he made in Cardiff on 20 March. He said:
    "The economic policy of a Labour Government in Britain must, therefore, rest on three

    1705
    pillars—demand management, monetary control, and incomes policy. It is precisely this combination of policies which has produced the most successful economies and the most successful Socialist parties in Europe—those of Germany and Austria."
    That is fascinating. I hope that the hon. Member for Liverpool, Walton (Mr. Heffer) has followed that policy development. It represents a great campaign to convert the Labour Party to some form of Nordic social democracy. Some of my hon. Friends might welcome such an evolution in our political scene. I suspect that if we thumb through the voting records in Strasbourg we shall not find that the Social Democrats of the Federal German Republic and the representatives of the Labour Party were in the same lobby too often.
    I have yet graver doubts. The right hon. Member for Stepney and Poplar (Mr. Shore) has now left the Front Bench. I should have thought that he had shown sufficiently heroic insular virtues as to be not yet in a suitable state of grace for his lederhosen. The thrust of the policy rests on the idea of an incomes policy. As regards concerted action, I do not believe that that is the incomes policy in prospect for the United Kingdom. We know the existing reality.
    Mr. Healey: Is the right hon. Gentleman aware that his right hon. and learned Friend the Chancellor supported that idea when the Conservative Party was in opposition? That is shown in "The Way Ahead" or perhaps "The Right Approach". The right hon. Gentleman should not be so nasty to his boss. He may find that he has not got a job.
    Mr. Biffen: In being good-natured towards the right hon. Gentleman I did not imply any hostility towards my colleagues. Concerted action involves consultation. Any meeting with trade union leaders and others in a wider context forms part of the Government's communication process. If it is recognised as that, its limited value will be recognised. It is valuable, but that value is limited.
    We return to the reality of that closer relationship with the trade unions. The TUC kindly provided evidence' in the form of submissions to my right hon. and learned Friend the Chancellor. It wanted a boost in public spending for retirement pensions of £7,500 million. That was
    1706
    just one of several items, There is no basis, on current evidence, for a counter-inflationary contract between the trade unions and the Labour Party.
    The right hon. Gentleman has sought to appear as a reconstructed Keynesian, going for a less-restricted view on the PSBR as a result of the high savings ratio. He said that my right hon. and learned Friend has ignored that. He said that he had committed "the biggest Budget error". I ask the House to treat the right hon. Gentleman's enthusiasm with the utmost caution. Where is the higher savings ratio held? Are those holding it likely to convert to the purchase of Government stock? Does not the right hon. Gentleman realise that the evidence suggests that these are some of the most volatile statistics? They are very much influenced by levels of pay settlements, tax receipts and so on. As it comes from the Central Statistics Office, it is a residual statistic and the result of subtracting one set of figures from another. If he had done his homework, the right hon. Gentleman would have discovered that the original estimates have often been revised to up to a fifth of their value. Therefore, the right hon. Gentleman's hand represents the most busted flush that we have ever seen.
    Mr. Healey: If the right hon. Gentleman takes that view, how can he base the whole of the Budget strategy on the PSBR? That is the biggest residual in the whole of his statistics. It is the difference between the whole flow of Government borrowing, spending and revenue. It is liable to an error of 5·6 per cent. in the GDP. In my first year the Treasury was £4 billion out on a PSBR of £3½ billion.
    Mr. Biffen: The right hon. Gentleman met with very bad fortune when he was in the Treasury. That is the way things worked out. He has only to look in the Red Book to see how the PSBR has been vindicated, out-turn against forecast.
    Mr. Healey: With respect, in this Red Book the PSBR turned out to be £1 billion higher than the Government had thought. That is concealed in the Red Book. There is no allowance for the fiscal change that was made by bringing forward petroleum revenue tax in order to save £500 million last November. The

    1707
    error in last year's PSBR was £1 billion on a forecast of under £5 billion.
    Mr. Biffen: This is a good-natured debate. The right hon. Gentleman knows perfectly well that difficuties arose about the mailing of VAT as a result of the Post Office dispute. Those difficulties were anticipated. A revised figure was therefore established. If the right hon. Gentleman wishes to engage in such self-mortification, there is nothing that I can do to stop him. Under his stewardship the figures were lamentable compared with those of this Government.
    I commend my right hon. and learned Friend's Budget to the House. It seeks, above all, to secure the necessary time for the success of our central policy. There are certain areas where one can already see changes that will be to our advantage. The Budget will encourage the small business sector of the economy. [Interruption.] The laughter of the hon. Member for Sheffield, Heeley (Mr. Hooley) merely indicates that many Labour Members would not recognise a small business man if they fell over one.
    Already we are seeing evidence that monetary expansion has stabilised. Sterling M3 rose by just over 14 per cent. in the first four months after the June Budget. In the succeeding months that rate of increase fell to 10 per cent. Although pay settlements are still at rates that cause a good deal of concern, they should be seen in the light of the CBI data bank report that 52 per cent. of pay deals—and that figure covers numbers of people as well as of deals—since last August have involved settlements of less than 15 per cent.
    Our policy is designed to reduce inflation and interest rates and to seek a stable currency. That is an essential precondition for a Tory social policy based on the concept of nation and family and the application of relevant welfare benefits through a partnership of voluntary and State agencies. It is a prerequisite for a Tory industrial policy based on free enterprise and rewarding success in an economy reflecting the consequences of North Sea oil and gas.
    Ten months ago a mandate was secured for the policies that my right hon. and learned Friend the Chancellor of the Exchequer is pursuing. They are policies designed for the span of a full Parlia-
    1708
    ment. Time will be their judge and vindication. This Budget consolidates such polices, which will reduce inflation though the passage of time. [Interruption]. I say to those hon. Gentlemen who express hilarity that the nation will be more consolidated and socially cohesive behind policies that seek greater realism than the spurious compassion drummed up on the Labour Benches this afternoon.
    The policies can succeed and the Treasury Bench is determined to attend that success.
    5.52 pm
    Mr. Richard Wainwright: Hon. Members from various parts of the House, and certainly from the Liberal Benches, have long urged that the House should debate public expenditure together with the Budget Statement. We hope that what has happened by coincidence this year will become a deliberate part of our procedures. The reason is obvious, and long ago penetrated virtually every other organisation in the Kingdom. It is common sense to debate spending and receipts—benefits and costs—at the same time.
    Neither the Chancellor of the Exchequer nor the Chief Secretary to the Treasury has followed the spirit of that coincidence. In pressing on the House their unique version of their dogma they have not treated us to a coherent explanation of the hardships and costs, especially the social costs, of the option that they have taken. They have not had the wisdom to explain to the House the combinations of varying types of fiscal and monetary policy open to them.
    That has resulted not only in confusion and a somewhat sour atmosphere in the House, even amongst Government supporters. What is much worse, the country is bewildered. We are being led into years of austerity without receiving a proper explanation of what it is for, where it is leading and how we shall get out of the tunnel. It is a recipe for disaster. I prophesy that a U-turn will be forced on the Government when unemployment reaches intolerable levels, partly because the country has not been given coherent leadership or an explanation of where it is being, taken.
    Those omissions are particularly relevant to industry. Through some sleight of hand the Government have captured

    1709
    the top brass of the CBI, and they appear to feel entitled to ignore the ordinary run of manufacturers and medium-sized business. In the modern age those businesses have considerable overheads, and staff to whom they have a strong responsibility. They are in a state of desperation as a result of the lack of tangible relief in the Budget.
    At the centre of the problem is the size of the public sector borrowing requirement target. We know that it is only a target, because the figure is exposed to the changes and chances of the ensuing 12 months. We have received no coherent explanation why the Government have settled on their highly restrictive and damaging target. The only sustained argument for this in the Budget Statement was an airy reference to other developed countries. We were told that tightening belts was a universal phenomenon.
    That is an inaccurate comparison and carries the matter too far. Throughout the industrial world there is a calling-in of expansion, a feeling of need for care and fiscal caution. However, the annual rate of growth in OECD countries as a whole is still projected as at least 2 per cent. per annum. Our forecast for the United Kingdom is for minus 1 per cent. I reject entirely the idea that the Budget is simply following carefully and meticulously the example of other more successful countries.
    I wish, in some ways, that that were so. I wish that the Government would introduce a cheap loan system for industry, such as that which has successfully sustained Japanese industry for many years. We hear nothing of that.
    The Liberal Party believes that the public sector borrowing requirement is much too low. At this stage of the economic cycle it should be increased by at least £2 billion. I shall briefly indicate a few proposals for this in order to try to be constructive.
    I come straight away to the worst piece of sabotage in the Budget—the destruction of the lower rate band of income tax. The precursor to that, amongst all the leaks of this Budget, was an inspired campaign by the Government, for which the media fell because of its ignorance of income tax matters, to represent the lower rate as a silly nuisance that caused administrative trouble and was best done
    1710
    away with as quickly as possible. That is emphatically not the truth of the matter.
    The Government are keen on examples from other countries, so let me remind them that no other major industrial country has an initial rate of tax for the first slice of taxable income approaching anywhere near 30 per cent. On the most recently ascertained figures, the initial rate at which people pay income tax in France is 5 per cent., in Italy and Japan 10 per cent., in the United States 14 per cent., in the Netherlands 20 per cent. and in West Germany 22 per cent. By an act of sabotage the Government have put up our initial rate—the first impact of tax on extremely low, virtually poverty, earnings—to 30 per cent. Anyone with an instinct for revenue matters knows without argument and reference to statistics that that is utterly misplaced in principle.
    The object of a civilised tax system should be a smooth take-up of the tax burden so that the full rate of tax is not felt until the taxpayer is enjoying a reasonably substantial income, well above the poverty line. What the Government have done will have a cruel, not simply an unfair, effect upon a large number of people who seem to be ignored by Treasury Ministers—those who, in spite of the strong financial temptation to leave work and live on benefits, continue to earn their poverty by working for low pay. Those people had at least some small solace in the reduced rate of income tax on their modest earnings. They will now incur the full 30 per cent. rate. That will also lead to substantial pay claims.
    The most sinister argument for that move is that it will save 1,300 Inland Revenue staff—as if that were a decisive point. It will not have escaped the notice of hon. Members that in the same speech yesterday the Chancellor made provision for an extra 1,500 staff to deal with the admirable object of taxing unemployment benefits.
    It is intolerable that we should settle our taxation policies according to the number of Inland Revenue clerks that are needed to carry them out. That should be the last rather than a primary consideration. The lower rate of tax, far from being abolished, should have been reduced to a rate of 20p in the£, and we shall try to amend the Finance Bill in that respect. If that had been done, about

    1711
    £1·8 billion would have been injected into the economy, which would have been of great value to industry.
    Mr. Hooley: Another consequence of bringing people straight on to the standard rate of tax is that it makes it more difficult to give tax remission to people in the lower income tax bands without automatically giving disproportionate help to those at the top.
    Mr. Wainwright: I share those sentiments.
    I deal next with capital taxation. The Chancellor's feeble stance must have been a disappointment to hon. Members of all parties, but no doubt for varying reasons. I regard the state of capital taxes as deplorable. In common with most hon. Members, I used to deride the old death duties, because in many ways they had become voluntary taxes and were not having any marked redistributive effect. However, in spite of the Labour Government's strong statements that they were effecting an irreversible redistribution of wealth—
    Mr. Heffer: That was only our party programme, not the Government's.
    Mr. Wainwright: The former Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey), when he introduced capital transfer tax, said that it was a determined attack on the maldistribution of wealth in Britain. He said that in his Budget Statement in March 1974.
    In 1972, the poor old tattered death duties, such as they were, raised revenue of£482 million—0·87 per cent. of GDP in that year. In the fiscal year 1979–80, all the new capital taxes raised only £430 million, and that was only a miserable 0·26 per cent. of GDP. The Labour Goverment's effort to effect an irreversible shift in wealth has failed, and the present Chancellor is simply tinkering with the duties, which will reduce the yield still further, so that it will become probably no more than 0·21 per cent. of GDP.
    To Liberal Members that is a hopeless failure of a necessary measure for redistributing wealth. We shall call for an accessions tax, not by taxing the donor but by taxing the recipients of gifts according to the recipients' means at the time that they receive them. We heartily oppose the Budget measures to reduce the small re-distributive effects of capital tax.
    1712
    On the positive side, there are the share ownership encouragements. With some parental affection I welcome the improvements in tax reliefs for employee share ownership. However, according to the Inland Revenue's press statement, those wider concessions come into effect on 6 April 1980. That being so, there are many schemes which, because of their dates of foundation, will issue shares and take advantage of concessions from that date. However, there is no Budget resolution to that effect, and I know from my experience that the head office or some inspectors of taxes will note that there is no parliamentary approval to operate those concessions from 6 April. I hope that the Chief Secretary will be able to say that we shall not have to wait for the Royal Assent to the Finance Bill for shares to be issued on the new terms that were wisely included in the Budget.
    There is also a disappointment. Any hon. Member who has addressed audiences on the valuable subject of wider share ownership will be fully accustomed to the genuine people at the meetings who ask what tax concessions will be granted for people who do not work in profit-making industries or who do not work in industry at all. Why are those privileges to be limited to those who work in the profit-making private sector? With that in mind, we have been trying to draw the Government's attention to the brilliant success so far of the loi Monory in France, which has stimulated investment in industry. It has started well and it allows tax payers buying new shares in French industry to deduct approximately£500 in any one year from taxable income. I hope that the Government have not entirely abandoned that possibility. I am not making a partisan point on this.
    The House will debate the social security sections of the Budget on Monday. They are of immense importance. I shall not trespass in detail on that subject today, in the hope that another Liberal Member may succeed in catching your eye, Mr. Deputy Speaker.
    However, I refer briefly to the betrayal on child benefit by a party that is widely advertised as the party of the family. The Government are increasing child benefit by only 75p. with effect from November, by which time inflation will be raging ahead even faster than at present. This is a scandal. It should be increased by at least £1.20 if it is not to come into effect

    1713
    until November. Other hon. Members who are more eloquent than I am will introduce the humanitarian considerations and the considerations of fairness and justice. I simply wish to put the hard-nosed point of the good of the economy.
    In his Budget Statement the Chancellor said:
    "One of the biggest problems is the lack of balance between social security benefits and incomes in work."—[Official Report, 26 March 1980; Vol. 981, c. 1459.]
    The child benefit scheme is almost uniquely and admirably designed to answer part of that problem. It is untaxed and it is paid in full to those at work, but it is taken into account before social security payments are made. Almost uniquely, child benefit does not contribute to the poverty trap. Certainly during the proceedings on the Finance Bill we shall press as hard as possible for an increase of £1.20 in November.
    In conclusion, the case for relying solely upon strict control of the money supply, without regard to the harm that that does to British industry and our social fabric, has not been made out. In particular, we have never had an answer to the key problem of how the Government propose to get out of the strict control.
    We hear a lot of airy-fairy phrases about several years of hardship and difficulty which will lay the foundations for a return to economic growth. The Government never tell us how that can be contrived on their policies without starting the inflationary cycle all over again. It would be a great contribution to the wisdom of nations if, during these debates, the Government could explain how they hope to get back to a path of expansion and proper economic growth on their present policies without reviving inflation.
    The Budget has done nothing whatever to stem the tide of cost pressures which continues to push up prices, put us out of export markets and ruin whole sections of British industry. The Budget has done virtually nothing to help the business sector, and it has increased income tax in real terms by the stupid abolition of the lower rate band. In our view, a more expansionary policy will become increasingly necessary as unemployment mounts to intolerable heights,
    1714
    and that will have to be accompanied by a pay policy. Perhaps this Budget is the Government's last desperate attempt to avoid a U-turn of that kind.
    6.12 pm
    Mr. Peter Hordern: I congratulate my right hon. Friend the Chief Secretary to the Treasury on his speech this afternoon. I am glad that he opened from the Treasury Bench—he made a speech of great clarity and lucidity, which we have come to expect from him. His speech was in marked contrast to the turgid contribution of the right hon. Member for Leeds, East (Mr. Healey).
    The trouble with the right hon. Member is that he lacks credibility. It is as if Horatio Bottomley were pretending to be the chief cashier of the Bank of England. Some of his remarks were proof of this. He spoke of the contribution of£1,000 million to the European Economic Community which is mentioned in the public expenditure White Paper. He chided the Government for not altering that figure and for not taking account of some reduction in it over the years ahead. That was typical of his approach to public expenditure White Papers. He always put a gloss on future events. When he was in charge of our economic affairs he always told us that growth would proceed at 3 or 4 per cent. a year and therefore we could well afford even larger increases in public expenditure, which subsequently obtained.
    I think that the public expenditure White Paper on this occasion is an example of clarity and proper responsibility. It shows financial caution and rectitude, and as such I commend it. However, there are other parts of the public expenditure White Paper which I should like to comment upon now, particularly the attitude displayed towards public expenditure itself.
    There are considerable divisions of opinion about the relative value of public expenditure. There are some Labour Members who feel that public expenditure should never be cut in any circumstances. They are the ones with snow on their boots. There are others, on both sides of the House, who feel that public expenditure should be cut in principle, but in practice it is always some other neck of the woods that should suffer the cuts and not their favourite area.

    1715
    Then there are those—and I am one—who believe that public expenditure should be cut in relation to what the nation can afford. We might be called the heavy cutters.
    My right hon. Friend the Secretary of State for Industry is also in that category. A short time ago he said that the Government had lost the first six months. I agree with that view—in fact, I think that we have lost the first year in public expenditure and that we should have cut it faster much earlier.
    Then there is the other category, which includes the right hon. Member for Leeds, East. Those people believe in a contortionist attitude. They believe in following either Keynes or Friedman, depending on which way the wind is blowing at the time. It is very difficult to find out the right hon. Gentleman's present attitude to monetarism, public expenditure or any other aspect of our economic affairs.
    I wish to draw attention to the still considerable increase in the rate of money supply. A rate of some 10 to 11 per cent. is predicted for this year. One should compare that rate of increase with the rate of increase of money supply in other countries. In the United States, on the same measurement, it is 6 to 9 per cent. In West Germany it is from 5 to 8 per cent.
    I draw these comparisons because the removal of exchange controls—of which I am wholly in favour—means that those institutions with capital can invest their money in any country they wish. Countries in which the rate of increase in the money supply is slower will become more attractive if their interest rates are favourable. Institutions will prefer to invest in those countries to supporting Government stocks. Therefore, it is not necessarily the case that the funding will proceed easily. Considerable funds may go abroad—in fact that is already happening.
    I believe that not only the higher rate of money supply continue—and it is too high in my judgment—but that interest rates will remain high, not just this year, but probably next year as well. This will be necessary to attract money into the gilt-edged market. Therefore, I should have preferred a more considerable reduction in public expenditure. I know that that leaves me open to the immediate question "How would
    1716
    you cut it?". I should have imposed higher charges on tobacco, wines and spirits.
    If this rate of a 9 to 11 per cent. increase in the rate of the money supply is to obtain, it will be difficult to attract funds to the gilt-edged market. Therefore, interest rates will remain high, and this will mean continuing, considerable difficulty for industry, not just this year, but next year as well.
    At present, industry is in a very low condition. The right hon. Member for Leeds, East has been weeping crocodile tears for industry. We must not forget that he wanted to increase employers' contributions to national insurance, so his tears now leave me quite cold. But there is no doubt that industry is in a somewhat parlous condition. One has only to look at the results from com-panics. A week ago we heard that Stone Plan was making heavy losses—and that is a large exporting company; G. and J. Weir, which is also a major company in the North, made a very heavy loss; and Tube Investments is now considering its investment programme, not in this country, but in the United States. There is no doubt that investment conditions are not very attractive in this country at present. Substantial changes need to be made, particularly in the rate of interest, to make it much more attractive.
    We must deal with the fact that the money supply is expected to remain high and that public expenditure is also too high. I do not believe, however, that that is the real basis or the nature of our problem. Our difficulties have gone on for much longer than that. At the heart of the matter is the de-industrialisation of our country. There has been a continuing movement and trend for many years from the private wealth-creating sector into the public sector. Between 1961 and 1978, 1·5 million people moved into the public sector. There was a 60 per cent. increase in the number employed by local government, and a 30 per cent. Increase in the number employed by the Civil Service in those years.
    Although in other countries there has been considerable movement from productive to service industries, there has been no comparable increase in the public sector. I do not believe that a similar comparison can be drawn with any other

    1717
    country. For example, in 1965 our education service employed just under 400,000 people, some of them part-time, who neither lectured nor taught. At the end of 1979 there were not 400,000 in that capacity but 717,000, again many of them part time, who neither lectured nor taught.
    In the National Health Service the number employed in 1961 was 575,000. The latest figures show that 1·175 million people are employed there. With the best will in the world, taking into consideration the fact that the number of beds in the NHS is considerably smaller than in 1961, we have not achieved the improvement in standards that we might reasonably have expected because of the considerable increase in the number of employees.
    What is to be done? I know that cash limits are bound to have some effect, but I fear that they will have the effect of reducing services and not the number of personnel employed. The Government should take further action about the considerable increase in the number of administrators in the education and health services.
    Other countries have different systems. The United States has a general accounting office. If we are not to have a similar body, which I should like to see, I believe that the Monopolies and Mergers Commission should be asked to make a proper investigation of the NHS and our education services, especially into their staffing ratios. I cannot believe that it can properly be claimed that we have had the improvement in services in either of those organisations that could reasonably have been expected when one considers the increase in the number of administrators.
    The terms of service in the public sector are now very attractive compared with the private sector, not only with regard to comparability of wages and salaries, but also with regard to indexed-linked pensions. One thing that I was glad to hear in the Budget Statement yesterday was the announcement of a new inquiry into index-linking of public-sector pensions. I do not know what this inquiry will show, but, on any proper comparison, I would have thought that there should be a larger contribution than at present to justify the real protection that an index-linked pension gives. While this inquiry proceeds, I hope that my right
    1718
    hon. and learned Friend the Chancellor of the Exchequer will arrange for a proper examination of whether we need funded schemes in the public sector at all.
    My right hon. and learned Friend knows my views about this, and I have bored the House with them already; but the Government Actuary has shown, quite convincingly, that we would be able to achieve a reduction of £2,000 million a year if we paid pensions in the nationalised industries and local authorities as they arose rather than through funded schemes. That is well worth looking at, and I hope my right hon. and learned Friend will look at it.
    Essentially, our problem is to halt the flow of people into the public service—the wealth-consuming sector—and restore it to the wealth-creating sector. How can that be done? My right hon. and learned Friend yesterday mentioned an examination of corporation tax. He also said that the new exposure draft which the accountants are preparing will be ready soon. I hope it will be, because it will then be possible to have a system through which profits will be taxed in a real sense and tax will be paid only on profits as they are earned, allowing for inflation. That will mean, of course, no stock appreciation relief. But it will also mean that investment will take place based on proper criteria and, further, that it should be possible to reduce the rate of corporation tax.
    I have long felt that the number of people whom we employ in the Department of Industry, the Welsh Development Agency and the Scottish Development Agency is too large. We carry with us the burden of a demand economy while trying to run the economy in a monetary sense. We have this large burden which I believe could be reduced considerably by tax incentives over a much wider area than at present. By that I mean that we should follow a system rather like that in Ireland, where there are tax-free holidays for 10 years for companies. It is a very successful system and attracts foreign firms to that country.
    I know that my right hon. Friend the Secretary of State for Industry feels that a substantial Department for assessing regional aid is necessary. I do not deny that. We cannot do without regional aid altogether. However, I ask my right hon.

    1719
    Friend to consider the impact of having tax-free zones for companies in all the development areas. That would be a much more intelligible system for foreign firms to understand. It is no use our thinking that we can regenerate productive wealth or industry simply by taking money from successful firms carrying it through the Civil Service and giving it very largely to unsuccessful firms. Much the best way is to attract successful firms to those areas where unemployment is high. I believe that that would be a more successful policy than the one followed at present.
    I am greatly interested in the experiment that is about to take place in the new enterprise zone, but if there is to be a reduction to a bare minimum of Government requests for statistical information, why cannot that be applied universally? If it is not strictly necessary to have statistical information in city centres, I cannot see why it should not be applied throughout the whole country. I hope that my right hon Friend will consider that also.
    I deal next with the proposals for wider share ownership. I congratulate my right hon. and learned Friend the Chancellor of the Exchequer and his colleagues on these proposals. They are certainly an improvement on the proposals which now stand enacted and are almost as good as the proposals which we originally put forward when in opposition. However, I should have liked them to be more generous. I follow what the hon. Member for Colne Valley (Mr. Wainwright) said about the desirability of a system that would attract funds generally, such as the loi Monory in France, but the fact is that we have tried to run our economy in a Victorian financial straightjacket for much too long.
    Mr. Nick Budgen. I fear that we are not in one now.
    Mr. Hordern: The Victorian economy had this advantage: in that system there was a certain paternalism. Those who owned factories took a good deal of personal interest in their employees. The same cannot be said today. Many who work in companies today have not the slightest interest in the profitability of
    1720
    the firm. Similarly, those who are shareholders are concerned only with the size of their dividend cheques at the end of the year. Furthermore, shareholders can, if they wish, vote with their feet by selling their shares and getting out. When we compare this archaic system with what is a lifetime guarantee of employment in Japan, and the substantially more generous schemes for wider share ownership in Western Germany, we realise that we need to take a different view about the importance of workers owning shares in the company for which they work.
    Mr. Alan Clark: I am a little anxious about the reference by my hon. Friend to the benevolent Victorian factory owner. It evokes the shades of Manchester liberalism that waft over the party from time to time—greatly to my regret. I am sure that if my hon. Friend were to read the social history of the period he would recognise not only that the good employers were few in number but that the Tory Party at that time protected, and relied on the support of, the working class, and the Liberal Party was the party of the exploiters and mill owners.
    Mr. Hordern: I do not disagree with my hon. Friend, but my proposals are designed to ensure that workers in factories will support the Tory Party much more than they have done hitherto, and will do so as they did in Victorian times. I believe that they will. I see no reason why workers should not own far more of the shares of the companies in which they work. If they had greater ownership, they would have a real interest in the prospects and future of their firms, or much more than at present, which is little more than the size of their pay packets at the end of the month or week. That is an issue to which we must pay a great deal of attention.
    I commend the scheme that my right hon. and learned Friend the Chancellor of the Exchequer announced yesterday, which goes a little way towards the proposals that I have set out. I wish that the Government would go further. However, apart from public expenditure, which I believe should have been reduced even further last year and again this year, I congratulate my right hon. and learned Friend on the Budget that he has introduced.
    6.31 pm
    Mr. Eric S. Heller: I begin by referring to the speech of the Chief Secretary to the Treasury. The delivery of his speech was much better and clearer than that of the Chancellor of the Exchequer yesterday. However, I found the content of the speech equally disappointing.
    Mr. Hooley: Are you relieved, John?
    Mr. Heffer: I have no doubt that the Chief Secretary is relieved on that basis.
    I agree with the right hon. Gentleman's comment that mindless consensus is the enemy of clear-sighted government. I could not agree with him more. We have had consensus politics and economic policy for quite a long time. It has not worked. It has worked only in the sense that if there had not been Government intervention in economic matters, the problems would undoubtedly have been greater. The important matter is that that type of consensus politics has not fundamentally solved the problems with which Britain is faced. We must learn that lesson. To that extent I agree with the hon. Member for Horsham and Crawley (Mr. Hordern). However, the conclusions that I draw are fundamentally different from and opposite to those drawn by the hon. Gentleman.
    I could be classified by the hon. Gentleman as one of those with snow on their boots. That is because I have never been in favour of massive public expenditure cuts. I am in favour of some public expenditure cuts, but probably not those of which the hon. Gentleman would approve. It would be wrong to say that I never agree with public expenditure cuts. Much depends on what is being cut and the objective of the cuts.
    When the previous Labour Government were cutting back on public expenditure, I and a group of my colleagues made it clear that we opposed our own Government. When we believe passionately in something, we should be prepared, if not to vote against our Government—we often find that extremely difficult—to make our position clear by not supporting them. Many of my hon. Friends did that consistently when the previous Labour Government were cutting public expenditure. We have been consistent in our
    1722
    attitude to public expenditure. If that means that we have snow on our boots, so be it. I do not know whether that is intended to be a reference to the Soviet Union. The hon. Gentleman knows me sufficiently well not to hint in that direction. If he were doing so, I might get somewhat upset.
    We must consider the Budget against the background of the crisis in which Britain finds itself, and the crisis of the whole Western world. It is true that the Western world is in a crisis. We often hear how marvellous it is in Western Germany or Sweden vis-a-vis the situation in Britain. We hear that every country in the world is solving its problems save Britain.
    We are part of the crisis in which the whole of the Western capitalist world finds itself. Our part of it is slightly worse because, within the overall crisis, we have certain peculiarities, to which the hon. Gentleman referred when he talked about deindustrialisation and because of our failure to regenerate our industry when we should have been doing so. However, even the countries that have regenerated their industries and built up new economies—they have been Johnnies-come-lately and have had the advantage of starting from our level in terms of modem technology—are faced with the serious crisis that faces Britain.
    If that analysis is accepted, there are two basic but different ways of dealing with the crisis. There is the approach, which, unfortunately, the Government have taken, of placing the full burden of the crisis on the shoulders of ordinary working people. The second method is to ensure that the crisis is dealt with on the basis of equality throughout the community. I am not denying that the Government are considering the crisis in strictly capitalist terms and that an effort is being made to solve it. However, that effort is being made at the expense of ordinary working people, who will suffer as a result of the way in which the Government are tackling the problem. That is the essence of the basic divide and argument between the two main parties.
    How is the crisis being solved by the Government? It is being solved by massive public expenditure cuts.
    Mr. Alan Clark: They are not massive.
    Mr. Heffer: Yes, massive public expenditure cuts which are bound to lead to higher levels of unemployment. There are now about 1½ million unemployed. By the beginning of next year unemployment is likely to be over 2 million. It will possibly increase much further. In the absence of a new approach and bearing in mind new technology, we may never be able to solve the problem of unemployment without the interventionist policies for which I argue.
    The result of the Budget will be higher prices by direct Government policy. There is no question about that. Even the Government admit that by the end of the year inflation will increase by 2 per cent. and there will be higher prices for ordinary people. The public expenditure cuts will lead to massive unemployment.
    It has been said from the Opposition Front Bench that there is real anger on this score. Yes, I am angry. I shall tell the House why I am angry. I am close to ordinary working people. When I go home at the weekend I go to my mother-in-law's house on a council estate. I meet my pals with whom I used to work on building sites, some of whom have been out of work for a year or 18 months. I meet my former comrades from the shipyards. I have a pint in the Labour clubs. I am angry at the Government's proposals, which will not. increase unemployment benefits by 5 per cent. in relation to price increases. That will mean a real cut in the standard of living of ordinary working people. Many people who have been out of work over a period will suffer as a result of Government policy.
    The Government have adopted a callous and heartless attitude. I think of the prescription charges and the other measures taken as a whole. They are a direct attack on the living standards of ordinary working people. My right hon. Friend the Member for Leeds, East (Mr. Healey) was right to draw attention to what was said on the radio this morning. I heard one person say that he had gone across to New York and had had a couple of pink gins while travelling on Concorde. He said that he had had a marvellous time, that the Budget did not mean anything to him and that it was the right kind of Budget. A working woman was asked what the Budget meant
    1724
    to her. That is the real issue of the Budget. That is what we are talking about.
    I now come to the position of the trade unions and the deeming policy. One hon. Gentleman said that he did not know what was meant by deeming. I do not care whether we call it deeming or knocking £12 off benefits. They are still benefits. It comes to this, that trade unionists' wives and families will be treated worse than criminals. It is not a criminal offence to go on strike. The legislation concerned itself with people in real need. Strikers' wives and children will be affected.
    Mr. Budgen rose—
    Mr. Heffer: I shall not give way, if the hon. Gentleman does not mind.
    Single strikers never received anything; nor did strikers receive anything for themselves.
    Mr. Nicholas Winterton: Quite right.
    Mr. Heffer: The hon. Gentleman says "Quite right". Does he know that when working people are on strike they club together to help feed the men who are without any income? They have this solidarity, one with the other. Strikers' wives and children will now suffer as a result of Government action. That puts the burden on to the shoulders of working people.
    Mr. Budgen: I understand the hon. Gentleman's argument about the morality of that. However, on a practical level, is it not likely to cause increased trade union membership? People will join trade unions to ensure that they receive union benefits should they go on strike.
    Mr. Heffer: The hon. Gentleman indicates that he has a total lack of understanding of the trade union movement. Not every strike is official. Many strikes are unofficial. In every unofficial strike, when there is no strike pay, workers' wives and families will suffer. What about the workers who are not members of trade unions and who go on strike from time to time? [Interruption.] I am trying to make a serious point on a matter about which I feel deeply. In the same way, right hon. and hon. Gentlemen feel deeply about their regiments when they talk about the Army. The working class and

    1725
    the trade unions are my regiment. I feel deeply about their problems. I am arguing their case tonight.
    Allied with the Government's attitude is the so-called Employment Act and the extra money to be spent on law and order. Does that mean that the Government expect confrontation on a massive scale with the trade unions, so that the problem may be dealt with either through the method of no assistance to wives and families or by building up law and order enforcement to deal with those workers? That could possibly be the pattern of thinking of Government supporters. However, the pattern is not realistic to the Opposition.
    Finally, I come to the proposal for the enterprise zones. My right hon. Friend referred to them as combat zones. I prefer to suggest that the Government have mini Hong Kongs in mind. Perhaps some Government supporters have not watched the Milton Friedman programmes. I watched them. Milton Friedman walked round Hong Kong and said "Marvellous: absolutely wonderful. They can work all the hours they like. There are no trade unions to protect them: there are no safety, health and welfare regulations". The hon. Member for Horsham and Crawley gave the game away. He said that that was a good idea. He said "We do not want planning arrangements or controls". He asked why the Government did not apply the system to the whole country. That is why I oppose the idea. Once the system is entrenched in a few areas, the demand will grow to apply it throughout the country and get rid of all planning controls. That will result in chaos in the economy. It is not on.
    Mr. Hordern: I confined my approval of the Government's measures to the idea that the statistical information required by the Government would be strictly limited. I said that that part of the Government's proposals might be universally applied. It was not that I thought that planning procedures or health and safety measures would be unnecessary in the rest of the country. The Government should set up additional tax-free zones, which would be more effective.
    Mr. Heffer: If I misunderstood the hon. Gentleman in any degree, I accept that perhaps I was slightly wrong. Never-
    1726
    theless, once these economic zones get under way, the demand for them will grow, which will result in total economic chaos.
    One Government Front Bench speaker said that the Opposition would not know a small business man if they fell over him. I do not know whether he knows the Opposition. My entire family were small business people. My uncle was a fruiterer and florist; another uncle had a butcher's business; another was a confectioner; and another was a small builder. I know about small businesses.
    It is rubbish to suggest that the Opposition have no understanding of the problems of small businesses. For years many members of the Opposition argued in favour of support for small businesses. My right hon. Friend the Member for Bristol, South-East (Mr. Benn) and I put forward a scheme which, unfortunately, did not see the light of day. In it we suggested ways of helping small businesses. Let us get that silly argument out of the way.
    Reference was made to the "spurious compassion" of the Opposition because we are all opposed to the mean and vicious policy which the Government are introducing. Our compassion is not spurious; it is real. It is based on the fact that we come from the people who are now being screwed down by the Government.
    In the long term, the Government will not get away with their policy. They might get away with it for a short period. However, the people, and especially those in the trade union movement, will be furious. My ideas have been deliberately distorted. I said that trade union strikes against Government policies would be interpreted as political strikes. In fact they will be strictly economic disputes, because trade unionists will be defending their living standards and their working conditions. That anger will grow and it will grow to such an extent that in less than two years Conservative Members will be really sorry that they are pursuing a policy such as this. Either they will have to make a U-turn or they will go down in a welter of chaos.
    6.51 pm
    Mr. Alan Clark: I am in agreement with the broad thrust —if I can use a word with such overtones

    1727
    of aggression and confidence about a Budget of which the best that has been said by its defenders on the Front Bench is that it is consolidatory. Any Budget introduced in our second year that leaves Health Service charges or the same proportion of them in percentage terms the same as in 1967 can hardly be thought to be particularly aggresive or even particularly confident.
    The first sentence in the Red Book asserts our policy of
    "reducing inflation and improving the supply side of the economy"
    "supply side" being a very "in" concept at the moment. It means our capacity to make things. If we do not have a capacity to make things, our productivity, which is so vital, cannot increase. No one would quarrel with that sentence but a little later on, on page 20, we get a paragraph dealing with the strategy of the Budget, from which we see that the improvement of the supply side of the economy is to be achieved
    "by removing obstacles and allowing market forces to work."
    Removing obstacles is one thing, but the refusal to erect barriers is something totally different. The fact is that the supply side continues to contract and will continue to contract, in my view and on all the projections of all the figures we have, until it is properly defended against the intrusion into manufacturing of competition from those who are sometimes referred to as our trading partners but whom I prefer to look upon as our economic rivals.
    It is this unrestricted competition—the operation of market forces in an international context rather than in the national context in which industry in the United Kingdom functions and which I know all my hon. Friends support —this unrestricted play and operation of market forces, that still poses the greatest danger to our manufacturing capacity, our productivity, as it exists at the moment. Indeed, there is a danger that the policies of the present Government, excellent and admirable though they are, may, before they have had time to work themselves to fruition, accelerate the damage that is being done to our own manufacturers—that is, to the supply side —by permitting the unrestricted access of foreign manufacturers to our markets.
    1728
    In the Red Book the uncertainties about this are very well illustrated on page 19, below table 9, where there is an all-purpose paragraph disclaiming any responsibility for any of the forecasts. It reads:
    "Events at home or abroad could develop so as to produce a very different situation. World trade could grow faster or more slowly than assumed; the supply response of the United Kingdom economy could be very different, with consequences for productivity and trade performance; oil and other commodity prices could show different movements; and the behaviour of earnings is always difficult to predict."
    It might be thought that that kind of general disclaimer would be enough to get the Treasury off the hook in any of the other forecasts it makes, but further on there is a table that shows a margin of error in the forecasts, and the interesting thing is that the two items showing the largest margin of error are those relating to imports and exports. Speaking from memory, I think that the margin of error predicted for exports is 125 per cent. and the margin of error predicted for imports is 100 per cent. My own feeling is that exports will be in deficit by almost the exact amount—that is, they will fall short of the prediction by almost exactly the amount of the margin of error in the cautionary note—and that imports will exceed the prediction by almost the total amount of the margin of error that is predicted. The effect of this will be a still more devastating contraction of our manufacturing capacity.
    I have wearied the House many times with the arguments for protecting our manufacturers and I certainly would not presume to do so again on this occasion. But I should like to draw the attention of the House to two things. When I first started doing this, those on the Front Benches on both sides of the House dismissed what I said in a very cursory way, simply referring to some of their own figures or predictions and saying that I did not have access to the sort of figures they had, and they knew that it was totally impossible.
    Since that time, I have made a pilgrimage to the very altar of Mithras, as it were, where these rites are carried out and entrails examined. I have laid on the altar various assumptions—or runs, as they are called by those who operate the computer—and the figures that it

    1729
    produced, the answers that the oracle gave, certainly lent great statistical force and weight to what natural common sense would tell anyone who looked at this problem. I have published them in The Times and I have them available in greater detail if any hon. Member is interested enough to seek further enlightenment. But, having already poured some scorn on the Treasury's capacity to make forecasts, which we can assume derive from this very instrument, I do not think that particular weight has to be attached to any special set of figures. All I am saying is that I am now armed with those very weapons which were formerly used to dismiss or deride my arguments about protection.
    The other thing I would say to my right hon. Friend is that I have sometimes been rather roughly treated by him and his hon. Friend in winding-up speeches and my arguments have been brushed aside in a rather perfunctory way. However, the feeling of inevitability, the feeling that this is something we shall have to turn to, is not only getting more widespread among those who devote their minds to economic matters, but is spreading, with sonic apprehension, I believe, to our foreign competitors or, as we are sometimes obliged to call them, our trading partners.
    Only yesterday I was entertained in the American Embassy to a lunch which was attended by high-powered economic advisers and diplomats whose purpose was to get me to say how much support I thought there was for my views and then to try to dissuade me—which they did in turn—from holding them and to demonstrate how ridiculous and unfriendly they were. All I can say, as an ardent nationalist, is that if representatives of other countries do not like a policy and try to talk me out of it, that policy must have something to commend it.
    I want to deal with two of the most familiar, often used but least thought out objections to the protectionist argument. The first is the retaliatory argument. Many people who do not want to devote their minds to this subject but think in terms of received ideas say that protectionism is unthinkable, the United Kingdom depends on world trade and retaliation would do us far greater damage than would be brought about by protecting our domestic industries.
    1730
    The answer to that argument is that the United Kingdom does not depend on world trade. We are in deficit in world trade in manufactures and we are likely to aggravate that condition as the years advance. In the finality of logical argument, if world trade in manufactures were suspended, or the two items in the book were balanced, we would be better off. But there is no question of that happening.
    We have to protect our manufacturing industry by a total, overall and fully conceived strategic operation. Retaliation against us, in so far as it occurs, would be piecemeal, phased and subject, if the Foreign Office is still capable of operating in that way, to diplomatic negotiation. It would not in any sense be universal, because the destination of exports is not the same as the origin of imports. They do not balance or put us in deficit either in volume or financial terms.
    So in the very worst case retaliation is likely to affect only a relatively small proportion of our export trade, whereas protection, particularly on the conservative lines I originally put through the Treasury computer, would have an immediate effect by opening up markets in our domestic environment to manufacturers who at present are being excessively squeezed by the intrusion of foreign imports.
    The second argument that is put forward after the retaliatory argument can be broadly described as the "quality of life" argument. It carries with it certain derogatory assumptions about conditions in British industry. That argument is that there will be bottlenecks, black markets and a rise in prices due to the tariff effect of foreign imports.
    Mr. Budgen: My hon. Friend seems to be saying that the fact that the country is in deficit on its balance of payments is an indication that it does not rely upon world trade. That, I would put to him, is not so. That does not take into account the effect of the exchange rate, which ultimately causes equilibrium between the two sides of the balance of payments.
    Mr. Clark: That is an esoteric argument which was also propounded very eloquently by my hon. Friend's predecessor in Wolverhampton, South-West. I did not say that we were in deficit on our balance of payments in trade in manufactures. The great advantage of redressing

    1731
    that is that we still have the surplus that arises out of invisibles and the oil account.
    We must certainly pay regard to the quality of life argument. But allied with it is a much more insidious and disreputable argument that British industry is so run down and seedy and the work people are so bolshy that they simply would not take advantage of the lease of life they are given by protecting their market. They will not innovate or invest but will simply carry on making obsolete goods. It is said that, when, in the fullness of time, it was necessary to look again at the policy, British industry would be completely obsolete and even less able to stand up to the competition to which it would be exposed.
    The long-term aim of any protectionist strategy must be to make British manufacturing industry competitive again. During that interim period, with enormously increased captive markets available, the incentive principle will start operating. It requires no more powerful and active faith to believe that the incentive system will operate within our closed but highly profitable domestic economy than that it will or can operate in an economy that is open without any restriction to the intrusion of foreign manufactures.
    In an ideal situation, and as a powerful element in that ideal I count the miraculous omission of the obligation to fight general elections, if a 10-year run could be postulated for the party in power to implement its policies, it is conceivable that by exposing industry to the ruthless blast of foreign competition both management and work people might be forced into changing their attitudes and we might emerge with a new spirit and a more efficient body of corporations.
    That is very risky. The damage that could be done during that period might be lethal. Certainly the base from which to build again will be much smaller and there is always the danger that in the course of this exposure there might be major confrontations or difficulties in the broad social field which would bring down the whole edifice.
    I am certain that we shall have to come to this in the end. It is the only economic option left open to us. All I ask this evening of my hon. and learned Friend
    1732
    the Minister of State is that, in conjunction with his right hon. Friend the Secretary of State for Trade, he draws up a contingency plan and considers the various possibilities. He could, for example, examine the argument that is trotted out with such facility that retaliation is dangerous and could be disastrous. That argument will be found on examination not to have as much substance as it is believed to have by those who argue it so blithely.
    Secondly, when my hon. and learned Friend examines this strategy, will he conceive it as a major and compendious economic strategy and not simply as a piecemeal approach to save individual moribund industries with only two or three years left anyway, which will be seen as such by the work force and the management? It has to be conceived as a major and long-term strategy to revive British industry and to give it back the real confidence that it needs both for investment and for negotiation with its work force.
    7.10 pm
    Mr. Frank Hanley: I am glad that the hon. Member for Plymouth, Sutton (Mr. Clark) has concentrated on manufacturing industry. I wish to comment on that matter myself. I wish to get away from esoteric arguments about PSBR and all that nonsense.
    The Chief Secretary was interesting in revealing the Tory party's ultimate weapon in the fight against inflation. It is the passage of time. The right hon. Gentleman was precise on a great many figures, but he was not very precise about how much time would be required under Tory policy to reduce inflation to a reasonable level. The right hon. Gentleman has spoken of about three years. The right hon. and learned Gentleman the Chancellor of the Exchequer has spoken of about 10 years. I suppose that, if there were a Tory Government for long enough, inflation might come down eventually. That is hardly a politically viable economic policy.
    This is the Budget of a grocer's daughter. It is petty minded, penny pinching and Poujadiste to a degree. In my view, the key aim of economic policy must be full employment. It is totally indefensible that we should run a modern industrial economy on the basis of unused resources, whether those unused resources are the

    1733
    physical resources of factory, plant and equipment or the human resources of our workers. It is vital to concentrate our minds on how to get the economy back on the rails and back into full employment.
    One aspect of this situation—I admit not the whole of it—must be to concentrate our minds on the problem of industrial investment. My remarks may, to some extent, tie in with those of the hon. Member for Sutton. I believe that industrial investment is fundamental to the solution of our economic problems and our manufacturing industry.
    Table 1.6 on page 16 of the public expenditure White Paper is very interesting. In the five years 1974–75 to 1978–79, the figures relating to industry, energy, trade, employment and the Government contribution to nationalised industries amounted to £6·4 billion in 1974–75, falling to £4 billion in 1978–79, a reduction of £2½ billion over that period. By contrast, in the same period expenditure on health and social services and social security went up from £22·4 billion to £27·2 billion, an increase of £5 billion.
    In that period, public expenditure on what might be called the wealth-creating sector of our financial life declined sharply by one-third whereas public expenditure on health and social welfare, which I fully support and do not criticise, went up considerably.
    The situation in the period under the control of this Government is far more alarming. In 1979–80 the Government envisage expenditure in the categories of industry, employment, trade and the nationalised industries at £4·8 billion, falling by 1983–84 to £1·2 billion, a drop of £3·6 billion, or almost three-quarters, in public expenditure on the wealth-creating sector of our economy. By contrast, on health and social services, expenditure will actually go up from £27·8 billion to £29·1 billion, an increase of £1·3 billion.
    I admit that much of the increase will be caused by the terrifying increase in unemployment that the Government's policies will produce. But the really frightening aspect of the figures is the fall of £3·6 billion in public expenditure on industry, trade and the nationalised industries. This means that the
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    Government will very nearly opt out of their contribution to the wealth-creating sector of the economy.
    The short answer from the Government will be that they do not believe in public expenditure in the wealth-creating sector of the economy and that this is the business of the private sector. They will say that they do not believe in putting public funds into public corporations, that they do not believe in the NEB and that they do not believe in schemes for training and retraining through the Manpower Services Commission and the promotion of trade by public effort.
    I invite the House to study page 9 of the 1979–80 Red Book and what is set out there by way of progress in industrial investment in the private sector. It is stated:
    "The recent high level of interest rates cannot, however, be favourable to investment".
    That is fair enough. It goes on:
    "On balance total private sector investment is forecast to be roughly constant over the period of the forecast."
    So there was to be no increase in the private sector of industrial investment and a system of high interest rates would discourage it. In terms of forecasts for the economy as a whole, the same 1979–80 Red Book states that gross domestic product would fall by 1 per cent. That was hardly a factor to encourage private enterprise to invest.
    What happens when we come to the Red Book for 1980–81? My right hon. Friend the Member for Leeds, East (Mr. Healey) was right in saying that the Red Book is extremely cagey about industrial investment in 1980–81 and shirked giving any clear forecast about what would happen in that sphere. A tiny little hint appears on page 26. It is stated:
    "A significant cyclical decline in manufacturing investment is also likely".
    Under the Government's policies there is a deliberate reduction in public expenditure in any sphere of industrial investment or investment in the wealth-producing sectors of our country, industry, energy, trade, the training of people through employment policies and investment in the nationalised industries. That, according to the Government, is not on. They will not have it.
    At the same time, the Government say that, even in the private sector—the

    1735
    sector that is supposed to be the great salvation of the economy under their policies—there is to be a significant decline in manufacturing investment. The Government are also forecasting that the gross domestic product will be down by 2½ per cent. this time. The Chancellor is doing better and better. The right hon. and learned Gentleman has increased the rate of decline of GDP by 150 per cent. after only 12 months in office.
    It is not likely that we shall get substantial investment in our manufacturing industries on the policies being pursued by this Government. Lunatic interest rates are maintained for months and months. Now, according to a comment made in the debate, I understand that the Prime Minister is thinking in terms of present interest rates persisting for another two years. Who will be able to invest in manufacturing productive industry with interest rates at 17 per cent.? This is not a crisis measure or a short-term measure. I accept that my right hon. Friend, a year or two ago, had to push up interest rates to about 14 per cent. for a few weeks. We have now had 17 per cent. for several months and the Prime Minister tells us that this is to go on, not for a few months, but for years. I think that the period is now two years at least.
    What incentive or practicability exists for investment in our basic wealth-creating manufacturing industries? How on earth will the unfortunate small business man, about whom Conservative Members are always clamouring, finance his business, or even maintain ordinary cash flow, let alone invest in new machinery or new equipment, with interest rates at 17 per cent?
    The Government are compounding that by another foolishness—the high exchange rate, which is making it increasingly difficult for manufacturing industry, even the major and most efficient companies, to export successfully. A recent article in The Guardian pointed out that the rise in the value of sterling plus the depreciation of the yen has meant that the real price of British goods in the Japanese market is now 40 per cent. higher than it was two years ago. What manufacturer can sell his goods when their price in real terms because of the, fluctuation in the exchange rates—not because of strikes or incom-
    1736
    petence—means that he must sell at a price 40 per cent. higher in a highly competitive and sophisticated market? That is one example. Other markets have the same problem. The manufacturer has thus to contend with high interest rates and a high exchange rate.
    There is also the problem of the outflow of capital. The Government, by demolishing exchange controls, have demonstrated that it is not important that people invest in British industry any more. As far as I can see, investors are being positively encouraged to send their money to South Africa, Latin America, Australia or wherever else they can get a return. There is no suggestion of priority for investing in British manufacturing industry. On the contrary, there is a positive incentive to send money abroad. Thus, our valuable capital resources flow out without restriction, creating enormous opportunities for tax evasion and all kinds of fiddles in offshore tax havens such as the Bahamas.
    Mr. Alan Clark: It lowers the exchange' rate.
    Mr. Hooley: It has not lowered it yet, and I doubt if it ever will. That is the third item on the debit side of Government policy.
    The fourth item was mentioned by the hon. Member for Sutton. The Government have taken virtually no steps to curb import penetration. I do not want to go into the arguments about import controls and tariffs, but, whatever the economic arguments about the control of imports, the political arguments will soon be overwhelming. Neither manufacturers nor trade unions will sit back much longer and watch industry after industry destroyed by uncontrolled and unchecked foreign imports. There appears to be nothing in the Government's economic policy to deal with that problem.
    By demolishing the Community Land Act 1975 and by cutting down on development land tax the Government are giving the green light to speculation in land and property. When they last did that—in 1972–73—they almost destroyed the entire banking system. If people can gamble and make fortunes in land and property speculation, they will not invest capital in the more difficult and long-term activity of industrial manufacturing. There is no incentive to

    1737
    build up our manufacturing industry. On these counts, Government policy is adrift.
    The comparison with other countries is frightening. The Library has supplied me with figures for 1978 in relation to gross fixed capital formation. I accept that this goes much wider than manufacturing industry. Nevertheless, as an interesting index of capital formation the figures are: 1978, United Kingdom, £29 billion; France, £46 billion; Germany, £62 billion; and Japan, £320 billion. The figures as a percentage of gross domestic product are: United Kingdom, 18 per cent.; France, 24 per cent.; Germany, 21 per cent.; and Japan, 30 per cent.
    How on earth can we compete successfully against our major industrial competitors when the level of our investment in productive industry varies by such enormous factors? I believe that massive and sustained industrial investment should be led by public expenditure. Of course, Conservative Members will not follow that particular line of reasoning. The argument is sometimes put forward, "Though we recognise the need for industrial investment, we are not sure what we shall be selling and in what context investment will take place."
    That if a fair comment, and I intend to give one or two brief answers to it. We could invest in the energy industry, which includes energy conservation, new sources of energy, energy efficiency and techniques using combined heat and power which demand considerable capital resources. That capital would be used for new equipment and for the financing of engineering techniques. There would be a real return in economic terms because if these activities were successful—as I believe they would be—they would encourage us to economise on our use of North Sea oil and gas. Those resources could be saved for future generations or used to produce a better yield for us in our current financial position.
    Waste and waste products and the recovery of valuable metals such as tin, lead and zinc could form the basis for profitable investment. Recovery of such metals is important in view of the rising price of commodities.
    There are vast new possibilities in genetic engineering. The structure of the living cell was unravelled by British scientists
    1738
    in Cambridge. That profound scientific discovery has led, in the United States and elsewhere, to new industries based on the manipulation of recombinant DNA. We are hardly beginning to venture into that activity in this country.
    However, given the effort and the money, we could build the great new industries which are precisely what this country needs. We need a high degree of value-added expertise. We do not possess indigenous raw materials other than fuel. There is the data processing industry, of which the Post Office is making good use. There are telecommunications, satellite technology, optical fibres, microelectronics and offshore and seabed technology. There are vast technological areas in which this country possesses the necessary scientific and engineering capacity. They could be exploited if money were invested in them. If the investment is made, it will be supported by the requisite skills and scientific knowledge.
    Until now investment, public and private, has been lacking to develop those skills that would enable this country to develop new industries. I believe that a huge and sustained industrial investment programme in the order of £5 billion or £6 billion—over and above our present efforts—is essential to the restoration of the industrial health of this country as a great manufacturing power. If we had that, I would agree with Conservative Members that import controls by themselves, though they might be a useful mechanism, would not solve the problem.
    We must have investment in our existing manufacturing industry and in new industries to make sure that we can compete in world markets though it may prove politically essential to protect our own industries in the short term whatever the economic disadvantages.
    I turn to a profoundly worrying aspect of the public expenditure White Paper. The Government have taken a squalid decision to cut our overseas aid programme. In the five years between 1974 and 1979 the cost of our aid programme rose from £628 million to £795 million—an increase of 22 per cent. That is way below the international target of 0·7 per cent. of GDP which we promised many years ago, but it was achieved in difficult financial circumstances. In the period

    1739
    1979 to 1984 our overseas aid will fall from £795 million to £680 million—a decrease of 14 per cent. in the modest aid which we give to the poorest and most deprived people in the world.
    Many of my hon. Friends have referred to the attacks on social services. I support their criticisms, although I have not dealt with them in my speech. We must accept that even the poorest people in the United Kingdom do not approach the level of poverty, destitution and malnutrition from which millions of people in the Third world suffer. Cutting the aid programme is not only a curious irony in the light of the Brandt report; it is crass economic stupidity. There is little doubt that the economic prosperity of the West—or the North—is linked to the possibility of economic prosperity in the Third world, To cut the money allocated to help to promote, even in a small way, greater economic prosperity in the Third world is not only morally squalid but economically stupid.
    The Budget has many deficiencies. It would take a long time to detail them. Its fundamental economic failure is its failure to grasp the importance of industrial investment and lack of steps to develop that investment. But the most squalid act by far is the petty cut in overseas aid.
    7.32 pm
    Mr. Kenneth Carlisle: I am grateful for the chance to take part in the Budget debate. In my short time as an hon. Member of the House I have been struck by the deep wish of many of my constituents for a long-term future for Britain. They have been disillusioned by short-term measures and hollow promises designed to win electoral popularity rather than to solve our deep-seated problems.
    The real merit of the Budget is that it offers a long-term programme for Britain. In the next few years Government borrowing will fall significantly and Government spending will be held tightly in control. For the first time for many years we shall live within 'our means and spend only what we earn. As a country we shall cease to be profligate. As a result, we can offer the British people the prospect of an end to the nightmare of continuing inflation and growing debts. We can give them real hope of rising living standards after a
    1740
    further two years of adjustment. The people want that certainty, and the Chancellor is wise to seek to give it to them.
    We must recognise the considerable economic constraints within which the Budget is formed. Until the country produces and earns more, nobody can be better off. The Chancellor is right to spread the burden fairly. Not only is the Budget realistic but it is fair. Those least able to help themselves—the elderly, those receiving supplementary benefit, widows and single-parent families—are being protected from inflation. I am sure that the House will welcome that support, especially for the elderly. We have a particular responsibility to ensure that the elderly are protected.
    It is realistic to accept that we cannot provide all the benefits that we wish to give everyone until the country creates the necessary wealth. I draw special attention to two aspects of the Budget—profit sharing and child benefit. Both encourage people to work and can help to foster the extra production that we seek. The hon. Member for Sheffield, Heeley (Mr. Hooley), called for greater investment. That can be achieved only by increased production and profits. They are essential.
    The current profit-sharing scheme was introduced in the 1978 Finance Act. The concept of profit sharing has always had all-party support. It is right for employees to share in the profits which their work helps to create. Tax incentives should be introduced to encourage such schemes. However, it is generally recognised in industry that the 1978 Act provisions were not sufficiently attractive. About 200 companies have applied to participate, but profit-sharing schemes are available only to a tiny proportion of the working population.
    The raising of the cash limit to £1,000 and the reduction of the retention period from five years to two years, with the shares available tax free after seven years, are steps in the right direction. However, one is bound to ask whether the concessions will bring a rush of new companies to profit sharing. I have no doubt that they will help, but I believe that they will not have the dramatic and fundamental effect that we wish. More incentives are needed if we are genuinely to spread the idea and actively encourage the wider ownership of shares.

    1741
    I hope that the Government will regard the concessions as the first steps in a long pilgrimage.
    I am at one with many of my colleagues on the subject of child benefit. I am sorry that the Chancellor found it impossible to raise the benefit substantially. I recognise that to do that he would have had to make cuts or impose further duties elsewhere. I know that one cannot take money out of the air—it has to be raised. I want child benefit to be raised because that benefit clearly supports our aims. Child benefit makes it more worth while to work. It attacks the poverty trap. It is a move towards a tax credit system, and thus towards a simplification of our tax labyrinth. Above all, it recognises the importance of the family, on which so much Conservative thinking is based.
    I understand that the Chancellor of the Exchequer has had to work within great restraints and that he has good grounds for his actions in the Budget. I urge him to consider carefully in the next few months the role that child benefit must play in the evolution of Conservative policy. I am wholly behind the Chancellor's strategy. Above all, the Budget is realistic and fair. It gives hope to the country beyond the short term and it has my support.
    7.38 pm
    Mr. Tam Dalyell: The hon. Member for Lincoln (Mr. Carlisle) will acquit me of discourtesy if I do not follow the theme of his speech. I wish to take up where my hon. Friend the Member for Sheffield, Heeley (Mr. Hooley) left off. In the debate on the Brandt report tomorrow we shall no doubt hear a powerful oration from the right hon. Member for Sidcup (Mr. Heath), while a number of other hon. Members will make pious speeches of support. However, the Government and the Western world will not follow it up and little will be achieved. My hon. Friend the Member for Heeley was absolutely justified in his final remarks.
    I intend to ask the Financial Secretary a number of critical questions. However, it would be churlish of me not to say what is good about the Budget. I am pleased about the decision to remove electric cars from tax. Many hon. Members have argued continually during the passage of Finance Bills that the fiscal and
    1742
    tax systems should be used to conserve energy and to avoid pollution. This move is not a great measure, but it is a step in the right direction. I hope that we can return to the subject during proceedings on the Finance Bill. Do the Government now accept the principle that the fiscal system can be used for anti-pollution measures and to save energy?
    It would be churlish of me not to acknowledge the statement on the National Heritage Bill. I look forward to discussing that in detail on the Finance Bill.
    I wish to confine myself to one subject. I return to the topic that was touched on by my right hon. Friend the Member for Leeds, East (Mr. Healey), namely, tax fraud and the so-called black economy. Some hon. Members find that peculiarly odious. We have a contrast of two facts. First, the Inland Revenue has sufficient staff only to investigate properly the affairs of 2·7 per cent. of companies and under 1 per cent. of wealthy individuals. I am talking about detailed investigations. So-called savings in Inland Revenue staff will make the position worse.
    The second fact is that 1,000 extra social security staff are to be employed to look into alleged social security fraud. I gather that, at most, £50 million is involved. How do the Government justify a system of priorities in which a great deal of attention is given by investigators to some wretched woman, probably living on the edge of poverty, who may be cohabiting with a man, and less attention is given to those in the wealth bracket affected by capital gains tax and substantial estate duty? Is it the Government's policy to employ snoopers to spy on the less-well-off and to reduce the qualified Inland Revenue staff who deal with the affairs of the rich? That is an odious state of affairs.
    As a constituency Member of Parliament doing a run of the mill job, I beg leave to doubt whether there is anything like £50 million of fraud involved. I have an excellent relationship with the social security office at Bathgate. My day-to-day experience is that the office is extremely careful. The manager and her colleagues are meticulous in the work that they do on any case in which I am involved. I do not believe that there is anything like the extensive fraud that is claimed.

    1743
    I admit that, possibly, the position is more difficult for social security offices in great urban areas. But I suspect that the efficiency of the social security offices is very considerable indeed. I take this opportunity to praise the Bathgate office, which I know best. I take this opportunity also to praise the tax office, Central 1, East Kilbride, partly because it receives a great deal of adverse criticism and partly because, in the many dealings that I have had with it day by day and week by week, I have found its staff nothing but scrupulous and careful. I very much doubt whether, in ordinary tax cases, there is anything like the avoidance that is claimed.
    The purpose of my speech is to elucidate the facts. In yesterday's Budget debate, the Chancellor said:
    "The numbers employed in the Revenue departments had grown from 87,000 in 1970 to 113,000 when we took office. At that rate, by the year 2000 there would be 175,000 tax collectors, which is more than there are soldiers in the Army.
    That process of expansion is now being reversed. In 12 months' time the staff of the Revenue departments will be over 10,000 fewer than when we took office—a reduction of about 8½ per cent."
    I do not think that the Chancellor should have put forward that projection. We all know that there is no question of there being 175,000 tax collectors. No one in the House, least of all the Chancellor, does his case any good by exaggerating in that manner.
    The Chancellor then said:
    "The tax measures that I am proposing this year will in themselves enable me to make eventual net savings of 1,700 staff in my departments." [Official Report, 26 March 1980; Vol. 981, c. 1455.]
    A statement has come from the Civil Service unions to the effect that they are trying to persuade the Government to recruit more tax inspectors rather than employ 1,000 extra staff to stamp out social security fraud. The five Civil Service unions involved claim that while frauds are costing £50 million a year, the cost of evasion of tax and VAT is between £5,000 million and £11,000 million a year.
    Mr. Gerry Gilman, the general secretary of the Society of Civil and Public Servants, said in a recent article in The Times:
    "It may be that the Government is paying its political debts, but I think what it is doing is morally reprehensible."
    1744
    The article continued:
    "The unions believe that the employment of an extra 1,000 income tax inspectors and 1,000 VAT inspectors would yield at least £500 million."
    Is Mr. Gilman right, or is he wrong? I shall quote Mr. Anthony Christopher from the same article. I checked the matter personally with him yesterday. He said:
    "Between £1,000m and £3,000m of tax is not collected each year. The lower figure is precisely the figure that Mrs. Thatcher is trying to recover from the EEC."
    The article continues:
    "If that money could be collected it would be sufficient to allow for a cut of 5p in the pound in the basic rate of income tax."
    The Government claim that the extra resources that they are devoting will save £50 million, only a small proportion of which is attributable to fraud. That figure is tiny in comparison with the total benefits paid each year, and dwarfed by the amounts lost through the so-called black economy.
    A recent Inland Revenue prosecution involved a self-styled accountant who used stolen documents to swindle the tax man out of more than £373,000. It is interesting to note that in that case when passing sentence the judge said that the Revenue was losing millions of pounds a year from that type of offence. That is a statement not by me but by a judge in a court of law when passing sentence. Is the judge right or wrong?
    The Inland Revenue Staff Association, in a recent pamphlet, states:
    "It is officially estimated that between £5,000 million and £11,000 million each year escapes taxation through the 'Black Economy' —tax evasion, moonlighting, unrecorded dealings and other activities.
    This 'Black Economy' is a growth industry, one of the few success stories of British business. But what it really comes down to is fiddling the tax man at the expense of the honest taxpayer.
    And it costs the country up to £3,000 million a year in income tax—every year. It means that at least £750 million of VAT revenue is lost each year. Had this revenue been collected, the recent cuts in public services would not have been necessary."
    As what I am saying can be questioned, I should add that I am aware of the answer which was given in the other place by the Minister of State, Treasury, Lord Cockfield, on another aspect. That concerned the sheer delay in collecting tax in its more complicated forms. Can

    1745
    the Financial Secretary get any kind of statement tonight from the Minister of State, who will be winding up the debate, with regard to the question of delay? I should like to read into the Official Report what Lord Cockfield said:
    "Some £1,600 million of assessed income tax (that is, excluding PAYE tax deducted and payable by employers to the Inland Revenue) was outstanding at 7th March 1980. This included some £1,050 million"—
    These figures are mind-boggling, when one compares the £1,050 million with the wretched £50 million for which the less well-off will be snooped around. Yet they are the comparison with which we now have to deal. The answer continued:
    "for which collection has been postponed pending agreement of the liability. The amount of PAYE tax outstanding from employers is not known precisely, but in the case of those employers whose monthly payments of tax and national insurance contributions normally exceed £2.000 it is estimated to have been in the region of £200 million at 26th February. I regret that it is not possible to make any reliable estimate of the tax which will ultimately be irrecoverable".—[Official Report, House of Lords, 24 March 1980; Vol. 407, c. 600–601.]
    Are those arrears as serious as is made out? If so, how will the position be improved by cutting the number of qualified tax officials, which the Chancellor announced to the delight of his own Back Benchers in his Budget yesterday? Will the Government employ more people to reduce the huge, criminal, loss of tax evasion? The answer is that they will not. They are cutting substantially the number of staff working for the Inland Revenue. Despite the rise in VAT to 15 per cent. which, incidentally, is bound to increase attempts at VAT evasion, they are even cutting staff in Customs and Excise. More money spent on ensuring that all income is assessed for tax and that all tax is collected would yield many times the amount spent in revenue collected.
    For example, the Inland Revenue employs 300 specialist staff who are dedicated to cutting back on tax evasion. I understand that in 1978 those officers recovered about £70 million in tax, at a cost of only one-fiftieth of that amount. I am told that a VAT inspector detects at least two discrepancies in every five visits, recouping his salary dozens of times over. Any comment on the effectiveness of the VAT inspectors would be welcomed.
    1746
    The 1,505 extra fraud staff who are being employed in DHSS are expected to save only £50 million, and the emphasis is on the word "expected". Yet a similar number of staff employed in both Inland Revenue and Customs and Excise could recoup tax from fraud and evasion worth over £500 million—10 times as much. Are my statements right or wrong? Extra DHSS staff employed in visiting claimants would help to ensure that people receive their proper benefits. But that staff has been cut by thousands in the last few years. Did my right hon. Friend the Member for Llanelli (Mr. Davies) want to intervene? I shall gladly give way.
    Mr. Denzil Davies: No, I was just muttering.
    Mr. Dalyell: I hope that my right hon. Friend was muttering agreement, because he is a tax lawyer.
    Mr. Davies: I assure my hon. Friend that I was muttering agreement.
    Mr. Dalyell: To illustrate the kind of case with which one has to deal, I should like to point out that a Warwickshire business man was gaoled last year for a £40,000 VAT fraud. For two years he had been claiming tax repayments on goods which he had falsely claimed to have purchased and exported. By thus hijacking public funds he managed to support a standard of living which can only be described as well above average.
    The difficulty arises when we look at the Government's attitude. In a written answer, the Minister for Social Security said:
    "Efforts to control fraud and abuse have have been inadequate for several years. Excellent work has been done by the staff working on these problems, but their numbers are insufficient.
    That is the Financial Secretary's own colleague. He added:
    "The main problems are people who work but purport to be unemployed, people who avoid taking work or mis-state their assets, income or family circumstances".
    At the end of his answer he said:
    "There will be an extra 170 liable relative officers and a further 270 fraud specialists. Special arrangements have been made to monitor the results of this extra effort".—[Official Report, 13 February 1980; Vol. 978, c. 710–11.]
    I suggest that that extra effort is put in, entirely the wrong place. People who work for the Inland Revenue and Customs:

    1747
    and Excise are anxious to ensure that staffing levels are adequate for the job, because the honest taxpayer has an interest in fighting the black economy. We should take far more of an interest in fighting the black economy than in fighting petty fraud. Tax fiddling—again, this is an Inland Revenue Staff Association assessment—costs as much as £3,750 million a year. That is about £75 a year for every man, woman and child, or £6 a week for an average family. Therefore, when one complains about the stoppages from one's pay packet, it should be remembered that if everyone paid his fair share of tax, one could be much better off.
    Honest traders suffer by having to compete against those traders who either ignore VAT and so charge lower prices or charge VAT to the customer and pocket it instead of passing it on. In the face of such subsidised competition, the pressure on an honest trader to defraud must be immense, and we know that that happens. Indeed, fraud by two groups of related companies led to £265,000 of profits missing the Inland Revenue's scrutiny. After court proceedings to recoup unpaid tax and interest owed on it, almost £250,000 was recovered.
    Those figures must be compared with the problem of the people about whom my hon. Friends and Members for Liverpool, Walton (Mr. Heffer) and Heeley referred.
    Mr. William Waldegrave: I sympathise greatly with the case that the hon. Gentleman is making. However, in order to right the balance, perhaps I should add that this does not relate only to companies or large organisations which may defraud the tax man. Every citizen who pays a plumber in cash is probably adding to the problem of the black economy. This is not just a problem of distant organisations. It is a problem which all of us face from time to time.
    Mr. Dalyell: I accept that. Of course, as people begin to realise that the big fish in the pool are not being dealt with, there is a natural human reaction among smaller fry to ask "If the big fish get away with this, why should we be honest, as we have been in the past?" I believe
    1748
    that is very serious for the fabric of society.
    The self-employed and directors of private companies need more attention from the Inland Revenue to ensure that they pay the right amount of tax. To assess them properly for tax requires much checking of payments, receipts and so on. Any cutback in Inland Revenue numbers inevitably means less checking of tax bills of the self-employed, who have a greater opportunity to avoid paying their fair share, while those who work for an employer continue paying their tax under PAYE.
    I shall cut my speech short because I know that others of my hon. Friends wish to speak. I could go on, but I hope that I have made my case. I should like to say one further thing. A report in The Guardian, under the byline of Tom Tickell, states:
    "A confidential document has gone out to district tax inspectors telling them that they will get less information about bank savings and sales of property…The document, which was sent out last week, says tax inspectors will get no details about interest paid on bank deposit accounts if it comes to less than £150 a year.
    This figure is six times higher than the previous £25 limit. There have been changes on the same scale covering National Savings Bank returns and interest elsewhere. Details of property sales will only reach the taxman if they are worth 00.000 or more. Until now the limit has been £12,000.
    The new limits are part of the Inland Revenue's attempt to cut staff in line with Government orders. More than 2,000 people are to leave over the next two years as a result of changes in administration.
    About a quarter of those jobs will disappear in the office which produces detailed information for tax inspectors.
    Between £1,000 million and £2,000 million of tax are lost through tax evasion each year—and the figure is arising.
    Changes were made in the checking system two or three years ago. Instead of a detailed look at every account, tax inspectors now concentrate on 4 or 5 per cent. each year, particularly among the self-employed.
    They have power to demand accounts of all payments made in the past seven years. Where they suspect that there has been fraud or wilful neglect their inquiries can go back before the war. The Inland Revenue claims it gets extra payments in most cases.
    There have been other schemes for cutting down tax frauds. One of them, the Leeds Experiment, involving cooperation in individual cases between tax inspectors and Customs and Excise staff who handle VAT."

    1749
    It is very unwise to stop that type of experiment. The article continues:
    "The Inland Revenue wanted to extend it across the country, but plans have been postponed."
    Have they been postponed? If so, why? The Minister of State told the House in January that no decision would be taken until an official committee, looking into the powers of those two bodies, had reported. Has that official committee reported? The article continues:
    "Commenting on the decision to cut information, Mr. Tony Christopher, general secretary of the Inland Revenue staff association, said last night:
    Far from reducing the Inland Revenue's resources, we should be redeploying them to cut tax fiddling. The fuss over Britain's contribution to Europe on the size of the public sector borrowing requirement would subside if we even collected half the tax which people should pay—but we don't'."
    The Minister of State, Treasury will remember that some of us listened to his speech with interest the other night when he discussed the question of the European budget. Those of us who have had dealings with Mr. Christopher know that he is a highly responsible man. Is he right or wrong? We are dealing not with trivial amounts but with vast sums. The story goes on:
    "A London tax inspector commented: 'This decision will cut out information on which we rely to bring half our present cases. These details are known as "can openers" in the trade—because one lie usually implies others.
    If we know that someone has bought a house for £20,000 when he claims he has no money, there's obviously something to investigate.
    Big properties are not where people give themselves away. "Some cash traders can put £1,000 of undeclared profits into a whole series of banks without us knowing. He can use the interest from all of them to buy a small property without us knowing. And he can lease it out without us knowing. Finally, he can sell it again—for £50,000—without us knowing. It's a tax fraud charter'."
    One could go on for a long time. I do not mind whether the Minister answers my question on Monday or Tuesday. I shall attend the debates and I shall listen.
    I hope that the Minister will give serious scrutiny to the case that I have deployed. If the Inland Revenue staff federation is talking through its hat, and if other inspectors are wrong, let that be proved on the Floor of the House. Let Ministers say that words of the hon. Member for West Lothian are all factual
    1750
    nonsense. If, by chance, my remarks are not factual nonsense and if my case is close to the truth, this will prove a serious issue.
    The Government should stop trying to get social security inspectors to harass people who already have endless problems. Every Member of Parliament knows that such people live on the margins of poverty. The Government should concentrate their minds and their expert resources on the type of people that I have been talking about. The sooner they do so, the healthier it will be for the British economy.
    8.5 pm
    Mr. Nick Budgen: I agreed with the remarks of the hon. Member for West Lothian (Mr. Dalyell) to a limited extent when he referred to the frauds perpetrated on the tax system. No Conservative Member would wish to support such frauds. We are aware that any fraud leads to an increased tax burden for the rest of our fellow citizens—and ourselves—who pay their taxes honestly.
    My right hon. Friend the Chief Secretary to the Treasury said that the Government's principal aim was to reduce the rate of inflation. Perhaps he would say that they want to kill it. He said that it would be impossible to do so by means of a cavalry charge. I assume that inflation is to be slowly ground down at a long slow trot over a period of about four years. But I believe that a cavalry charge would engage the interest and support of the public. Indeed, it might do so more effectively than a long slow trot. The danger in the Government's Budget is that they may have placed too much, emphasis on the medium and long-term, and too little on what the Budget can achieve. It is easy to say that the money supply will be controlled in two, three or four years. It is easy to find reasons for not controlling it this year.
    I am a staunch supporter of the Government's general strategy. I have consistently urged them to publish medium-term forecasts for the PSBR and the money supply. However, excellent though the publicity given to those forecasts is they are no substitute for action today. I note that just as the Red Book says that there can be changes in the tax take, and unexpected changes in commodity prices, so there can be unexpected changes

    1751
    in political actions. To sustain declining public sector borrowing., requirements, declining monetary targets over four years will need a great deal of political will. I am a supporter of the present Government, I believe that the main thrust of all economic activity should be devoted towards reducing the rate of inflation. The more one hears Members such as the hon. Member for Liverpool, Walton (Mr. Heffer), the more one knows that there are many who regard unemployment as at least as great, and arguably a greater evil than inflation.
    That view is not found only on the Labour Benches. Understandably and rightly, it is felt to a lesser extent throughout the country and on the Government Benches by some of my hon. Friends. We shall have to sustain popular support for an unpopular fight over about four years. I sincerely hope that it will be possible to do so, but I should like to see a bit more activity this year.
    It is easy to approve of a reduction in the money supply in 1983. However, if that request had to take immediate effect, strong and specific reasons would be put forward why it was not convenient to pay that price at that time.
    I do not wish to be over-critical, but I invite the House to consider what has happened to the money supply recently. We have had a slight re-jigging of monetary targets. At paragraph 6 on pages 20 and 21 the Red Book says that in the period up to mid-February of this year the money supply as measured by sterling M3 was growing at 12·1 per cent. However, that did not stop the Government from putting a further £1½ billion of liquid funds into the monetary system, at a time when it is generally agreed that, because of the effect of the corset, the figure of sterling M3 underestimates the amount of money in the system. Without the distorting effect of the corset the money supply figures would probably have run at 14 or 15 per cent.
    We were told at the time that the £1½ billion was put into the system that it was not appropriate to allow interest rates to rise before the Budget. No further explanation was offered. I do not know why it was not appropriate to allow interest rates to rise, but they did not rise. To concentrate on the next two, three or four years is not an adequate substitute for introducing immediately the
    1752
    harsh measures necessary to bring back sound money into our financial affairs.
    The Financial Secretary to the Treasury (Mr. Nigel Lawson): I always listen to my hon. Friend with a great deal of interest, but he is not quite right. We at no time said that the arrangements in the money market were made to avoid interest rates going up before the Budget. We were dealing with a situation of technical tightness produced by a combination of the tax collecting season and heavy sales of gilt-edged securities.
    The money supply over the first four months from June had gone up by 14 per cent., as opposed to by sterling M3, with a little bit extra for disintermediation. The rate for the succeeding four months has come out at about 10 per cent. without any significant disintermediation. There has been a marked deceleration in the money supply.
    Mr. Budgen: I hope that when the money supply figures come out they will prove me wrong. I cannot immediately turn to the passage in the Official Report where my hon. Friend produced that technical argument, which I concede he did. However, I remember when the question of the increase in the money supply was first put by the right hon. Member for Leeds, East (Mr. Healey) to my right hon. and learned Friend the Chancellor of the Exchequer. My right hon. and learned Friend said that one reason for putting extra funds into the market was that it was not appropriate to allow interest rates to rise before the Budget. There may have been a number of reasons, but that was one.
    The money supply figures will come out, and I hope that I am wrong in saying that the money supply was technically increased. The way that the Chancellor has rolled forward the target, as set out at column 1444 of the Official Report, has increased the target by about 2 per cent. My simple proposition is that it is extremely easy to propose to do something in two or three years' time but often difficult when the time comes for it to be done.
    Mr. Denzil Davies: Does the hon. Gentleman agree that if his hon. Friend is right—that this release of money to the banking sector, especially the £500 million in relation to gilts, was merely a tech-

    1753
    nical operation—the Government will call back that money quickly?
    Mr. Budgen: I expect so, but in time all will be revealed. We shall find out who is right. It is not reassuring to see that the target has been rolled forward, as the Chancellor says.
    I continue the same argument. I wish that the public sector borrowing requirement this year had been a good deal smaller. I do not wish to baulk the issue. It would lead to disagreeable measures. It should have been possible to introduce Health Service charges for visiting a doctor. The Government could have introduced "hotel charges", as they have been called, for people in hospital, with proper mitigation if the patient could not afford those charges. There is a strong case for indexation of the specific duties on petrol, cigarettes and drink. I regret that a preoccupation with the retail price index has probably dissuaded the Government from increasing those taxes.
    Mr. Nicholas Winterton: Does my hon. Friend agree that the precedent has been set for a food charge for people in hospital? Retired people, who are a deserving sector of the community, have a sum deducted from their pensions to take account of the benefit that they receive from being in hospital.
    Mr. Budgen: A precedent has also been set in prescription charges. There is no great difference between charging for medicine and charging to see a doctor. I see no difficulty there, and I wish that the Government had been slightly more aggressive.
    Substantial sums could also have been saved by increasing rents in the local authority sector. I accept that that would be unpopular. I note that in 1979–80 the Government subsidy was running at about £1½ billion a year. I should have thought that some increase in rents was probably necessary in order to encourage sales to sitting tenants. However, the Government have decided not to do that. I understand the arguments against those specific proposals, but none the less I regret them.
    I regret particularly that the sale of public assets seems to have stopped. I concede that the sale of public assets should not be described as a reduction in
    1754
    the public sector borrowing requirement. It is a means of attracting money into the public purse by other means.
    It is said that we are laying up for our children and our grandchildren a vast burden by selling gilts on a 15 per cent. coupon on which the interest has to be paid for many years, and that any change in the conditions upon which that money is funded is likely to lead to difficulties in the gilt market. In that case, why do we not sell other forms of paper? That would be a way of overcoming a temporary funding problem. I am sorry that the right hon. Member for Down, South (Mr. Powell) has left the Chamber. He would be in favour of selling some of our gold reserves. Other people would be in favour of selling more shares in BNOC. The principle is the same.
    Mr. Waldegrave: Will my hon. Friend urge the Minister—who I suspect is sympathetic—to reconsider the idea of selling floating rate Government stocks?
    Mr. Budgen: That might be a possibility. I do not pretend to know what forms of stock are attractive to the gilt market, and it is not necessary for me to inquire into the details of that. However, if it can readily be seen that those who hold gilts have been buying stock which gives them a 15 per cent. return into the next century, some method must be found that reduces the attraciveness of those gilts. There may be a hiccup in the market, but we must find a way to reduce the attractiveness. Perhaps my hon. Friend the Member for Bristol, West (Mr. Waldegrave) has a good idea.
    Mr. John Browne: The unattractiveness of the floating rate gilt is that major institutions, which are the main buyers of gilts, already have bank loans that float, and many institutions have fixed obligations on the other side.
    Mr. Budgen: That may be an argument against the suggestion of my hon. Friend the Member for Bristol, West, but I am not competent to decide.
    I regret that the Government have not carried out their promised reform of capital taxation. They are sincere in their desire to encourage wider share ownership, and I approve of their proposals for making share ownership easier and

    1755
    more attractive to employees, but surely we want people to find it easier to buy and hold shares so that they take a real interest in the companies in which they have invested their money.
    We now have a well-housed nation and a nation in which housing has become a major investment for most of our citizens. However, there has been a major decline in the share of wealth employed by individuals and invested in equity shares. The two principal disincentives for share ownership are the investment income surcharge and capital gains tax. Until the Government change those taxes there will never be a vibrant share market in which private individuals invest directly. A market in shares that is dominated by the institutions is bad for the country. I take a different view about speculation from that taken by Labour Members. I believe that speculation based upon differences of view stabilises the market and helps it through the recurrent crises that are an inevitable part of the way in which our economy is managed by politicians.
    The investment income surcharge should be abolished so that people do not suffer a disincentive when they invest directly in shares. It is wrong to distort the market in shares in favour of any one class—whether directors, employees, or any single group. This major indiscriminate disincentive should be abolished.
    I agree with the Chancellor of the Exchequer in wishing to see the disaggregation of vast conglomerate companies which, because of their profitability in one sector of the economy, are able to gobble up other successful companies. One of the reasons is that when a company makes vast profits and finds itself sitting upon a cash mountain, it is difficult for that company to disgorge the profits. It is to the disadvantage of the company, and to the disadvantage of the shareholders, because in the hands of the shareholders the disgorged capital is either eaten away by income tax—if it results in the form of an income payment—or, if it is disgorged by way of capital note—as occurred with GEC some years ago—the funds paid out under the capital note may be subject to capital gains tax.
    1756
    I hope that in the next Budget we shall move towards the abolition of capital gains tax. That must be done in the next Budget, because I believe that the political will to make such a major reform will be impossible as we approach the next general election.
    8.29 pm
    Mr. David Winnick: Let me offer some hope to the hon. Member for Wolverhampton, South-West (Mr. Budgen). The way the Government are going it is likely that the charges that he would like to see will be introduced. In the meantime, perhaps the Labour movement will ensure that greater publicity is given to the hon. Member's remarks so that we can explain to people throughout the country what he and other Conservative Members would like to do.
    The Budget is a recipe for a substantial increase in unemployment. Undoubtedly one of the most beneficial gains in Britain during the post-war years was the elimination of the kind of unemployment that was suffered by so many people before the war. The misery and all that went with large-scale unemployment was virtually eliminated in post-war Britain. Now, once again, in the 1980s we see people rotting in the dole queues and the Government admitting that unemployment will get worse.
    It is easy to talk about unemployment. The House should remember what it means in human terms. We should bear in mind how it feels to leave school and not find a job. That is happening to many young people in many parts of Britain today. They have a feeling that they are not wanted. It is not very pleasant to spend the first few years of one's working life on the dole, unable to find a job.
    At the other end of the spectrum there are men in their forties or early fifties who have been made redundant and who cannot find another job. Many of them know that they are not likely to find any further employment before their normal retirement. They will spend those years in a vain search for employment. I had hoped that we had seen an end to that type of misery and humiliation.
    The Government do not say that they must do whatever they can to eliminate unemployment. Instead they say that it

    1757
    will increase. Both the Prime Minister and the Chancellor of the Exchequer have said so. For the first time since the 1930s the Government say that unemployment is inevitable and acceptable—that is what it means in ordinary terms. The position is made worse by the fact that the Government intend to phase out and then abolish the earnings-related unemployment benefit. In other words, they intend to punish those who are made jobless. They want to make the position even worse. This offence of undermining the position of the unemployed by taking away the earnings-related unemployment benefit is something that millions of people will never forget or forgive.
    The fact that we shall have hardly any growth during the next few years is also a matter for concern. That is why I have described the Budget as a recipe for a substantial increase in unemployment. There is despair in many parts of Britain about the position in the various regions, and the trade union movement will fight as hard as possible against a return to the conditions of the 1930s.
    I declare an interest in that I am, and have been for many years, an active trade unionist and I am proud of that fact. Conservative Members have complained about the TUC's call for a "day of action" on 14 May. Conservatives should be very careful unless they provoke the trade union movement and the organised working class of this country into a general strike.
    The withdrawal of a good part of the social security benefit for families of those on strike will be rightly seen as a continuing campaign of hostility against the trade union movement. The Tories have said on so many occasions—both from the Front and Back Benches—that they are not against the unions. However, it is interesting to see that time and time again when they are in office they bring forward every measure possible against the trade union movement.
    Those who go on strike, officially or unofficially, know that at present no benefit is paid to the striker himself. A sum of f15 is deducted Now another £12 will be taken away, and the families of strikers will be virtually starved. I suppose that Conservative Members will say "They should not go on strike in the
    1758
    first place", but this is a free country; and it is interesting to note how selective the Conservative Party is about ballots. As long as we remain a democracy, working people have a fundamental right to withdraw their labour, but it is clear that the Government intend to cause as much difficulty and hardship to those who exercise that right, and the hardship will be directed at the families. It has been said that if someone is convicted of an offence and goes to prison, his family, in many cases, is supported. But, apparently, that policy will not be exercised on behalf of the families of those who withdraw their labour.
    I turn now to imports. I believe that the hon. Member for Plymouth, Sutton (Mr. Clark) was on the right lines. It is necessary to control excessive imports into the United Kingdom. Let me briefly outline the position as it was last year. Imports of manufactured goods rose 10 times as fast as exports. The export of machinery of all kinds fell by 1 per cent. while imports rose by 20 per cent.
    Mr. John Browne: Are not many of the imports at the moment coming in because of lack of availability in this country? Therefore, if we increase import controls, the rate of inflation will be increased because there will be shortages.
    Mr. Winnick: I am familiar with that argument, and other arguments have been used and were quoted by the hon. Member for Sutton. Regardless of the problems, I am not suggesting that this is a panacea for all our economic ills. It would be foolish to think that. But if we are to give effective protection to our manufacturing industry, import controls are necessary on a far wider scale than at present.
    In my part of the West Midlands we have faced many problems following redundancies and closures. Like so many in the region, I take the view that import controls should be on a wider scale. The difficulty of imposing import controls late in the day was illustrated by what happened in the textile industry. Controls can be brought in too late and at a time when they possibly will not do much good because the industry has reached such a state of decline. I hope that that will not happen in the manufacturing industries generally and certainly not in the engineering industry.

    1759
    To export has been made more difficult by a very unrealistic exchange rate. The present exchange rate is causing tremendous difficulty in manufacturing industries and I think that that is recognised throughout the House.
    I want to deal with one matter that was announced by the Secretary of State for Social Services earlier today. I have been involved in trying to ensure that people on low incomes receive assistance with paying their fuel bills. I brought in a Ten-Minute Bill, which was not opposed. It seems to me to be right and proper that people on low incomes should receive some assistance in view of the substantial increase in fuel prices. The price of electricity has increased very substantially, and the price of gas is to be increased by 30 per cent.
    I was disappointed in the measures announced by the Secretary of State earlier today. Undoubtedly they will help those on supplementary benefit. Those who receive social security will receive greater assistance. That is right, and I accept it. But not a penny will go to any pensioner or anyone on a low income who is not receiving supplementary benefit or family income supplement.
    I received quite a few letters arising from my Ten-Minute Bill. Pensioners wrote to me to explain the problems that they face in trying to keep their homes warm. Many of those pensioners will not receive any help because they are not receiving supplementary benefit. This may not be the most appropriate occasion on which to repeat my argument that it is necessary to introduce a national fuel rebate system so that those who are on low incomes, but not necessarily on social security, are able to receive some help in paying their fuel bills. If such a system is right for rate and rent rebates, why should we not have the same system for fuel bills?
    The Budget comes as no surprise after all the leaks. No doubt Conservative Members who take a more liberal position on social policy, unlike the hon. Member for Wolverhampton, South-West, will be somewhat disappointed. We shall see how far they are willing to register their disappointment when it comes to a vote on child benefit. We shall see whether they are willing to be as strong over their principles as some of my hon
    1760
    Friends and myself when the Labour Party has been in office. Labour Members have been willing to abstain or to vote against Labour Governments.
    The Budget will be a tremendous disappointment for millions throughout the country. It will signal more unemployment, more misery and more poverty. It is a Budget that should be totally unacceptable to the House. One hopes that there could be a majority to reject it on Tuesday night.
    8.42 pm
    Mr. John:Browne: I believe that history will record this Budget as a Budget of opportunity. I hope sincerely that the House and the country will recognise it as such before it is too late.
    This Budget of opportunity has three basic characteristics: it is enlightened, realistic and well balanced. It is enlightened because it spells out a medium-term financial strategy rather than the short-term expediency plans that we have had in the recent past, most of them clouded in mystery. At long last, business men will be able to plan within a national strategy. This will surely he welcome as a new luxury.
    Secondly, the Budget takes an enlightened view and action on the difficult task of rejuvenation of our inner cities. That plan will be examined with great interest by other Governments in other industrialised countries.
    Thirdly, the Budget will take enlightened action towards new and small businesses, the one certain source of new products, new profits, new profitable jobs and a real increase in the standard of living for us all as a nation.
    The Budget is realistic, first, because it accepts the realism and the awesome impact of the present world recession—a world in which Britain now has, regrettably, a relatively small influence but in which, if we are successful, we could regain great influence.
    Secondly, the Budget is realistic because it faces the paralysing effect on our economy of 20 or 30 years of Socialist policies—policies in which arrogance has reigned supreme. That is the arrogance that says that the State knows better than the public what is good for us, what

    1761
    products we should produce, how and where we should work and at what price we should buy and sell. That arrogance has killed the incentive to work, to sell or to take risks. It has left us with an under-motivated, over-employed and outdated industrial economy—and that in an age of technology.
    The Budget accepts these sad facts and the low growth that we can expect over the next year or so. It is realistic in that it accepts that a policy of reality, of restoring sanity, profitability and sound money, will expose much employment. Labour and Liberal Members may not like to accept it, but monetarism in itself does not create unemployment. It exposes rather than creates; it exposes over-manning; it exposes unprofitable companies, industries and jobs; it exposes latent unemployment—unemployment which is already in the system but which has been kept from public view by Government subsidies, financed by high taxation and Government borrowing—in short, employment subsidies subsidised by inflation.
    Unemployment is a massive world problem. In reality, we shall certainly have our own fair share of it. However, the Budget faces the facts realistically by its balance and its concentration of social benefits upon the truly needy. The balance of the Budget is shown by the fact that, first, it accepts time lags. The contraction of the money supply under the Budget is gradual. It is much more gradual than many people would wish it to be. However, it faces the recessive effects of past cuts in planned spending. It faces the fact of a world recession of major proportions. Therefore, it will avoid a depression in place of a recession, and it will avoid industrial anarchy in place of industrial tension.
    Secondly, the Budget exposes more latent unemployment, regrettably, to add to that which we already have. I therefore welcome the boost to new and small businesses and to city centres. It will create not just jobs but more profitable jobs and so help to balance the side effects of reverting to sound money.
    Thirdly, the Budget appears to accept that the Government must help the genuinely unemployed in the agonising national transition from outdated indus-
    1762
    try to developed technology, from unreal to real jobs. Therefore, although some of the £20 billion spent on social services had to be cut, I am pleased that the net effect of the cuts and increases will be the establishment of a new safety net for the needy—a net increase of approximately 4 per cent. for the needy and their families. To me, that is balanced, humane and fair.
    Finally, I believe that the Chancellor struck an excellent balance in his policy towards taxes. Remembering that our main aim is to kill inflation and that people's expectations are absolutely key in the inflation equation, it is vital not to boost the retail price index. Therefore, although many of us expected, and indeed would have willingly accepted, greater increases in customs duties, I was glad not to see them. I was also glad that VAT was not increased. But we must remember that the price of holding down any increases will be a reduction of further Government spending.
    This was a long Budget. Therefore, in consideration of others who wish to speak, I shall comment briefly on specific points from now on. I welcome the provision for defence and law and order as a necessary insurance. I should have preferred more provision. However, I realise that we cannot—and that, worse still, as a nation we will not—afford it.
    The corset—here I declare an interest as a banker—was not working effectively, especially after the lifting of exchange controls. It certainly lost credibility after the Government intervention with the purchase and sale of gilts, which my hon. Friend the Financial Secretary referred to as a certain "technical tightness". Therefore, I welcome the abolition of this item, which at best discriminated against British banks in a very competitive international market.
    I refer now to the cuts in bureaucracy. I was impressed that the Chancellor concentrated not just upon reducing the numbers of Government employees but upon the simplification and streamlining of bureaucracy. However, much more must be done to cut numbers and to sell off Government office space. Only when I see the "For sale" boards outside Government offices will I believe that the Government's policies have been effective in this respect.

    1763
    On the subject of strike pay, I welcome the reduction in the present Government-taxpayers' subsidy to strikers as regards their family responsibilities. However, at a time of deep recession, high inflation and high taxation, is it really morally justifiable for men or women who withdraw their labour voluntarily to expect their fellow countrymen to subsidise them with their sweat? I believe that the unions should pay the whole sum, as they did before 1964, and that unionists should face this responsibility, as all the rest of us have to face it.
    Mr. Winnick: The hon. Gentleman began by saying that he was a banker. Now he is telling us how right it is that strikers' families should be penalised. Is it not a fact that in the banking world it took years and years before the unions received any recognition at all from the employers? The hostility of bankers generally to trade unionism is well known and established.
    Mr. Browne: I was not trying to say that it was right for the Government to hurt the families of strikers. All I am trying to say is that the responsibility is on the people who withdraw their labour. It is voluntary unemployment, not unemployment that has been induced by the collapse of an industry or a company. That is the crucial point.
    Mr. Winnick: Answer the question.
    Mr. Browne: I cannot honestly remember the exact details of union recognition in the banks, so I really cannot answer that question. But I do not see that it has any real relevance to what I have just said.
    I have already mentioned the inner cities, but I must add that I welcome the restriction of tax reliefs to taxes on property, because I think that this will make it possible to avoid industrial piracy. I also believe that if the Government are successful in gaining the support of the local authorities, which are of key importance in this, in providing the basic infrastructure—roads, electricity and water—and also the support of the banks and others like them in lending to the entrepreneurs—in short, if this plan is accepted as an opportunity by these people—these areas will become microcosms of
    1764
    successful free enterprise and major creators of profitable employment.
    I believe that the Government's expenditure of £160 million on incentives for small business is long, long overdue and that this money is very well spent. Healthy new and small businesses are vital if we as a nation are to achieve a technological revolution such as is already being experienced in the United States, Germany, Japan and Switzerland. We must follow if we are to become a developed technological nation rather than, as we are rapidly becoming, an underdeveloped industrial nation.
    Therefore, I welcome the provisions that this Budget has made for small business. I was going to expand on these but, to be brief, I think basically that the most important one besides CTT and VAT is the "de-merging," as the Chancellor called it. I very much welcome this. If we can combine it with the Department of the Environment urging local authorities to be more liberal in the change of usage of farm buildings, it will have a major impact on restoring vitality to the rural areas.
    As I said, I welcome the Budget. However, I am very concerned at not seeing in the package for small businesses the removal of the discriminatory national insurance stamp for the self-employed. Here I must declare another interest as a small business as a self-employed man. I am also very concerned not to see some provision made for companies to repurchase their own shares in the form of Treasury stock, as is done in the United States, because I believe that this would be a further incentive for capital to be attracted into new and small businesses.
    In closing, may I say that I think this is an excellent Budget in the circumstances of today. However, as I tried to indicate in my question this afternoon to the Prime Minister, I do not believe that monetarism will work effectively unless there is a free market.
    In Britain today a free market does not exist. We have two giant cartels—the trade unions, particularly those operating a closed shop without secret ballots, which can demand, and public employers which can pay wages and prices out of all relation to the market place. That is certainly no free market. Between these two giant cartels, private business, particularly small business, is often squeezed out, and will

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    continue to be so despite the financial incentives contained in the Budget.
    I therefore beg my right hon. and learned Friend the Chancellor to impress upon his colleagues in the Treasury and the Cabinet the urgent need to make further real cuts in bureaucracy, to increase greatly the programme of denationalisation, if necessary by packaging profitable and unprofitable companies into conglomerates to make them more attractive to sell off to the private sector, and to restore true democracy to the trade unions for ordinary working men and women, particularly in respect of the closed shop and secret ballots.
    If this is achieved, I believe that his tory will record this Budget as one of great opportunity, a Budget that signalled the time when, at long last, the British nation had the good sense to wake up and had the wisdom to face reality and the courage to act upon it.
    8.56 pm
    Mr. Nicholas Winterton: I am pleased to follow my hon. Friend the Member for Winchester (Mr. Browne) and to join him in warmly welcoming the announcements made by my right hon. and learned Friend the Chancellor of the Exchequer on the encouragement that will be given to de-merging and on the incentives that are to be given to the small business. Beyond that, I hope that my hon. Friend will forgive me if I do not follow him in his well-thought-out and concise speech.
    I am sure that the lion. Member for Walsall, North (Mr. Winnick) will be interested to hear that I agree with his approach to import controls. Before long, I believe, the Government, even this Conservative Government, will be forced to go along that path.
    I am sure that my hon. and learned Friend the Minister of State will expect me to say that I consider this an excellent Budget and that I have no complaint of any kind about and nor do I cavil at its contents. I apologise to my right hon. and learned Friend for not being able to go that far, although I believe that the Budget has been well considered. It is a sober Budget that has been welcomed in the House and in the country. If the instant reaction that I have received from my constituents is anything to go by, the
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    overall content has been very gratefully received.
    The people who are in a position to provide investment believe that the Government have got their sums about right and that there is not just a flicker of flame but a glimmer of firm light at the end of the dark tunnel. Although we undoubtedly have two hard years ahead of us, the nettles have been grasped. The monetary supply is to be brought under control, but monetarism in the purist sense is not necessarily to have its way, for in many respects the Budget has gone off the total monetarist line. The supply of money must be reduced, public expenditure as a percentage of our GNP must be brought under control and the steps that the Government are taking will direct us down that solid if difficult path so that we shall achieve genuine prosperity before long.
    I particularly welcome the increased expenditure on law and order. In my constituency, which has suffered some of the most brutal murders in recent years, in Prestbury and elsewhere—and just outside my constituency there was the boarded barn murder—I am confident that the increased expenditure on law and order will be warmly welcomed.
    I also welcome increased expenditure on defence. Defence is the first priority of any Government, of whichever political party they are comprised. If a country is unable to guard against external aggression, what is the point of the most expensive social policies? We shall not be in a position to enjoy them. I also appreciate the 2 per cent. increase in health expenditure, announced in the Budget, over the immediate years ahead. My constituency has the benefit of a new hospital. Such facilities are urgently required in other areas of the country.
    I should like to refer to the concise and thoughtful contribution of my hon. Friend the Member for Lincoln (Mr. Carlisle), who gave a sincere message to the Secretary of State for Social Services indicating how many hon. Members on the Conservative side feel about child benefits and their importance in helping the family. Many of my hon. Friends believe that this is the most effective and positive way of helping the family. We hope that in future years, when prosperity improves, a greater increase will form part of the Budget package. The percentage increase

    1767
    that has been announced is helpful. I am happy that the increase has been announced, although I should like to see a greater amount. Within the funds available, the Government have done as much as they can, and I hope that my hon. Friends who feel even more strongly about this matter than I do will give the Government their support for the overall package that has been announced to help families.
    I should also like to refer briefly to the speech of my hon. Friend the Member for Plymouth, Sutton (Mr. Clark), who presented an excellent case for import controls. I take up the point made strongly by the hon. Member for Walsall, North. His speech was relevant, just as it was provoking. I find myself in considerable agreement with him. I share his view that the Government will have to take steps along this path before long if we are not to destroy the major part of our manufacturing base or, to use Treasury jargon, the supply side of our economy.
    For example, if the textile, paper and board industries are to be saved from virtual extinction, selective import controls are vital. I believe that we should encourage the workers at Leyland to continue to support the package announced by Michael Edwardes and give him and the company a real opportunity to put Leyland on a sound footing. This is vital for the future economy of the country. For a short period, even in the car industry, limited import controls, I believe, are vital.
    There were massive imports last year of greetings and Christmas cards from the Soviet Union. Together with other commodities in the paper and board sector, this huge amount of imports is putting good, moderate and responsible working people in this country out of a job. Bearing in mind Soviet aggression in Afghanistan and the serious nature of that invasion, we should take all possible action in the economic and trading spheres against the Soviet Union and other Eastern bloc countries that support its action. It is wrong that skilled and moderate workers who have served their companies and their industries well should be placed on the dole and made redundant as a result of what I can only describe as subsidised imports into this country.
    Since the beginning of the year an average of one textile mill a week has closed.
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    Woodrow Universal, in my constituency, has announced that it will close entirely. Having declared a few workers redundant a couple of months ago, the company now finds itself in an impossible position because of the level of unfair, subsidised competition from abroad. This means that 100 people in my constituency will be placed on the dole. That is very unfortunate.
    I have raised in recent weeks a number of matters with the Department of Trade. On behalf of the clothing and textile industry, the hon. Member for Bradford, North (Mr. Ford) and f wrote a strongly worded letter to the Secretary of State for Trade. He replied in due course and has been as helpful as he can. He says that low or falling demand for some products and the fact that the artificially high value of sterling has had the effect of encouraging imports and stemming our exports are the major reasons for the problems in the textile industry.
    Perhaps he is right and these matters go to the heart of the problem. Perhaps British industry is suffering from the effects not only of a world recession but of a sudden change of course in Government economic and monetary policies. The immediate result of those policies has been a high level of inflation, a squeeze on credit and a considerable reduction in consumer spending power. That, inevitably, has affected industry.
    I do not believe that we should allow our manufacturing base to be further eroded, particularly when the Secretary of State goes on to say in his letter that one of his duties is to maintain an open market for United Kingdom exports. But what is the point of maintaining an open market for United Kingdom exports and at the same time offering an open market to imports if many of the countries to which we are exporting exercise controls against us as and when necessary?
    I am grateful to the hon. Member for Gateshead, West (Mr. Horam) for allowing me time, but I shall take only one more minute.
    I welcome the measures on small businesses. I hope that I do not echo too many hackneyed phrases when I say that oak trees from little acorns grow. I respond to the speech made by the hon.

    1769
    Member for Sheffield, Heeley (Mr. Hooley) by saying that new ventures are vital if this country is to survive. Those ventures must make profits, because profits create further investment and further investment creates jobs.
    Surely at this time, with unemployment coming up to 1½ million, we must encourage profits so that there is investment, which in turn will afford many of those people who are, unfortunately, unemployed the prospect of gainful work in the future. Unlike the hon. Member for Walsall, North and the hon. Member for Liverpool, Walton (Mr. Heller), I welcome the announcement by the Government that when a man is on strike, it will be deemed that his union will pay the first £12 of benefit of that his family will receive that amount of benefit from some other source.
    That announcement has been warmly welcomed in my constituency, not just by non-unionists and employers, but by many trade unionists. I have seen some of those trade unionists today, and they believe that this measure will ensure that many more ballots are held before strike action is called for in future. I believe that the Government have acted in the best interests of the country.
    I warmly welcome the tremendous improvements in benefits for the elderly and the retired, and the increase in the mobility allowance. I welcome also the improvement made by the Government in the position of widows and widowers in the first year of bereavement.
    Though I welcome the increase in duty on cigarettes, wine, spirits, and to a limited extent on beer—I declare an interest as non-executive chairman of CAMRA (Real Ale) Investments Ltd.— I strongly oppose the increase in duty on hydrocarbon oil. I tell my party that I shall not vote with it in the Division Lobby on the increase in duty on hydrocarbon oils. That increase has a direct impact on inflation not only for the ordinary domestic consumer but for industry. Bearing in mind that oil prices have doubled in the last 12 months. I believe that the Government might have held fire for the moment, since they will get considerable income from oil in other ways.
    This has been a courageous Budget, and
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    I give the Government almost my full support. The Government have the support of the country, and I am sure that the Budget will cure the basic evils of inflation and the excessive public service borrowing, which has contributed to the inflation, that has dogged this country for far too long.
    9.10 pm
    Mr. John Horam: I was happy to give a little time to the hon. Member for Macclesfield (Mr. Winterton) because it enabled him to say that he would vote against the Government. That is the first sign of a move from the decorous revolts of the past to more serious action on the Finance Bill and other issues.
    The striking feature of the Chancellor's statement was the way in which the optimism vanished. Last year he said that he dared to hope that the people would respond to the opportunity that he was giving them. This year he said that there was no alternative to the grimmest picture that any Chancellor has presented in the post-war era. That was reflected in his tone. He made a limp and over-detailed speech. As my right hon. Friend the Leader of the Opposition said, there was no central theme.
    Budget Statements are never remembered for long. More than most Ministers, Chancellors of the Exchequer are judged by their deeds. Even Lloyd George, when he was introducing the first of his historic pre-First World War Budgets, bored the House. He spoke for four and a half hours. The present Chancellor spoke for only two hours. In the catalogue of easily forgettable speeches, yesterday's Budget Statement ranks high.
    On the surface the Chancellor was more cautious than he was last year. He gave a little here and a little there. A certain mean-minded balancing was the superficial tone of the Budget. Perhaps that indicated a greater influence by civil servants than was evident last year.
    At a deeper level the deflationary strategy was not only confirmed but strengthened. The huge gamble of monetarism was increased. That is mistaken in theory and damaging in practice. That policy is being pursued with a disregard for the poor, the disadvantaged and ordinary families. That is divisive and insensitive.

    1771
    Anyone who represents Gateshead does not find it easy at the best of times to forget the face of poverty. Poverty is being strengthened and deepened. That is the most alarming and worrying aspect of the Budget. I find it difficult to forgive the Government for that.
    There are alternatives, not only to the Government's economic strategy but to their social strategy. The Government are attempting to mislead the House and the public on the financial facts of Britain's position. I hope that the Minister will deal with the subject of revenues from the North Sea. We all read the occasional reports by Wood Mackenzie which forecast Government revenues from the North Sea. The latest indicates that the revenue would be about £15 billion by the mid-1980s. In 1983–84—the last year covered by the Red Book—the revenue from that source will be about £13 billion.
    My hon. Friends will recall that when we were in power we published a White Paper on the challenge of North Sea Oil and in it we said:
    "The Government has decided that the right course is to present an annual progress report giving details of the revenues received from North Sea oil in addition to the other sources of revenue and of the effect of their application to further the objectives of this White Paper."
    We spelt out the various alternative courses that it would be possible to pursue with that available cash asset.
    The Government have devoted merely one paragraph on page 18 of the Red Book to the whole subject of North Sea oil and the unique cash bounty that the Government and the country will receive. They have reneged on the undertakings that we gave, which they should fulfil as an obligation to us as parliamentarians. They should give the House full information about this money. The riddle is deeper than that. Wood Mackenzie predicts about £13 billion revenue from North Sea oil by 1984. If the £4 billion revenue this year is taken away from that figure, that leaves a net increase of £9 billion between now and then.
    In the sole paragraph that the Government have devoted to the subject, they say:
    "Between 1979–80 and 1983–84 the total government receipts are projected to rise by £5
    1772
    billion with the contribution from North Sea oil revenues accounting for about half of the increase."
    Adjusting slightly for the years, it appears to me that the £7 billion which will accrue to the Government is not accounted for as tax receipts. That can mean only that the Government will give the money away in tax reductions. If they were not giving it away as tax reductions, it would be included in that paragraph as an increase in revenue.
    If there is some other explanation for this huge amount of missing money, I would be interested to know what it is. I hope that the Government will enlighten us. Not only are they not giving the House proper information about the money, based on the best available estimates, but they are taking decisions already about the future disbursement of the money.
    As it is of utmost importance that we should be informed, and that the public through us should be informed, I wish for more information on that subject. It is crucial.
    In the previous Budget Statement, the Chancellor said that he was giving us an opportunity. In truth, the opportunity is his. We all know the nature of the problems that we face. We discussed them at great length in our economic and financial debates. We all wish to solve the problems. At the same time as these problems are reaching a critical stage, we have this unique asset arising from North Sea oil. The Government have an opportunity to use this money wisely to improve our social and economic position and to give the people hope that there is a strategy that will give them a glimmer of light at the end of the tunnel. They would then realise their creative energies so that the problems could be solved.
    The Government are not seizing that opportunity as they should. They are relegating the matter to one paragraph in the Red Book. That is a dereliction of their duty.
    I wish to deal with a subject with which I have long wished to deal but have never had the opportunity, namely, some of the basic assertions which spring from the Chief Secretary's mouth. I will make a deal with him: if he will cease to make such assertions, we shall cease to talk about punk monetarism. Perhaps he will feel that the deal is rather one-

    1773
    sided, but I would settle for his refusing to use one of two of his assertions.
    The first assertion contained in the White Paper of last November was that public expenditure was at the heart of our economic problems. That is not true. The size of the public sector in Britain is comparable with public sectors elsewhere. In West Germany and Austria in 1977 general expenditure as a percentage of GDP was about 44 per cent. It was about 44 per cent. in the United Kingdom. Ten years ago, the figures were roughly 38 per cent. in all three cases. The situation here is comparable with what it is elsewhere. The problem is not the size of our public sector; it is the inefficiency of our private sector. That is the issue.
    The second assertion is that at all times the solution to our inflationary problems has top priority. It may be more controversial to say that I do not believe that, and I may not always carry all my hon. Friends with me. However, I believe that any Government at any moment must pursue a balance of objectives. They cannot give total priority to one objective over all others. Indeed, the danger of giving priority to solving the problems of inflation is that it leads straight to the sort of deflation on the scale that we have today.
    If we want a better view of proper objectives in economic policy, it is right to maximise the growth in our annual GNP. That is a better objective than trying to deal with inflation per se, and it is also an objective which competitor nations have followed over the years more consistently than we have.
    The third assertion to which I object is that inflation is a matter of the money supply. If it were, by now we should have some positive statistical evidence that it was related to variations in the supply of money. There is no such positive statistical evidence. Indeed, as we know, inflation can be caused by other factors, one of which is Government action.
    Ignoring that common sense point of view sometimes leads members of the Government into the most odd positions. For example, the Secretary of State for Trade said only the other day that an increase in VAT had nothing to do with inflation. That attitude may be very pure. I do not know whether the right hon. Gen-
    1774
    tleman is one of the gang of six—[HON. MEMBERS: "He is."]—but I am sure that the Chief Secretary, with his feeling for rural people in the West Country, where he came from, knows that it is ridiculous to argue that an increase in VAT has nothing to do with inflation. It strikes ordinary people as ridiculous. It makes the Government look ridiculous. Clearly, it is palpable nonsense, especially when we know that they know that the transmission mechanism for inflation is all about expectations. Therefore, it is about time that members of the Government stopped making such wild assertions.
    The final assertion which troubles me most of all, and it comes most often from the Chief Secretary's lips—although during the debate it came from the hon. Member for Lincoln (Mr. Carlisle)—is that we must live within our means. I think that the Chief Secretary, in his speech in our penultimate economic debate last year, brought that out as one of his deepest thoughts resulting from his understanding of what he attributed as peasant wisdom.
    Mr. Biffen: We have a darn sight more wisdom than Labour Members.
    Mr. Horam: I would not agree. There is no doubt wisdom on both sides of the House, but it does not reside solely in the Treasury. The truth is that, while that may be a sensible motto on an individual level, when applied to the nation's finances it is the short way to disaster. Indeed, it was precisely that sort of conventional wisdom as applied to the economy which led to the great depression. Indeed, Lord Keynes's great contribution to economics was precisely to point out that we can live beyond our means and that we can get out of the troughs of a trade cycle precisely by living on credit for an extended period—in fact, almost indefinitely. It was his view that that was the way to balance the trade cycle which would otherwise persist.
    Therefore, it is absurd to go on peddling that point as though it were some kind of economic law when all recent economic history indicates precisely the opposite. Those who subscribe to that point of view define conservatism to the exclusion of Keynes. They define it so narrowly that they do not allow any

    1775
    intervention in the economy in order to balance the trade cycle.
    I detect—no more than that—that that alarms some Conservatives. For example, some Conservatives write newspaper articles that are not always signed. Some of them worry that the Conservative Party might be harking back to Manchester liberalism. Fortunately, the official Liberals are too sensible to follow that path. I am sorry that the Conservative Party has taken over so many Liberals that it is now addicted to notions that Liberals rejected a long time ago.
    Mr. Kenneth Carlisle: Is it possible to live beyond our means—to go bankrupt?
    Mr. Horam: It is possible to go bankrupt. It is also ridiculous to live within one's means if the Government continually cut down those means. One becomes involved in a vicious circle at the end of which lies bankruptcy. The hon. Gentleman will find that there were far more banruptcies during the great depression, when credit was restricted, then in the post-war years when credit, by definition, was continually increasing.
    If we look at America where the savings ratio is about 3 per cent.—Americans live in a sea of credit—we can see the difference between the sound position that is good for industry and the type of position to which the Government subscribe. The Government have based themselves on false nostrums. Their policy flows from them. They believe in reducing the sterling M3 and the PSBR in cash terms. They hope to squeeze inflation out of the economy in that way. The cost is appalling.
    The Government's Red Book contains a prediction of a 2½ per cent. fall in the GDP. As my right hon. Friend the Member for Leeds, East (Mr. Healey) pointed out, they are doing that at a time when the rest of Western Europe is hoping for an increase that averages 2½ per cent. We are going in the opposite direction. Perhaps the Minister would clarify two further points raised earlier by my right hon. Friend the Member for Leeds, East. First, there is an omission of any separation between public and private sector investment in the Red Book. Secondly, perhaps he would clarify the position of manufacturing production in the Red Book.
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    If GDP falls by 2½ per cent. in the course of the year, that fall will contain an increase in the oil sector. Therefore, the non-oil sector will be falling faster than 2½ per cent. That sector is divided between the commercial and retail side, and the manufacturing side. I doubt whether the commercial or retail sector is falling. Therefore, the manufacturing side will fall yet further. That fall may well be of the order of 6 per cent. or 7 per cent. That is a fantastic prospect for the manufacturing sector of that industry. It presages the de-industrialisation that has been even on the lips of Tory Members during the debate.
    The cost in unemployment terms is clear. Unemployment has increased by 150,000 in the past six months. All the forecasts suggest that it will reach about 2 million in the near future. Some forecasts make much worse predictions. It will also lead to high interest rates. The Secretary of State for Trade—as well as the Prime Minister—has been quoted as saying that interest rates will remain at the present high level for at least 18 months. I do not believe that anyone can make such an accurate prediction. However, that is generally the prospect.
    As has been pointed out, high interest rates mean a high pound, despite a strong dollar. That position is likely to persist during the year. In turn, that means high imports and a struggle for our export industries.
    If there is a victory against inflation, it will be a Pyrrhic victory. The battlefield will be littered with the slaughtered remnants of our industrial army, factories and greatness. That is the price that we shall have to pay for the course that the Government are pursuing.
    When the Government are criticised for pursuing pessimistic and almost defeatist policies, they say that there is no alternative. That is an inherently ridiculous assertion. There are always alternatives, and in this case there are a number, some of which involve radical changes. General and selective import controls have been mentioned. Certain hon. Members advocate a manipulated devaluation, and others a formal or informal incomes policy.
    Even if one sticks with the orthodoxy of the Government and does not adopt those measures, other alternatives remain.

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    First, the Government could have maintained a high level of public expenditure. Immediately Conservatives will argue that that would lead to a higher public sector borrowing requirement. The Chief Secretary will be the first to concede that that does not necessarily follow. It depends on the level of activity.
    I happened to feed through the Treasury computer the figures for a continuation of the previous Government's policies, minus £1,000 million. My hon. Friends the Members for Blackburn (Mr. Straw) and Battersea, South (Mr. Dubs) worked out the figures, which indicated that, had those policies been pursued, the PSBR would have fallen with a higher level of public spending than we have now. The PSBR will not necessarily be higher with a higher level of public spending.
    Even if the PSBR were higher as a result of a higher level of public expenditure, as the Government are aware, that is not necessarily bad. The London Business School suggested that £10 billion would be a reasonable level for the PSBR with a 2 per cent. fall in GNP. It could be higher than that for a larger fall in GNP, and therefore higher than £10 billion, given that we are anticipating a 2½ per cent. fall in GNP.
    In his January speech to the Euromarkets conference even the Financial Secretary indicated that the PSBR need not decline as a percentage of GDP in a time of recession. Even the hon. Gentleman, within his larger lunacy, shows streaks of sanity. Perhaps he is, after all, a secret "wet" or perhaps only a slight downpour.
    Even within the Treasury team there is diversity over the appropriate level for the PSBR. It could be higher and still be advantageous to the economy.
    The Government will argue that a higher PSBR will lead to high money supply figures and high interest rates. That again is not necessarily so. My right hon. Friend the Shadow Chancellor today made the point familiar to Government Members about the position during the early years of his Chancellorship.
    Even if a higher PSBR leads to a more relaxed money supply, that is no bad thing. My hon. Friend the Member for Liverpool, Walton (Mr. Heffer) and other hon. Members have followed the debates
    1778
    with Professor Milton Friedman, including that involving the Chancellor and the Shadow Chancellor, when Professor Friedman argued that the money supply could be a little more relaxed. A money supply target of 11 per cent. to 7 per cent. is inherently extremely tight when inflation is running at 19.2 per cent.
    The non-credibility of the money supply targets led to the interest rate hike in the autumn. People did not believe the Government. The Government tried to take a corner too sharply, and they fell off. That made the problem worse. The OPEC inflows that resulted from the high interest rates have added to the reserve base of the banking system and have made monetary control even more difficult. Interest rates have also led to a stronger pound. The pound will remain strong throughout the year.
    It is ridiculous to argue that high interest rates in Britain are a result of high international interest rates. If that were so, interest rates in Britain would have risen again when American interest rates went up, and they would rise further when European interest rates caught up with United States rates. I do not believe that that will happen. I believe that they will remain at their present level. The cause of the high interest rates is the unnaturally tight money control operated by the Government.
    There is a case for higher public expenditure, a higher public sector borrowing requirement, and a more relaxed approach to the money supply, leading to lower interest rates and a less strong pound. That would be preferable for our long-term economic objectives.
    In his peroration, the Chief Secretary said that the Government were pursuing a Tory policy of helping the nation and the family. As a sensitive man, he must understand that many people believe that the Government are dividing the nation. Why else would Lord Butler of Saffron Walden talk about the need for a more moral and civilised society? In his inimitably subtle way, that was a rebuke for the Government's policies. The Chief Secretary cannot deny that the Government have ignored their pledges to the family. They are increasing family poverty by their Budget proposals.
    The Chief Secretary also said that he was pursuing a Tory policy of private enterprise and sensible use of North Sea

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    oil, but he has said nothing about the sensible use of North Sea oil. I hope that the Government will be more forthcoming about the use of North Sea oil revenues. They are not doing very much for public enterprise, and it can hardly be said that they are doing anything for private enterprise.
    In making his call to the nation the Chief Secretary is likely to find that his cry will fall on deaf ears. He wants the new realism, but I believe that he is talking about the old deflation. It will not work now, as it did not work then.
    9.39 pm
    The Minister of State, Treasury (Mr. Peter Rees): We have had an interesting debate and I am sorry that the quality of the speeches has not commanded a better audience. It is surprising, when we have been told that this is the meanest, most vindictive Budget since 1931 and the most hopeless Budget since the war, that the Opposition Benches have been singularly bereft of Members, leaving aside some honourable and distinguished exceptions.
    The burden of attack has come from the Opposition, but it has not been sustained by numbers even if it has been sustained by the quality of the interventions. I apologise to the House if, in 21 minutes, I cannot do justice to all the points that were made in the interesting speeches this afternoon.
    There has been a slight contrast between the press comment on the Budget and Opposition speeches. It is not the difference between praise and blame. I have been in this House for 10 years and I know that no politician really expects praise from the Opposition, particularly for a Budget. However, the difference has been between a thoughtful, if critical, appreciation of the position of the country and what the Government are trying to do in the lifetime of this Parliament and the powerful, if slightly ritualistic, incantations which have been full of the slogans of class warfare.
    I turn now to the individual contributions. I come first to the hon. Member for Colne Valley (Mr. Wainwright) representing the views of the Liberal Party. He, with unexpected relish, forecast a U-turn in our policies. I am never quite certain in which direction a U-turn, in
    1780
    the political sense, is designed to take us, but I suspect that he feels that we shall be forced to impose, by statute, some kind of prices and incomes policy. He has not been able, and nor have others who, on other occasions, have advocated this course to explain to my satisfaction why other prices and incomes policies have failed and why their breakdown has been so painful and so expensive for this country.
    I admit at once that previous prices and incomes policies have not always emanated from the Labour Party. Indeed, the Conservative Party has flirted with them. But we have learnt from our mistakes. The only difference that the hon. Member for Colne Valley was able to advance on this occasion was that a prices and incomes policy such as he envisaged could be considered and introduced at leisure and without the pressures of inflation.
    It is not the circumstances in which the policy is introduced but the pressures to which it is subject after at least two years that one must take into account. I am not persuaded by the experience of past Administrations—I did not have the privilege to serve in any of them, I was merely a Back Bencher observing the scene critically and realistically—that, even if a prices and incomes policy were launched with the good will of the Liberal Party, the Labour Party and my right hon. and hon. Friends, and even if it were thought out carefully in time of peace, it would necessarily endure the wear and tear and the kind of pressures that would be put on it as the years rolled by.
    I wonder whether the hon. Member for Liverpool, Walton (Mr. Heffer), so admirably representing the strain in our national character epitomised on certain occasions by Jack Cade and Wat Tyler, would really lend all his moral support and intellectual acumen to a prices and incomes policy, even if it were introduced by his own party. I single out the hon. Member for Walton because he represents a special and long-established historic tradition in British public life. It is not one with which I agree on many points. Perhaps the hon. Member for Colne Valley should take the hon. Member for Walton outside, talk to him quietly and ask about the practical possibilities rather than the theoretical interests of this solution.
    Mr. Richard Wainwright: Will the Minister deal with my point about the fact that there is no Budget resolution on the profit-sharing concessions?
    Mr. Rees: That is a highly technical point and it is covered by the alteration of the Budget law resolution. I think that the hon. Member is mixing up the Provisional Collection of Taxes Act with the concept that he has in mind. It will always be open to a person to introduce a new share incentive scheme, make it retrospective to 6 April and it will then be perfectly effective for tax purposes. Therefore, the hon. Member should have no fear; provided we carry the House with us on this, his friends will be able to introduce their share incentive schemes.
    My hon. Friend the Member for Horsham and Crawley (Mr. Hordern) put forward an interesting proposal which was that the tax-free zones should be extended to all development areas. That is a charming concept. We shall obviously watch the enterprise zones with keen interest and if they are a success, there will no doubt be scope for expansion later.
    I return to the hon. Member for Walton, for whom I have great personal regard. I think that the only occasions on which we have found a common identity of view have been in debates on Church of England matters and on devolution. Alas, neither of those subjects is before the House this evening.
    The hon. Member was a little alarmist in suggesting that there would be some massive industrial confrontation in the lifetime of this Government. He emphasised—it is perfectly right—that it is not a criminal offence to go on strike. I do not think that any one of my right hon. and hon. Friends would assert that to go on strike is or should be made a criminal offence. The simple question that has agitated the country—not just members of the Conservative Party—is whether it is right to call on the general body of taxpayers to add, however indirectly, a little support to those who choose to go on strike. Whether to go on strike is a personal decision and therefore we felt that we should apply ourselves to this problem.
    The hon. Member for Walton also touched on enterprise zones and said that they might turn themselves into mini
    1782
    Hong Kongs. That would be a delightful and interesting conclusion. I have the warmest regard for the industry and enterprise of those who inhabit almost the last of our major Crown colonies.
    Mr. John Garrett: It exists mainly on child labour.
    Mr. Rees: The hon. Member for Norwich, South (Mr. Garrett) speaks of child labour. It may be that my visits have been superficial in character, but I have never observed child labour there. If it is used it is no more than the boy who does a paper round in this country. That was a slightly inaccurate intervention.
    I turn with special interest to the contribution of my hon. Friend the Member for Plymouth, Sutton (Mr. Clark) who with honourable consistency over the last four years, supported more recently by my hon. Friend the Member for Macclesfield (Mr. Winterton) and hon. Members on the Opposition Benches, has propounded the virtues of protectionism. It is interesting to find such an eloquent and articulate exponent of at least some of the theories of the Cambridge school on the Government Benches. He challenged me—I assume the challenge was issued to me—to deal more adequately than I have in the past with the arguments that I have formulated in my mind that if we were to impose a policy of protectionism we might expose ourselves to retaliation. His simple formula was that since we run a deficit in our balance of payments—at least at present—we have the leverage.
    Perhaps that is not the right approach. The truth is that one has to see what proportion of a country's GDP is exported. Then one can see the relative balance of power. On the best evidence available to me we export about 30 per cent. of our GDP, which is far more than that of the United States. Therefore, in any encounter with the United States—I gather my hon. Friend the Member for Sutton had a pleasurable encounter at the American Embassy the other day—I suspect that we would come off worst.
    I ask my hon. Friend and the House to bear in mind—I hope it will not be felt that this is a legalistic argument from one who, until 8 May, was practising at the Bar and may soon be returning to that practice—that there is a wide range

    1783
    of international agreements to which we are party, not least those of the Common Market. I know that I may not carry my hon. Friend and others with me on that but we would have to renegotiate or break those agreements if we were to impose a full-blooded protectionist policy. Therefore, I leave, I hope not too summarily, the interesting arguments my hon. Friend put forward. I hope that there will be other occasions when we can examine at greater leisure and depth the interesting and profound points that he raised.
    I turn to the contribution of the hon. Member for West Lothian (Mr. Dalyell). I apologise deeply to the hon. Gentleman for being absent from the Chamber when he spoke. However, flesh and blood cannot keep one anchored in the Chamber for a full six hours, even when a debate of such compelling interest is taking place. Had I known that he was to raise issues of such great interest, I should have forgone my refreshment.
    If an adequate note was taken for me, the hon. Gentleman asked four specific questions. First, he asked whether it is right that the staff of the Inland Revenue should be decreased. Bearing in mind the staff increases that have been made within the Department of Health and Social Security to counter fraudulent claims, is it right to diminish the number employed in the Revenue Departments when evasion is running at a figure that we do not know precisely but which was estimated by a former chairman of the Board of the Inland Revenue in evidence to a Select Committee to be about £7 billion? That is not a figure that a Treasury Minister drawn from either of the two main parties could contemplate with equanimity.
    The staff of the Inland Revenue is slightly fewer than 80,000. The staff of the Customs and Excise is about 27,000. Almost every member of the staffs of both departments is to a greater or lesser degree concerned with evasion. As a mathematical or statistical proposition, it may be presumed that if we were to recruit an additional 20,000 staff for each department we would collect more revenue. It is a matter of balance. Where is the balance to be struck? Would it be right to say to the public "We want to increase staffing within the two departments to collect a greater amount of
    1784
    revenue"? That is a matter for the House to decide. I am not complacent. It is a problem that we keep under constant review. At present I am not persuaded that we should reverse the trend that we have set in train.
    Mr. Denzil Davies: Why not?
    Mr. Rees: As I have tried to explain, there must be a limit. I am sorry if I failed to carry the right hon. Gentleman with me.
    Mr. Robert Sheldon: I understand the argument that the hon. and learned Gentleman is advancing, and I sympathise with much of it, but how does it fit in with the proposed taxation of short-term benefits, which will mean that the number of Inland Revenue staff will have to be increased considerably?
    Mr. Rees: The right hon. Gentleman may have his mind on 1982. There are deeper social implications to be considered. The right hon. Gentleman had a distinguished career as Financial Secretary. I am not conscious that he increased to a great degree the staff of the Inland Revenue to counter evasion.
    The hon. Member for West Lothian referred to the £1 billion outstanding for schedule D. It is true that there are always sums outstanding at the end of every year. The liabilities are not agreed as punctually as one would like. I remind the hon. Gentleman and the House that most of the liabilities will be carrying interest at the rate of 12 per cent., which is not deductible for tax purposes.
    Other hon. Members—
    Mr. Dalyell rose—
    Mr. Rees: No. I do not have time. The hon. Gentleman must forgive me. I have eight minutes in which to deal with an important debate and try to state the Government's position. We shall be able to return to these matters on Second Reading. I hope that the hon. Gentleman will acquit me of discourtesy if I pass on.
    The hon. Member for Walsall, North (Mr. Winnick) foresaw a general strike. He, too, tried to reinforce the plea for import controls. It is not for me to envisage the possibility of a general strike. I hope that he hon. Gentleman will forgive me if I pass on.

    1785
    My hon. Friend the Member for Macclesfield supported the Budget in general terms. However, he expressed his reserve on and disapproval of the proposal to increase the duty on hydrocarbon oils. The increase will yield about £550 million. If my hon. Friend is minded to vote against the Government on that issue, I hope that he will consider carefully the alternatives if we did not have that source of revenue available to us.
    I must contrast the speech of the hon. Member for Gateshead, West (Mr. Horam) with the contribution of the right hon. Member for Leeds, East (Mr. Healey). Their contributions did not entirely match. The hon. Member for Gateshead, West evidently resiles from the monetarist position to which, to a degree, his right hon. Friend still adheres and which he adopted while in Government. The hon. Member was uncertain about the figure that should be advanced for public sector borrowing requirement. The right hon. Member for Leeds, East, whatever fanciful distinctions he may draw between punk monetarism and the monetarism that he adopted, undoubtedly was a monetarist for a period.
    If the House is doubtful about that point, I refer hon. Members—as my right hon. and learned Friend referred them—to the letter written to the IMF on 15 December 1976. Presumably that letter was written after due consideration. It was not thrown up in the heat of debate or under pressure from the NEC or a Labour Party conference. It was written to international bankers, who are trained to weigh words. Perhaps we do not weigh our words carefully enough in debate. However, I assume that these were the considered words of the right hon. Gentleman. In 1976, he said:
    "For this purpose an essential element of the Government's strategy will be a continual and substantial reduction over the next few years in the share of the resources required for the public sector. It is also essential to reduce the public sector borrowing requirement in order to create monetary conditions which will encourage investment and support sustained growth and control inflation."
    I could not have put it better myself. That letter was not written under pressure but after consideration over a long period. That is exactly the position of the Government. I ask those members
    1786
    of the Opposition who have reservations about this matter to say where they stand on the matter of the public sector borrowing requirement.
    The right hon. Member for Leeds, East came out quite boldly with the figure of £10 billion. Are the Opposition with him on that? In fact, that figure is only £1½ billion more than ours. In which area would the Opposition make these relaxations? If they are so concerned with the high level of interest rates, are they confident that the public sector borrowing requirement of £10 billion would lead, over a period, to the reduction of interest rates which hon. Members on both sides of the House wish to achieve?
    Mr. Denzil Davies rose—
    Mr. Rees: I shall give the right hon. Gentleman thirty seconds.
    Mr. Denzil Davies: This is a Tory Party myth. Inflation affects interest rates —not the public sector borrowing requirement.
    Mr. Rees: The right hon. Gentleman begs the essential question. If inflation affects interest rates, how is it that we act on inflation? We believe in a sustained, moderate, sensibly thought-out monetary policy that depends, to a degree, on interest rates. It also depends on our fiscal stance and on the extent of our PSBR. Therefore, it depends on the extent of our public expenditure and on the amount that we are prepared to raise by way of taxation.
    Regrettably, in the time left to me I cannot put the constructive fiscal case. However, it is right to observe that although we have been subject to the most swingeing attacks from the Opposition—this is the small change of party politics which neither the House nor the country take very seriously—there has not been a sustained critique of the Government's fiscal measures. There has been a certain wan, lack-lustre attack on our removal of the lower rate band. But that is about as far as it gets.
    If time had permitted I should have liked—as I shall, with permission, on the Second Reading of the Finance Bill—to deal with the positive and constructive

    1787
    measures. I shall deal with what the Government have done for charities, by way of an enterprise package, and what we are doing for small businesses and the self-employed—all the various causes which we have at heart but which the Labour Party so sadly neglected in the five years that it was in power. We shall have time to come to that. I shall also come to the capital tax package.
    I want to say this to the House and the country: although it may not have been appropriate to do fully what we intended to do in the area of capital taxation, if we believe in a free market economy and a capitalist system, as the Government do, we must do far more than we have been able to do this year to reduce that jungle which was created by the luxuriant mismanagement of the Labour Party. We shall return to that.
    In a singularly lack-lustre speech, the Leader of the Opposition described this as a hopeless Budget. I want to ask, hopeless for whom? Hopeless for widows, for whom a new allowance has been created? Hopeless for single-parent families, for whom the allowance has been put up? Hopeless for pensioners, whose pensions have been safeguarded against inflation? Hopeless for small investors, who are to be relieved of capital gains tax? Hopeless for small business men, who are freed from a whole range of fiscal and administrative burdens? Hopeless for charities, which will benefit from a whole range of new reliefs? Hopeless for the enterprising, who will find new scope for creating opportunities?
    Debate adjourned.—[Mr. Newton.]
    Debate to be resumed tomorrow.

    SELECT COMMITTEE ON EUROPEAN LEGISLATION, &c.
    Ordered,
    That the Standing Order of 2nd July relating to the nomination of the Select Committee on European Legislation, &c., be amended, by leaving out Mr. John Cartwright and Sir Anthony Meyer and inserting Mr. Ron Leighton and Mr. Mark Lennox-Boyd.—[Mr. Newton.]

    OLYMPIC GAMES
    Motion made, and Question proposed, That this House do now adjourn.—[Mr. Newton.]
    10 pm
    Mr. Tam Dalyell: On 19 March, as reported in column 421 of Hansard, I said that I would try to raise on the Adjournment the issue of the alternative Olympic Games. I should like to thank Mr. Speaker for giving me his personal day. The best use of time on this Adjournment is to try to establish the facts, and therefore I put to the Minister questions of which he has been given some hours' notice.
    First, has the hon. Gentleman had a second opportunity to answer the question which I put to him as reported in column 415 on 19 March? Would he name the sporting organisations which have encouraged him in an effort to find sites for alternative events which might be held in late August or early September?
    Secondly, as a member of the organising committee of the Commonwealth Games in Edinburgh and from other experience of athletics, I know perfectly well that most of the world's top athletes have absolutely full diaries and tight engagement schedules at that time of year. Are the British Government suggesting that fixtures arranged long ago ought to be abandoned? The fact is that there are 86 fixtures for August alone in Europe and 26 fixtures in September. The schedule is absolutely tight.
    Thirdly, would it not have been a matter of good sense and, indeed, good manners for the Prime Minister, before launching into great statements in the House about the Olympic Games, to have contacted the British Olympic Association to hear its views? Why did not senior Government Ministers display elementary courtesy?
    Fourthly, what discussions have taken place with the general assembly of International Sporting Federations? Incidentally, the secretary, Charles Palmer, the judoist, is British and could easily have been contacted. How can anyone think of arranging post-Olympic Games without their good will? Their good will is a precondition of any kind of serious response from athletes. Have they been contracted and, if so, was their reaction

    1789
    other than cryogenic? If they have not been contacted, why not?
    Fifthly, is it not a fact, as my right hon. Friend the Member for Birmingham, Small Heath (Mr. Howell), who alas is not well and cannot be here tonight, brought out on 19 March, that now 21 governing bodies of sport have said that they would not sanction any alternative competition and that any sportsman taking part in such a competition would exclude himself or herself from international sport? Was this considered?
    I am at liberty to read out a telegram from the General Assembly of International Sporting Federations to the British Olympic Association from Monte Carlo:
    "All the 21 Olympic Federations reacted to Thomas Keller's note of 11 March and to his telex of 13 March, and are unanimous without exception in condemning the idea of alternative games in place of the Moscow Games.
    One Federation suggested not allowing important international competitions between 1 July and 31 August. Another Federation raised the point that according to its Statutes, the withdrawal of a team means that it is forbidden to play for 30 days before the competition from which it has withdrawn.
    Some Federations do not however exclude the possibility that other international sporting events could be added to their normal calendar, to take place at a reasonable time after the Games. A large number of federations point out with indignation that this is the meddling of Government organisations in the field of international sport, and that it is important not to allow politicians to take hold of the organisation of sport, and that it is not up to the Governments to organise international sporting competitions. One federation suggests using all possible legal means to keep control and independence of our activities."
    Sixthly, when the British Olympic Association saw Lloyd Cutler he had with him two advisers and the representative of the American Embassy. Did the Minister see the same advisers? I ask him to confirm that one adviser, Mr. David Wolter, is concerned above all, in his capacity as vice-chairman, with the 1984 Los Angeles Games and that the point might well be made to Mr. Wolter that if Moscow 1980 is jeopardised there might well not be a Los Angeles 1984, because the issue is that the future of the Olympic Games as such is at risk.
    Will the Minister confirm that the other adviser, Mr. Lenski, is the self-same indi-
    1790
    vidual, operating probably on behalf of the CIA, who certainly, CIA or not, spent his time during the Mexico City Olympics going round Eastern bloc athletes trying to persuade them to defect?
    Is not the Lloyd Cutler mission basically about American policy and, more particularly, about creating an image for President Carter in his caucus politics problems and his re-election?
    Would not it now be best to announce publicly that this ludicrous idea should be dropped? Would it not also be a good plan, now that the competitors are going to Moscow, to behave with as good grace as possible and help them? In particular, the Government might encourage those companies who would have given money to resume their plans to do so. Certainly the pressure should be taken off the athletes.
    The Minister may retort that terrible things are happening in Afghanistan; what about the Afghanistan football team? I do not doubt for a moment that terrible things are happening. Terrible things happen in any civil war. People who invite armies in from outside often turn against those armies, as the British have found to their cost in Northern Ireland where much of the bitterness and the attacks on the British Army come from precisely the groups and friends of those groups who wanted the Army in in the first place. So it is in Afghanistan. Many who wanted the Russians in and eventually persuaded them to come in have now turned against them. Do not we know from our Irish experience how miserable such a situation can be?
    Elsewhere, to be precise in column 724 of Hansard of 24 January during the nuclear weapons debate, on Tuesday 29 January during the East-West relations debate and on Friday 1 February in column 1740 during the debate of the right hon. Member for Stafford and Stone (Mr. Fraser) on national service, I have argued at length the case for viewing the Russian presence in Afghanistan in terms of shades of grey.
    I would only add to that argument that I am told by Professor John Erickson, the toughest of Russia watchers, the professor of Russian studies in Edinburgh, that the decision to go in was taken after 5 April 1979 when, in Herat, 30 Russian advisers were made to eat their own testicles, were skinned alive and their heads were

    1791
    paraded through the town on pikes. Russian women were also mauled and Russian children were killed. This subject I refer to precisely in Question 3 to the Prime Minister next Thursday.
    We have to bear in mind that this is a very complex situation. Supposing that the Olympic Games had been scheduled for London in 1980, what would we have said to suggestions that because we had become embroiled in a military capacity in the bog of Ulster, the Games should not be held in Britain?
    10.10 pm
    The Minister of State, Foreign and Commonwealth Office (Mr. Douglas Hurd): I am glad that the hon. Member for West Lothian (Mr. Dalyell) has raised this subject again. I am grateful for the way in which he did so, brief and forthright, in the style that is his own.
    Before turning to the hon. Gentleman's particular questions, of which he was courteous enough to give me notice, I should like to make some remarks about the origins of the idea of an alternative games. There is clearly a certain amount of misunderstanding. I do not personally care for the phrase "alternative games", but I suppose that we are now stuck with it. I do not care for the name because it implies a rival Olympics. Much of what the hon. Gentleman said was addressed to the matter as if it was our proposal. In fact, as I think he knows, having studied what has been said, that idea has never been in our minds. It has never been in our thoughts that we could, or should, attempt to organise, or suggest the organisation, in one place of a series of games at about the same time as those that the IOC, against our wishes, has decided should be held in Moscow.
    Our idea was simpler and more modest. It stemmed from the knowledge that in advising our own athletes to boycott Moscow we were asking for and advising on a very difficult thing. It seemed to us only fair to say that if—I underline "if"—they and the organisations to which they belonged were interested, we would be ready to help forward competitions of high quality held in different parts of the world shortly after the Moscow Olympics. Having come to that thought, we found that other Governments were thinking on roughly the same lines. We began to talk together. Out of those talks came
    1792
    the meeting that I attended in Geneva last week. Out of Geneva came a set of suggestions, not decisions, which we agreed to put to and to discuss with national and international sporting organisations.
    That leads to the first question that the hon. Gentleman put. I shall not disclose the reactions of the sporting organisations with which we have discussed these ideas. To do so would mean that I was disclosing not our ideas—I am perfectly ready to discuss those—but theirs. In some cases these are fall-back plans that they have discussed with us in confidence. I would simply say in reply to the hon. Gentleman that, based on what we found before the meeting in Geneva from our preliminary contacts and since, among some sports there is at present no interest in the ideas that we have put. Among one or two, there is definite interest. Among others, there is a desire to discuss further, to keep in touch and to keep the door open. The reasons are perfectly clear.
    Most people, at the back of their minds, whatever they may say in public, are well aware that the decision of the British Olympic Association on 25 March does not close the discussion. There are far too many uncertainties still around—uncertainties that will not be cleared up for some time to come. There are uncertainties about the decisions of athletes in other countries. It may turn out to have been unwise for the British Olympic Association to rush in before most other national Olympic committees. Most other national Olympic committees are, as the British Olympic Association is aware, carefully leaving the decision open.
    At the moment, it is still possible—and I would say, according to our information, probable—that the Moscow Olympics will not be attended by athletes from a considerable number of major sporting countries. That is one set of uncertainties of which sporting organisations and competitors in some sports are very conscious. There are also uncertainties, to which the hon. Gentleman referred, about Afghanistan itself. There is more fighting in Afghanistan now than in January. The aggression is continuing. The only difference is that Western television and press are no longer there

    1793
    to tell the tale because they have been forced out.
    Incidents such as the defection of members of the Afghanistan football team yesterday and the stories of the killings which they brought with them lift for a moment the curtain which has fallen over what is happening in Afghanistan. What is happening there is not some distasteful incident at the end of December which is now receding into the past and fading from memory. That is not the position.
    What started at the end of December is continuing and the situation is, perhaps, worsening. Such stories as the Afghan footballers have been telling say something of the realities of sport and politics as opposed to the rhetoric about bridge-building that we have heard so often in recent weeks.
    If in July when the Moscow Olympics start the position in Afghanistan is much the same and is being reported, it is hard—the hon. Gentleman would find it hard—to imagine our athletes competing happily in Moscow against the background of killing and repression.
    I think that the hon. Gentleman would agree that I have not, and nor has my hon. Friend the Under-Secretary of State for the Environment with responsibility for sport, overstated the possibilities of the concept of alternative games. I have never felt any desire to gild this particular lily. We are talking about suggestions, not decisions.
    The hon. Gentleman read out a statement from Monte Carlo which seemed to imply that we are seeking to organise games. Anyone who has read what we have said would know that we accept entirely that it is not for Governments, at least in the West, to organise games.
    Whether our suggestions are taken up depends on individuals and sporting organisations. We shall shortly be comparing notes with the other Governments who were represented at Geneva to tell them how we have got on and to see how they have got on with their contacts.
    The hon. Gentleman was correct in saying that the sporting calendar is crowded. We understand that, and there is no question of our suggesting that events in that calendar should be cancelled. That is why we included, and still include, the possibility to which the hon.
    1794
    Gentleman referred of building up events which already exist, opening them to others who might not in other circumstances have taken part and making of them the widely drawn, high-quality events about which we are talking. That is one line of thought that we are pursuing.
    The main part of the hon. Gentleman's speech dealt with consultation. That is always a difficult matter, but I think he would accept that the basic decision facing the British Government was principally one of responding to the Soviet aggression. In our view, that response had to include proposals about the Moscow Olympics. That was a political judgment for the Cabinet.
    Since then, there has been the most intense discussion and correspondence with the British Olympic Association and many other organisations, national and international. I do not know how many meetings my hon. Friend and I have had—including meetings with Mr. Charles Palmer, who, as the hon. Gentleman said, is contactable and who has been contacted—but there has been intense discussion, which is continuing. Those meetings included a meeting that my right hon. Friend the Prime Minister had on 4 February with the Sports Council and with the Central Council for Physical Recreation.
    The position of international federations is more complex than the hon. Gentleman indicated. For example, a statement made in Mexico in February by the General Assembly of International Sporting Federations referred to, and came out against, a plan for rival Olympics to be held at the same time as the Moscow Games. So did a later statement by the International Amateur Athletic Federation.
    That is not, and never was, our idea, and I hope that that is now clearly understood. The truth is, and we have looked into it carefully, that the powers of the international federations vary sport by sport and rule book by rule book. Certain types of international competition require consent under the rules. Other types do not. We are well aware of that. The Economist advised strongly at the weekend that we should take no notice and should go full tilt against the international sporting hierarchy, which it believes to be overripe for reform. That

    1795
    is not what we are trying to do. We do not intend to go against, or encourage anybody else to go against, the rules of the federations. We do not intend to try to break up the international sporting hierarchy.
    I do not want to answer the hon. Gentleman's observations about personalities in the American team. He would get hot under the collar if American Congressmen made personal criticisms about and questioned those whom the British Government sent to an international meeting. That is not a sensible line of criticism.
    Mr. Dalyell: Sensible or not, I was talking of a matter of considerable curiosity. Some believe that caucus politics in the United States are involved. Lo and behold, Mr. Lloyd Cutler brings with him Mr. Lenski. The same Mr. Lenski was the operator at the Mexico Olympics and spent his time in Mexico City trying to persuade Eastern bloc athletes to defect. We may be critical of the Russians, but some of us are extremely critical of the whole United States operation and history in relation to Afghanistan and the Olympics. President Carter's efforts to be re-elected have much to do with what is happening.
    Mr. Hurd: The hon. Member does not usually venture into that type of country. He got the name of the first person he mentioned wrong. He was referring to Mr. Wolper. Mr. Lenski is United States Ambassador to Uganda. The hon. Gentleman referred to President Carter's motives. I believe that, given President Carter's strong views—which we believe to be justified—neither he nor any other American President could possibly leave the Moscow Olympics out of a response. No American President could do that at any time, given that he shares our view about Soviet aggression. We are talking about a major act of aggression, not a shade of grey. Action on the Moscow Olympics is a necessary part of a response to a major aggression.
    Sport is a branch of politics to the Soviet Union. The party activists are trained and educated in that belief. They have a contempt for the idea that sport can be separated from politics.
    Mr. Dalyell: If it is not possible for an American President to leave out sporting considerations, how is it possible for the same President to ignore the commercial operations of the Chase Manhattan Bank and 25 other banks which are going merrily on their way? How is it possible for the European Community to sell butter to the Russians? How is it possible to keep the British and American Ambassadors in Moscow?
    Mr. Hurd: Those matters were thoroughly discussed in the major debate. The hon. Gentleman knows that the presence of an ambassador does not confer a privilege or propaganda advantage. An ambassador carries out instructions, for example, on the neutrality plan for Afghanistan. To the Soviet Union, sport is a branch of politics. The Moscow Olympics will be taken by the Russians as proof that the world does not care about the aggression in Afghanistan.
    Mr. John MacKay: Might it be worth those athletes who go to the Olympic Games putting the non-politics of the games to the test by wearing "Free Orlov" T-shirts?
    Mr. Hurd: There are many intriguing ideas in this realm of country. Because the Soviet Union totally controls the output of television, it is a fairly safe guess to say that any such demonstration would be effectively concealed from the Russians in a way that a boycott could not be concealed.
    The parallel drawn with Ulster is wrong-headed. We have heard it before. Ulster is a part of this country—part of a free society—in which people's opinions are recorded from time to time in free elections and, in the case of Ulster, in referenda. It is as different as it could be from the position in Afghanistan.
    Mr. Dalyell rose—
    Mr. Hurd: I shall not give way. I am surprised that the hon. Gentleman should persist in that parallel.
    Through the coming weeks and months we shall continue quietly and firmly to record our view, which we hold very strongly indeed. It is against British interests for British athletes to compete at Moscow in present circumstances. If

    1797
    they do so, they are weakening the pressure exerted on the Soviet Union and thus undermining the efforts that we and others are making to persuade the Russians to withdraw from Afghanistan.
    I do not know whether in a free society that view will eventually prevail. The more that I am involved in the matter, the more sure I feel that it is our job to record that view and to give it when we are asked for our opinion. Never in the history of the Olympic movement has the host country actually been committing aggression at the time when the Games were held. It is a completely new position. I have never known that point mentioned or discussed in the reports that I have seen of the deliberations of the sporting bodies.
    Surely that is the real threat to the Olympic movement and to its future. In the weeks and months to come, the nature of that threat will become increasingly clear.
    10.27 pm
    Mrs. Gwyneth Dunwoody: The Minister has been careful not to answer many of the succinct questions put to him. Is he aware that it is now clear that the Government went ahead with this move without any consultation with the Olympic Committee? It was not asked for its advice. Throughout this entire episode, it has been told what it is politic for the Government to advocate and has not been asked what it believed were the sporting interests of the Olympic committee.
    If the Minister seriously believes that it is possible to make this attack on politics by using sportsmen, he should demonstrate clearly that the Government take the same attitude to business contacts, that they do not encourage business men to trade with the Soviet Union, that they are not in favour of the opening of the Chase Manhattan Bank and that they themselves are prepared to back up their rhetoric with any sort of attack that will concern the Government. It has been plain throughout the whole of these incidents that always there has been the suggestion that the Government were giving instructions to other people to carry the
    1798
    brunt of the political fight while they were prepared only to stand on the sidelines. They have encouraged some gestures, such as that by BUPA, which can be interpreted only as very petty. It withdrew from the athletes facilities that had been offered to them.
    The House has a right to know rather more than the Minister has been prepared to tell us in terms of hard fact. It is not enough to say "Of course, we are advocating this. It is not an alternative Olympics, but we hope that there will be some other sort of demonstration". Yet the Government are not prepared to detail the countries involved, the Olympic committees that have given support or even the individual sportsmen who have been prepared to support this line of attack. They have operated on the basis of "We have to protect the sportsmen's interests by keeping the details secret until the moment comes when their names are made public." That is not good enough.
    If there were a serious attempt to do something about the Olympics, the Government should have remembered that in the first instance many of us had reservations about Moscow as a site. When there were arguments about whether the rights of individual Russians were being sufficiently protected, the Government had nothing to say. They were not interested until it became a question of their own political stance. They have never, at any time, demonstrated that they have taken the advice of the people most concerned, namely, the athletics associations involved. The Minister has demonstrated yet again that the Government do not have a case and that they do not have good evidence to prove that people support them.
    Mr. Dalyell: The Minister said that normally I do not become involved in personalities—nor do I. But Mr. Lenski—
    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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  University Grants
  PRIME MINISTER (ENGAGEMENTS)
  PRIME MINISTER (ENGAGEMENTS)
  NUCLEAR WEAPONS (ANGLOAMERICAN CONTROL
  NUCLEAR WEAPONS (ANGLOAMERICAN CONTROL
  EUROPEAN COMMUNITY—USSR RELATIONS
  EUROPEAN COMMUNITY—USSR RELATIONS
  LONGHAVEN
  LONGHAVEN
  STOWMARKET
  STOWMARKET
  CABINET MEMBERSHIP
  CABINET MEMBERSHIP
  EUROPEAN COMMISSION ON HUMAN RIGHTS (INDIVIDUAL PETITION)
  EUROPEAN COMMISSION ON HUMAN RIGHTS (INDIVIDUAL PETITION)
  OLYMPIC GAMES
  OLYMPIC GAMES
  MR. JOHN LIPPITT
  MR. JOHN LIPPITT
  BRITISH LIONS (SOUTH AFRICAN TOUR)
  BRITISH LIONS (SOUTH AFRICAN TOUR)
INDUSTRY
  Platinum
  Platinum
  Airbus Industrie (Project)
  Airbus Industrie (Project)
  Meriden Co-operative
  Meriden Co-operative
  Nationalised Industries (Purchasing Policies)
  Nationalised Industries (Purchasing Policies)
NATIONAL FINANCE
  Public Expenditure
  Public Expenditure
  Objects in Lieu of Tax
  Objects in Lieu of Tax
  European Community Budget (United Kingdom Contribution)
  European Community Budget (United Kingdom Contribution)
HOUSE OF COMMONS
  Select Committees
  Select Committees
AGRICULTURE, FISHERIES AND FOOD
  French Herring Catches
  French Herring Catches
  Fish Landing Facilities (Hull)
  Fish Landing Facilities (Hull)
  Vegetable Crops
  Vegetable Crops
  Covent Garden Publicity Drive
  Covent Garden Publicity Drive
  Live Animals and Birds (Exports)
  Live Animals and Birds (Exports)
SOCIAL SERVICES
  Members' Correspondence
  Members' Correspondence
  Constant Attendance Allowance
  Constant Attendance Allowance
  Radiographers, Speech Therapists and Occupational Therapists
  Radiographers, Speech Therapists and Occupational Therapists
  Disabled Persons
  Disabled Persons
  Non-European Ethnic Minorities
  Non-European Ethnic Minorities
  Written Question (Replies)
  Written Question (Replies)
  Field Workers-Administrators
  Field Workers-Administrators
CIVIL SERVICE
  Civil Servants (Prosecutions and Future Employment)
  Civil Servants (Prosecutions and Future Employment)
DEFENCE
  Defence Techniques (Washington Show)
  Defence Techniques (Washington Show)
  Herbicide 2,4,5-T
  Herbicide 2,4,5-T
  Ship Repairs (Falmouth)
  Ship Repairs (Falmouth)
HOME DEPARTMENT
  Polling Stations
  Polling Stations
  Prisoners (Maintenance Costs)
  Prisoners (Maintenance Costs)
  Indecent Material (Public Display)
  Indecent Material (Public Display)
  Telephone Tapping
  Telephone Tapping
  Departmental Surplus Property
  Departmental Surplus Property
  Visas (Visitors from Warsaw Pact Countries)
  Visas (Visitors from Warsaw Pact Countries)
  British Broadcasting Corporation
  British Broadcasting Corporation
  Fire Services (West Yorkshire)
  Fire Services (West Yorkshire)
  Civil Defence
  Civil Defence
  Parliamentary Constituencies (Boundary Commission Inquiry)
  Parliamentary Constituencies (Boundary Commission Inquiry)
  Association of Chief Police Officers
  Association of Chief Police Officers
  Patrick O'Hagen (Exclusion Order)
  Patrick O'Hagen (Exclusion Order)
  Traffic Regulations (London)
  Traffic Regulations (London)
  Detention Centres
  Detention Centres
  Police Complaints Board
  Police Complaints Board
  Television Licence (Investigators)
  Television Licence (Investigators)
  Representation of the People Act (Irish Citizens)
  Representation of the People Act (Irish Citizens)
  Special Constables
  Special Constables
  Special Patrol Group
  Special Patrol Group
  Picketing
  Picketing
  Local and Regional Sound Broadcasts
  Local and Regional Sound Broadcasts
  Citizens Band Radio
  Citizens Band Radio
  Prisoners on Remand
  Prisoners on Remand
  Mental Attacks (Protection)
  Mental Attacks (Protection)
  Immigration Officers Housing (Guidance)
  Immigration Officers Housing (Guidance)
  Polyurethane Foam (Fire Risk)
  Polyurethane Foam (Fire Risk)
  Borstal Trainees (Classification)
  Borstal Trainees (Classification)
  London Transport (Vandalism)
  London Transport (Vandalism)
  Prison Building Programme
  Prison Building Programme
  Rhodesian Citizens
  Rhodesian Citizens
  Local Government Districts (Electoral Arrangements)
  Local Government Districts (Electoral Arrangements)
  Illegal Firearms (Amnesty)
  Illegal Firearms (Amnesty)
  Commission for Racial Equality
  Commission for Racial Equality
EUROPEAN COMMUNITY
  United Kingdom Membership
  United Kingdom Membership
SCOTLAND
  Departments of Agriculture and Fisheries (Economics and Statistics Unit)
  Departments of Agriculture and Fisheries (Economics and Statistics Unit)
  Stock and Cropping Returns
  Stock and Cropping Returns
  Agricultural Machinery Census
  Agricultural Machinery Census
  Attacks on Prison Officers
  Attacks on Prison Officers
  Borstal Trainees
  Borstal Trainees
  Prison Building Programme
  Prison Building Programme
  Attacks on Borstal Staffs
  Attacks on Borstal Staffs
  Local Authority Staff (Pay)
  Local Authority Staff (Pay)
  Mr. Jimmy Boyle
  Mr. Jimmy Boyle
  Housing Transfers
  Housing Transfers
  Dundee District Council (Boundaries)
  Dundee District Council (Boundaries)
TRANSPORT
  A13-A2 Link (Falconwood)
  A13-A2 Link (Falconwood)
  Two-Wheeled Motor Vehicles (Classes)
  Two-Wheeled Motor Vehicles (Classes)
  Mopeds and Motor Cycles
  Mopeds and Motor Cycles
  Mopeds
  Mopeds
  Traffic Signs (Regulations)
  Traffic Signs (Regulations)
  Liverpool Inner Ring Road and Salford Docks Spur
  Liverpool Inner Ring Road and Salford Docks Spur
  Hovercraft Services
  Hovercraft Services
FOREIGN AND COMMONWEALTH AFFAIRS
  British Lions Rugby Tour
  British Lions Rugby Tour
  Czechoslovakia (Arrested Persons)
  Czechoslovakia (Arrested Persons)
  Energy Counsellors (Washington)
  Energy Counsellors (Washington)
  Missing Persons
  Missing Persons
  Deceased Persons (Repatriation)
  Deceased Persons (Repatriation)
  Children (Unlawful Removal Abroad)
  Children (Unlawful Removal Abroad)
  British Nationals Abroad (Repatriation)
  British Nationals Abroad (Repatriation)
ENERGY
  Spent Fuel Elements (Processing)
  Spent Fuel Elements (Processing)
  Electricity (Demand and Capacity)
  Electricity (Demand and Capacity)
  North Sea Oil (Block 163/6)
  North Sea Oil (Block 163/6)
  Nuclear Fuel Reprocessing Plant
  Nuclear Fuel Reprocessing Plant
ENVIRONMENT
  Homes Insulation Scheme
  Homes Insulation Scheme
  British Waterways Board
  British Waterways Board
  South Coast Beaches (Chemicals)
  South Coast Beaches (Chemicals)
  Local Authority Staff (Pay)
  Local Authority Staff (Pay)
  Local Government (Building Control Services)
  Local Government (Building Control Services)
  Mobile Homes Act 1975
  Mobile Homes Act 1975
  Small Firms (Rate Relief)
  Small Firms (Rate Relief)
  Radioactive Waste
  Radioactive Waste
  Water Charges
  Water Charges
NORTHERN IRELAND
  P. and A. Duffy and Company (Legal Aid Payments)
  P. and A. Duffy and Company (Legal Aid Payments)
  European Social Fund (Receipts)
  European Social Fund (Receipts)
  European Regional Development Fund
  European Regional Development Fund
  European Agricultural Guidance and Guarantee Fund
  European Agricultural Guidance and Guarantee Fund
  Sporting Activities (Licences)
  Sporting Activities (Licences)
  Adult Educational Guidance
  Adult Educational Guidance
WALES
  Convicted Persons
  Convicted Persons

Preamble
The House met at three of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Bradford):
The LORD CHANCELLOR on the Woolsack.

HOME DEFENCE REVIEW
Lord ORR-EWING: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government when they expect the Review of Home Defence to be completed and whether the report will be published.
The PARLIAMENTARY UNDERSECRETARY of STATE, HOME OFFICE (Lord Belstead): My Lords, the Government hope to be able to make an announcement soon after the Easter Recess.
Lord ORR-EWING: My Lords, will my noble friend say whether this report, when it is produced, will be published? If it is to be published, can he try to make sure that it is available to your Lordships' House so that we may absorb it before the defence debates take place?
Lord BELSTEAD: My Lords, I quite understand the concern of my noble friend. Of course, it depends on the form that the Statement takes.
Lord SHINWELL: My Lords, is the noble Lord aware that I am surprised at that announcement, because some weeks ago when this matter was raised we were informed that by 20th March the Government would make an announcement about Home and Civil Defence, whereas now we are told that we have to wait until after Easter? What is the cause of the delay? Do the Government realise that this is a matter of extreme importance?
Lord BELSTEAD: My Lords, the Government are treating it as a matter of importance. I am not aware that either
948
House of Parliament was told that there would be a Statement on or by 20th March. If the noble Lord can help me further with that point, then perhaps I may reply more effectively to him.
Lord DAVIES of LEEK: My Lords, is the noble Lord aware that some of us think it would be a constructive approach to civil defence if with regard to the countryside of Britain and the rural schools these were looked upon as areas for evacuation in—which I hope to God will never be—case of an emergency? Therefore, instead of the problem being entirely on the education grant, could not civil defence look upon the upkeep of rural schools as providing an area for evacuation for the children of the cities if there should be the need?
Lord BELSTEAD: My Lords, I will certainly take into account what the noble Lord has said and will pass it on to my right honourable friend so that he may take it into account in the review which he is conducting.
Lord CLIFFORD of CHUDLEIGH: My Lords, this Question refers to home defence, but is this not a question which should not necessarily be only for the Home Office but also for the Ministry of Defence? Home defence is understood by many people to include such things as the Territorial Army and its equivalent in the other services, whereas recently everyone has been referring to it only as civil defence. Surely both these matters are interrelated. Would not the Government ensure that the report includes home and civil defence, and not merely civil defence alone?
Lord BELSTEAD: My Lords, there is nothing between the Government and the noble Lord in what he is saying in his question. The review which my right honourable friend has been conducting covers many departments in Whitehall, but it is the Home Office which is answering in your Lordships' House.
Lord TAYLOR of BLACKBURN: My Lords, I am grateful for the Answer to this Question, but may I ask that when we receive the report we should have ample time to discuss and realise what the report is really saying, rather than be presented with a fait accompli?
Lord BELSTEAD: My Lords, I am sure that I shall need even more time than the noble Lord to assimilate the facts.
Lord ORR-EWING: My Lords, I think my noble friend did not get the point of my supplementary question; namely, is the report to be published? That is what we want time to study before we consider our defence debate.
Lord BELSTEAD: My Lords, what I meant when I replied to my noble friend, and said that it depended on the form of the Statement, is that of course if the report to Parliament is made in the form of a Parliamentary Statement, then there is nothing further to publish because the Statement is being given to Parliament.

ZIMBABWE: RELATIONS WITH NEIGHBOURING STATES
3.5 p.m.
Lord HATCH of LUSBY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what representations they have made to States neighbouring Zimbabwe designed to prevent external interference with that newly independent State.
Lord TREFGARNE: My Lords, the Government take the view that the most effective guarantee against external interference is to ensure that Zimbabwe comes to independence enjoying good neighbourly relations with all the other countries in the region. The Government have encouraged the development of such relations.
Lord HATCH of LUSBY: My Lords, is the noble Lord aware that that really does not quite answer my Question? I was asking what representations the Government had made. Will the noble Lord agree that the most serious threat to Zimbabwe—happily lessened now—comes from her southern neighbour, the Republic of South Africa?
Several noble Lords: No!
Lord HATCH of LUSBY: My Lords, is the noble Lord further aware that it was
950
a British official who, during the election, declared in the presence of the Governor that he had personally seen South African units within the borders of Zimbabwe (or Rhodesia as it then was) and that he himself guaranteed that he was able to identify them?
Lord TREFGARNE: My Lords, I wonder whether the noble Lord fully appreciates the changes which have taken place in that part of the world in recent months. The Government are encouraged that both Mr. Mugabe and the South Africans have expressed commitment to good neighbourly relations. Much has been done in the last few months to normalise relations with all Rhodesia's neighbours and there is now every prospect for Zimbabwe to develop fruitful relationships with all the countries in the region.
Lord GLADWYN: My Lords, will the noble Lord consider sending a telegram of congratulation to the noble Lord, Lord Soames, on converting President Machel to the doctrine of pluralistic democracy?
Lord TREFGARNE: My Lords, I shall have the honour of being in Salisbury in a few weeks' time and I shall convey that message to the noble Lord, Lord Soames, myself.
Lord GISBOROUGH: My Lords, will the noble Lord say whether or not it is true that there are 200,000 East German, Bulgarian, Hungarian and Russian troops based in countries adjacent to South Africa, particularly, Angola, Zambia and Mozambique, and what they are doing there?
Lord TREFGARNE: My Lords, I think my noble friend had better put that question to the Governments concerned.
Lord BARNBY: My Lords, arising from the supplementary question which the noble Lord answered, may I therefore ask him, with regard to the position in Zimbabwe, what is the position of the two (as reported in the Press) fully formed and foreign-trained units in Zimbabwe? Is it right to understand that until they have been withdrawn there will be no further aid from Britain to Zimbabwe?
Lord TREFGARNE: No, my Lords, it is not right to assume that we would

951
necessarily cut off aid for that or for any other reason. My noble friend is right, however, when he says that there are certain units loyal, apparently, to some of the present politicians in Rhodesia. Consultations are at present taking place to see what shall be clone with them.
Lord HATCH of LUSBY: Will the noble Lord answer that part of my supplementary question which he did not previously answer? Is he aware that South African units have been seen inside the boundaries of Rhodesia, and is he further aware, or would he agree, that there are many South Africans among the security forces of Rhodesia? Have the Government any policy for repatriating them when the new Zimbabwe army is formed
Lord TREFGARNE: My Lords, membership of the new army of Zimbabwe will be for the new Government of Zimbabwe to decide, not for the Governor's interim administration. There are no units of South African forces in Rhodesia.

CITIZENS' BAND RADIO
3.10 p.m.
Lord GISBOROUGH: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they are considering the introduction of citizen band radio, and which frequencies are under discussion.
Lord BELSTEAD: My Lords, the Government have had this issue under review for some time. We have already concluded that it would be inappropriate to introduce citizens' band radio on 27 MHz, the frequency band commonly used in other countries, but we are still examining the regulatory and administrative difficulties involved in legalising the facility on a higher frequency. We hope to announce a decision before long.
Lord GISBOROUGH: My Lords, I thank the noble Lord for that Answer. Radio-controlled model aeroplane
952
operators will be relieved to hear that because it costs £60 a time if they have to renew their sets. Is he aware that this will put this country on an equal footing with the United States and Japan, who will have to start making new sets on a new frequency—45 perhaps—at the same time?
Lord BELSTEAD: My Lords, I thank my noble friend for his supplementary questions. It is, of course, the fact that there are already authorised users of this band, and particularly among those users are model controllers. So far as the practice in other countries is concerned, we find that the experience of other countries who have citizens' band on 27 MHz confirms the reservations which we have in this country.
Lord MORRIS: My Lords, following the World Administrative Radio Conference in Geneva, would not my noble friend agree that it is of the utmost importance to have the widest possible discussions with the industry and users prior to the issuance of frequency plans, in order to ensure that the most responsible use of the band spectrum results?
Lord BELSTEAD: My Lords, I can assure my noble friend that we are having a national review of frequency allocations following the recent World Administrative Radio Conference.
Lord TORPHICHEN: My Lords, can my noble friend tell me which department, which part of the Home Office or Post Office, is responsible for this review and for allocating whatever frequency is to be allocated?
Lord BELSTEAD: My Lords, it is the radio regulatory department of the Home Office.

"GAZUMPING": ENGLAND AND SCOTLAND
3.14 p.m.
The Earl of SELKIRK: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government why the practice of "gazumping"

953
house prices, not uncommon in England, is virtually unknown in Scotland.
The LORD CHANCELLOR (Lord Hailsham of Saint Marylebone): My Lords, in my first term of office I commissioned the Law Commission to inquire into the question of subject to contract agreements, and the noble and learned Lord, Lord Elwyn-Jones, will remember that they reported, in their document Law Commission No. 65, to him in 1975. They there pointed out that in Scotland the procedure on house purchase is not unlike a sale by tender and that contracts become binding at an earlier stage than in England and Wales. I do not believe that this is due to any relevant difference in law or legal requirement, but to the deliberate choice of the parties. The Law Commission concluded that, while there is no legal obstacle to the adoption of similar practices in England and Wales, the choice of subject to contract agreements is due to the different conditions prevailing South of the Border which lead parties negotiating deliberately to choose to be bound contractually at a later stage. Resiling from contracts still subject to negotiations is, of course, a risk not confined to contracts for the sale of real property.
The Earl of SELKIRK: My Lords, I thank the noble and learned Lord the Lord High Chancellor of Great Britain for his very valuable Answer. May I assure him that my only reason for putting down this Question is from a sense of sympathy for our colleagues in England. Am I not right in saying that when missives of sale are completed in Scotland that is an effective personal contract, and while it may be subject to survey or to mortgage arrangements it effectively prevents "gazumping" at a later stage, thus avoiding both disappointment and much anguish? Would it not be worth while reminding the Law Society that this course is fully open to anyone in England?
The LORD CHANCELLOR: My Lords, I am grateful to the noble Earl for reminding me of my high sounding title, Lord High Chancellor of Great Britain. I have to remind him, however, that although I have this title my knowledge of Scottish law and my responsibilities for it are rather more limited than the
954
title by itself would imply. It is the case that Scottish conveyancing practice does involve the parties choosing of their own volition to bind themselves at an earlier stage in negotiations for the sale of real property than they do in England. But I sought to explain that when the Law Commission, at my request, looked into it they came to the conclusion that this was due to the will of the parties and due to the different conditions prevailing.
I think perhaps the noble Earl underestimated the peculiar differences which arise in Scotland as a result of the provision which there applies, unlike England, for subject to survey contracts. That gives rise to different difficulties which do not arise in England. I know the Law Society is familiar with the problem because, from the very first moment of my first period of office, I have been in touch with the Law Commission and, through them, with the profession on the subject.
Lord McCLUSKEY: My Lords, while congratulating the noble and learned Lord on his unaccustomed modesty, may I ask him whether he accepts that, while the Scottish practice of concluding binding contracts by an exchange of missives has the great advantage of eliminating"gazumping"and uncertainty, it involves one serious disadvantage, namely, that each prospective purchaser has, before putting in his offer, to commission and pay for a building survey by a professional surveyor acceptable to the prospective purchaser's building society, with the result that those whose offers are not accepted find themselves heavily out of pocket? Would the noble and learned Lord invite his right honourable friend the Secretary of State for Scotland to approach the Law Society of Scotland, the Royal Institution of Chartered Surveyors and the building societies to discuss this problem, with a view to encouraging the seller, before advertising his house, to commission one such survey by a surveyor acceptable to all the building societies, his fee to be paid by the successful purchaser only, thus eliminating wasteful, expensive and unnecessary duplication?
The LORD CHANCELLOR: My Lords, I am grateful to the noble and learned Lord. I always thought I was the most modest of men, so I will not accept that my modesty on this occasion was un-

955
accustomed. I am grateful to the noble and learned Lord for his constructive suggestion. It was precisely that facet of the matter of which I ventured to remind my noble friend Lord Selkirk in my earlier answer. I can see on the Front Bench my noble and learned friend the Lord Advocate, and I feel sure that he will take due note of what the noble and learned Lord, Lord McCluskey, has said, and refer it to the appropriate bodies in Scotland for their consideration. It seems something which is certainly worth looking at.
Lord MACKIE of BENSHIE: My Lords, would not the noble and learned Lord the Lord Chancellor agree that the real reason for the lack of "gazumping" in Scotland is the general integrity, virtue, honesty and superiority of the Scots?
The LORD CHANCELLOR: No, my Lords. I would accept that all the qualities the noble Lord has suggested inhere in Scotland, but they are also not unknown South of the Border.
Lord JANNER: My Lords, would the noble and learned Lord be good enough to consider this position again? Is he aware—I am sure he must be—that this affects a very large number of people in this country who believe that they have entered into a contract, and at the last moment are deprived of the opportunity of dealing with a matter which they have had under consideration for a very considerable time because someone jumps in and "gazumps", as we call it? The noble and learned Lord, for whom I have the highest regard, might consider the possibility of passing some law whereby an individual knows that once he has been accepted subject to contract—the problem is subject to contract—a period of time should prevail during which no higher amount should be accepted from somebody else for the purchase. It may be that that is a way of coping with the situation. It is an extremely serious position, as those of us in the profession know.
The LORD CHANCELLOR: My Lords, with the greatest respect to the noble Lord, Lord Janner, these are precisely the issues which were pursued in very great depth by the Law Commission. Obviously, if a suggestion like
956
that of the noble and learned Lord, Lord McCluskey, were made in relation to English practice, I would submit it either to them or to the Law Society.
However, I was concerned with this matter for many years—indeed, I have myself been subject to this procedure which I do not like to call "gazumping", which seems to me to encourage rather imprecise thinking. It is sometimes the purchaser and sometimes the vendor who does it. On a rising market it tends to be the vendor. In my case it was a falling market and a purchaser who did it. But, in the end, it is due to the fact that the parties do not wish to hind themselves at that stage. They do not want to bind themselves for many reasons, but the first is that the purchaser wishes to ensure that he can find the finance by way of a mortgage from, let us say, a building society or some other institution, and the vendor, equally properly, desires not to be bound until he is sure that the purchaser is financially reliable. We cannot make people enter into contractual relations when they deliberately prefer not to enter into contractual relations. That is the nub of this particular problem.
I ought to add that the Law Society has issued fairly stringent ethical requirements against so-called "contract races", and it is to be praised for having done so, and I believe that the responsible estates agents do the same. But nothing can wholly guarantee that people will act honourably when there is no legal obligation to do something else.
Lord ELWYN-JONES: My Lords, is not the noble and learned Lord the Lord Chancellor guilty of excessive modesty in accepting the designation of himself as the Lord High Chancellor of Great Britain? As he now administers the courts in Northern Ireland and appoints the judges there, is not the fitting title, the Lord High Chancellor of the United Kingdom?
The LORD CHANCELLOR: My Lords, the noble and learned Lord is loading me with honours, but in fact the title is, for some reason, "of Great Britain". I agree that I have responsibilities in Northern Ireland of an important nature which the noble and learned Lord undertook, with my blessing, from the place where he now sits, but it has not altered the title of the office.

BUSINESS
Lord DENHAM: My Lords, owing to an error, consideration of Commons' amendments to the Lords' amendments on the National Heritage Bill appears on today's Order Paper as last business. It had been arranged, in consultation with the usual channels and with those with an interest in the point concerned, that this should be taken before consideration of amendments to the Companies Bill, which is expected to take several hours. If no noble Lord objects, I propose that consideration of the amendments to the National Heritage Bill should be postponed until Monday next, when it can be taken at a time more convenient to your Lordships.
It may also be for the convenience of your Lordships to know that dinner will be available this evening at the usual time.

BANGOR MARKET BILL [H.L.]
Read 3a, and passed, and sent to the Commons.

CRIMINAL JUSTICE (SCOTLAND) BILL [H.L.]
Read 3a, with the amendments.
Clause 1 [Suspect or potential witness may be required by constable to identify himself]:
3.25 p.m.
The MINISTER of STATE, SCOTTISH OFFICE (The Earl of Mansfield)The MINISTER of STATE, SCOTTISH OFFICE (The Earl of Mansfield) moved Amendment No. l:
Page 2, line 4, leave out subsection (4) and insert—
(" (4) A constable shall inform a person, when making a requirement of that person under—

(a) paragraph (a) of subsection (1) above, of his suspicion and of the general nature of the offence which he suspects that the person has committed or is committing;

(b) paragraph (b) of subsection (1) above, of his suspicion, of the general nature of the offence which he suspects has been or is being committed and that the reason for the requirement is that he believes the person has information relating to the offence;

(c) subsection (2) above, of why the person is being required to remain with him;

958

(d) either of the said subsections, that failure to comply with the requirement may constitute an offence.").

The noble Earl said: My Lords, this amendment replaces the existing requirement in Clause 1(4) for a constable, in exercising the powers conferred by Clause 1, to give certain information to a suspect and a witness with more detailed requirements.
The amendment has been tabled in fulfillment of an undertaking which I gave at the Report stage to the noble Lord, Lord Foot. In essence, the noble Lord proposed that a police officer who required a witness to give his name and address under Clause 1 should be obliged to inform the witness of the reasons for the request and to tell him that failure to give his proper name and address constituted an offence. The amendment gives effect to that proposal, and goes beyond it to provide that a suspect should also be informed that if he fails to give his proper name and address, or fails to remain if required to do so, he will be guilty of an offence under subsection (5) of the clause. It seemed to us only equitable that the witness and the suspect should be accorded similar treatment in terms of their entitlement to information. I beg to move.
Lord FOOT: My Lords, I should like to say only that I am very much obliged to the noble Earl for having inserted this amendment, which expresses very much better than my original amendment what we both have in mind. It is entirely in accord with the way in which the amendments proposed throughout the passage of this Bill have been received by the Front Bench. This is yet another example of the admirable and very satisfactory way in which the Government have listened to the arguments which have been raised, and I am very much obliged.
Lord McCLUSKEY: My Lords, I should like to mention just one little word, and that is "of" which appears in paragraph (c). I wonder whether that really is appropriate in that particular place?
The Earl of MANSFIELD: My Lords, I shall look into the matter and if necessary it can be rectified in another place.
On Question, amendment agreed to.
Clause 2 [Detention and questioning at police station]:
The Earl of MANSFIELD The Earl of MANSFIELD moved Amendment No. 2:
Page 3, line 19, leave out ("therefrom") and insert ("from the police station or other premises")
The noble Earl said: My Lords, this is a drafting amendment, consequential upon an amendment which was agreed on Report. That amendment inserted paragraph (d) into Clause 2(4), and had the incidental effect of distancing the word "therefrom" in paragraph (e) from its antecedent in paragraph (c). This amendment replaces the word "therefrom" by a more explicit phrase. I beg to move.
On Question, amendment agreed to.
Clause 6 [Judicial examination]:
The LORD ADVOCATE (Lord Mackay of Clashfern)The LORD ADVOCATE (Lord Mackay of Clashfern) moved Amendment No. 3:
Page 5, line 32, after ("solicitor.") insert—
(" (3C) Any proceedings before the sheriff in examination or further examination shall be conducted in chambers.").
The noble and learned Lord said: My Lords, this amendment seeks to provide explicitly that judicial examination or further examination shall be conducted in Chambers and fulfills an undertaking which I gave in response to a similar amendment tabled by my noble friend Lord Selkirk. I am very glad that we have been able to meet my noble friend's wishes in this way. I beg to move.
The Earl of SELKIRK: My Lords, I thank my noble and learned friend for putting in the clarification which I think is desirable.
On Question, amendment agreed to.
3.30 p.m.
Lord MACKAY of CLASHFERN Lord MACKAY of CLASHFERN moved Amendment No. 4:
Page 7, line 4, leave out ("any such declination") and insert ("his having so declined").
The noble and learned Lord said: My Lords, this is purely a drafting amendment in response to a point raised during our discussion at Report stage by the noble Lord, Lord Foot. I think that the noble Lord was a little discouraged by our use of the word "declination". The word "declinature", which he kindly suggested
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as an alternative, has some technical uses in Scots law, and we have thought it best to try to re-word the clause. I hope that what we have done meets with the point that he raised. I beg to move.
On Question, amendment agreed to.
Clause 9 [Citation of defence witness for precognition]:
Lord MACKAY of CLASHFERN Lord MACKAY of CLASHFERN moved Amendment No. 5:
Page 9, line 7, after ("sheriff") insert ("in chambers").
The noble and learned Lord said: My Lords, in effect, this amendment is the same as the one I mentioned a moment ago responding to a point raised by my noble friend Lord Selkirk. I beg to move.
The Earl of SELKIRK: My Lords, again I thank my noble and learned friend for this clarification.
On Question, amendment agreed to.
Clause 40 [Restriction on passing sentence of imprisonment or detention on person not legally represented]:
Lord MACKAY of CLASHFERN Lord MACKAY of CLASHFERN moved Amendment No. 6:
Page 31, line 7, at end insert ("or detention in a young offenders centre").
The noble and learned Lord said: My Lords, this is a drafting amendment to take account of the possibility that a sentence of detention might include a sentence of detention in a young offenders centre in Northern Ireland. It is right that that should be taken into account, and this amendment seeks to do so. I beg to move.
On Question, amendment agreed to.
Schedule 2 [Solemn appeals]:
Lord MACKAY of CLASHFERN Lord MACKAY of CLASHFERN moved Amendment No. 7:
Page 57, line 1, leave out from ("words") to (" "from") in line 3.
The noble and learned Lord said: My Lords, this is a purely drafting amendment. I beg to move.
On Question, amendment agreed to.
Schedule 8 [Repeals]:
Lord MACKAY of CLASHFERN Lord MACKAY of CLASHFERN moved Amendment No. 8:
Page 94, line 2, column 3, leave out from ("words") to (" "from") in line 6.
The noble and learned Lord said: My Lords, again this amendment is a consequential drafting amendment. I beg to move.
On Question, amendment agreed to.
Lord MACKAY of CLASHFERN Lord MACKAY of CLASHFERN moved Amendment No. 9:
Page 95, column 3, leave out lines 23 to 25 and insert ("Section 411(2).").
The noble and learned Lord said: My Lords, once again this is a consequential drafting amendment. I beg to move.
On Question, amendment agreed to. An amendment (privilege) made.
3.35 p.m.
The Earl of MANSFIELD: My Lords, I beg to move that this Bill do now pass. I should like to take this opportunity to restate, if that is the correct word, the Government's position so far as this Bill is concerned. Outside this House I think I am right and justified in saying that there has been a vociferous and, at times, ill-informed campaign of opposition on the grounds that the Bill seriously diminished civil rights. We reject that charge. We believe that the supreme civil right is the freedom to go about one's business without fear of assault on person or property. We believe deeply, fundamentally, in the citizen's right to expect that he will be protected from the activities of the criminally-inclined and the violently-disposed. We believe that regrettably that freedom has been seriously eroded in recent years. We are concerned to reverse that trend; to halt the ever-increasing incidence of crime, particularly violent crime; and we are convinced that such reversal will not be achieved without giving adequate powers to our law enforcement agencies.
However, we accept unreservedly that these powers must be precisely and carefully defined, and their exercise effectively monitored. We believe that the provisions of this Bill as it now stands
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achieve the right balance. The Bill seeks to confer the necessary powers, but it defines them in a way which leaves neither the policeman nor the citizen with whom he is dealing in any doubt about what their respective rights and obligations are. It includes many measures designed to assist the person accused, if he is innocent, to establish that innocence. It regulates the police power of detention which, as the Thomson Committee pointed out, has hitherto rested for its effectiveness on the average suspect's ignorance of his rights in the matter. It attempts to do something about the increasing and undesirable habit of carrying weapons. It tries to grapple with the problem of alcohol-related offences at major sporting events. It seeks to curb the growth in offences of vandalism. Of course, it will not halt these various forms of criminal activities overnight. No measure that we could devise would do that. But we believe that it is an important step towards reversing the rising trend, and it will do it in a balanced and sensible way. I beg to move.
Moved, That the Bill do now pass.—(The Earl of Mansfield.)
Lord McCLUSKEY: My Lords, may I respond to what the noble Earl, Lord Mansfield, has just said by acknowledging the courtesy at all times, and the occasional flexibility, of the Ministers who supported this Bill in this House. In particular may I single out the noble Lord, Lord Lyell, who is not, I am afraid, in his place today, but who was thrown at least on one occasion, and perhaps on two, into the frontline on a difficult issue, and defended the indefensible with his customary good humour, tenacity and charm. If I seemed rather harsh at the time, I hope that he will accept my apology. I was incensed at the Government's obduracy, not at his presentation of the indefensible case.
I would hope that the Government's flexibility displayed in at least some of the matters before your Lordships will be continued in another place. Indeed it must be, because I would predict a difficult passage for this Bill in another place. My own doubts about the wisdom of and the necessity for certain parts of this Bill have grown as I have studied them, and, indeed, studied the debates here. Thus I still question the value of

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Clause 4, which is the one relating to "search for offensive weapons". It is unfortunate that when talking about the need for effective monitoring of the Bill, the noble Earl did not earlier on accept the proposal that Part I should be introduced for an experimental period.
I also doubt whether Clause 6 will add anything of value to our criminal procedure in Scotland. Indeed, I think that it will add nothing, except possibly delay, expense and technicality. Part V, to which the noble Earl referred, deals with the control of alcohol at sporting events. I am sure that the idea is sound, but I fear that the provisions in Part V are not properly digested. I hope that in another place the Government will take account of the criticisms that were made of these particular provisions in the course of the Committee stage and the Report stage.
I am sorry that the Government have not yet acknowledged their moral defeat when the vote was 92–92 at Report stage on what is now Clause 69. I hope that they will look at that again in another place. In a way it is a pity that so many useful technical reforms in Part II of the Bill have been lost sight of in the debate about police powers in Part I. The noble Earl has just referred to another matter. He described the opposition outside this House as being "vociferous and ill-informed". Some of the opposition to Part 1 of the Bill has been slow to manifest itself; although it has been slow to manifest itself, certainly there has been a good deal of public interest in it in Scotland. But that does not render the criticisms that have been made any the less valid. Reasoned argument ought to be assessed on its own merits and not be lightly dismissed as vociferous, too late, too soft or ill-informed.
The Bill's critics, whether inside or outside the House, are, I believe, all concerned with the same ends—the promotion of the public interest and the improvement of relations between the public and the police. It is not too late to stop confronting the Bill's critics and try to meet them halfway. I urge the Government to do that in the course of the next few months before the Bill returns to this House.
3.39 p.m.
Lord DRUMALBYN: My Lords, it would be a pity if this Bill went on its way to another place without some comment on another part of the Bill, which has not been mentioned, and which gives effect to proposals made in the Third Report of the Committee under the chairmanship of the noble Lord, Lord Thomson, which dealt with criminal appeals in Scotland. Clause 32 and Schedule 2 deal with solemn appeals, about which we had some discussion, although not very much, during the previous stages of the Bill. In Clause 33 and Schedule 3 the Bill proposes amendments to the law relating to criminal appeal under summary procedure. Of these proposals there has been very little discussion so far. At the time when the Thomson Committee were reviewing the present procedure for summary appeals, it came under some criticism in your Lordships' House in relation to a particular case—that of David Anderson at Ayr Sheriff Court. Indeed, the report itself refers specifically to the debate which took place on that case in this House on 21st January, 1976.
The criticism was not that the summary procedure laid down in the existing legislation had not been adhered to, but that that procedure itself was defective. The criticism was mainly directed against three aspects of the procedure. First of all, there is at present no provision for an appeal on the facts found by the sheriff. This was a matter which was regarded by some English Peers at any rate with astonishment. As the report indicates, in Scotland the trial judge has always been the final arbiter of fact. Lord Thomson made no proposal for change, for these reasons: in Scotland there is a higher requirement as to sufficiency of evidence than in England, and as to corroboration; secondly, in Scotland the prosecution is under the control of a public prosecutor in the person of the procurator fiscal, who represents the Lord Advocate; thirdly, a rehearing along the lines of that afforded in England by the Crown Court, with a Crown Court judge sitting with from two to four magistrates, would require an additional tier in the Scottish court system which does not exist at present, and that would mean a totally new judicial system. There

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was said to be no demand for such a reform in Scotland.
I would not myself have found these reasons wholly convincing but for one additional point mentioned elsewhere in the report. If I have understood it aright—and I hope that my noble friend will confirm this—the question of sufficiency of evidence is a matter of law, and therefore can form the basis of an appeal to the High Court by way of stated case. The content of the stated case by the sheriff is thus of vital importance, and that is what Schedule 3 is mainly about. The Committee concluded:
"In our view the only valid criticism of our summary appeal procedure relates to the inadequacies of the present appeal by stated case".
I turn now to those inadequacies and the way in which the Bill proposes to rectify them in Schedule 3. There is no provision at present for the form of appeal. This appears to be rectified in accordance with the committee's proposal by amending Section 444 of the 1975 Act so as to require the application for a stated case to
"contain a full statement of all the matters which the appellant desires to bring under review"—
a statement which, within the specified period, may be amended or added to.
The most important criticism related to the preparation of the stated case for the High Court. Under the present provisions the appellant's counsel may propose adjustments to it, and the judge must examine them but may reject any or all of them without hearing the parties. This is what happened in the Anderson case. The committee proposed that:
"(i) a hearing on adjustments should be mandatory.
(ii) where adjustments incorporate new findings in fact or other matters not covered in the draft [stated case] and the judge proposes to reject them…he should state not only the fact of his rejection but his reasons therefor. Similarly, if a particular finding in fact is challenged as being unsupported by the evidence, the judge should be obliged to state the evidence on which the finding is based. Any proposed adjustments which are not withdrawn by a party but are rejected by the judge should be included in the minute of proceedings".
These proposals are incorporated in Schedule 3 as amendments to Section 448 of the 1975 Act, and appear in subsections (2C) and (2D) in paragraph 7.
I should like to emphasise that these
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changes represent notable improvements in the stated case procedure. Those of your Lordships who attended the two debates on the Anderson case on 21st January 1976 and 4th July 1978 will recall that defence counsel submitted 10 pages of adjustments he proposed should be made in the draft stated case, and that the sheriff rejected all but one minor one without a hearing (though he might have held one) and without, so far as I know, having seen the unofficial shorthand transcript of the proceedings. Again this is not so much a criticism of the sheriff as of the existing procedure which this Bill is rectifying. There is no doubt the sheriff was entitled to do what he did. In consequence of this defective procedure, the High Court was not judicially aware of the adjustments relating to facts challenged and the inferences which the defence considered not justified by the evidence.
May I just conclude by saying this: a great many people both inside and outside Scotland, including Justice and many lawyers and other folk, strongly believe that the proceedings leading up to the appeal in the case of David Anderson tended to bring Scottish justice into disrepute, since justice was not clearly seen to be done. The amendments in this Bill to the 1975 Act in relation to summary appeals go a long way to removing the grounds of criticism and to restoring that reputation. They certainly deserve, in my view, the backing of your Lordships, and, indeed, I give my full support to the Bill as a whole.
3.48 p.m.
Lord ROSS of MARNOCK: My Lords, I do not think that this is the time to go into the question of David Anderson, certainly at this stage of this Bill where this matter has been raised for the first time. I was Secretary of State and involved in a debate as well in another place. I also happen to live in the place where the offence took place. I think that the sheriff to whom the noble Lord referred is now dead. There is one thing clear: so far as certain of the procedures are concerned in relation to the examination of cases both in the sheriff court and the High Court, there has been a considerable improvement as a result of this Bill; and that has been further improved during the course of the consideration of the Bill.

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I was surprised on Sunday when I thought I was going to get a religious programme on the BBC, to hear a certain number of lawyers saying how difficult it was to get law reform for Scotland through the Westminster Parliament. Since I came to this place we seem to have been doing nothing else. I think we have had three Bills. There was the Bail Bill; I think there was a miscellaneous Bill as well, and now this one. Strangely enough, one of the people who was on this inquiry—and none of them seemed to know anything about parliamentary procedure and what was now happening—had been writing to us about this Bill. I hope that people appreciate the time that is given, and rightly given, to Scottish legislation in both Houses.
I hope that none of your Lordships will object to any time that I take up here. You all wanted the Scots to be here, so here we are, and you will just need to listen to us with our rather crude way of putting things.
Having said some pleasant things, I shall now no doubt proceed to say some unpleasant things. First, I am sure that the Lord Advocate will be very glad that he is in this Chamber, because if the Government were to go to the other place with a Bill of this importance based upon a report—the Thomson Report—and did not print that report so that people would know exactly what it was about, then they would be subject to all of the condemnation that they deserved. That is the first complaint about the conduct of this Bill: not a single copy of the most important report on which this Bill was based was available to us, and I am not satisfied about that.
I am glad that in the earlier clauses we made some changes in respect of the position of witnesses. From that point of view, I think we have done quite well and I am grateful to the Lord Advocate for the way in which he allowed himself to be persuaded in that respect. On the question of the powers of search by the police, I was pressed in particular by the police in what was then Glasgow, not Strathclyde, and I took the view that to tip the balance in favour of the police in this particular way and give them the statutory power would not lead to cooperation between the police and the
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public. As Secretary of State, one receives not just letters from policemen or police authorities asking for additional powers; one has letters from people and from parents complaining of the activities of the police. I have known several cases where it was very doubtful whether what had been done should have been done.
I think that at one time during consideration of the Bill we were told that what we were doing in relation to Clause 1 was only legalising what the police were already doing. It is a dangerous thing to give them new powers while at the same time we are being told that powers they already have they have been abusing. I am not entirely satisfied that that was correct.
The clauses in relation to football offences all relate to buses and to drunkenness. Many people ask why we cannot do something. One has to be sure that one does the right thing. It is no good passing a law unless it is enforceable, and the idea of an international match between Scotland and England taking place and all the people travelling there not having on them a single drop of whisky, lager or beer, passes comprehension. How many policemen is it going to take to search everyone going into the ground to ensure that they have not got with them a hip flask or a small bottle of some kind—I think the new phrase is "control container"?
In relation to buses, we already have legislation. It was not initially introduced in regard to football. It was just in relation to people moving away for the day and descending on small towns. I do not think that that has been at all effective. Until one deals with the question of the supply of drink, and stopping it being taking away, particularly in the area where a football match is being held, there will be trouble of some kind because one will not be able to enforce this legislation as the Government seem to expect. I have asked how many policemen it would take to attend a cup-tie, a cup final or an international game, or even an inter-Celtic game. I hope the Minister will appreciate that at the present time the football clubs in Scotland are very much concerned about the cost to them. They have to pay for the cost of the additional police who are employed during a football

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match. I assure your Lordships that that cost is for some of the small clubs very heavy indeed. If this legislation is to be enforced, it will place a very much heavier burden on someone. I want to know whether the burden is to fall on the ratepayers or on the football clubs. I hope that the Government have thought about this, because as far as I understand it there have already been approaches to try and ease the burden on some of the smaller clubs in respect of the cost of police at games.
I am disappointed in the Lord Advocate. He is a man in whom I had placed my hopes. He came here with a very good reputation. He built that reputation by the way in which he handled the clauses, especially when he accepted some suggestions put forward by me. After all these years I had discovered a Lord Advocate who knew good sense when he heard it. But we still have Clause 69, where responsibility is placed on the driver of a bus for the alcoholic condition of the people who are in it or, if one small bottle is discovered there, it is the driver who is responsible and he has to stop the bus, deal with the matter or take those concerned to a police station. Really, it is crazy, and I hope that before the Bill goes through all its proceedings in the other place they will take this clause out. It is not fair; it is asking too much to require the bus driver to become the supervisor of the drink question in relation to every person who boards his bus. Also when these people go on the bus he has to see that there is no drink on them and to supervise their behaviour there. If they stop somewhere along the road, if they come from a place of refreshment or where they have had a drink, once again he has to see that they have not concealed any drink on them. It is quite crazy. It will just go by the board.
Then we are left with the question of how people will behave inside the grounds. Like everyone else, I want to see better conducted football matches and crowds, but this whole provision has to do with buses. Since this Bill has been going through your Lordships' House, we have not had a case involving buses, but we have had cases involving railway trains. How many noble Lords have suggested that one has to deal with British Rail as well? I think it was in relation to a
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match between Aberdeen and one of the Dundee teams that a tremendous amount of damage was done. People were injured, and indeed terrified, by what happened on an ordinary railway train. Admittedly we have tried to deal with football special trains, and we received the answer that everything was all right. The McElhone Committee were told by British Rail and by everyone else that everything was looked after very well. This is the one area in which it is said it is not necessary to do anything, but this is where the trouble really starts. Therefore, may I ask that during the passage of this Bill we look again at this aspect? I am not going to raise the question that Murrayfield is all right but Hampden is all wrong, although I am glad to say that the results have been better at Hampden than at Murrayfield in the last few weeks. Last night it was 4:1.
Now I come to the "Taylor memorial clause", Clause 78. There has been vociferous objection not just by the people interested in civil liberties but by the Law Society of Scotland who have declared that this clause is quite unnecessary. If one is troubled with the crime, one changes the name and that solves the problem! It really is nonsense to create a new crime of vandalism. It is malicious damage at the present time. It could be three or four different things, all accumulated, even attracting bigger penalty than the new offence of vandalism. But this is the Government carrying out their manifesto commitment. Shall I whisper again to them that their manifesto commitments did not get them very far in Scotland? There are 44 Labour Members and 24 Conservative Members.
The Earl of MANSFIELD: My Lords, it is the quality that counts.
Lord ROSS of MARNOCK: Ask Southend about that in a few years' time. The man who led them, the man who went on about law and order and vandalism, was defeated, and here is the solution—we are to create a new offence and it is to be called vandalism. What nonsense! I hope the Government will think again about this. After all, he is no longer a Scottish Member, and I suggest that noble Lords opposite should quietly forget about this one. It will not solve any problem.

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I hope the Bill has a fair passage in another place. I am looking forward to watching how the Solicitor-General defends himself, especially in respect of that clause which he said would be unheard of in the annals of Scottish law if it were included in a Bill. He has to defend the fact that he actually voted against it when it was in another Bill. It will be quite amusing and I shall spend a lot of time "keeping my hand in" on the Bill when it is in another place.
Lord GALPERN: My Lords, I shall be brief and I wish to refer only to Clause 9(3), about which I am uneasy. It refers to:
"Any person who, having been duly cited to attend for precognition under subsection (1) above, attends but—
(i) refuses to give information within his knowledge".
I am wondering how we can establish that he has knowledge and is refusing to give it. In another place and even in your Lordships' House one hears Ministers indicating they have no knowledge of something, yet quite a number of us know they have such knowledge. As I say, how does one establish the position? In this case, he is not even known to be a witness because, according to subsection (1), he is only alleged to be a witness. That an accused person wishes him to be precognised means that he must attend when required and give his precognition on oath. Perhaps we could be told when the Minister replies how, when an alleged witness—he may not even have been a witness—is called and refuses, on somebody's statement, to say he had knowledge and says,"I know nothing about it ", we are to establish the position.
4.3 p.m.
The Earl of MANSFIELD: My Lords, I shall respond to some of the points that have been made at this final stage of the Bill, at least for the moment. I confirm at once to my noble friend Lord Drumalbyn that sufficiency of evidence is a matter of law which may be considered on appeal, and I hope that will satisfy him. Nobody knows better than I do the sustained efforts he has made in a case which gave rise to much misgiving. The proposals in Schedule 3, as he stated,
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are a notable improvement in the stated case procedure.
The noble Lord, Lord Ross of Marnock, made a number of complaints. So far as what I might call the "football offences" are concerned, I am sure he will recall that these were drafted on the basis of a report and recommendations of the then Parliamentary Under-Secretary with responsibility for sport, Mr. McElhone, who was a Member of the last Government. It seemed to the last Government, and it has seemed to us, that much of what his Committee decided after due deliberation made sense, and it was in those circumstances that these provisions were written into the law.
The noble Lord apparently does not contemplate his attendance at least at a football match without the consumption of alcoholic refreshment. At the last Scotland v. England match at Murray-field I was sitting among the faithful supporters of the Perthshire Rugby Club. We have five brands of whiskey which are made in Perth. On my left was the owner of one such brand and on my right was the owner of a second, and they were passing round, for free, miniatures of their respective products and inviting all —particularly when Scotland scored, which was not frequently enough—to sample the product. I managed to refuse because I intended to drive my motor car back to Perth. But it did not play any particular part in my life that I was depriving myself of alcohol on that particular occasion.
The noble Lord rightly said that this was the third measure of legal reform introduced into your Lordships' House in the short time this Parliament has been in existence. Far more than that: it is the first major piece of Scottish criminal justice legislation for many years. I should like to record that, and I am sure it will be seen as a landmark in the reform of our legal system. I take this opportunity to express the appreciation of myself and my colleagues on this Bench for the careful attention noble Lords have given to the Bill. As I have made plain on a number of occasions, the Government have been willing to consider all reasonable points of view and constructive suggestions put forward to improve the Bill, and I would make particular mention of the noble Lord, Lord Foot, who put

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forward several constructive improvements which the Government were happy to accept.
On the last occasion when the Bill was before your Lordships' House, I paid tribute to the noble and learned Lord, Lord McCluskey, with what I hoped were kind words. It is remarkable that at every stage of the Bill in your Lordships' House he has said that it was positively his last appearance. But like some aging but still attractive music-hall artist, the next time the Bill comes to your Lordships' attention, once more he springs to the centre of the stage. I particularly welcome the nice things he said about my noble friend Lord Lyell.
I am confident that the Bill leaves this House a clearer and strengthened measure and I believe that most noble Lords, including, I hope, the noble Lord, Lord Foot, accept the Bill as it now stands as balanced and fair. We have been accused on some sides of introducing a vicious measure of oppression, while on others the proposal is now seen to have become emasculated and enfeebled. Some parts of the popular Press have alleged both points of view. The truth is that people on both extremes of opinion will never be satisfied, but we believe that the vast majority of people in Scotland welcome the Bill and appreciate that it provides a fair balance between the powers of the police and the safeguarding of the rights of the individual. It seeks to protect the ordinary citizen against crime, and the effect of the Bill will be to justify and enhance continued public confidence in the Scottish criminal justice system.
I must pay a final tribute to the noble and learned Lords, the Law Lords, who played a considerable part in our deliberations. They were always constructive, even if not always to the joy of the Government. As the Bill passes into law, it will, I believe, be received as a major landmark in our legal system. We now send it on its way to the other place—where, incidentally, there will be plenty of copies of the Thomson Report for their perusal—and on behalf of my noble and learned friend and myself, I thank noble Lords in all parts of the House generally for the help they have given us.
On Question, Bill passed, and sent to the Commons.

TRANSPORT BOARDS (ADJUSTMENT OF PAYMENTS) ORDER 1980
4.10 p.m.
The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Lord Bellwin)The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Lord Bellwin) rose to move, That the draft order laid before the House on 11th March, he approved. The noble Lord said: My Lords, this order reduces British Rail's liability to make payments in lieu of rates. The order arises because of changes in the status and business of the National Freight Corporation. This order deals with two problems. There is a need for a permanent revision of British Rail's contribution in lieu of rates, and the order introduces that. There has also been a transitional problem with the NFC, and the order covers that also.
Before I explain in detail the purpose and effect of the order, it may help noble Lords if I say something about the background. Instead of paying rates, as such, on their operational property, British Rail pay an amount in lieu of rates, calculated in accordance with statutory provisions. The Secretary of State then distributes the money between rating authorities. British Rail's liability for any year depends on a prescribed "standard amount", which this order would reduce, and on the average rate poundage set by local authorities in the previous year. They also pay rates, in the normal way, on non-operational property, such as hotels, refreshment rooms, and some offices. In turn, the National Freight Corporation are required to pay to British Rail a "fair" contribution in relation to premises which they occupy for the purposes of handling rail-related traffic. The amount of NFC's contribution is to be settled by agreement between the two boards.
The previous Administration reset the standard amount for British Rail in 1977. In view of this, we have not undertaken any fundamental review of British Rail's rating. The reduction that we are proposing arises from the changing circumstances of the National Freight Corporation. It is helpful to consider the transitional problem first. When the Freight Corporation was first established, most of its traffic was carried by rail. Now, however, over 50 per cent. of the traffic

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is entirely road-borne. Under rating law, road transport depots are assessed and rated by normal methods; and this is what has happened to much of NFC property which was previously used solely for rail-related traffic. This has created an additional cost on NFC; and up to now, there has been no offsetting reduction in NFC's obligation to contribute towards British Rail's payment in lieu of rates. The NFC have argued that they have been paying twice in respect of the same property: about £ 1/2 million a year too much, at least since 1978–79.
British Rail, understandably, have felt unable to agree a reduced contribution from NFC, if that would mean that their own payment would have to be increased so as to meet the total liability. The local authorities, on the other hand, felt that the raising of new separate assessments on some properties did not justify any reduction in the standard amount. They point out that the "standard amount" relates to the network as a whole, rather than to specific properties. However, because the changes have affected the whole nature of NFC's operations, we felt that we ought, in principle, to make some reduction in the British Rail "standard amount", so that they, in turn, could agree a reduced contribution from NFC.
This order represents a compromise reduction which, in effect, acknowledges an actual or potential overpayment by NFC over recent years. The joint burden of the two boards would be reduced for the single year 1980–81, so as to compensate for the period of overpayment. British Rail and the Freight Corporation have accepted this proposal, and I understand that they will make arrangements accordingly for the sharing of their joint burden in the coming year.
The local authority associations are disappointed with the proposal, but I would ask the House to accept that this order offers a reasonable compromise all round. In recent years, NFC's operations have changed so fundamentally that it would be wrong to expect them to continue paying an amount which no longer bore any relationship with their current methods of operation. Equally, British Rail should not be expected to take on an additional burden as a result of decisions
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made by NFC. Moreover, the local authorities have benefitted substantially in recent years from the new assessments on NFC's road traffic depots.
The order before us today also meets the long term requirements for NFC. Noble Lords will know that the Transport Bill proposes that the status of the National Freight Corporation should change on an "appointed day", when the corporation will become a company under the Companies Act. It will then also lose its special rating status: all its property will become rateable by normal methods, and the rating link with British Rail will be broken. The timescale for this process is still a matter of hypothesis; it depends on a number of factors, which are not our concern today.
We have therefore made a necessary working assumption for this order that NFC's status will change on 1st October this year. On that account, we have proposed a reduction of British Rail's "standard amount" by £ 1/2 million. This reduction would be the first half-yearly instalment of a permanent reduction of £ 1 million. The long-term intention is to reduce British Rail's gross liability by the amount that NFC contribute, thus leaving British Rail's own burden unchanged.
I should stress that we do not yet know precisely when NFC's status will be changed. When the actual timing is known we shall propose a new order to reflect a permanent adjustment to British Rail's liability in 1981–82, and to compensate for any discrepancy between the date of NFC becoming a Companies Act company, and the date of October 1980.
I am sorry that such a simple order has such a complicated background, but I commend it to the House. My Lords, I beg to move.
Moved, That the draft order laid before the House on 11th March, be approved.—(Lord Beliwin.)
4.16 p.m.
Lord UNDERHILL: My Lords, I shall not detain the House for very long, since the noble Lord, Lord Bellwin, has given a lucid explanation of the order which, frankly, proposes a very sensible arrangement. In saying that, we on this side of the House do not necessarily

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support it, in view of the references to the National Freight Corporation and the Transport Bill, which has to be passed before the new arrangement comes into force. However, we regard this as a sensible proposal which seems to satisfy the British Railways Board, in that it will relieve them of the liability regarding rates on National Freight Corporation depots which are no longer rail-linked. The National Freight Corporation will no longer pay rates twice on the same properties, and it would appear that by and large the local authorities shall receive all the rates to which they are entitled, from either the British Railways Board or the National Freight Corporation. Therefore we give our support to the order.
On Question, Motion agreed to.

COMPANIES BILL [H.L.]
4.17 p.m.
The MINISTER of STATE, DEPARTMENT of INDUSTRY (Viscount Trenchard): My Lords, I beg to move that the Commons amendments be now considered. In putting forward this Motion I should like to explain that if it meets with the wishes of the House, we shall try to deal quite briefly with the very large number of technical amendments to those main Parts of the Bill which were under consideration for some considerable time in this House. If noble Lords wish to deal in detail with Commons amendments, and the reasons for them, other than where there are amendments down, we shall of course explain them. However, at the moment we are geared to move as fast as possible on those amendments which are largely technical. Having said that, may I ask my colleagues to move Amendment No. 1, unless noble Lords opposite—
The DEPUTY SPEAKER (Lord Aberdare): My Lords, I first must put the Question that the Commons amendments be now considered.
Moved, That the Commons amendments be now considered.—(Viscount Trencharcl.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
[References are to Bill (47) as first printed for the Commons.]

COMMONS AMENDMENT
1 Clause 4, page 3, line 33, leave out "issued" and insert "allotted".
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 1. I hope that it will be for the convenience of the House if I couple with Amendment No. 1 a series of similar amendments, which are mainly drafting amendments. I understand that, through the usual channels, a list of the group of amendments to which I shall be speaking has been circulated. With Amendment No. 1, I wish at the same time to deal with Amendments Nos. 7, 16, 22, 27, 28, 29, 30, 35, 56, 136, 142, 153, 240, 316, and 317. I hope that that long list will mean something to your Lordships; but all these amendments are concerned with the meaning of the word "allotment".
Amendment No. 240 is the central amendment, and this provides a definition of the word "allotment". This definition is that shares shall be taken to be allotted when a person acquires the unconditional right to be included in the company's register of members in respect of those shares. The new definition is of practical significance because it does not interfere with commercial practice in the way that we fear the Bill might do if it were left unamended. The amendment also clarifies the meaning of "payment up in cash", and, secondly, of "allotment for cash". These definitions are generalised for the purposes of all the Companies Act. My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 1.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lyell.)
Lord ELWYN-JONES: My Lords, before we move to a detailed consideration of the matters we are to discuss at this stage, with the leave of the House, I should like to make some general observations with regard to them. I should like to begin by congratulating the Government on their Pauline conversion, on the road to another place, to most of the proposals which we on this side of the House put to noble Lords opposite when the Bill first came before the House and was discussed on Second Reading, and thereafter, during the subsequent stages of the Bill in your Lordships' House.

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The Bill initially introduced into the House by the Government dealt—and, indeed, that was its whole essence—with the task of implementing the EEC Second Directive. The rest of the Bill, in so far as it purported to be a Bill to reform the company law, was indeed a puny thing; and it was distinguished only by its total failure to deal with crucially important matters which the previous Administration included in their Companies Bill. That had been discussed in another place at many meetings during the Committee stage, and, indeed, the point was reached at which those proposals were substantially agreed; but they were rejected here, at the intitial stage of the consideration of this Bill. The particular matters I wish to refer to are the provisions relating, first, to the duty of directors to have regard to the interests of their employees, and, secondly, of course, to insider dealing. Failure to deal with those matters in the course of this Companies Bill's passage through Parliament would indeed have been little short of scandalous. We urged the Government to deal with them in this House, from which this Bill was originating; and, indeed, we endeavoured to include them in the Bill. If I may say so, I warned the Government that if they did not take that course they would run into serious trouble when the Bill came to another place.
Unhappily—and I do not blame the noble Viscount, Lord Trenchard, for this, because clearly his hands were tied—the proposals of the Opposition were rejected in this House; and, if I may say so, I think the noble Viscount, Lord Trenchard, has been badly and sorely tried by the way the matter has proceeded through Parliament. He was not allowed to make any concessions, but in another place the mighty there made them all—or most of them, at any rate. It is too bad. He has our sympathy, and we admire his forbearance in being able to continue with the odious task which falls upon him. But there it is; and, for what it may be worth, we congratulate the Government on accepting the principal proposals of the Opposition in this matter.
However, what happened in another place, and what is perhaps to some extent happening now, is, I submit, a supreme example of how not to legislate, particularly in a field of such importance and such
980
technicality as company law, which, after all, represents the legal framework for most of our commercial and industrial institutions. The history of the matter in another place, briefly, is that the Bill had a Committee stage which lasted from 6th November to 11th December, and a mass of amendments was then introduced. Then, lo and behold!, at the Report stage a further mass of amendments was introduced, and we now have a veritable volume, a large volume—66 pages of it, almost as big as the Bill itself, which were added by way of amendments at the Report stage in another place. But that is not enough. Today, the noble Viscount has put down quite a number of additional amendments to the amendments to the amendments. The thing is going full circle many times.
We on this side of the House submit that this is not a sensible way to legislate, and it will be a matter more of luck than of judgment whether, at the end of the day, the Bill will be in good shape and of proper and appropriate content. However, we will do our best to assist in this situation. I regret that I will be unable to wait until the end of the proceedings, as I have another public engagement, but my noble friends and the noble Lord the Liberal spokesman will no doubt be making their contributions as well, to see whether we can make order out of what is still somewhat chaotic. As to the immediate amendments moved and spoken to, they appear to have a technical and blameless character, and I myself do not object to them, but it may well be that others behind me, and indeed in front of me, may wish to intervene.
4.28 p.m.
Lord LLOYD of KILGERRAN: My Lords, with the leave of the House may I, too, make a few preliminary observations which I am sure will save some time, in that it may not be necessary at all for me to rise in my place to make any speeches on the first 100 or so amendments with which we have to deal. I should like to thank the noble Viscount, Lord Trenchard, for sending me in advance a list of the groupings of the hundreds of amendments with which your Lordships will have to deal. I should also like to extend to him and to his industrious officers my thanks and sympathy for the tremendous amount of work which has

981
been thrust upon them since the Bill left your Lordships' House for the other place several months ago.
There were two observations, at least, which I read and understood among the 1,200 or so columns which I have examined during the last weekend or so. One was made by the honourable Member for one of the Swansea constituencies, Mr. Anderson, when he was speaking in the course of the passage of the Bill through the House, which passed like a snowball racing downhill, picking up masses of new and complex clauses, even after the Committee stage. He said, quite truly, that your Lordships would not recognise this Bill when it came back to your Lordships' House. Another distinguished Member said that this was the best Bill for job-creation that he had come across, only it was job-creation for hundreds of lawyers.
I suppose that, like the noble and learned Lord, Lord Elwyn-Jones, I should congratulate the Government on changing their mind. We welcome their last-minute conversion to making at least some attempt to prevent future scandals in insider dealings, which have been the subject of so many investigations and inspectors' reports in the last decade. But from the standpoint of encouragement of enterprise, particularly of small companies, this is an appallingly unsatisfactory Bill. As I have said, long and complex clauses will, of course, lead to the creation of jobs for hundreds of lawyers. Large firms, with their large staffs, will be able to spend a great deal of time on unravelling the complexities of this Bill rather than on doing something more productive. I say seriously and sincerely that this Bill is a grave disappointment. It fails to provide proper corporate guidance to the smaller firms which are desperately in need of reforms in company law. The way in which unnecessary duties are being (and have been for so long) imposed upon the small businesses is still grossly unfair and discouraging to private enterprise.
Like the noble and learned Lord, Lord Elwyn-Jones, I welcome Clause 1 and the other clauses to which the noble Lord, Lord Lyell, has spoken. It seems to me that there is little difficulty about them. The amendments seem mainly to try to clarify the word "allot" and generally to
982
ensure that, as far as possible, a company should not be allowed to commit itself without conditions for the issue of its shares.
Lord MONSON: My Lords, following what we have heard from the Liberal and Labour Benches, may I, too, make a point before moving on to the detailed consideration of the Commons amendments? When the noble Viscount, Lord Trenchard introduced this Bill on 25th June last year he said (at column 1238) as the noble and learned Lord, Lord Elwyn-Jones, pointed out, that this Bill deals with the implementation of the EEC Second Directive on company law and certain closely related matters. Then he went on to say, twice, that a second Companies Bill would be brought forward in 1980. This can be verified from columns 1238 and 1239 of the Official Report.
On the strength of that, many noble Lords abstained (as I did) from tabling amendments and new clauses to do with other aspects of company law in the expectation that there would be another occasion to do so during this Session. Now we have this Bill returned from the other place with entirely new Parts IV and V, plus four new clauses. Could the noble Viscount give us an assurance that there will be another opportunity during this Session to debate this and, indeed, will there be another Companies Bill introduced this Session?
Viscount TRENCHARD: My Lords, I expected that there could be the question of whether any egg might stick on my face in relation to this Bill. I accept the manifest goodwill in the noble and learned Lord's commiserations but I do not accept the commiserations. I do not think that I need them. We said clearly that the question of the duties of directors and the whole question of inside dealings were enormously important subjects. We also said that we had a big legislative programme with some vitally important (as we see it) measures in other areas, and also that at that stage we had a timescale to meet for the Second Directive. We further said that it was important to get these major questions as right as we possibly could and to get the degree of balance into the duties of directors and into the control of inside dealings which would

983
result in a major step forward rather than do some good and some harm.
As it became clear after the Bill had left this House, the programme changed—and I think that noble Lords will accept that all legislative programmes change a little with time—and there was even a risk of not getting the second Bill in the Session. We then had the choice between trying to get this important Bill extended and to cover the areas concerned and of having perhaps to wait much longer. So we do not apologise for taking the decision that we would, after all, accept the advice given to us by noble and learned Lords on the other side; but for perhaps the rather different and fuller reason that the balance of evidence in this area now lay in extending the present Bill.
Yes, my Lords, there will be a further Companies Bill; there is an EEC Fourth Directive. Having got a little more cautious as I become a little less green as a Minister at this Dispatch Box, I will not give an absolute guarantee as to exactly when it will come forward; but there is clearly still a chance of it coming forward in the next Session. There will be another Bill: but we believed that as the situation had changed, as I described, it became important to get major progress in these important areas in this Bill. As far as consultation is concerned, I believe that in some areas of the Bill draft clauses were made available to those organisations concerned as early as October. As far as this House is concerned, it has the benefit of the fairly long discussions and debates in the other place—even taking account of the minority, although an important minority, of amendments that were added at Report stage in another place.
So, my Lords, I do not think that we should apologise and, certainly, I do not stand here feeling that my colleagues have treated me unfairly in any way. I believe that their first decision was right and that their second decision was right; and I hope very much that we will have the tolerance of your Lordships' House in getting as much forward progress in this important area as we can at this stage, nevertheless still bearing in mind that this subject of company law and Companies Bills is an endless one and that there will he a further opportunity to come.
Lord ELWYN-JONES: My Lords, we on this side of the House will note a commitment without a promise that there will be a further Companies Bill, and we will await with patience its ultimate appearance.
On Question, Motion agreed to.

COMMONS AMENDMENTS
2 Clause 4, page 3, line 34, leave out from "minimum" to end of line 39.
3 Clause 4, page 3, line 40, leave out "the registrar" and insert "him"
4 Clause 4, page 3, line 40, leave out from "a" to end of line 44, and insert "statutory declaration complying with subsection (3) below."
5 Clause 4, page 4, line 1. leave out "written statement" and insert "statutory declaration"
6 Clause 4, page 4, line 3, at end insert—"(aa) the nominal value of the company's allotted share capital is not less than the authorised minimum;"
4.38 p.m.
Lord LYELL: My Lords, I was gratified by the views of the noble and learned Lord opposite, although perhaps he will recall that three years ago when he and his colleagues were on this side of the House we had another happy Bill called the Patents Bill, which had double the number of amendments we are dealing with today —maybe they were not returned from the other place. As I look round the House I begin to think of the happy German marching tune, Alte Kameraden, and I shall have some comments to make on the Patents Bill when I come to speak on certain amendments put down by the noble Lord, Lord Lloyd of Kilgerran. But we take with a pinch of salt precisely what the the noble and learned Lord had to say.
Lord ELWYN-JONES: However, my Lords, it is the case that the Patents Bill left this House in good shape, thanks partly to the assistance of the noble Lord.
Lord LYELL: My Lords, I would reciprocate the good wishes and say that this Bill will go on to the statute book in similar good shape (subject to what my noble friend Lord Trenchard has said) thanks to the help given by all noble Lords and by the other place.
My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 2 to 6. I think it may

985
be convenient if I speak at the same time to Amendments Nos. 12, 33, 34 and 60. These amendments simplify the provisions of Clause 4 and other clauses. Amendments Nos. 4, 12, 33, 34 and 60 change the requirement for statutory declarations in the Bill to be signed by not less than two directors of the company to a requirement that they be signed by a director or secretary. This will simplify the procedure for registration. Amendments Nos. 4, 5 and 6 remove the need for a written statement as well as a statutory declaration, as the latter can cover all the necessary matters. Amendments Nos. 2 and 3 are minor amending measures.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
7 Clause 4, page 4, line 5, leave out "issued" and insert "allotted".
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 7. I have already spoken to this.
Moved, That this House doth agree with the Commons in the said amendment. —(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
8 Clause 4, page 4, line 13, leave out subsection (4) and insert—
"(4) For the purposes of subsection (2) above, a share allotted in pursuance of an employee's share scheme may not be taken into account in determining the nominal value of the company's allotted share capital unless it is paid up at least as to one quarter of the nominal value of the share and the whole of any premium on the share."
Lord LYELL: My Lords, I beg to move that this House do agree with the Commons in their Amendment No. 8. I wish to speak to a further list of amendments, Nos. 13, 14, 15, 17, 20, 21, 23, 25, 26, 31, 36, 38, 39, 40, 61, 62, 63, 80, 81, 86, 89, 91, 98, 107, 112, 133, 134 and 186. These amendments clarify and simplify. For example, Amendment No. 86 improves considerably the drafting of Clause 22(1). As drafted, this subsection spells out explicitly and in some detail
986
what is meant by talking of a share being paid up as to one quarter of its nominal value together with the whole of any premium. We do not believe that this is necessary, and in fact causes some problems which can and will be removed by the simpler drafting proposed.
Again, Amendment No. 98 simplifies Clause 24(1) by using the phrase
"otherwise than in cash"
in place of the more complex drafting which is at present in the subsection. This phrase is also used in Amendment No. 91 to Clause 23(1). Similar changes are made by the amendments elsewhere in the Bill. Amendments Nos. 20, 21 and 186 are minor technical improvements. We are proposing a small amendment to Clause 22(1), and this is consequential on the changes which are made to subsection (3) of that clause by Amendment No. 89, to which I am speaking. We shall come to that at a later stage.
Moved, That this Houes doth agree with the Commons in the said amendment. —(Lord Lyell.)
Lord WEDDERBURN of CHARLTON: My Lords, before we pass this cluster of amendments, may I say one word not opposing it in any way? I thought I heard correctly that the Minister did not read out "236". My copy of the grouping of these amendments is very faint from Xeroxing. I believe that Amendment No. 236 comes under Clause 56.
Lord LYELL: I can confirm that straight away. I referred to Amendments Nos. 134 and 186. I will take particular care. I hope that your Lordships will bear with me if I read as clearly as I can and take time in reading each individual amendment. I appreciate that there are lengthy lists to which I am speaking, I hope for the convenience of the House, I will take great care.
Lord WEDDERBURN of CHARLTON: My Lords, I thank the noble Lord. I was sagefuarding myself against being wrong for the point I want to make. In a sense, I want to place a marker. Amendment No. 8 from the other place changes the relationship of Clause 22 in its effect upon employee share schemes. Therefore it is very important to notice

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that when we come to Amendment No. 236 the definition of employee share schemes has been changed in a way which the noble Lord's honourable and right honourable friends in another place thought was a major work. Therefore I place a marker against this clause when we come to the re-definition of the employee share schemes.
Lord LLOYD of KILGERRAN: My Lords, as I have thrown a few pebbles at the Government, may I say that so far as Amendment No. 8 is concerned, it seems to me that it restates the position in a more direct fashion instead of referring somewhat elliptically to the other subsections in the original drafting. I support these amendments as I think they are very useful in simplifying and clarifying the position.
Lord LYELL: My Lords, I am most grateful.
On Question, Motion agreed to.
The DEPUTY SPEAKER (Lord Greenwood of Rossendale): My Lords, it may be for the convenience of the House to take Amendments Nos. 9 to 11 together.

COMMONS AMENDMENTS
9 Clause 4, page 4, line 29, leave out subsection (8).
10 Clause 5, page 5, line 20, leave out "and additions to"
11 Clause 5, page 5, line 24, leave out "and added to".
Lord LYELL: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 9 to 11 en bloc. I hope it will be for the convenience of the House if I speak to Amendments Nos. 18, 19, 24, 32, 37, 41 to 55 en bloc, 57, 58, 59, 79, 83, 97, 125, 126, 127, 155, 157, 224, 225, 226, 308 to 312 en bloc, 323, 324, 335, 337, 339, 340, 341 and 343.
These are technical amendments to improve Part I of the Bill. Amendments Nos. 9 and 42 remove the grounds for winding up which are provided in Clause 4(8) and Clause 9(3) of the Bill and instead Amendment 323 adds to the specific grounds for winding up which those subsections are intended to provide to the list in Section 222 of the original 1948 Act. These
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changes co-ordinate the provisions on the grounds for winding up a company, which would otherwise cause needless complexities upon consolidation of the Companies Acts. All the other amendments to which I have spoken in the lengthy list correct a minor point, which is that there are a number of references to changes in a company's memorandum or articles which refer to "alterations" in the memorandum, but "alterations in or additions to the articles. There is no good reason for this difference because an addition to the articles is also an alteration of the articles, therefore "alterations in" the articles covers the case. Further, the terminology is not used consistently and might give rise to problems on consolidation, if it was not corrected.
A number of the amendments remove a possible doubt as to whether the phrase "payment up of a share "or" payment on or "payment for" a share includes payment of the premium. Amendments Nos. 43, 44, 45, 47, 48 and 58 remove the criminal sanctions from Clause 10, and instead use the more appropriate approach that is provided also in Clause 8(8).
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.
The DEPUTY SPEAKER: My Lords, I understand that it may be for the convenience of the House if we take Amendments Nos. 12 to 63 together.

COMMONS AMENDMENTS
12 Clause 5, page 5, line 36, leave out "not less than two directors" and insert "a director or secretary".
13 Clause 5, Page 6, line 8, leave out from beginning to "the" in line 12 and insert—
"(5) Where shares are allotted by the company between the balance sheet date and the passing of the special resolution as fully or partly paid up as to their- nominal value or any premium on them otherwise than in cash ".
14 Clause 5 line 15, after "consideration" insert "for that allotment".
15 Clause 5 line 16, leave out "that section" and insert "section 24 below".
16 Clause 5 line 37, leave out "issued" and insert "allotted".
17 Clause 5 line 42, leave out first "the" and insert "any".
18 Clause 5 line 42, after "memorandum" insert "and articles".
19 Clause 5 line 43, leave out from "resolution" to "shall" in line 44.
20 Clause 5 page 7, line 28, after "of" insert "the state of".
21 Clause 5 page 7, line 44, after "of" insert "the state of".
22 Clause 6, page 8, line 22, leave out "issued" and insert "allotted".
23 Clause 6, page 8, line 24, leave out paragraph (b) and insert—
"(b) each of its allotted shares is paid up at least as to one-quarter of the nominal value of that share and the whole of any premium on it;"
24 Clause 6, page 8, line 29, after "company" insert "or any premium payable on it".
25 Clause 6, page 8, line 34, leave out from beginning to end of line 36 and insert—
"(d) where shares have been allotted as fully or partly paid up as to their nominal value or any premium payable on them otherwise than in cash and the consideration for the allotment consists of or includes an undertaking (other than one to which paragraph (c) above applies) to the company, either—"
26 Clause 6, page 8, line 40, leave out from "that" to "within" in line 41 and insert "undertaking must be performed".
27 Clause 6, page 8, line 42, leave out "issued" and insert "allotted".
28 Clause 6, page 8, line 44, leave out "issued" and insert "allotted".
29 Clause 6, Page 9, line 10, leave out "issued" and insert "allotted".
30 Clause 6, Page 9, line 14, leave out "issued" and insert "allotted".
31 Clause 6, Page 9, line 17, leave out subsection (4).
32 Clause 8, page 10, line 27, after "Act" insert "other than this Part".
33 Clause 8, Page 11, line 7, leave out "not less than two directors" and insert "a director or secretary".
34 Clause 8, Page 11, line 33, leave out "not less than two directors" and insert" a director or secretary ".
35 Clause 8, Page 11, line 46, leave out "issued" and insert "allotted".
36 Clause 8, Page 12, line 3, leave out paragraph (a) and insert—
"(a) each share is paid up at least as to one-quarter of the nominal value of that share and the whole of any premium on it;
37 Clause 8, Page 12, line 8, after "question" insert "or any premium payable on them"
38 Clause 8, Page 12, line 14, leave out from "up" to end of line 15 and insert" as to its nominal value or any premium payable on it otherwise than in cash and the consideration for the allotment consists of or includes an undertaking (other than one to which paragraph (b) above applies) to the company, either—"
39 Clause 8, Page 12 line 19, leave out from "that" to "within" in line 20 and insert "undertaking must be performed"
40 Clause 8, Page 12 line 19, leave out lines 21 to 23.
41 Clause 9, page 12, line 40, after "refused" insert "or withdrawn"
42 Clause 9, Page 13, line 7, leave out subsection (3).
43 Clause 10, page 13, line 17, leave out "and"
44 Clause 10, page 13, line 20, leave out "in accordance with subsection (3) below
45 Clause 10, page 13, line 20, leave out line 23 and insert"by the resolution; and

(c) the period during which an application for the cancellation of the resolution under section 11(2) below may be made has expired without any such application having been made; or

(d) where such an application has been made, the application has been withdrawn or an order has been made under section 11(6) below confirming the resolution, and a copy of that order has been delivered to the registrar."

46 Clause 10, page 13, line 26, leave out "and such additions to"
47 Clause 10, page 13, line 29, leave out subsections (3) and (4).
48 Clause 10, Page 14, line 8, leave out from"satisfied"to"he"in line 10 and insert"that a company may be re-registered under sub-section (1) above "
49 Clause 10, Page 14, line 19, leave out "and additions to"
50 Clause 10, Page 14, line 28, leave out subsection (8).
51 Clause 11, page 15, line 38, leave out "and additions to"
52 Clause 11, page 15, line 41, leave out from beginning to"notwithstanding"in line 43 and insert"Where an order under this section requires the company not to make any, or any specified, alteration in its memorandum or articles, then,"
53 Clause 11, page 15, line 46, leave out "or addition"
54 Clause 11, Page 16, line 1, leave out "or addition to"
55 Clause 11, Page 16, line 6, leave out "or added to".
56 Clause 12, page 16, line 18, leave out"issued"and insert"allotted "
57 Clause 12, Page 16, line 27, leave out "and additions to"
58 Clause 12, Page 16, line 37, leave out" (2), (3) and (4)" and insert" (c) and (d) and (2)"
59 Clause 12, Page 16, line 43, leave out subsection (4).
60 Clause 13, page 17, line 39, leave out "not less than two directors" and insert "a director or secretary"
61 Clause 16, page 21, line 30, leave out "non-cash asset so received" and insert"other consideration so received including, if the case so requires, the release of the applicant from any undertaking"
62 Clause 16, page 21, line 32, leave out "such and asset" and insert "the consideration"
63 Clause 16, page 21, line 33, leave out "such an asset" and insert "the consideration".
Lord LYELL: My Lords, I beg to move that this House do agree with the

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Commons in their Amendments Nos. 12 to 63 en bloc.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.
The DEPUTY SPEAKER: My Lords, I understand that Amendments Nos. 64 to 78 can be taken en bloc if the House so wishes.

COMMONS AMENDMENTS
64 Clause 17, page 21, line 41, leave out "holder of" and insert "person who holds"
65 Clause 17, page 22, line 8, leave out subsection (2) and insert—
"(2) Subsection (2A) below applies to any provision of the memorandum or articles of a company which requires the company, when proposing to allot equity securities consisting of relevant shares of any particular class, not to allot those securities on any terms unless it has complied with the condition that it makes such an offer as is described in subsection (1) above to each person who holds relevant shares or relevant employee shares of that class.
(2A) If, in accordance with a provision to which this subsection applies—

(a) a company makes an offer to allot any securities to such a holder, and

(b) he or anyone in whose favour he has renounced his right to their allotment accepts the offer,

subsection (1) above shall not apply to the allotment of those securities and the company may allot them accordingly; but this subsection is without prejudice to the application of subsection (1) above in any other case."
66 Clause 17, line 29, at end insert—
"(3A) Subsection (1) above shall not apply in relation to the allotment of any securities which would apart from a renunciation or assignment of the right to their allotment be held under an employees' share scheme."
67 Clause 17, line 31, leave out from"provision"to first"to"in line 32 and insert"to which subsection (2A) above applies "
68 Clause 17, line 34, leave out "regulation 131" and insert "regulations 131, 132 and 133"
69 Clause 17, line 46, leave out from "provision "to" by "in line 47 and insert" to which subsection (2A) above applies"
70 Clause 17, page 23, line 12, leave out from "provision" to"shall"in line 13 and insert" to which subsection (2A) above applies"
71 Clause 17, page 23, line 16, leave out from "provision" to first"the"in line 17 and insert "to which subsection (2A) above applies"
72 Clause 17, page 23, line 36, leave out from"securities"to"but"in line 37 and insert"or of equity securities consisting of relevant shares of a particular class shall include references to the grant of a right to subscribe for, or to convert any securities into, relevant shares in the company or, as the case may be, relevant shares of a particular class"
73 Clause 17, page 24, line 3, leave out "relevant"
74 Clause 17, page 24, line 4, leave out from "to" to "shares" in line 5.
75 Clause 17, page 24, line 6, leave out "either" and insert "both"
76 Clause 17, page 24, line 7, leave out "or" and insert "and"
77 Clause 19, page 26, line 13, after "requirement" insert"such as is mentioned in section 17(2) above and"
78 Clause 19, line 14, leave out from "articles" to first "the" in line 16.
4.50 p.m.
Lord LYELL: My Lords, I beg to move that this House do agree with the Commons in their Amendments Nos. 64 to 78 en bloc. These amendments make some minor improvements to Clause 17 which, broadly speaking, is concerned with the rights of existing shareholders to have a right of first refusal to shares which the company proposes to issue for cash. The amendments clarify that a shareholder who has received a preemptive offer of shares under the clause can validly renounce his rights to those shares in favour of another person. They ensure that this is also the case with employees' shares and that such renunciation would not trigger further preemptive rights on the allotment of those shares. The amendments also provide a procedure for notification of the relevant offers in the case of joint holders or where the shareholder has died or has become bankrupt. My reference is to the regulations in Table A. There are a number of drafting changes which are also incorporated in the amendments. I beg to move that this House doth agree with the Commons in their Amendments Nos. 64 to 78 en bloc.
Moved, That this House doth agree with the Commons in the said amendments. (Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
79 Clause 20, page 26, line 28, after"company"insert and any premium payable on them "
80 Clause 20, page 26, line 30, leave out from "accept" to "that" in line 32 and insert"at any time in payment up of its shares or

993
any premium on them, an undertaking given by any person "
81 Clause 20, page 26, line 35, leave out from"accepts"to"the"in line 43 and insert"such an undertaking in payment up of its shares or any premium payable on them, the holder of the shares when they or the premium are treated as paid up, in whole or in part, by the undertaking—
(a) shall be liable to pay the company in respect of those shares an amount equal to their nominal value, together with the whole of any premium or, if the case so requires, such proportion of that amount as is treated as paid up by "
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 79 to 81. I have already spoken to these amendments, and I beg to move.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell).
On Question, Motion agreed to.

COMMONS AMENDMENT
82 Clause 20, page 27, line 3, leave out subsection (4) and insert—
"(4) Where any person becomes a holder of any shares in respect of which—

(a) there has been a contravention of this section; and

(b) by virtue of that contravention, another is liable to pay any amount under this section,

that person also shall be liable to pay that amount (jointly and severally with any other person so liable) unless either he is a purchaser for value and, at the time of the purchase, he did not have actual notice of the contravention or he derived title to the shares (directly or indirectly) from a person who became a holder of them after the contravention and was not so liable."
4.52 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 82. At the same time, I should like to speak to Amendments Nos. 84, 85, 87, 88, 90, 92 to 96 en !bloc, 99 to 106 en bloc, 108 to 111 en bloc, 113 to 124 en bloc, 128 to 132 en bloc, 135 and, finally, 137 to 141 en bloc.
All these amendments relate to clauses in the Bill which deal with the payment for share capital and class rights. Amendment No. 82 restates the present provision of Clause 20(4) in such a way that it can also apply in Clauses 21, 22, 23 and 24. The purpose of that paragraph
994
is to set out the liability of people who become holders of shares in respect of which there has been some contravention of the relevant clause. In certain circumstances they may be liable, jointly and severally, with the allottee to pay certain sums. These circumstances are in substance the same for Clauses 20 to 24. It is therefore preferable to provide a generalised statement.
Amendment No. 84 clarifies the exact meaning of "a holder of a share" in this context. The point is essentially that once a holder has a right to membership he should be liable in exactly the same way as any other member in respect of shares not properly allotted or paid up, even if that holder has not been formally entered on the register. The other amendments to Clauses 22 and 23 are drafting changes. The amendments to Clause 24 are mainly minor changes, in part drafting changes and in part changes of substance. The points of substance are that the amendments ensure that the expert who carries out the report required by the non-cash consideration provided in payment for shares, has to be appointed by the company. As drafted, the person by whom the expert may be appointed is not necessarily specified. It is also clarified that the independent person can appoint a sub-valuer to value part of a consideration which is subject to the safeguards built into the clause, and that such sub-valuer could be the company's auditor in certain cases.
The amendments to Clause 26 achieve two main purposes. First, Amendment No. 151 will provide an exception from the clause for agreements entered into by the company under the supervision of the court for the transfer of an asset. Secondly, the amendments deal with a rather unusual case, which is when the consideration provided by the company is in the form of shares in the company. In this case, if the clause was not complied with, the result would be that the company would retrieve its own shares and the promises to pay up the share would become unenforceable. This is contrary to the policy of this part of the Bill, and we hope that the amendments put right this defect.
The amendments to Clause 28 correct minor technical defects. The amendments to Clause 29 are essentially drafting.

995
Subsection (2) of Clause 29 can be removed as a result of the drafting change and the new definition of "allotment" already discussed. Finally, Amendment No. 141 allows for a proxy to be appointed in the case of an adjourned meeting where one person holding any of the issued shares of that class constitutes a quorum. These amendments are perhaps rather complicated and I hope that the House has been able to bear with me. I beg to move.
Moved, That the House doth agree with the Commons in the said amendment.—(Lord Lyell.)
Lord WEDDERBURN of CHARLTON: My Lords, unless I am mistaken, I do not think the Minister has said anything about Amendment No. 137. It is a very important amendment. Clause 32 deals with class rights, and this alters the requirement of holders of three-quarters of the issued shares of a class to three-quarters in nominal value. That is a major change and, unless I am wrong, I think it has been three-quarters of the number since the 1978 Act. I hope we shall make it clearer on this side of the House and that my noble friends and I do not necessarily place reliance on the 1978 regulations as being superior to these. But where there is a change in something which has stood for such a long time, perhaps the noble Lord could tell us whether his advisers have had reason for it. Personally, I think it is an improvement but I also think it should be recorded expressly in Clause 32.
Lord LYELL: My Lords, I am grateful to the noble Lord, Lord Wedderburn, for his observations. I note it is intended to be a minor drafting amendment, but if there is some point of substance on it, I shall certainly obtain something here. Amendments Nos. 137 and 140 are intended to be drafting changes which we believe are needed to ensure that the proportion of the holders needed for consent to a variation in rights is decided with reference to the nominal value of the shares held rather than just the number of shares. We hope that this is in line with the provision in Clause 3(a) of the Bill as it stands and indeed in Section 5 of the 1948 Act.
996
One example would be that the holder of one £10 nominal value share, which has 10 votes, will be treated on a par with the holder of 10 £1 nominal value shares in the same class with one vote each. That is a slightly extravagant example, but it is possible; and therefore I hope the noble Lord, Lord Wedderburn, will see the reason for these two amendments, and certainly for Amendment No.147.
Lord ELWYN-JONES: My Lords, I think that my noble friend did see the reason and very properly pointed out that something more than mere drafting was involved. I do not say this by way of reproach for one moment; but in consideration of this forest of amendments which we regard largely as technicalities—save for those my noble friends will be introducing—perhaps the Ministers on the Government Front Bench will be alert to warn us if there is any change of substance: otherwise we may get into difficulties.
Lord LYELL: My Lords, we are grateful for those observations and we will take careful note of what has been said by the noble and learned Lord and by the noble Lord, Lord Wedderburn. We shall certainly report it in the right quarters.
On Question, Motion agreed to.

COMMONS AMENDMENTS
83 Clause 20, page 27, line 19, at end insert "(whether on account of the nominal value of the shares or by way of premium)"
84 Clause 20, page 27, line 19, after the words last inserted, insert—
"(6) References in this section to a holder, in relation to any shares in a company, include references to any person who has an unconditional right to be included in the company's register of members in respect of those shares or to have an instrument of transfer of the shares executed in his favour."
85 Clause 21, page 27, line 31, leave out subsection (3) and insert—
"(3) Subsection (4) of section 20 above shall apply for the purposes of this section as it applies for the purposes of that."
86 Clause 22, page 28, line 14, leave out from "share" to end of line 18 and insert "except as paid up at least as to one-quarter of the nominal value of the share and the whole of any premium on it."
87 Clause 22, page 28, line 24, leave out "shares" and insert "share"
88 Clause 22, page 28, line 24, leave out from "less" to"and"in line 25 and insert"the value of any consideration actually applied in payment up (to any extent) of the share and any premium on it ".
4.59 p.m.
Lord LYELL: My Lords, I have spoken to these amendments. I now beg to move that this House doth agree with the Commons in their Amendments Nos. 83 to 88 en bloc.
Moved, That the House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
89 Clause 22, page 28, line 27, leave out subsection (3) and insert—
"(3) Subsection (2) above shall not apply in relation to the allotment of a bonus share in contravention of subsection (1) above unless the allottee knew or ought to have known the share was so allotted."
5 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 89.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lyell.)
On Question, Motion agreed to.
LORDS AMENDMENT CONSEQUENTIAL UPON COMMONS AMENDMENT No. 89
89A Clause 22, Page 28, line 13, leave out ("subsections (3) and ") and insert (" subsection ").
Lord LYELL: My Lords, I beg to move Amendment No. 89A.
On Question, Motion agreed to.

COMMONS AMENDMENTS
90 Clause 22, page 28, line 40, leave out section (5) and insert—
"(5) Subsection (4) of section 20 above shall apply for the purposes of this section as it applies for the purposes of that."
91 Clause 23, page 29, line 7, leave out subsection (1) and insert—
".—(1) A public company shall not allot shares as fully or partly paid up (as to their nominal value or any premium payable on them) otherwise than in cash if the consideration for the allotment is or includes an undertaking which is to be or may be performed more than five years after the date of the allotment."
92 Clause 23, page 29, line 18, leave out "means of"
93 Clause 23, page 29 line 21, leave out complies with "and insert" does not contravene"
94 Clause 23, page 29 line 29, leave out from beginning to fourth "the" in line 31 and insert—
"(5) Where a public company allots shares for a consideration which consists
998
of or includes (in accordance with subsection (1) above) an undertaking which is to be performed within five years of the allotment but that undertaking is not performed within the period allowed by the contract for the allotment of the shares "
95 Clause 23, page 29 line 36, leave out "to transfer the asset"
96 Clause 23, page 29 line 39, leave out subsection (6) and insert—
"(6) Subsection (4) of section 20 above shall apply in relation to a contravention of this section and to a failure to carry out a term of a contract as mentioned in subsection (5) above as it applies in relation to a contravention of that section."
97 Clause 23, Page 30, line 11, leave out "the payment for" and insert "payment in respect of"
98 Clause 24, page 30, line 12, leave out from beginning to end of line 23 and insert—
".—(1) Subject to subsection (2) below, a public company shall not allot shares as fully or partly paid up (as to their nominal value or any premium payable on them) otherwise than in cash unless—
(a) the consideration for the allotment has been valued in accordance with the following provisions of this section;"
99 Clause 24, page 30, line 25, after "company" insert "by a person appointed by the company"
100 Clause 24 Page 31, line 10, after "valuation insert" of the consideration, or a valuation of part of the consideration"
101 Clause 24 Page 31, line 10, after "accept" insert "such"
102 Clause 24 Page 31, line l3, after "consideration" insert "or that part of the consideration"
103 Clause 24 Page 31, line 28, after "consideration" insert "and, as respects so much of the consideration as he himself has valued, a description of that part of the consideration,"
104 Clause 24 Page 31, line 31, leave out from "up" to end of line 34 and insert—
"(i) by the consideration;
(ii) in cash."
105 Clause 24 Page 31, line 40, leave out "the consideration" and insert "so much of the consideration as was valued by that other person"
106 Clause 24 Page 32, line 4, leave out "where the valuation was" and insert "in the case of a valuation"
107 Clause 24 Page 32, line 14, leave out from"cash"to end of line 17 and insert"by which the nominal value of the shares or any premium payable on them is to be paid up, is not less than so much of the aggregate of the nominal value and the whole of any such premium as is treated as paid up by the consideration and any such cash."
108 Clause 24 Page 32, line 18, leave out from beginning to "and" in line 20 and insert Subsection (8A) below applies where a public company allots any share in contravention of subsection (1) above"
109 Clause 24 Page 32, line 26, at beginning insert—" (8A) Where this subsection applies"
110 Clause 24 Page 32, line 29, leave out "means of"
111 Clause 24 Page 32, line 32, leave out subsection (9) and insert—
"(9) Subsection (4) of section 20 above shall apply for the purposes of this section as it applies for the purposes of that."
112 Clause 24 Page 32, line 43, leave out from beginning to end of line 8 on page 33 and insert—
"(10) Where the consideration is accepted partly in payment up of the nominal value of the shares and any premium and partly for some other consideration given by the company, the foregoing provisions of this section shall apply as if references to the consideration by the company included references to the proportion of that consideration which is properly attributable to the payment up of that value and any premium; and"
113 Clause 24 Page 33, line 10, leave out from "such" to "as" in line 11 and insert "other valuations"
114 Clause 24 Page 33, line 14, leave out "valuation has" and insert "valuations have"
115 Clause 24 Page 33, line 18, after "section" insert"(a)"
116 Clause 24 Page 33, line 22, at end insert "and
(b) any reference to an officer or servant shall not include a reference to an auditor."
117 Clause 26, page 34, line 33, leave out "at the time" and insert "on the date"
118 Clause 26, page 34, line 35, leave out "time" and insert "date"
119 Clause 26, page 34, line 44, leave out"the company's nominee"and insert"another person "
120 Clause 26, Page 35, line 18, leave out subsection (4) and insert—
"(4) Subsection (1) above shall not apply to the following agreements for the transfer of an asset for a consideration to be given by the company, that is to say—

(a) where it is part of the ordinary business of the company to acquire or arrange for other persons to acquire assets of a particular description, an agreement entered into by the company in the ordinary course of its business for the transfer of an asset of that description to it or such a person, as the case may be; or

(b) an agreement entered into by the company under the supervision of the court, or an officer authorsised by the court for the purpose, for the transfer of an asset to the company or to another."

121 Clause 26, Page 36, line 4, after "contravention" insert" then, subject to subsection (8) below—"
122 Clause 26, Page 36, line 5, leave out "subject to subsection (8) below—"
123 Clause 26, Page 36, line 8, leave out "any" and insert "an"
124 Clause 26, Page 36, line 11, leave out subsection (8) and insert—
" (8) Where a company enters into an agreement in contravention of subsection (1) above and that agreement is or includes an agreement for the allotment of shares in that company, then, whether or not the agreement also contravenes section 24 above—
(a) subsection (7) above shall not apply to the agreement in so far as it is an agreement for the allotment of shares; and,
(b) subsection (4) of section 20 and subsection (8A) of section 24 above shall apply in relation to the shares as if they had been allotted in contravention of section 24."
125 Clause 28, page 37, line 10, leave out "for" and insert"in respect of "
126 Clause 28, page 37, line 17, leave out"for"and insert"in respect of "
127 Clause 28, page 37, leave out line 37, and insert"payment in respect of those shares ".
128 Clause 28, Page 38, line 19, leave out from"the"to"and"in line 20 and insert"whole of any premium or, if the case so requires, so much of that aggregate as is treated as paid up; "
129 Clause 28, Page 39, line 1, leave out "paragraph (b) of "
130 Clause 29, page 39, line 3, leave out "issued by a public company to"and insert"taken by
131 Clause 29, page 39, line 4, leave out"by virtue"and insert"of a public company in pursuance "
132 Clause 29, page 39, line 7, leave out subsection (2).
133 Clause 30, page 39, line 17, leave out subsection (2).
134 Clause 30, page 39, line 26, leave out from second "to" to "shall" in line 28 and insert"do any other thing "
135 Clause 30, page 39, line 30, leave out "24 or 26 above" and insert "or 24 above, and where such an undertaking is given in contravention of section 26 above in respect of the allotment of any shares it shall be so enforceable notwithstanding that contravention."
136 Clause 31, page 40, line 4, leave out "issue" and insert "allotment".
137 Clause 32, page 40, line 22, after "three-quarters" insert "in nominal value"
138 Clause 32, Page 41, line 32, leave out "at least"
139 Clause 32, page 41, line 33, after "proxy" insert "at least"
140 Clause 32, page 41, line 33, after "one-third" insert "in nominal value"
141 Clause 32, page 40, line 36, after "question" insert" or his proxy"
142 Clause 33, page 43, line 5, leave out"issued"and insert"allotted ".
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 90 to 142.
Moved, That this House doth agree with the Commons in the said amendments. —(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
143 Clause 35, page 44, line 1, at beginning insert "Except as provided by subsection (1A) below".
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 143. I wish also to speak to Amendments Nos. 144 to 152, 154, 156, 158 to 167, 322 and 326 to 333. These amendments are concerned with the maintenance of capital provisions. The amendments to Clause 35 reverse the existing law that a company may receive a gift of its own shares but may not hold them directly in its own name. We consider that there is no good reason for maintaining the need for a nominee in such cases so long as the shares are fully paid, and the amendments change this rule. Amendment Nos. 149, 152, 159 and 163 provide that shares given to the company direct are to be treated in the same way as other shares falling under Clause 37, as is required by the second directive.
The amendments to Clause 36 remedy some weaknesses in the clause. For example, Clause 36 deals with shares held by nominees of a company. What this should mean is persons nominated by or with the consent of the company, but the clause as drafted does not in fact achieve this.
Your Lordships will see that there is an amendment on the Order Paper in lieu of Commons Amendment No. 149. The proposed amendment is to the same effect as Amendment 149 with the deletion of the word "otherwise" in line I of paragraph (b). I shall come to the reason for that in a moment. But first I wish briefly to explain the main changes affected by the amendment which alters subsection (1) of the clause. The amendment excludes from the operation of Clause 37 certain cases where a company is a trustee of its own shares and has beneficial interest in the shares only by reason of its right as trustee to recover its expenses or to be remunerated out of the trust property. Such a beneficial interest was not in mind when Clause 37 was drafted,
1002
and it is proper and desirable to ensure that it does not bring all the apparatus of Clause 37 into play.
The amendment also replaces paragraph (b) with two new paragraphs (c) and (d). This is necessary because in the light of a recent case which was decided by the Court of Appeal called Belmont Finance v. Williams the words in Clause 37 (1) (b) may not be sufficiently extensive to comply with the directive. The amendments remove that problem. The deletion of the word "otherwise" in line I of paragraph (b), to which I referred earlier, is essentially a drafting improvement.
There is also an amendment to Clause 35 which is needed as a result of the new subsection (1)(b). That new provision refers to a company acquiring shares. We need to make clear that this phrase has the same meaning in this context as in Clause 35.
The Commons amendments to Clause 38 are detailed improvements. For example, the scope of the exceptions to the clause is widened to ensure that they cover companies whose ordinary business consists of providing hire purchase finance as is permitted by the directive. The amendments to the schedule bring the relevant provision into line with Clauses 35 to 38.
There are two further small amendments which we now propose and which arise from this main group of amendments. First, there is an addition to the new subsection (1)(a) of Clause 35. That amendment clarifies the position so that a company may acquire its own shares in a reduction of capital. As at present drafted, I am advised that there might be doubt whether reductions in capital were covered by this clause. The reason for this doubt is that there is authority to show that technically a company can acquire its shares in a reduction of capital. Clause 35 (1) prevents such acquisitions, subject to the exceptions in subsection (3). The latter exceptions are not wide enough to encompass all the reductions of capital. The proposed amendment is therefore necessary to ensure that reductions of capital are not affected by the provisions of the clause.
Secondly, we propose a small amendment to Clause 36 which will exclude from the operation of that clause certain

1003
cases where shares are acquired by a nominee of the company, where the company has no beneficial interest in the shares other than by reason of any right as a trustee to recover its expenses or to be remunerated out of trust property. Let me give a brief example of the kind of case we would consider. Let us imagine that a bank is acting as a trustee company and in the course of that business it uses a nominee. Let us also suppose that there are shares in the company held as part of the trust and that there is a trust issue perhaps on very favourable terms. Should the nominee be allowed to acquire shares for the trust, without coming within the scope of Clause 36? We must remember that a condition in the amendment is that the company has essentially no beneficial interest in the shares. We think that this should be allowed. Such action is possible at present, and we do not consider that Clause 36 should operate to prevent it. I have taken a considerable time in explaining these amendments, but they relate to complicated matters. I hope that your Lordships have been able to bear with me and will support these amendments.
Moved, That this House doth agree with the Commons in the said amendments—(Lord Lyell).
Lord WEDDERBURN of CHARLTON: My Lords, I hesitate to protract the debate, but I believe that these matters go very much further than drafting, as the Minister made clear. I am afraid that I did not understand his reasoning on Amendment No. 147. I do not wish him to repeat his reasoning, if that is his advice; it will appear in Hansard and I shall study it with care. However, I did not find that his argument provided a good reason to take out the word "alone" in Clause 36.
Furthermore, I was not wholly clear as to the wisdom of inserting a major change compared with what we thought we had in the 1978 Bill, and indeed which we thought we had here until this late stage in consideration by another place. I refer to Clause 35 (1)(a). However, when the Minister says that it is in accord with the second directive, I presume that he is referring to articles 18 and 19, and I agree with him there.
Lord LYELL: I thank the noble Lord, Lord Wedderburn, for raising that point. I shall study it carefully.
On Question, Motion agreed to.

COMMONS AMENDMENT
144 Clause 35, page 44, line 3, at end insert—
"(1A) A company limited by shares may acquire any of its own fully paid shares otherwise than for valuable consideration."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 144.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lyell.)
On Question, Motion agreed to.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 144
144A Clause 35, page 44, Line 2, at end insert (" and any company may acquire its own shares in a reduction of capital duly made.")
Lord LYELL: My Lords, I beg to move that this House doth agree with Amendment No. 144A, as an amendment to Commons Amendment No. 144.
Moved, That this House doth agree with the said amendment.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
145 Clause 36, page 44, line 28, at beginning insert—
"Subject to subsections (4) and (5) below, where shares are issued to a nominee of a company mentioned in section 35(1) above or are acquired by a nominee of such a company from a third person as partly paid up, then, for all purposes the shares shall be treated as held by the nominee on his own account and the company shall be regarded as having no beneficial interest in them.
(1A) Subject to subsection (5) below,"
146 Clause 36, page 44, line 30, leave out from beginning to "which" and insert "any such company"
147 Clause 36, page 44, line 31, leave out "nominee for the company alone" and insert "the nominee of the company"
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 145 to 147 en bloc.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
148 Clause 36, page 45, line 12, leave out from beginning to "to" and insert—
"(4) Subsection (1) above shall not apply to shares acquired otherwise than by subscription by a nominee of a public company in a case falling within section 37(1)(d) below.
(5) Subsections (1) and (1A) above shall not apply"

LORDS AMENDMENT TO COMMONS AMENDMENT No. 148
148A Clause 36, page 45, Line 4, at end insert ("—

(a) to shares acquired by a nominee of a company where the company has no beneficial interest in those shares (disregarding any right which the company itself may have as trustee, whether as personal representative or otherwise, to recover its expenses or be remunerated out of the trust property); or

(b) ").

Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments No. 148, and to Amendment No. 148A. I have already spoken to these Amendments. My Lords, I beg to move.
Moved, That this House doth agree with the Commons in the said amendment, and to Lords Amendment No. 148A. — (Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
149 Clause 37, page 45, line 21, leave out from "shares" to end of line 25 and insert—

"(b) where shares in the company are otherwise acquired by the company and the company has a beneficial interest in those shares;

(c) where the nominee of the company acquires shares in the company from a third person without financial assistance being given directly or indirectly by the company and the company has a beneficial interest in those shares; or

(d) where any person acquires shares in the company with financial assistance given to him directly or indirectly by the company for the purpose of or in connection with the acquisition and
1006
the company has a beneficial interest in those shares.

In determining for the purposes of paragraphs (b) and (c) above whether a company has a beneficial interest in any shares, there shall be disregarded, in any case where the company is a trustee (whether as personal representative or otherwise), any right of the company (as trustee) to recover its expenses or be remunerated out of the trust property."
The Lords do disagree with the Commons in the said Amendment but propose the following amendments in lieu thereof:—
149A Clause 35, page 44, line 18, leave out (" section 36 ") and insert (" section 37(1)(b)").
149B Clause 37, page 45, line 21, leave out from (" shares ") to end of line 25 and insert—

(" (b) where shares in the company are acquired by the company and the company has a beneficial interest in those shares;

(c) where the nominee of the company acquires shares in the company from a third person without financial assistance being given directly or indirectly by the company and the company has a beneficial interest in those shares; or

(d) where any person acquires shares in the company with financial assistance given to him directly or indirectly by the company for the purpose of or in connection with the acquisition and the company has a beneficial interest in those shares.

In determining for the purposes of paragraphs (b) and (c) above whether a company has a beneficial interest in any shares, there shall be disregarded, in any case where the company is a trustee (whether as personal representative or otherwise), any right of the company (as trustee) to recover its expenses or be remunerated out of the trust property.")
Lord LYELL: My Lords, I beg to move that this House do disagree with the Commons in their Amendment No. 149, but propose Amendments Nos. 149A and 149B in lieu thereof. I spoke to these in the course of my fairly long speech. My Lords, I beg to move.
Moved, That this house do disagree with the Commons in their Amendment No. 149, but propose Amendments Nos. 149A and 149B in lieu thereof.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
150 Clause 37, page 45, line 26, after "shares" insert "or any interest of the company in them"
151 Clause 37, page 45, line 27, leave out "three years" and insert "the relevant period"
152 Clause 37, page 45, line 28, leave out from second "or" to end of line 29 and insert"in a case to which subsection (1)(b), (c) or (d) applies, their acquisition,"
153 Clause 37, page 45, line 33, leave out "issued" and insert "allotted"
154 Clause 37, page 45, line 44, leave out"(1)(b) above, the company's nominee"and insert"(1)(c) or (d) above, the company's nominee or, as the case may he, the other shareholder "
155 Clause 37, page 46, line 4, leave out "and such additions to"
156 Clause 37, page 46, line 7, leave out "framed"
157 Clause 37, page 46, line 10, leave out "and added to"
158 Clause 37, page 46, line 14, leave out from "the" to "section" in line 15 and insert "relevant period,"
159 Clause 37, page 46, line 38, after "forfeiture" insert "or are otherwise acquired by the company"
160 Clause 37, page 46, leave out lines 39 to 43 and insert—
"

(b) are acquired by the nominee of a company in the circumstances mentioned in subsection (1)(c) above; or

(c) are acquired by any person in the circumstances mentioned in subsection (1)(d) above; "

161 Clause 37, page 47, line 1, leave out "period of three years" and insert "relevant period"
162 Clause 37, page 47, line 3, leave out "period of three years" and insert "relevant period"
163 Clause 37, page 47, line 4, at end insert—
"(9A) Where a public company or a nominee of a public company acquires shares in the company or an interest in such shares and those shares are or that interest is shown in a balance sheet of the company as an asset, an amount equal to the value of the shares or, as the case may be, the value to the company of its interest in the shares shall be transferred out of profits available for dividend to a reserve fund and shall not be available for distribution.
(9B) In this section relevant period ', in relation to any shares, means—

(a) in the case of shares forfeited or surrendered to the company in lieu of forfeiture or acquired as mentioned in subsection (1)(b) or (c) above, three years;

(b) in the case of shares acquired as mentioned in subsection (1)(d) above, one year."

164 Clause 38, page 47, line 18, after "credit" insert "or the bailment or (in Scotland) hiring of goods under a hire purchase agreement, or both,"
165 Clause 38, page 47, line 18, leave out "taken by" and insert "of"
166, Clause 38, page 47, line 19, leave out"as security for the purposes of"and insert"which arises in connection with "
167 Clause 38, page 47, line 24, after "or" insert "is"
5.15.p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 150 to 167 en bloc.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
168 Clause 39, page 47, line 41, leave out "41(3)" and insert "41(1)"
169 Clause 39, page 47, line 43, leave out"(whether by distribution, capitalisation or otherwise)"and insert "by distribution or capitalisation"
170 Clause 39, page 47, line 45, at end insert "in a reduction or reorganisation of capital duly made"
171 Clause 39, page 47, page 48, line I, leave out"in writing off realised losses or"
172 Clause 39, page 47, line 7, after first "of" insert "all"
173 Clause 40, page 48, line 35, at beginning insert "Subject to section 41 below,"
174 Clause 40, page 49, line 6, leave out from "utilised" to"and"in line 8 and insert"by any capitalisation of a description to which this paragraph applies exceeded its accumulated, unrealised losses, so far as not previously written off in a reduction or reorganisation of capital duly made; "
175 Clause 40, page 49, line 12, at end insert—
"(2A) Subsection 2(c) above applies to every description of capitalisation except a transfer of any profit of the company to its capital redemption reserve fund on or after the appointed day."
176 Clause 41, page 49, leave out lines 19 to 35 and insert—
"(1) Subject to the following provisions of this section, an investment company may also make a distribution at any time out of its accumulated, realised revenue profits, so far as not previously utilised by distribution or capitalisation, less its accumulated revenue losses (whether realised or unrealised), so far as not previously written off in a reduction or reorganisation of capital duly made—"
177 Clause 41, page 50, line 4, leave out"(5)"and insert"(1) "
178 Clause 41, page 50, line 12, leave out from "company" to "consists" in line 15 and insert"which has given notice in the

1009
prescribed form (which has not been revoked) to the registrar of its intention to carry on business as an investment company (the"requisite notice ") and has since the date of that notice complied with the requirements set out in subsection (7A) below.
(7A) The requirements referred to in subsection (7) above are—
(a) that the business of the company"
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 168 to 178 en bloc. I also wish to speak to Amendments Nos. 179 to 192 en bloc, as well as to Nos. 325 and 336. All of these amendments to Part III of the Bill are mainly drafting and clarifying technical amendments only. They meet various minor points which were raised by representative bodies. But the amendments to Clause 41 provide a new and simpler administrative scheme for regulating the distributions of investment companies, as allowed for by Article 15 of the Second Directive. In particular, the amendments to Clause 41 provide for a greater flexibility of distribution by investment companies; secure the Second Directive exemption for, and express a clear and comprehensive definition of, investment trust companies for whom the exemption in the Directive was sought and obtained by the United Kingdom Government; provide a means whereby other companies within the scope of the Directive's exemption may obtain investment company status if there are sound reasons for their doing so; and, finally, do away with the certification scheme envisaged in the clause.
These new proposals have been circulated to the Association of Investment Trust Companies who, apart from one technical point which is the subject of a Government amendment, agree that they are an improvement to the clause. We believe that the amendments provide for a practical scheme which complies with the Second Directive and contains appropriate safeguards. My Lords, I beg to move.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
Lord LLOYD of KILGERRAN: My Lords, may I raise a point in regard to Amendment No. 169? This amendment is intended to clarify the position relating
1010
to accounting write-offs, which were discussed during the passage of the 1978 Companies Bill. It is a complicated accounting matter, but the Minister in the other place agreed during the Committee stage on 20th November 1979, at col. 263 of the Official Report, that one of the effects of this amendment was that it would be retrospective as required by Article 33 of some EEC Fourth Directive, whose further identification I have mislaid. It may be that, in the course of the passage of the Bill through the other place, this aspect of being retrospective in its effect has been qualified in some way, but in my researches I have failed to find whether, and where, this qualification as to retrospectivity arose.
In the other place, the Minister offered to talk further with other companies which will suffer by the retrospective effect of the clause, as it was then amended. I understand that this aspect of the matter probably affects companies holding property more than any others. But it is a matter which we on these Benches consider important, when there is a suggestion of the amendment being retrospective in its action.
While researches are being made, may I make some observations in regard to Amendments Nos. 173 to 175, which are again dealing with Clause 40 on restriction of distribution of assets. I think it is appropriate at this stage that I should ask why the Government do not wish to defend in any way the liberties of shareholders as to their rights to decide themselves whether any assets of the company should be distributed to political parties. The Government have quite rightly, in my view, emphasised free enterprise, free competition and less bureaucracy, but seem to have failed in this Bill to deal with the rights of shareholders to contract out of spending the company's assets to finance a particular political party.
The answer has always been that the shareholders can always sell their shares and get out of the company. In my view, that answer is a most undemocratic one. Why should he or she as a shareholder sell, if he or she does not want to, when shares may be at a market low? In my submission, companies should be compelled to give shareholders a democratic right to decide whether money should be used for any political purpose. There

1011
should be, at least, an element of shareholder accountability.
May I declare an interest, because I am still the co-treasurer of the Liberal Party? Would it not be a good idea to introduce into the Bill permission for companies to make political contributions to all of the three major parties? If a major party received more than 8 or 10 per cent. of the votes at an election, then it might be in order for the political gifts to be appropriated in the order of their accountability, as it were, to the people in the proportion of votes that they received. I therefore thought it appropriate to raise this at this stage. May I ask again why the Government have refused to grant to shareholders some form of freedom of choice and, indeed, to include in the Bill a clause to establish political funds for companies, out of which shareholders could opt, if they so wished?
Lord ELWYN-JONES: My Lords, may I say how much I admire the ingenuity of the noble Lord, Lord Lloyd of Kilgerran, in introducing this fascinating possibility of a debate for the next two hours on the interesting question of company contributions to political funds. It may be that the Minister agrees that the matter which has been raised is wholly in order, and I shall wait with interest to hear what he has to say.
Viscount TRENCHARD: My Lords, we aired very fully the subject of political contributions when the Bill was with us before. I do not think we should add in any way to what we said, except that political contributions do have to be published. That point needs to be made clear.
Lord WEDDERBURN of CHARLTON: My Lords, could the Minister answer Lord Lloyd's point regarding retrospection?
Lord LYELL: My Lords, I must apologise if I was not swiftly on my feet at the appropriate time. I hope that there is no element of retrospection, particularly in Clause 40. I, too, share the reluctance of the noble Lord, Lord Lloyd of Kilgerran, that this House should enact any retrospective legislation. To
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deem the effect of Clause 40 to be retrospective so far as it requires the past distribution of unrealised profits to be made good before a further distribution may be made is, we believe, to look at only one aspect of this clause in isolation. Clause 40 does not invalidate any such past distribution or require any alteration in the position of individual shareholders in relation to past dividends.
The purposes of Clauses 39 and 40 together are essentially future safeguards and will impose upon the relevant companies new tests before they may pay a dividend. These tests are of a prudent nature and are intended to improve the protection of creditors and other interested parties. Any company which is unable to meet these tests will be unable to pay a dividend, whether the inability is due to past trading losses or to some other cause.
Whenever the law is changed there will always be cases in which a company, which may have been permitted to do something in the past, will be prevented from so doing in the future. A particular feature of the present Bill is that the tests to be applied before any kind of distribution may be made go further than merely requiring a company to preserve its position as it happens to be at the time of enactment. However, this seems entirely appropriate to ensure the proper protection of those who are dealing with public companies.
I hope that goes some way towards assisting the noble Lord, Lord Lloyd of Kilgerran, with his query about retrospective action in Clause 40.
Lord LLOYD of KILGERRAN: My Lords, may I thank the noble Lord for his careful answer, which I shall study with care.
On Question, Motion agreed to.

COMMONS AMENDMENT
179 Clause 41. page 50, line 16, leave out land or other assets "

COMMONS AMENDMENT
179A Clause 41 Page 50, line 15, leave out (" in securities, land or other assets ") and insert (" mainly in securities ")
5.24 p.m.
Lord LYELL: My Lords, I beg to move that this House doth disagree with the Commons in their Amendment No. 179 but propose Amendment No. 179A in lieu thereof. The Association of Investment Trust Companies has expressed the view that the new and simplified administrative scheme introduced by the amendments to Clause 41 in another place is an improvement to the existing provisions of the clause, but very recently these companies have expressed concern that by deletion of the reference to"land or other assets"in Clause 41(7) the restriction of an investment company's investments to securities only could prove to be unduly onerous to that company.
Investment trust companies can have a small proportion of direct investments in assets other than securities and, far more important, at the time of a falling stock market an investment trust company may quite reasonably decide to keep a fair proportion of its investments in liquid form. By the introduction of the word "mainly", this amendment will give investment companies additional and necessary flexibility in the investments which they may wish to hold. We believe that this is consistent with the provisions of the Second Directive, and the Association of Investment Trust Companies has stated that it meets their concern. My Lords, I beg to move Amendment No. 179A.
Moved, That this House doth disagree with the Commons in their Amendment No. 179 but propose Amendment No. 179A in lieu thereof.—(Lord Lyell.)
Lord WEDDERBURN of CHARLTON: My Lords, I listened attentively to the Minister and tried to follow the course of his discussion on this matter, which is perhaps the most important point which has been put before your Lordships' House so far in respect of the amendments from another place. The 1978 Bill included in the definition companies in respect of which the assets were in securities, land or other property. However, this was changed in Amendment No. 179, as the noble Lord the Minister has suggested, and now it is to be changed again. The new definition is to be "companies whose assets are mainly in securities." That definition may well suit the Association of Investment Trust Companies,
1014
as the noble Lord has said; but surely it behoves someone to point out that it is one of those phrases in respect of which barristers' antennae will quiver in the expectation of large fees.
The Government have introduced at this very late stage a very important redefinition of "investment companies". It is going to matter a very great deal, in respect of distributions, which is an investment company and which is not. Therefore, I am wondering what thought the Government have given to the question of certainty. It seems to me—I shall make this point on later amendments that I and my noble friends wish to advance—that one of the functions of the legislature and, one would suppose, especially of a revising Chamber (and we have shown how good we are at revising by the speed at which we have advanced through the amendments this afternoon) is to try, so far as possible, to avoid litigation by going for certainty, where that is possible.
Without myself trying to redraft, because I do not have access to the admirable advisers of the noble Viscount, I should have thought that one could have landed upon a phrase better than the phrase "mainly in securities". That seems to me to be something which is bound to end up in the courts. I cannot think that a better phrase could not have been found. I wonder whether the Minister could take us, if his advice so tends, a little further into the Government's thinking on the effect of this phrase.
Viscount TRENCHARD: My Lords, I do not think we can take the House very much further. We did consider other phrases. The point is that the usual investment in this area is in securities. However, we did not want it to be exclusive to them. Therefore, we used the term "mainly" which, though short, is fairly clear. I believe that "mainly" means over 50 per cent. in securities, for sure. It is necessary to give to investment companies a good deal of flexibility.
Lord JACQUES: My Lords, if it means 50 per cent., why not say so?
Lord LYELL: My Lords, may I, by leave, try to reply to the noble Lord, Lord Jacques? I hope we have allowed

1015
for some flexibility, but it would be foolish just to nominate one particular figure. I think flexibility is better.
On Question, Motion agreed to.

COMMONS AMENDMENTS
180 Clause 41, page 50, leave out lines 19 to 23 and insert—

"(b) that none of the company's holdings in companies other than companies which are for the time being investment companies represents more than 15 per cent. by value of the investing company's investment;

(c) that distribution of the company's capital profits is prohibited by its memorandum or articles of association;

(d) that the company has not retained, otherwise than in compliance with this Part of this Act, in respect of any accounting reference period more than 15 per cent. of the income it derives from securities.

(7B) An investment company may not make a distribution by virtue of subsection (1) above unless its shares are listed on a recognised stock exchange and, during the period beginning with the first day of the accounting reference period immediately preceding the accounting reference period in which the proposed distribution is to be made or, where the distribution is proposed to be made during the company's first accounting reference period, the first day of that period and ending with the date of the distribution (whether or not any part of those periods falls before the appointed day), is has not—

(a) distributed any of its capital profits; or

(b) applied any unrealised profits or any capital profits (realised or unrealised) in paying up debentures or any amounts unpaid on any of its issued shares.

(7C) An investment company may not make a distribution by virtue of subsection (1) above unless the company gave the requisite notice—

(a) before the beginning of the period referred to in subsection (7B) above; or

(b) where that period began before the appointed day, as soon as may be reasonably practicable after the appointed day; or

(c) where the company was incorporated on or after the appointed day, as soon as may be reasonably practicable after the date of its incorporation.

(7D) A notice by a company to the registrar under subsection (7) above may be revoked at any time by the company on giving notice in the prescribed form to the registrar that it no longer wishes to be an investment company within the meaning of this section, and, on giving
1016
such notice, the company shall cease to be such an investment company.
(7E) Section 359(2) and (3) of the Income and Corporation Taxes Act 1970 and section 93(6)(6) of the Finance Act 1972 shall have effect for the purposes of subsection (7A)(b) above as those provisions have effect for the purposes of subsection (1)(b) of the said section 359.
(7F) The Secretary of State may by regulations made by statutory instrument extend the provisions of this section, with or without modifications, to companies whose principal business consists of investing their funds in securities, land or other assets with the aim of spreading investment risk and giving their members the benefit of the results of the management of the assets.
(7G) Regulations made under subsection (7F) above—

(a) may make different provision for different classes of companies and may contain such transitional and supplemental provisions as the Secretary of State considers necessary; and

(b) shall not be made unless a draft of the regulations has been laid before Parliament and approved by a resolution of each House of Parliament."

181 Clause 41, line 24, leave out subsections (8) to (12).
182 Clause 42, page 51, line 30, leave out subsection (1) and insert—
" (1) Where an insurance company carries on long term business, any amount properly transferred to the profit and loss account of the company from a surplus in the fund or funds maintained by it in respect of that business and any deficit in that fund or those funds shall be respectively treated for the purposes of this Part of this Act as a realised profit and a realised loss, and, subject to the foregoing, any profit or loss arising in that business shall be left out of account for those purposes.
(1A) In subsection (1) above—

(a) the reference to a surplus in any fund or funds of an insurance company is a reference to an excess of the assets representing that fund or those funds over the liabilities of the company attributable to its long term business, as shown by an actuarial investigation; and

(b) the reference to a deficit in any such fund or funds is a reference to the excess of those liabilities over those assets, as so shown."

183 Clause 42, line 34, at end insert—
" actuarial investigation"means an investigation to which section 14 of the Insurance Companies Act 1974 (periodic acturial investigation of company with long term business) applies or which is made in pursuance of a requirement imposed by section 34 of that Act (actuarial investigation required by the Secretary of State);"
184 Clause 42, line 36, leave out "the Insurance Companies Act 1974" and insert "that Act"
185 Clause 42, line 39, leave out from "Act" to the end of line 9 on page 52.
186 Clause 43, page 55, line 5, after "of" insert "the state of"
187 Clause 43, page 55, line 16, at end insert—
""reserves" includes undistributable reserves within the meaning of section 40 above; "
188 Clause 45, page 56, line 1, leave out subsection (1) and insert—
"(1) Where immediately before the appointed day a company is authorised by any provision of its articles to apply its unrealised profits in paying up in full or in part unissued shares to be allotted to members of the company as fully or partly paid bonus shares, that provision shall, subject to any subsequent alteration of the articles, continue to be construed as authorising those profits to be so applied after the appointed day."
189 Clause 45, page 56, line 15, after "fully" insert "or partly"
190 Clause 45, page 56, line 16, leave out from"shares"to end of line 17 and insert"out of the proceeds of a fresh issue of shares made for the purposes of the redemption and the payment of any premium on their redemption out of the company's share premium account; "
191 Clause 45, page 56, line 23, at end insert—
" (2A) In this Part of this Act"capitalisation ", in relation to any profits of a company, means any of the following operations, whether carried out before, on or after the appointed day, that is to say, applying the profits in wholly or partly paying up unissued shares in the company to be allotted to members of the company as fully or partly paid bonus shares or transferring the profits to the capital redemption reserve fund."
191 Clause 45, page 56, line 24, at end insert"of any description are references respectively to profits and losses of that description made at any time, whether before, on or after the appointed day and ".
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 180 to 192 en bloc.
Moved, That this House doth agree with the Commons in the said amendments.— —Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
193 After Clause 45, insert the following new clause—
"Directors to have regard to interests of employees
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".—(1) The matters to which the directors of a company are to have regard in the performance of their functions shall include the interests of the company's employees in general as well as the interests of its members.
(2) Accordingly, the duty imposed by subsection (1) above on the directors of a company is owed by them to the company (and the company alone) and is enforceable in the same way as any other fiduciary duty owed to a company by its directors."
LORDS AMENDMENT TO THE
AMENDMENT
193A Leave out subsection (2).
5.30 p.m.
Lord MACKAY of CLASHFERN: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 193. Since 1973 Governments of both parties have attempted to introduce such a provision as this one, but I believe that the formula we have now adopted achieves the right balance between the need to recognise in company law the contribution that employees make and the necessity to avoid saddling directors with confusing or conflicting duties as regards the interests of employees and shareholders.
The need for this provision or some such provision has been apparent for some time, not least because the law as it stands is unclear as to the extent to which directors are required to take account of the interests of the company's employees, and that has been the situation since the decision in the case of Parke v. Daily News in 1962. Although, therefore, there is wide acceptance that there should be some statutory expression on the consideration of employees' interests, there is some controversy about how it should be expressed —and no doubt we shall hear something about that—and I should like to explain briefly why we chose to formulate the clause in the way it now stands.
First, we wanted to make sure that the clause stated quite unambiguously that directors have a duty—that is, a mandatory and not a permissive requirement—to consider the interests of employees. Secondly, we consider that this new duty on directors should be seen as part of, not in conflict with, the directors' general fiduciary duties to the company; the new duty is therefore expressed along with the general duty that the directors have to

1019
regard the interests of the members. The new duty is provided to be enforceable in the same way as any other fiduciary duty owed to a company by its directors.
The clause therefore serves to emphasise that a company's best interest can properly be served if the directors, in addition to the other factors they consider, do take into account the interests of the company's employees. Although such considerations will not imply any uncritical acceptance by directors of employees' demands, it will mean that the contribution that both employees and members make to the success of each enterprise will now be recognised in company law. It will therefore remove any legal impediment that directors might have felt themselves to be facing in taking employee involvement seriously and, as such, will provide a general encouragement to companies to devise, in ways appropriate to their own circumstances, means of ensuring that the interests of the employees are adequately considered.
I have been pleased to note that the Law Society—whose point of view the noble Lord, Lord Mishcon, has advanced in this House from time to time—concluded in a memorandum they produced on the Bill that this clause should raise the standard of care of directors in the regard which they have to the interests of employees. This conclusion by an independent body such as the Law Society is very much in line with the intentions we had in drafting the clause.
I hope noble Lords will allow me briefly to look at another amendment which would be viewed in conjunction with this one—namely Amendment No. 221, which enables a company on ceasing or transferring all or part of its business to provide for its employees or ex-employees. Both amendments have a common link in that they relate to the subject matter of the case of Parke v. Daily News to which I have already referred. Amendment No. 221, however, expressly reverses the decision in that case, in which it was found that the company was acting ultra vires in seeking to make ex gratia payments to its employees on the cessation of the major part of its business.
Amendment No. 221 therefore enables a company to make provision for its employ-
1020
ees in any circumstances, including liquidation. The power so to act, will, however, be subject to the mechanism of approval provided for in the company's articles, or if not so provided for, subject to an ordinary resolution of the company. This is a long overdue measure which, but for the loss on Dissolution of previous Bills, would have been in force some time ago. Perhaps I should add that the position of creditors is not prejudiced in any way by this provision as any payments made under the provision may only be made out of sums which would otherwise be available for distribution.
Moved, That this House doth agree with the Commons in the said amendment —(Lord Mackay of Clashfern.)
Lord MISHCON: My Lords, those who do not have an esoteric interest in the Companies Bill now before this House in regard to the amendments of the Commons may have wondered at the calm which has fallen upon the House so far, interrupted by a few ripples from the noble Lord, Lord Lloyd of Kilgerran, and my noble friend Lord Wedderburn of Charlton. May I immediately say that some of the calm is now going to cease to exist because we are coming to clauses in this Bill which have nothing to do with the EEC Directive requirements as such and which relate to matters which were debated in this House at the Committee stage, when the Opposition had some very definite views which it ventured to place before this House.
It is a matter of gratification that the duties to employees—and there were several speeches made in this House when this matter was being dealt with—now feature in this Bill, and indeed, if my recollection is correct, in the Committee stage in this House an undertaking was wrested from the Government that this matter would be dealt with by an amendment in this Bill, and now it appears before us.
It might be a matter of convenience to the House if, with your Lordships' permission, I were to deal with Amendment No. 193A which stands in my name. I have nothing to say about subsection (1) except praise that this matter is now being incorporated into the Bill and that there will be a clear statement of law that part of the duties of directors is to their em-

1021
ployees—that they shall take those duties into account. I could, but I do not intend to, deal with various alternative ways of seeing that directors keep in mind that duty and indeed that they carry it out. I observed that certain amendments were moved in another place which gave rights to associations representing employees to enforce the duties in subsection (1). That in another place was not agreed to, and I do not think that from my point of view any useful purpose would be served by my endeavouring to go over ground already covered elsewhere, whether or not—if I may dare to say this—I personally agreed with some of the stands that were taken in another place.
What I want to do is to clarify the law we are now legislating regarding these duties to employees, and to make sure that when the Bill leaves this House the amendment we are now considering is one which in its wording makes the legal situation positively clear. I am in doubt in regard to subsection (2). The reason for my amendment calling for the deletion of subsection (2) is to seek some clarification, at all events, from the Government in regard to the way in which the Government see the enforceability of subsection (1).
In the 1978 Bill, the Bill of the previous Administration, the matter was, in my submission, made very clear, because in Clause 46(2) of that Bill, having set out the duty to take into account the interests of employees, the Bill said:
"Where in any proceedings it falls to a court to determine whether a director of a company is in breach of his duty to have regard in the performance of his function to the interests of the company's members the court shall take into account the fact that the director is also required to comply with the duty imposed by this section".
I think it was put rather picturesquely by a then member of the Government, I think a Minister then, Mr. Meacher. He said that this was, if I may paraphrase, deemed to be a shield for the directors and not a spear. In other words, what he was saying was that if a director is criticised, indeed is attacked in the courts, for not having fulfilled duties to the members of the company solely in their interests because he has taken into account the interests of employees, which may slightly or substantially derogate in a certain case from the interests of the
1022
members, it shall be taken into account that the director had this statutory duty. I repeat that it was a shield, in the language of Mr. Meacher, and was not meant to be a spear.
What creates doubt in my mind is what this subsection (2) of this clause is supposed to do. It says that it is a duty to the company. The precise wording of the subsection is that it shall be a duty owed by the directors
"to the company (and the company alone) and is enforceable in the same way as any other fiduciary duty owed to a company by its directors ".
Does this mean that a member of the company who also, it may be, is an employee is able, as a result of this subsection to petition the court and to bring some sort of derivative action? We all of us who are lawyers are acquainted with the famous case of Foss v. Harbottle and its exceptions. Is the meaning of subsection (2) that it is enforceable in the same way as any other duty of a director? If directors fail to observe, in the opinion of an employee-shareholder, what ought to be the duty of the directors to the company's employees, is it the idea that this can be brought before the court?
In the Committee stage in another place the Minister, if I may be allowed to say so, when trying to deal with this point, which was raised in rather a different way, used the somewhat pedantic phrase of saying that this was a subsumed duty. So far as I know, "subsumed" means that it is put in a particular category, and that phrase, too, led me into confusion. Is this is a particular category of duty which can be enforced? There are many of us who believe—and this is the importance, I believe, of the point I am trying to raise—that industrial relations are best dealt with and industrial disputes best handled in the normal way which has traditionally grown up in this country. Many of us hope they will in the future be rather sweeter than they are at the moment; they are not being helped at the present moment, and possibly will not be in the near future, by Her Majesty's Government. But whatever our views about industrial relations in this country, there are many of us who feel very deeply that the field for argumentation in regard to them is certainly not in our courts. Does this subsection (2) bring it within our courts?

1023
The reason for my amendment calling for the deletion of subsection (2) is not that I want to take any rights away from employees or to derogate from the duty in subsection (1). What I want to do is to see that the law is clear, so that one knows that this is a duty imposed upon directors which directors can partially use as a reason why, for example, they did not recommend a takeover bid—it was because they knew that it would lead to many employees losing their employment if that particular takeover bid succeeded, however attractive in price it might be. There are other ways in which one can see this clause being of use, and there I am referring to subsection (1). In seeking clarification I would hope that we do not leave this Commons amendment in a way which, instead of clarifying the law, clouds it in a most undesirable fashion.
Lord LLOYD of KILGERRAN: My Lords, may I support the noble Lord, Lord Mischon, in his amendment. I am also seeking clarification, but for a totally different reason. I am certainly not going to enter into exemptions to that celebrated case of Foss v.Harbottle, because I have always felt that the exemptions to that case have taken the matter into the realms of near incomprehensibility. The point I have in mind is a specific case of great importance to industry in this technological age, if I may make use of a phrase so often used these days. There may be a conflict between the interests of an employee and the interests of the company. In my view, subsection (1) will, as the noble and learned Lord said, no doubt raise the standard of care with which directors must deal with their employees.
However, I hope that the House will have patience with me as regards one specific matter. These days the Minister of State for Industry is doing a great deal to encourage innovation and the exploitation of inventions by employees. There are sections of the Patents Act which now give rights to employees in relation to inventions. In my view there may arise a case of an employee with a splendid invention which the company does not feel it ought to exploit, but which, if the employee could exploit it or if the company exploited it for him, would bring great
1024
advantage to the employee and to the company. Therefore, it is difficult in my view to substantiate the terms of subsection (2). It says:
"Accordingly, the duty imposed by subsection (1) above on the directors of a company is owed by them to the company"—
then come, in parenthesis, the important words—
"(and the company alone)".
That differs entirely from the general principle, as it seems to me, laid down in subsection (1), where the directors have to have regard to:
"the interests of the company's employees in general".
Therefore, as regards the present terms of subsection (2), I can see a conflict arising between the interests of the employees and the interests of the company. Moreover, in those circumstances, what is the duty of the directors both to the company and to the employee who has invented something of consequence to industry, in general, in this country?
Lord MACKAY of CLASHFERN: My Lords, the intention of this amendment has been clearly explained by the noble Lord, Lord Mishcon. I must confess that I doubt whether leaving out subsection (2) would, of itself, produce clarification. I rather suspect that it would go in the opposite direction. Indeed, the amendment which is in the name of the noble and learned Lord, Lord Elwyn-Jones, and others, seems to go in the opposite direction from that presently proposed by the noble Lord, Lord Mishcon.
It is clear that the method by which the duty of directors to have regard to the interests of the members of the company, is the root which has been dealt with in the case of Foss v. Harbottle and the considerable number of cases which have followed it. Perhaps the exceptions to the rule in Foss v. Harbottle are best summed up in the reference to the Master of the Rolls in Foss v. Harbottle which was made by Mr. Justice Vinelott in, I think, the most recent case of the Prudential Assurance Company Limited, in February this year. He said:
"The words of Sir George Jessel in Foss v. Harbottle indicated that the exception might apply not only where the wrongdoers were a majority, but where it could be shown that, unless the minority were allowed to sue on the company's

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behalf, the interests of justice would be defeated in that an action which ought to be pursued on behalf of the company could not be pursued".
That, in my view, is a very clear and easily understood principle, although it may not always be easy to apply.
The intention in this particular formulation is that the interests of the members are laid alongside the interests of the employees in subsection (1). As the noble Lord, Lord Lloyd of Kilgerran, has pointed out, there is a possibility that these two interests might not always point in the same direction. But we believe that it is the responsibility of the directors of the company to try to resolve any differences that there may be between these and to do their best to ensure that these interests are pursued both in the interests of the members and of the employees. That is really the idea which lies behind the formulation in subsection (1).
Something was said about the present state of industrial relations, although I do not know that it was compared with the situation, say, a year ago. It was said that it might not be wise to bring them into the courts and so on. I do not think that the particular formulation in subsection (2) is meant to bear very directly on that particular problem, but what we have said is that the duty in regard to the company's employees should be regarded in much the same way as the duty in regard to the members, and that accordingly, like the duty to the members, it should be regarded as owed to the company, and to the company alone. That being the basic principle, the method of enforcement will be the same method as is available when a duty is owed to the company, and the company alone, in the general situation with which subsection (1) deals. Accordingly, the intention is that normally it should be only the company, and only in the special circumstances such as illustrated in the exceptions from Foss v. Harbottle, might there be an action by the members or a member of the company.
It seems to us that that is the correct way in which to approach the matter. The result is not very different from that set out in the language of Mr. Meacher, to which the noble Lord referred. The result will be that the interests of the employees will fall to be considered, and
1026
the regard which the directors have had to them will fall to be considered, in the context of an action to enforce a duty due to the company, and enforceable in the way in which such a duty is normally enforced, taking account of the special circumstances which may give rise to particular methods of enforcement in particular cases. I hope that, with that explanation, the noble Lord will be able to withdraw this amendment.
Lord MISHCON: My Lords, with the leave of the House, I am not quite sure that I am clearer about the situation. I know that the noble and learned Lord has done his best to help me and for that I am grateful. However, this is so important that I would beg him, unless he thinks that I am merely repeating myself and requiring him to repeat himself, to deal with the specific question that I raised because I thought that it would interest the House. Could he please envisage the situation under subsection (2), of an employee who was also a shareholder in the company? Could he envisage circumstances in which, within the rules or exceptions of Foss v.Harbottle, a derivative action could be brought in the courts on subsection (1)? What arc the circumstances in which he envisages that it might be brought? The House will then be able to consider—if I may say so with humility—as I shall also, what the House is agreeing to in the enforceability—and that is the word that is used in subsection (2) of subsection (1).
Lord MACKAY of CLASHFERN: My Lords, with leave, I would seek to answer that question, by saying that the duty in subsection (1) is placed into the general functions of the directors. Therefore, if the noble Lord can envisage any case in which it will be necessary or desirable to enforce these duties owed by the directors, that is the sort of case to which subsection (2) will apply. In some cases and some circumstances it is possible for that to be done, not by the company itself, but byperhaps a minorityof members of it on the principles that I have sought to explain. As I have said, it is not always easy to apply these principles to particular cases and I do not think that it would be very wise for me to try to do that. However, I think the principles are reasonably plain and I do not believe that to leave out subsection (2) would make the task

1027
of the courts, in deciding this matter if it came before them, any easier.
Lord MISHCON: My Lords, again, with the leave of the House, it will be a very short intervention. I must confess still to be in grave doubt, but having regard to what the Minister has said—and I am sure that he and his advisers have given this matter the greatest of consideration—I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 193
193B Leave out subsection (2) and insert—
("(2) Accordingly, the duty imposed by subsection (1) above on the directors of a company is owed by them to the company (and the company alone) and is enforceable as a fiduciary duty owed by its directors to a company by way of either an action brought by the company itself or a derivative action brought by a member of the company.").
6.1 p.m.
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move as an amendment to Commons Amendment No. 193, Amendment No. 193B. It falls to me to move this amendment in the name of myself and my noble and learned friend Lord Elwyn-Jones. This is one of a series of amendments which I hope noble Lords will accept as being an attempt, even at this eleventh hour, to improve the Bill in the sense—which I mentioned to your Lordships earlier this afternoon—of removing the type of ambiguities which would make the Bill pregnant with litigation when it need not be so. In saying that, I would say at once the I shall not be swayed by an argument that merely says that the Bill is roughly the same as the 1978 Bill, because it may be possible to improve upon that as well.
At last the noble and learned Lord the Lord Advocate's advisers and the advisers to the noble Viscount have the prosect of a Companies Bill actually going on to the statute book, having seen two founder in the last decade through the misfortunes of various parties at elections. Now that we are to have a Companies Act, it will be my submission to your Lordships' House that this House must do every
1028
thing it can to clarify, and not leave it to the litigant, whoever he may be—be it shareholder or company—to sort it out.
May I preface my substantive remarks on this amendment by saying that, in my own opinion at least, subsection (2) has nothing to do with industrial democracy or employee participation? The noble Viscount will have noticed that already this afternoon I and my noble friends have exercised great restraint in regard to the matter of political contributions, although the noble Lord, Lord Lloyd of Kilgerran, dangled the bait before our eyes. We are also being very restrained, compared with our honourable and right honourable friends in another place, in not entering into the field of worker participation through this clause. Indeed, much more importantly, were I moving amendments to deal with worker participation, they would take up a much greater space on the Marshalled List than this very brief amendment.
Of course, technically at least, this clause does nothing to alter the status of the employee as a litigant on the company law stage. I accept what the noble and learned Lord the Lord Advocate has said, that to allow, and indeed require, directors to take into account employees' interests in discharging their basic duties, leaves them with the problem of balancing those duties against the interests of the shareholders in rather the same way as today, when, as it were, the hard core of their duty is to consider the best interests of the company, meaning thereby the best interests of shareholders, in their direct considerations, and to balance the interests of, say, the ordinary shareholders against those of preference shareholders or any other group.
The employee does not enter the company stage as a litigant unless he becomes something else. If he buys a share, then he may bring a shareholder's action where that is permitted, just as if a hank buys a share it comes in as a shareholder and not a bank. Therefore, if I may, I shall approach this amendment with that initial consideration.
The noble and learned Lord the Lord Advocate has allowed me to abbreviate one part of my argument, in which I am glad to concur with him. It is that this

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clause in the Bill deals with what I have called the "hard core" of the directors' duty, just as did the same clause, although in slightly different terms, in the 1978 Bill. There is nothing more fundamental—and the case law bears this out—than the overall duty of directors of the company to act in what they consider—not what the court considers, to use the phrase in the leading case—to be the best interests of the company. That is fundamental to all the aspects of directors' duties.
The right honourable friend of the noble Lord, Mr. Parkinson, made it quite clear in Committee on 27th November, at columns 362 to 363,—just as the noble Lord, the Lord Advocate has made it plain today—that the Government's view is that this clause in its entirety goes to reshape the fundamental duty of directors, a duty which they owe to the company. On that, I believe that we are on common ground. The trouble with the clause as it stands concerns the very words which the noble and learned Lord the Lord Advocate read out:
"…is enforceable in the same way as any other fiduciary duty owed to a company by its directors".
Those words assume that there is only one way in which fiduciary duties are enforceable; or, in another respect, that there is only one type of fiduciary duty It is my submission that that is not a correct view of the law; that there are two distinct areas of fiduciary duty, although the commentators argue as to where exactly the boundary should be drawn.
Perhaps I may speak of them in this way. The first area is the lower duty or the normal duty—the duty of the fiduciary to act in the best interests of the recipient of his duty, and take the correct interests into account and other aspects; not to make a secret profit out of his office and not to allow a conflict of duty and interest. Those points are fundamental and they then lead us to the rule in Foss v. Harbottle in 1843 in the first volume of Hare's Reports, with which I have had the pleasure of living in company law for some 20 or 30 years. The basis of the case of Foss v. Harbottle is, of course, that in enforcing the ordinary fiduciary duty, the company is the only possible plaintiff. One concomitant and result of that is that in the ordinary way the general meeting of shareholders can absolve the directors from a breach of the ordinary fiduciary duty.
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I should like to quote Lord Justice Harman in the case of Bamford v. Bamford in 1970 in the Chancery Reports at page 211. He says that where directors have broken their duties to the company:
"such directors can, by making a full and frank disclosure and calling together the general body of shareholders, obtain absolution and forgiveness of their sins".
In that colourful way Lord Justice Harman was clearly referring to the nature of the normal fiduciary duty enforceable only by the company, ratifiable and validated by a general meeting of the shareholders.
But there is a second category, a higher fiduciary duty, going to what I have already called the core of the fiduciary duty of directors. In respect of that, the duty to act in the best interests of the company—which is reshaped by this clause, as it would have been reshaped by Clause 46 of the 1978 Bill—brings into play a number of further considerations. First, what are the areas of this higher or more important area of fiduciary duties? I should like to quote the three instances given by Professor Gower's book, Modern Company Law, in the fourth edition last year. In quoting it, may I say although I was a co-editor and had the privilege of working with Professor Gower, I am sure that noble Lords will know better than I that the text is what Professor Gower approved in the end? We were all equal, but he was more equal than the other co-editors. The three instances which Gower's Modern Company Law gives at page 648 are these:
"

(a) Expropriation of the property of the company …

(b) Breach of the directors' duties of subjective good faith, and

(c) Voting for company resolutions not bona fide in the interests of the company as a whole".
I venture to suggest that none of the authorities and commentaries would disagree with that very succinct summary of the hard core of the higher fiduciary duty.
Where the director breaks, or the directors break, that higher duty the position in regard to litigation is very different. First, if the plaintiff can show that the directors have broken their duty and acted in that fundamentally wrongful way and are in control of the company, then today the cases have at last made clear that he may bring a derivative action if he falls into the category of a minority shareholder; may bring it, that is, with the leave of the court.

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I pause to comment that in law it is quite clear that the words "derivative action" today imply all the necessary conditions being met, in that the words "derivative action" have been made quite clear by the Court of Appeal in the case of Wallersteiner v. Moir (No. 2) in 1975 in the Queen's Bench Reports at page 373. It has been made quite clear by the Court of Appeal in that case that English law today does know of what the United States courts have for many years called the derivative action.
If I may summarise the words on page 647 of Gower's Modern Company Law, he there sets out—I shall not quote it but I refer to it for authority, which I am sure the noble and learned Lord will accept—that one of the exceptions to the rule in Foss v. Harbottle is just this situation where a fundamental hard core duty has been broken, where the director defendants are in control of the company, the plaintiff is a minority shareholder, and the court gives leave and allows the derivative action to go ahead. Indeed, in Wallersteiner v. Moir itself the passage on page 647 of Gower on which I have relied was expressly approved by two members of the Court of Appeal.
What therefore it comes to is that the words "any fiduciary duty" in subsection (2) just will not do because that leaves it to the courts, in what will undoubtedly be great and important litigation, to decide into which category Parliament thought that this duty lay. It is always amusing for lawyers, as the noble and learned Lord will know better than I, to come across, in the words of the judge, "What was the intention of Parliament?" because usually if we go back to the debates we find that Parliament did not think about the question at all. What I am trying to do today is to ensure that Parliament has thought about this question and does not pass what is a phrase which will undoubtedly give rise to expensive litigation in a major case.
What my amendment would do would be, in effect, to add to the clause what I believe to be only a declaratory provision. To quote the words of Amendment No. 193B, the duty would be:
"enforceable as a fiduciary duty owed by its directors to a company by way of either an action brought by the company itself or a derivative action brought by a member of the company".
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That last phrase, as I have suggested, fits precisely the legal category which has now been clearly established by the Court of Appeal in the Wallersteiner decision.
If that were put in, it would make the clause clear. Above all, at the moment it is obfuscated by a failure to make the distinction. I must say to noble and learned Ministers that albeit academic commentators are not always the best guide, there is already a school of thought among them which takes a rather poor view of this clause—a much poorer one than I do myself, because I believe it to be wholly beneficial to the state of our company law, which is why I and my noble friends would wish to improve it.
If the noble and learned Lord looks in the new journal, the Company Lawyer for 1980, at page 73 he will find the author, a Mr. Birds, of a quite interesting and challenging article stating:
"In conclusion one wonders whether this clause has any really effective meaning at all, and whether it was not in fact intended merely as window-dressing".
I make it plain immediately that I do not share that criticism, but I accept some of the reasoning which led Mr. Birds to his conclusion, one of which was that it is not clear how the duty is to be enforce; whether it is by derivative action or not.
I wish to stress that the words in the amendment "by way of…a derivative action do not suggest that the minority shareholder would always have the right to bring an action to enforce the company's rights, because of course a derivative action is an action to enforce not his rights but the company's rights by way of exception to the rule in Foss v. Harbottle. A derivative action lies only where the defendants are in control of the company and where the court gives leave, as an exception to the normal rule in Foss v. Harbottle, and where the defendants are directors and a fundamental duty is broken.
The noble and learned Lord will know that I have had some discussion with the noble Viscount about this, although briefly, and I would be very disappointed if noble Ministers felt it necessary to resist this amendment. It may be that the words are not precisely right, although as at present advised I would defend them. I would defend them on the ground that

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it is the most concise way to describe some animal which has been placed firmly in the legal zoo by the Court of Appeal, to use precisely the words that the Court of Appeal has used, and the words "derivative action" now have a legal meaning which carries the concomitants that I have advanced. I very much hope that the noble and learned Lord will at least give us some expression of sympathy for this amendment, because I believe it to be one which will avoid litigation, which is I believe part of the job of your Lordships' House.
Moved, That this House doth agree to the said amendment to the Commons Amendment No. 193.—(Lord Wedderburn of Charlton.)
Lord LLOYD of KILGERRAN: My Lords, it has to be said that relative brevity is a novel concept in the area of discussions on company law. I propose now to disprove this generalisation by saying very briefly that I support the submission of the noble Lord, Lord Wedderburn, that at least the words "a derivative action" should be included somehow in this clause.
6.18 p.m.
Lord MACKAY of CLASHFERN: My Lords, I think it would be right for me to say that I appreciate very much the manner in which the noble Lord, Lord Wedderburn, has explained his point of view, and particularly for the observation that he made in relation to the article in Company Lawyer, that he does not accept the view that this clause is merely window-dressing but is an important clause as it reshapes the fundamental duty which directors have to perform. I certainly also appreciate his desire to make the matter as clear as it is possible to make it, and to avoid unnecessary litigation.
Perhaps I should say also, to make the matter plain, that this clause would apply in Scotland as well as in England. Therefore, the fact that the Court of Appeal in England has used the phrase "a derivative action", only I think fairly recently, is not perhaps a very secure foundation for making provisions for the United Kingdom as a whole. However, I am sure that the courts in Scotland, if this clause came before them, in the words of the noble Lord would be able to at least get some im
1034
pression of what it was driving at. However, I feel that the analysis which the noble Lord has put before us demonstrates plainly that the question whether or not a derivative action is available depends not so much on an analysis of the nature of the duty owed, as on the particular circumstances in which the question has arisen.
I agree that there is a good deal of discussion in the text books, and that of Professor Gower prints a very clear discussion of the matter, but notwithstanding that, I believe that when one looks at it closely one discovers that the question whether derivative action is to be available is a matter of whether it is just in particular circumstances to allow a minority of shareholders in effect to use the name of the company as the only way to achieve justice. I submit that the words proposed by the noble Lord in this clause at least suggest that a derivative action would be open in all circumstances, either at the option of the person seeking to take it, the company itself, which could raise this action, or persons entitled to derivative action could do so.
I know he has said—and I have taken this into account in what I have just said—that the Court of Appeal has described derivative action as one available in particular circumstances where the right was derived in effect from the company, but I believe that the clause as drafted contains that particular difficulty. Also, I believe that the phrase "derivative action" is used in the United States, as I think the noble Lord said, but I am not certain that the conditions under which it is available are necessarily the same as they are here.
Accordingly, although I appreciate we are a difficult area, we are trying to arrive at as precise an anser as possible. I believe that the answer contained in the Government Amendment—which I assure the noble Lord has been very carefully considered—is the best answer in the present circumstances; and therefore I regret that I am not able to accept the noble Lord's amendment.
Lord WEDDERBURN of CHARLTON: My Lords, I thank the noble and learned Lord, Lord Mackay of Clashfern, for his patient resistance. I have to admit, as an English lawyer, that as soon as I heard him say that this would have to apply in Scotland, my heart sank. That

1035
is always a problem for an English lawyer, but in reply I would say that those who have spent some time with the areas of company law with which this is involved have always felt the most heartfelt gratitude to the Scottish courts because, with respect to the English courts, they have always been more sensible—for example, in regard to the oppression of minority shareholders. I am sure that the nobe and learned Lord would agree that the Scottish courts would have fewer problems than the English courts in dealing with derivative actions.
However, before I deal with the amendments I have two points to make in reply to the noble and learned Lord. First, he said that derivative action depends only on the circumstances: whether it is just in the circumstances to allow the plaintiff minority shareholder to sue, and not on the nature of the duty. I suggest that that is wrong, that there is no case, although there are some dicta that suggest that justice may allow an exception to Foss v. Harbottle. The only decisions which exist show that the nature of the wrongdoing is essential, and that the three categories given in Gower's Modern Company Law are quite clearly the authorities at the moment and they indicate that that is the area in which the derivative action would apply.
Lastly, I must say that the noble and learned Lord's argument really does not lead him to resist this amendment. As I understand it, what he is saying is that the clause as it stands, as the Government would have it, would allow for derivative action if the court were to allow it. He may correct me if I have misunderstood him. As I understood it, the duty is to be enforceable by the company, that is, normally in the company's name, but where the court allows, an exception to the rule of Foss v. Harbottle then a derivative action may lie at the instance of a minority shareholder. If that be right, then all my amendment would need would be a manuscript addition, because what the noble and learned Lord has really said is that my amendment should read,
"enforceable either by way of action brought by the company itself or a derivative action brought with the leave of the court by a member of the company".
That would spell it out and say exactly
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What the noble and learned Lord has said. It appears that that would say what I have said, effectively. But it would not say what the clause says, that is, that it is only enforceable by the company. That would leave open the question, on its text at least, where the derivative action lies. I cannot understand why the noble and learned Lord resists this amendment when all it needs, on his own argument, is the addition of the words, "with the leave of the count".If,however, it be his wish,and he does not ask your Lordship' leave to interven again in this clause even now,then I shall ask your Lordship for permission withdraw it.
Amendment, by leave, withdrawn.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 193
193C At end insert —
("(3) The functions of the Directors shall at all times include the provision of advice facilities, opportunities or other reasonable assistance for the making developing and working of invention and innovations having regard to the nature of the duties and responsibilities of their employees.").
6.27 p.m.
Lord LLOYD of KILGERRAN: My Lords, I beg to move. I move this amendment quite unashamedly as supporting the tasks of inventors in companies and innovation by companies, and the general problem of creating wealth in industry at the present time. First of all, I must strongly endorse the views of the Minister in the other place when he said in respect of this new clause, in the Official Report of Standing Committee A, that the Government wished,
"to see company law state quite unambiguously that directors have a duty that is mandatory and not a permissive requirement to consider the interests of employees".
As I said before, subsection (1) of this clause raises the question of standard of care which directors must have in dealing with their employees. But in my view it does not go far enough in this age. So often companies and their directors, educated in fields other than science and technology, do not realise the advantage to the company in encouraging invention by their employees. I fully realise that there are many companies with which this Bill is concerned that have no research

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facilities and are not concerned with inventions. However, a large number of companies are, and, as the Secretary of State for Industry and the Conservative Party have said so frequently, they wish to encourage innovation.
All that this amendment does is to make it clear, in the exceptional case, that this is concerned with inventions and innovation; that the functions of the directors shall at all times include the provisions of advice, facilities, opportunities or other reasonable assistance for the making, developing and working of inventions and innovations, having regard to the nature of the duties and responsibilities of their employees.
I frequently find myself in the company of distinguished criminal laywers and chancery lawyers, but very rarely do I find myself in this House in the company of lawyers who have any knowledge of intellectual property, the law that relates to inventions and innovations. In this House generally, of course, there are a great number of noble Lords who in their business activities and in their scientific and technological experience know how valuable it is that inventions and innovations should be encouraged in the course of the activities of their employees.
It will he said that the words "interests of employees" in subsection (1) covers this aspect on my amendment. In my view that is not enough. There should be a declaratory statement in this Companies Bill dealing with the encouragement of invention and innovation, clearly set out as one of the duties of the directors when the company's business is such that research and development takes place, and therefore invention and innovations may also occur.
It is not enough merely to say that of course the interests of the employees will be looked after. The words I have chosen in the amendment, which are concerned with questions of advice, facilities, opportunities and other reasonable assistance, are taken out of Section 41 of the Patents Act which deals with compensation which a company can now pay to an employee whose invention has been of advantage to the company. It is quite easy these days for an employee to make inventions which are worth £1 million to that company. It would be quite easy
1038
for companies to encourage their employees to invent and make improvements in a way which is declared in the Bill as a duty of the directors.
I know that the company lawyers, most of whom know nothing about intellectual property—they are not scientists and some of them have no knowledge of the position of employees who are inventing or working in an ordinary company—will say it is not right to legislate for details in a broad Bill of this kind. I am dealing with a most important and notable exception, and that is the encouragement these days of innovation in industry. And, in my submission, the inclusion of a mandatory statement of this kind, to use the words of the Secretary of State, and not a permissive requirement, would do a great deal for British industry at the present time. I beg to move.
Moved, That this House doth agree with the said amendment to Commons Amendment No. 193.—(Lord Lloyd of Kilgerran.)
Lord MACKAY of CLASHFERN: My Lords, the noble Lord, Lord Lloyd of Kilgerran, has certainly put before us an interesting amendment which needs careful consideration. The noble Lord played a most important part in creating the climate of opinion which led to that part of the Patents Act 1977 which provides for an employed inventor to receive a fair share of the benefit for an invention of his which is patented, and that is from the passage to which the noble Lord referred. What is being proposed in this amendment to Commons Amendment No. 193 is that directors should furnish the assistance necessary to the activities of those engaged at various levels in the company in the making, developing and working of invention and innovation.
I would point out, as I am sure your Lordships will accept, that directors have a duty to act in good faith in the best interests of the company, and to the extent that they consider the company's interests as served by providing assistance to its research staff, then they already have an obligation to do so. To the extent that the company or a member thought the company was suffering damage from the failure of its directors to give such assistance, as the law stands they could

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seek to bring an action against the directors for breach of their general fiduciary duty. More generally, however, I think the present policy to encourage innovation in industry, and therefore to encourage directors to take a broad view of the company's interests, is satisfactory in that it allows patents to be acquired by companies and individuals as a protection from competition for 20 years.
The noble Lord referred to company lawyers who know nothing about patents and so on. One of the advantages of having been a Scottish lawyer is that one has to attend to a number of different matters, and I think I can claim to have had some experience in company litigation and have also managed to get an odd reference to my name in the reports of patents cases, so I have every sympathy with the noble Lord's point of view and would desire to do my very best to advance it in the appropriate way. That is really what I have to say here; namely, that company legislation is concerned with the protection of creditors and members and with the rights of employees, not with the specification of particular details of the way in which directors should discharge their business and other functions.
Companies Bills are concerned with the general functions of companies and of those directing them and with clarifying those points which over the years have become obscure, and the case I referred to obscured the matter that is dealt with in this amendment. Amendment No. 193 therefore is concerned with such a lack of clarity in regard to directors' duties to have regard to the interests of employees in general. The Government have very much at heart the interests which the noble Lord is seeking to advance, but we do not feel this is an appropriate place in which to insert his proposal, and I must therefore invite the noble Lord to withdraw his amendment.
Lord LLOYD of KILGERRAN: My Lords, I am grateful to the noble and learned Lord for his kind personal remarks about me, and I am glad to hear he has had some experience of patent matters, and that fortifies me in the action I am about to take. When the noble and learned Lord refers to company law generally,
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as is set out in his brief—that company law must be concerned with particular details and general functions—that kind of statement seems to belong to the category of flyblown phylacteries of an age that is past. In my view, we and industry are concerned with encouraging innovation, and I must express my deep disappointment that the noble and learned Lord did not, with his ingenuity, find some way of introducing into the Bill something more than particular details and general functions and be a little more precise in the interests of British industry than the Bill can be. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENTS
194 After Clause 45, insert the following new clause:
"Contracts of employment of directors
.—(1) Subject to subsection (6) below, a company shall not incorporate in any agreement a term to which this section applies unless the term is first approved by a resolution of the company in general meeting and, in the case of a director of a holding company, by a resolution of that company in general meeting.
(2) This section applies to any term by which a director's employment with the company of which he is the director or, where he is the director of a holding company, his employment within the group is to continue, or may be continued, otherwise than at the instance of the company (whether under the original agreement or under a new agreement entered into in pursuance of the original agreement), for a period exceeding five years during which the employment—

(a) cannot be terminated by the company by notice: or

(b) can be so terminated only in specified circumstances.

(3) In any case where—

(a) a person is or is to be employed with a company under an agreement which cannot be terminated by the company by notice or can be so terminated only in specified circumstances; and

(b) more than six months before the expiration of the period for which he or is to be so employed, the company enters into a further agreement (otherwise than in pursuance of a right conferred by or by virtue of the original agreement on the other party thereto) under which he is to be employed with the company

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or, where he is a director of a holding company, within the group,

subsection (2) above shall apply as if to the period for which he is to be employed under that further agreement there were added a further period equal to the unexpired period of the original agreement.
(4) A resolution of a company approving a term to which this section applies shall not be passed at a general meeting of the company unless a written memorandum setting out the proposed agreement incorporating the term is available for inspection, by members of the company both—

(a) at the registered office of the company for not less than the period of 15 days ending with the date of the meeting; and

(b) at the meeting itself.

(5) A term incorporated in an agreement in contravention of this section shall to the extent that it contravenes this section be void; and that agreement and in a case where subsection (3) above applies the original agreement shall be deemed to contain a term entitling the company to terminate it at any time by the giving of reasonable notice.
(6) No approval is required to be given under this section by any body corporate unless it is a company within the meaning of the 1948 Act or registered under Part VIII of that Act or if it is, for the purposes of section 150 of that Act, a wholly owned subsidiary of any body corporate, wherever incorporated.
(7) In this section—

(a)"employment" includes employment under a contract for services; and

(b) "group", in relation to a director of a holding company, means the group which consists of that company and its subsidiaries."

195 After Clause 45, insert the following new clause:
"Substantial property transactions involving directors, etc.
.—(1) A company shall not enter into an arrangement—

(a) whereby a director of the company or its holding company or a person connected with such a director is to acquire one or more non-cash assets of the requisite value from the company; or

(b) whereby the company acquires one or more non-cash assets of the requisite value from such a director or a person so connected;

unless the arrangement is first approved by a resolution of the company in general meeting and, if the director or connected person is a director of its holding company or a person connected with such a director, by a resolution in general meeting of the holding company.
(2) For the purposes of this section a non-cash asset is of the requisite value if at the time the arrangement in question is entered into its value is not less than £1,000 but, subject to that, exceeds
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£50,000 or ten per cent. of the amount of the company's relevant assets, and for those purposes the amount of a company's relevant assets is—

(a) except in a case falling within paragraph (b) below, the value of its net assets determined by reference to the accounts prepared and laid under section 1 of the 1976 Act in respect of the last preceding accounting reference period in respect of which such accounts were so laid;

(b) where no accounts have been prepared and laid under that section before that time, the amount of its called-up share capital.

(3) An arrangement entered into by a company in contravention of this section and any transaction entered into in pursuance of the arrangement (whether by the company or any other person) shall be voidable at the instance of the company unless—

(a) restitution of any money or any other asset which is the subject matter of the arrangement or transaction is no longer possible or the company or the person nominated by it has been indemnified in pursuance of subsection (4)(b) below by any other person for the loss or damage suffered by it; or

(b) any rights acquired bona fide for value and without actual notice of the contravention by any person who is not a party to the arrangement or transaction would he affected by its avoidance; or

(c) the arrangement is, within a reasonable period, affirmed by the company in general meeting and, if it is an arrangement for the transfer of an asset to or by a director of its holding company or a person who is connected with such a director, is so affirmed with the approval of the holding company given by a resolution in general meeting.

(4) Without prejudice to any liability imposed otherwise than by this subsection but subject to subsection (5) below, where an arrangement is entered into with a company by a director of the company or its holding company or a person connected with him in contravention of this section, that director and the person so connected, and any other director of the company who authorised the arrangement or any transaction entered into in pursuance of such an agreement, shall (whether or not it has been avoided in pursuance of subsection (3) above) be liable—

(a) to account to the company for any gain which he had made directly or indirectly by the arrangement or transaction; and

(b) (jointly and severally with any other person liable under this subsection) to indemnify the company for any loss or damage resulting from the arrangement or transaction

(5) Where an arrangement is entered into by a company and a person connected with a director of the company or its holding company in contravention of this section, that director shall not be liable under subsection (4) above if he shows that he took all reasonable steps to secure the company's compliance with this section, and, in any case, a person so connected and any such other director as is mentioned in that subsection shall not be so liable if he shows that, at the time the arrangement was entered into, he did not know the relevant circumstances constituting the contravention.
(6) No approval is required to be given under this section by any body corporate unless it is a company within the meaning of the 1948 Act or registered under Part VIII of that Act or, if it is, for the purposes of section 150 of that Act, a wholly-owned subsidiary of any body corporate, wherever incorporated."
196 After Clause 45, insert the following new clause:
"Prohibition of loans, etc., to directors and connected persons.
.—(1) Except as provided by section (Exceptions from s. (Prohibition of loans, etc., to directors and connected persons)) below—

(a) a company shall not—

(i) make a loan to a director of the company or of its holding company;

(ii) enter into any guarantee or provide any security in connection with a loan made by any person to such a director; and

(b) a relevant company shall not—

(i) make a quasi-loan to a director of the company or of its holding company;

(ii) ake a loan or a quasi-loan to a person connected with such a director;

(iii) enter into a guarantee or provide any security in connection with a loan or quasi-loan made by any other person for such a director or a person so connected.—

(2) Except as provided by that section, a relevant company shall not

(a) enter into a credit transaction as creditor for such a director or a person so connected;

(b) enter into any guarantee or provide any security in connection with a credit transaction made by any other person for such a director or a person so connected.

(3) A company shall not arrange for the assignment to it or the assumption by it of any rights, obligations or liabilities under a transaction which, if it had been entered into by the company. would have contravened subsection (1) or (2) above; but for the purposes of this Part of this Act the transaction shall be treated as having been entered into on the date of the arrangement.
(4) A company shall not take part in any arrangement whereby—

(a) another person enters into a transaction which, if it had been entered into by the company, would have contravened subsection (1), (2) or (3) above; and

(b) that other person, in pursuance of the arrangement, has obtained or is to obtain any benefit from the company or its holding company or a subsidiary of the company or its holding company".

6.37 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 194 to 196 en bloc. We come now to Part IV of the Bill, the effect of which is to reduce the scope for unscrupulous directors to take undue advantage of their position in the company. Noble Lords will recall that proposals with this intention were put forward by the previous Administration two or three years ago. In a review last summer of the ideas contained in their Bill, which was lost on Dissolution, we concluded that although a good deal of technical work was still then required both on directors' conflicts of interest and on insider dealing, progress was sufficiently well advanced to merit the tabling of proposals on both of those subjects at the Committee stage of the Bill in another place.
These amendments lay down new rules on the length of directors' employment, on property transactions between a director and his company and, among other things, on the provision of loans and other forms of credit by a company to its director. They represent a pretty comprehensive response to the weaknesses in the existing statutory provisions which have been exposed in a number of inspector's reports in recent years. I think I see some approval from the noble Lord, Lord Wedderburn, and I seem to remember that early last year he and I had an interesting dialogue about one particular report. The guiding spirit behind these innovations is to legislate for more power and information to the shareholders, and we have in particular been careful to ensure that the disclosure provisions, which I shall come to later, will require details of all significant transactions, arrangements and agreements involving directors and the company to be shown annually, and breach of these provisions will carry a criminal penalty.

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Quite apart from ensuring that shareholders can carry out an effective watchdog role, we have further laid down that the general meeting must affirm positively any property transaction between a company and its director of more than £50,000—your Lordships will find that provided for in Amendment No. 195—and any agreement, or series of agreements, which would enable a director to be employed for more than five years on his own terms. That is the gist of Amendment No. 194.
As regards the provision of credit from the company or others to a director, we propose, in Amendment No. 196, to do two things. The first is to retain the existing provisions of the 1948 Act which prohibit non-moneylending companies, whether public or private, from lending to their directors. The second objective is to tighten up these provisions in a number of ways. The prohibition on such loans is extended to members of the director's immediate family and companies with which he is associated. However, more importantly, the prohibition on loans is extended, for public companies only, to include what we call "quasi-loans", which consist of the provision of credit by an outside creditor who pays, or agrees to pay, on behalf of a borrower who is liable to repay him. In this way we hope that we have put a stop to the sort of deals and machinations which came to light in the Peachey Report. In that report there were examples of how a director can use his company to provide him with a wide range of goods and—dare I say?—services. For other forms of credit transactions, such as hire purchase agreements and leases, we simply require that public companies enter into them for their directors on third party terms and in the ordinary course of business.
I think that I have gone as far as your Lordships would wish me to go in trying to explain Amendments Nos. 194 to 196.
Moved, That this House doth agree with the Commons in the said Amendments.—(Lord Lyell.)
Lord MISHCON: My Lords, some general observations have been made in introducing this Part of the Bill, and I feel that on behalf of my noble friends and myself I cannot allow them to pass without making our position quite clear.
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Obviously we are very pleased to see these provisions in the Bill. We dealt in detail with them when these questions were discussed in the House in July last year. As my noble and learned friend Lord Elwyn-Jones has made apparent, we were then told that in the view of the Government much more investigation had to be undertaken before there could be an enactment on these matters. Let us consider what has in fact happened.
There is nothing new in what is provided in the Bill in this respect; credit transactions and so on, with which the noble Lord, Lord Lyell, has been dealing, were brought before the House by us last July. I recall that in a speech that I had the privilege of making on that occasion I actually mentioned all the matters that the noble Lord has been talking about, and I quoted from the report and said that the Bill would obviously have to provide for such situations. However, following a quite unnecessary interval of time since last July, there now comes before the House some provisions which, with great respect, are half-baked, and which a matter of weeks ago came before another place at the Report stage, in the form of new amendments, in circumstances which did not enable the Opposition, nor indeed members of the Government, properly to consider the points involved.
I feel it only right to make this clear to the House, because in the amendments that my noble friends and I shall move, and in our discussions, we shall say time and time again that some of these provisions are indeed deficient and show a sore lack of thought, deliberation and investigation. We shall also say that it is quite wrong for them to be brought before the legislature in this way, when we are dealing with a Bill—which we hope will become an Act—which is to govern the administration and management of great institutions in our country and is to be binding upon them as a matter of law. I make these observations merely to ensure that the reaction of the Opposition is clear to the House, and I have a feeling that in this we may be joined by the noble Lord, Lord Lloyd of Kilgerran.
6.45 p.m.
Lord LLOYD of KILGERRAN: My Lords, I wholly support the objectives of the Government in introducing clauses

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that are intended to impose stricter regulations on company directors, especially in situations of potential conflict of interest. Of course I also welcome the Government's change of mind and their thesis—and this is not a party political matter—that company law must be strengthened in the light of the many abuses that have been committed in the past decade and which have been reported upon by inspectors. The public are much concerned about these matters.
However, I must place on record the fact that I am not happy with the scope of these long clauses of great complexity. I had hoped that, with all the facilities available to the Government, it would have been possible to improve both efficiency and control over the conduct of directors in a more simple way than is to be found in these extraordinary clauses. I am also very unhappy about the clauses because of the hardship which they may inflict upon small businesses. Again, these clauses, unhappily, will certainly bring great profit to lawyers, and despite the good intentions of the Government, I doubt whether the clauses will tighten up many of the present loopholes. Therefore I support the noble Lord, Lord Mishcon, in his submissions to your Lordships.
Viscount TRENCHARD: My Lords, the noble Lord, Lord Mishcon, forces me to my feet. I do not want to speak for long, nor to make this a political matter. I do not think it fair to describe these clauses and the Bill as half-baked. Nor, as I said earlier in reply to the noble and learned Lord, Lord Elwyn-Jones, do I consider that it is entirely accurate to accuse us of a change of mind. We have always felt these particular areas to be highly important, and it has simply been a question of the order in which to bring them forward.
Bearing in mind what has already been said in speaking to various amendments, I think it is clear that progress has been made since the time of the Bill drafted by the last Administration. A number of learned bodies have commented on various aspects of the Bill being simplified. As a non-lawyer I have learnt that this is an area in which very few people agree completely; lawyers have different views on it. Furthermore, I have learnt to my sorrow, that it is a highly complicated
1048
area. However, I believe that progress towards simplification in a number of areas has been acknowledged by authorities.
This part of the Bill forms what was Part IV as the Bill went through the other place. I understand that the key elements of the Bill were brought before the other place at Committee stage. I have already mentioned that a certain warning about a change of Government tactics went out as early as October. The key elements of this Part of the Bill did not go out at Report stage, I am advised.
With those answers to the noble Lord's rebuke, may I once more suggest that in this complicated area it is a question of steady progress being enshrined in Bills from time to time—
Lord LLOYD of KILGERRAN: My Lords, before the noble Viscount sits down may I ask him a question about small businesses? Are the Government really satisfied that small businesses will not suffer as a result of the hardships which will result? Surely small businesses are finding this matter extremely difficult to deal with.
Viscount TRENCHARD: My Lords, I do not know whether in this case the noble Lord, in mentioning small businesses is referring to businesses which are private companies—
Lord LLOYD of KILGERRAN: My Lords, I am talking about companies which perhaps have fewer than 1,000 employees. That is the category of company with which I am concerned—the type of company which does not have a large legal staff as the multinational companies do. There are large numbers of companies with 500 to 1,000 employees.
Viscount TRENCHARD: My Lords, I was about to say that many parts of the Bill do not apply to private companies. With regard to the smaller public company, there obviously is a hardship in this very complicated area; but I say again that I believe that we have managed to get it a little simpler in a number of areas, and I hope that their trade associations and others will be able to help them with it.
Lord LLOYD of KILGERRAN: I thank the noble Viscount very much.
On Question, Motion agreed to.
197 Insert the following new clause—
"Exceptions from s.
.—(1) Where a director of a relevant company or of its holding company is associated with a subsidiary of either of those companies, subsection (1)(b)(ii) and (iii) of section (Prohibition of loans, etc., to directors and connected persons) above shall not be reason only of that fact prohibit the relevant company from—

(a) making a loan or quasi-loan to that subsidiary; or

(b) entering into a guarantee or providing any security in connection with a loan or quasi-loan made by any person to that subsidiary.

(2) Subsection (1)(b) of that section shall not prohibit a relevant company ("the creditor") from making a quasi-loan to one of its directors or to a director of its holding company if—

(a) the quasi-loan contains a term requiring the director or a person on his behalf to reimburse the creditor his expenditure within two months of its being incurred; and

(b) the aggregate of the amount of that quasi-loan and of the amount outstanding under each relevant quasi-loan does not exceed £1,000.

For the purposes of this subsection, a quasi-loan is relevant if it was made to the director by virtue of this subsection by the creditor or by its subsidiary or, where the director is a director of the creditor's holding company, any other subsidiary of that company; and "amount outstanding" has the same meaning as in section (Particulars of amounts outstanding to be included in accounts) (6) below.
(3) Subsection (2) of that section shall not prohibit a company's entering into —

(a) any transaction for any person if the aggregate of the relevant amount does not exceed £5,000; or

(b) any transaction for any person if—

(i) the company enters into the transaction in the ordinary course of its business; and

(ii) the value of the transaction is not greater, and the terms on which it is entered into, are no more favourable in respect of the person for whom the transaction is made than that or those which it is reasonable to expect the company to have offered to or in respect of a person of the same financial standing as that person but unconnected with the company.

(4) Subject to the following provisions of this section, each of the following is excepted from the prohibitions in section (Prohibition of loans, etc., to directors and connected persons) above, that is to say—

(a) a loan or quasi-loan by a company to its holding company or a company's entering into a guarantee or
1050
providing any security in connection with a loan or quasi-loan made by any person to its holding company;

(b) a company's entering into a credit transaction as creditor for its holding company or entering into a guarantee or providing any security in connection with any credit transaction made by any other person for its holding company;

(c) a company's doing anything to provide any of its directors with funds to meet expenditure incurred or to be incurred by him for the purposes of the company or for the purpose of enabling him properly to perform his duties as an officer of the company or a company's doing anything to enable any of its directors to avoid incurring such expenditure;

(d) a loan or quasi-loan made by a money-lending company to any person or a money-lending company's entering into a guarantee in connection with any other loan or quasi-loan.

(5) The exception specified in subsection (4)(c) above operates only if one of the following conditions is satisfied, that is to say—

(a) the thing in question is done with the prior approval of the company given at a general meeting at which the purpose of the expenditure incurred or to be incurred or which would otherwise be incurred by the director and the amount of the funds to be provided by the company and the extent of the company's liability under any transaction which is or is connected with that thing are disclosed;

(b) that thing is done on condition that, if the approval of the company is not so given at or before the next following annual general meeting, the loans shall be repaid or any other liability arising under any such transaction discharged within six months from the conclusion of that meeting;

but that exception does not authorise a relevant company to enter into any transaction if the aggregate of the relevant amounts exceeds £10,000.
(6) The exception specified in subsection (4)(d) above operates only if both the following conditions are satisfied, that is to say

(a) the loan or quasi-loan in question is made by the company or it enters into the guarantee in the ordinary course of the company's business; and

(b) the amount of the loan or quasi-loan or the amount guaranteed is not greater, and the terms of the loan, quasi-loan or guarantee are not more favourable, in the case of the person to whom the loan or quasi-loan is made or in respect of whom the

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guarantee is entered into than that or those which it is reasonable to expect that company to have offered to or in respect of a person of the same financial standing as that person but unconnected with the company;

but that exception does not authorise a relevant company which is not a recognised bank to enter into any transaction if the aggregate of the relevant amounts exceeds £50,000.
In determining for the purposes of this subsection the aggregate of the relevant amounts, a company which a director does not control shall be deemed not to be connected with him.
(7) The condition specified in subsection (6)(b) above shall not of itself prevent a company from making a loan to one of its directors or a director of its holding company—

(a) for the purpose of facilitating the purchase, for use as that director's only or main residence, of the whole or part of any dwelling-house together with any land to be occupied and enjoyed therewith;

(b) for the purpose of improving a dwelling-house or part of a dwelling-house so used or any land occupied and enjoyed therewith;

(c) in substitution for any loan made by any person and falling within paragraph (a) or (b) above,

if loans of that description are ordinarily made by the company to its employees and on terms no less favourable than those on which the transaction in question is made, and the aggregate of the relevant amounts does not exceed £50,000."
6.50 p.m.
Lord LYELL: My Lords, I beg to move that this [louse do agree with the Commons in their Amendment No. 197. This amendment deals with a clause which was installed in the Bill at Committee stage in another place, and it follows on from some of the comments that I was making earlier and which, indeed, were made by my noble friend Lord Trenchard. It is unfortunate that we live in an age which makes detailed regulations necessary, not least because the drafting required to implement any of the policies that we have been discussing is very complex. It is a matter of some regret that the simpler provisions of the 1948 Act have been so much abused in recent years, albeit by a tiny majority of directors.
Part of this complexity derives from the fact that we have provided in Amendment No. 197 a few exemptions in recognition of special circumstances. Although we
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specify that the rules on loans and quasi-loans apply equally to moneylending companies—which is important, because many of the abuses have occurred among these moneylending companies—we enable them to make loans and quasi-loans of up to £50,000 to each director and connected person. But for recognised banks, mainly high street clearing banks, we impose no limit in recognition of the fact that clearing bank directors are typically also involved in the direction of a number of other companies. Indeed, the banks seek out such persons as directors by virtue of their experience in just such positions.
My Lords, we require both that loans and quasi-loans by recognised banks to their directors be made on third party terms and in. the ordinary course of business, and also, as your Lordships will see in Amendment No. 204, that all such credit be disclosed in an annual statement which is available for inspection by shareholders. Then, again, we have accepted the need to provide exemption for house loans of up to £50,000 as part of a company scheme to directors of moneylending companies. Such companies are, after all, in the business of lending money, and we do not consider that such lending within the limit specified will make significant inroads into the shareholders' assets. But the prohibition on house loans by non-moneylending companies dating from 1948 will not be lifted because of the risk of abuse which we find in small and medium-size companies.
It must be remembered that if a director's move of house is in the company's interest, his company may directly pay the interest on, say, a bridging or a supplementary mortgage on the grounds that it is a bona fide company expense. I should like to emphasise here the general point that payments or advances made for the purpose of defraying expenses incurred by directors acting as agents of the company are entirely legitimate, and are not caught by our new provisions, which are aimed at credit which is liable to be reimbursed.
We have also enabled companies to make quasi-loans to directors of up to £1,000 for a period of two months. This limited exemption recognises that many goods and services are provided to companies on account, and also that as a convenience a director may ask his company to arrange for some of his personal requirements (an example would

1053
be an airline ticket for a spouse who may be accompanying him on a trip abroad on company business) at the same time as the company is booking the director's own trip. This sort of thing frequently happens in practice, and entirely innocently, in that the director will subsequently reimburse the money to his company. The exemption will enable companies to continue to enter into such transactions on behalf of their directors, and, therefore, suppliers of goods and services—for instance, credit card companies and travel agencies—would be able to provide their services to client companies. The limit which we have in the Bill of' £1,000 will prevent the director's company from being liable to pay for the director's personal expenditure in excess of that sum, thus meeting the objective of providing protection for shareholders. My Lords, that is all I would wish to say on Amendment No. 197, and I beg to move.
Moved, That this House doth agree with the Commons in their Amendment No. 197.—(Lord Lyell.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 197
197A In subsection (7), last line, leave out ("£50,000") and insert ("£75,000").
Lord SELSDON: My Lords, at the risk of being accused of nit-picking, I have put this amendment down because subsection (7) of Amendment No. 197 is intended to permit a company to make a loan to one of its directors, or a director of its holding company, for the purpose of purchasing a house, among other things. The figure of £50,000, which is the upper limit permitted for such loans, was first mentioned in a White Paper dated November 1977, since which time we have enjoyed a substantial level of inflation and an escalation in the price of houses to such an extent that a figure of £50,000 in 1977 is equivalent to £75,000 today. I should therefore like to ask my noble friends, if they are unwilling to accept this amendment—and I would not propose to press it—first of all whether they will say it was their deliberate intention to reduce effectively the purchasing power of the maximum amount which could be permitted for a loan by about 25 to 30 per cent.; or whether they would perhaps make the statement that, as one
1054
can increase the limit by order in accordance with the Bill, they would propose to increase that limit in line with inflation. Or, if my noble friends are unwilling to say that, perhaps they would point out, in line with their economic policies, that they would not expect £50,000 to purchase any less by the time this Government come to the end of their period than it does now. My Lords, I beg to move my amendment to Amendment No. 197.
Moved, That this House doth agree with the amendment to Commons Amendment No. 197.—(Lord Selsdon.)
Lord WEDDERBURN of CHARLTON: My Lords, I shall be very brief, but perhaps I may address two sentences to the noble Viscount the Minister. There are thousands of ways through these sections. Of course, the Government must have our sympathy, because the matter is one which demands complexity; but my prediction is that within three or four years there will be a number of reports which get through the holes in these sections. Our 1978 Bill was not sufficient, and this Bill is not sufficient. We shall need a better system of mobile administrative control than these clauses, which get more and more complex as company law continues. The second comment I would make is in relation to the amendment moved by the noble Lord, Lord Selsdon. Of course the Government will be pressed to raise this figure as inflation increases. If this were not a non-party debate, almost, at the moment, I would say they could expect it very much in view of their other policies.
Of course, the figure will have to be increased; and it is the problem of clauses of this sort that you cannot really therefore trap the malpractices, because the malpractices are sometimes forced upon companies by directors who demand more than the statutory limits. These clauses are good as far as they go, but in five years' time we shall see that they are not suitable in their structure to modern company law. We need administrative agencies which have powers, not necessarily draconian powers but some powers of this sort, backed by law. That is the only way we shall ever deal with these problems.
Lord LYELL: My Lords, I should first of all like to thank my noble friend Lord

1055
Selsdon for moving this amendment so clearly, so briefly and so succinctly. I think the House would be happy if I replied to both my noble friend and to the brief and, may I say, helpful comments from the noble Lord, Lord Wedderburn. Indeed, the Government believe that this is an attempt to be reasonably realistic at this level in regard to the type of house which, overall, a company director might need or might be concerned with in this part of the legislation. In reply to the noble Lord, Lord Wedderburn—and I hope it will assist my noble friend Lord Selsdon —one point i would ask them to consider comes in Amendment No. 209, which is a fairly short new clause to which we shall be coming.
Amendment No. 209 has a heading, "Power to increase financial limits". This is a very wide-ranging power which enables the Secretary of State to raise the limits which are provided for where we have made an attempt to set what we believe to be realistic limits in this part of the Bill. This power is necessary and I have it clearly that the Secretary of State will not refrain from using this power where any figures which have been suggested by my noble friend are seen to be unrealistic.
I wonder if my noble friend would agree that we should see how this Bill operates in practice before assuming that the limits provided for it now are not high enough. Would he accept that we have adequate power in Amendment No. 209? I see that my noble friend has further amendments down which probably deal with the realism of the figures which we have made an attempt at. The Secretary of State will not be waiting for five years; he will be looking at these limits as a matter of urgency.
Lord SELSDON: My Lords, I am grateful to my noble friend for that reply. I understand why he is unwilling to comment on the level of inflation in the United Kingdom over the next few years. I would ask, as we have a Government of action, why cannot they act now rather than in the future? Since he shows his reluctance to act, then, in withdrawing the amendment, may I remind my noble friend that there are many employees in companies who have beneficial loans fro m their employers which would, in effect
1056
be greater than those permitted for directors? Thus, there would be a disincentive for people to become directors. I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENT
198 After Clause 45, insert the following new Clause:
"Relevant amounts.
.—(1) The following provisions of this section shall have effect for the purpose of defining the amounts relevant for determining whether any transaction or arrangement (a "proposed transaction or arrangement") falls within the exception provided by subsection (3)(a) or (4)(c) or (d) of section (Exceptions from s. (Prohibitions of loans, etc., to directors and connected persons)) above, and for that purpose" the relevant exception"in subsection (2) below means that exception.
(2) The relevant amounts in relation to a proposed transaction or arrangement are—

(a) the value of the proposed transaction or arrangement;

(b) the value of any existing relevant arrangement falling within subsection (3) or (4) of section (Prohibitions of loans, etc., to directors and connected persons) and entered into by virtue of the relevant exception by the company or by a subsidiary of the company or, where the proposed transaction or arrangement is to be made for a director of its holding company or a person connected with such a director, by a subsidiary of its holding company;

(c) the amount outstanding under any other relevant transaction made by virtue of the relevant exception by the company or by a subsidiary of the company or, where the proposed transaction or arrangement is to be made for a director of its holding company or a person connected with such a director, by a subsidiary of its holding company.

(3) For the purposes of this section, a transaction is relevant if it was made

(a) for the director for whom the proposed transaction or arrangement is to be made or for any person connected with that director; or

(b) where the proposed transaction or arrangement is to be made for a person connected with a director of a company, for that director or any person connected with him;

and an arrangement is relevant if it relates to a relevant transaction.
(4) For the purposes of this section, a transaction entered into by a company which is (at the time that transaction was entered into) a subsidiary of the company

1057
which is to make the proposed transaction or is a subsidiary of that company's holding company, is not a relevant transaction if at the time of the determination referred to in subsection (1) above it no longer is such a subsidiary.
(5) The amount outstanding under any transaction within subsection (2)(c) above is the value of the transaction less any amount by which that value has been reduced.
7.2 p.m.
Lord LYELL: My Lords, I wonder whether it would be for the convenience of the House—and it might save a lot of time—if I did not make lengthy speeches on those Commons amendments to which amendments have not been tabled by your Lordships. I wonder whether your Lordships would care to proceed in this way. There is one amendment, No. 231, on which I have a note. None of your Lordships wishes to table amendments to No. 198. Can we propose it formally?
Lord MISHCON: My Lords, I am sure it would meet with the convenience of the House if the noble Lord proceeded in that way. We can always rely on Ministers to point out whether any amendment that they move on which there is not an amendment is other than a purely textual or slight one. So far as I and my noble friends are concerned, I think this is a most convenient procedure which will lead to the expediting of business.
Lord LLOYD of KILGERRAN: My Lords, I agree that this will be a useful procedure. I can give an undertaking not to speak to any amendment on which I have not produced an amendment to the Commons amendment.
Lord LYELL: My Lords, I am grateful for that. I beg to move that this House doth agree with the Commons in their Amendment No. 198.
Moved, That this House doth agree with the Commons in the said amendment. —(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
199 After Clause 45, insert the following new Clause:
"Civil remedies for breach of s. (Prohibition of loans, etc. to directors and connected persons).
.—(1) Where a company enters into a transaction or arrangement in contravention of section (Prohibition of loans, etc., to directors and connected persons) the transaction or arrangement shall be voidable at the instance of the company unless—

(a) restitution of any money or any other asset which is the subject matter of the arrangement or transaction is not longer possible, or the company has been indemnified in pursuance of subsection (2)(b) below for the loss or damage suffered by it; or

(b) any rights acquired bona fide for value and without actual notice of the contravention by any person other than the person for whom the transaction or arrangement was made would be affected by its avoidance.

(2) Without prejudice to any liability imposed otherwise than by this subsection but subject to subsection (3) below where an arrangement or transaction is made by a company for a director of the company or its holding company or person connected with such a director in contravention of section (Prohibition of loans, etc.. to directors and connected persons), that director and the person so connected and any other director of the company who authorised the transaction or arrangement shall (whether or not it has been avoided in pursuance of subsection (1) above) be liable—

(a) to account to the company for any gain which he has made directly or indirectly by the arrangement or transaction; and

(b) (jointly and severally with any other person liable under this subsection) to indemnify the company for any loss or damage resulting from the arrangement or transaction.

(3) Where an arrangement or transaction is entered into by a company and a person connected with a director of the company or its holding company in contravention of section (Prohibition of loans, etc., to directors and connected persons), that director shall not be liable under subsection (2) above if he shows that he took all reasonable steps to secure the company's compliance with that section, and, in any case, a person so connected and any such other director as is mentioned in that subsection shall not be so liable if he shows that, at the time the arrangement or transaction was entered into, he did not know the relevant circumstances constituting the contravention.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 199. This amendment and other amendments deal with civil and criminal remedies which shall apply to breaches of the provisions

1059
on loans and credit. The civil remedies in this amendment are largely based on the remedies available under common law and equitable principles where a fiduciary is in breach of his duty. We believe that they strike a fair balance between the need of the company to be able to recover the resources it has lost and the avoidance of injustice to parties who, although involved in a contravention, are involved only in good faith. We also believe that, where larger companies are involved, additional criminal safeguards are necessary. We shall be coming to Amendment No. 200, but perhaps I may speak to that when we come to it.
Moved, That this House doth agree with the Commons in the said amendment. —(Lord Lyell.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 199
199A Subsection (2)(b) at end insert ("; and (c) (jointly and severally with any other person or company liable under this subsection) to indemnify any other person by way of payment, restitution or transfer of any asset for any loss or damage resulting from the arrangement or transaction.")
Lord LLOYD of KILGERRAN: My Lords, I beg to move as an amendment to Commons Amendment No. 199, Amendment No. 199A. As Lord Lyell indicated, Amendment No. 199 deals with civil remedies for breach of the section on prohibition of loans, et cetera, to directors and connected persons. It is common ground that breaches of statutory provisions must be dealt with in some way in this Bill. I agree that it is difficult to delineate who should have to be punished (if that is the correct word) if there is a contravention. But I find it difficult to follow the effect of a civil remedy as included in Amendment No. 199. It has subsections 2(a) and 2(b), but they do not go far enough. When dealing with civil remedies, I should have thought it would have been helpful to have had a clause in this Part of the Bill which, even if it were merely symbolic, indicated that somebody would have to pay up if there were a contravention of the terms of the Bill. Therefore, my amendment is to add to subsection (2) this declaratory statement:
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"(jointly and severally with any other person or company liable under this subsection) to indemnify any other person by way of payment, restitution or transfer of any asset for any loss or damage resulting from the arrangement or transaction".
I agree that the words may not be perfect, but the general theme of the amendment is to make it clear in this clause dealing with civil remedies that any person or company who contravenes the provisions of this clause will be liable to have to make some payment or to transfer some assets by way of indemnification or restitution for any loss or damage arising. I agree that it is often difficult in such circumstances to decide who should pay up or transfer his assets, but it seems to me that a declaratory statement of this kind would help to reduce litigation in this matter and, more than that, could help to reduce the number of attempts being made by people to get past this clause.
Moved, That this House doth agree with the said amendment to Commons Amendment No. 199.—(Lord Lloyd of Kilgerran.)
Lord WEDDERBURN of CHARLTON: My Lords, I should like to support this amendment. It seems a most important matter to which the hour and the Government's legislative timetable must not necessarily be an obstacle. The proposed provision would be extremely useful. These transactions have been an engine of malpractice in company affairs for many years. I would ask, in support of the amendment: Why should a third party not recover his loss? The Commons amendment already says that the company do so. Using the same words, the noble Lord, Lord Lloyd of Kilgerran, asks: Why not give the third party the same rights? This would lead to a lot of litigation, it may be said. I suspect not, because any adviser to a third party would naturally find it difficult in many cases to prove the chain of causation. The difficulty for a plaintiff in Lord Lloyd's amendment would be the word "resulting". He would have to show loss or damage resulting from the arrangement or transaction. But when he can show that loss why on earth should he not have a remedy as well?
Lord LYELL: My Lords, we have heard a clear explanation by the noble Lord, Lord Lloyd of Kilgerran, of his amendment. We believe the purpose is to

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give an express remedy to third parties involved in prohibited transactions and arrangements between companies and their directors. We are not clear why the noble Lord has tabled this amendment, since remedies are already available to such third parties—we hope without too much litigation. The Commons Amendment No. 199 already provides remedies for the company against the director who has abused his fiduciary position with respect to the company by misappropriating any of the company's resources. We thought it necessary to spell out these remedies as the common law rules are not at present entirely clear. There may be third parties involved in the prohibited transaction: where a company guarantees a loan between its director and a third party, for example.
In subsection (1) of Commons Amendment No. 199, we have clearly provided that the company cannot avoid the transaction if any person other than the beneficiary to the transaction has acquired bona fide rights for value. Similarly, your Lordships will see subsection (2), which makes the director (or indeed a person connected with that director) liable to account to the company for any gain or to indemnify the company for any loss resulting from the transaction. This expressly preserves any other remedies that would otherwise be available. Hence, if a third party suffered damage in the cases which have been explained by the noble Lords, Lord Lloyd and Lord Wedderburn, as a result of any transaction or arrangement—although it is not easy to think of many likely circumstances in which this would happen, given the restrictions placed on the company's rights to avoid that transaction—the rights of a third party would be in no way diminished by Amendment No. 199. We do not consider that this amendment adds to the powers already in Amendment No. 199. For that reason, we ask the noble Lord whether he will withdraw it.
Lord LLOYD of KILGERRAN: My Lords, it is perfectly clear, with great respect, that the noble Lord's brief has missed the point of my amendment. The earlier part of the clause which the noble Lord quoted so accurately deals with indemnifying the company, the director and persons so connected and any other director of the company involved.
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It does not introduce the third party who could suffer loss and therefore is entitled to be indemnified. It may be that when we study the reply of the noble Lord in Hansard we may be able to cull from that the indication that the rights of third parties are covered in the way that I anticipated should take place. At this late hour, I am not going to press my amendment to a Division. But I record that the point I have made has—so far as I understand the noble Lord—been completely misunderstood. I beg leave to withdraw the amendment.
Amendment to the amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENT
200 Insert the following new clause:
"Criminal penalties for breach of s. (Prohibition of loans, etc., to directors and connected persons)
.—(1) A director of a relevant company who authorises or permits the company to enter into a transaction or arrangement knowing or having reasonable cause to believe that the company was thereby contravening section (Prohibition of loans, etc., to directors and connected persons) above shall be guilty of an offence.
(2) A relevant company which enters into a transaction or arrangement for one of its directors or for a director of its holding company in contravention of section (Prohibition of loans, etc., to directors and connected persons) above shall be guilty of an offence.
(3) A person who procures a relevant company to enter into a transaction or arrangement knowing or having reasonable cause to believe that the company was thereby contravening section (Prohibition of loans, etc., to directors and connected persons) above shall be guilty of an offence.
(4) A relevant company shall not be guilty of an offence under subsection (2) of this section if it shows that, at the time the transaction was entered into, it did not know the relevant circumstances.
(5) A person guilty of an offence under this section shall be liable—

(a) on conviction on indictment, to a term of imprisonment not exceeding two years or a fine, or both; and

(b) on summary conviction to a term of imprisonment not exceeding six months or a fine not exceeding the statutory maximum, or both."

7.12 p.m.
Lord LYELL: My Lords, I beg to move that this House do agree with the Commons in their Amendment No. 200. This deals

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with criminal penalties for breaches. In Amendment No. 200 we make it an offence for a director of a public company to authorise or permit any contravention, or for a person to procure such a transaction in contravention of any of the prohibitions. It is the company itself which may also be liable to a fine. I should stress that only deliberate conduct in the full knowledge of relevant circumstances, or on the basis of a wilful rejection of that knowledge, can be the subject of any prosecution under Amendment No. 200.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lyell.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 220
200A At end insert—
("(6) The Court by or before which the person is convicted of an offence under this section shall on application or otherwise make an order requiring payment by way of compensation restitution or otherwise in respect of any gain, loss or damage resulting from the offence.")
Lord LLOYD of KILGERRAN: My Lords, we are dealing with criminal penalties for breach of prohibition of loans, et cetera to directors and connected persons. I suggest to the Government that they should have regard to the fact (as they have indicated) that these clauses are very complex. There are likely to be a large number of loopholes. The attempt of this amendment is to close to some extent any of the loopholes. The Government have a duty to the public in ensuring as far as possible that contraventions of these prohibitions shall be punished in some way. The only way in this clause that punishment can take place is that on conviction on indictment there shall be a term of imprisonment not exceeding two years or a fine, or both. On summary conviction, the punishment would be a term of imprisonment of six months or a fine, or both, not exceeding the statutory maximum.
It is quite easy in these insider dealings for somebody to make £250,000, and he will happily go to prison for a period of two years—less remission—and he able then to pick up his spoils thereafter. This addition to this clause is that the court by or before which the person is convicted of an offence under this section shall on appli-
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cation or otherwise make an order requiring payment by way of compensation, restitution or otherwise in respect of any gain, loss or damage resulting from the offence.
I agree that it is often difficult to find out who it is that suffered the loss and who should pay. In many circumstances it will be clear who should pay, particularly when the fellow has been convicted. Again, there is a difficulty of deciding to whom restitution should be made. Perhaps the Government can say that once the person has been convicted on indictment, for example, before a court dealing with criminal matters, then the court has power under some of the criminal administration Acts to make such an order as I have indicated. If the Government can say that is the position, then I will withdraw the amendment. Not many people dealing or proposing to deal in insider dealings who contravene these sections on which there are criminal sanctions will be aware of the scope of the criminal administration. It would be helpful in discouraging these people from contravening the clause if a simple clause of this kind were introduced.
Moved, That this House doth agree with the amendment to the Commons Amendment No. 200.—(Lord Lloyd of Kilgerran.)
Lord LYELL: My Lords, may I thank the noble Lord, Lord Lloyd, for moving this amendment so clearly. The purpose of this amendment is to give the court power to award compensation or restitution in cases where persons are convicted of an offence under Commons Amendment No. 200. The noble Lord mentioned some criminal provision. The criminal courts do, in fact, already have powers to make compensation orders against convicted persons, described by the noble Lord, who have been in breach of the criminal law in matters which he has set before your Lordships. Under the powers of the Criminal Courts Act 1973, I understand that the courts do make compensation orders against convicted persons in such cases as the noble Lord explained. Under the provisions of the 1973 Act, the court has discretion to make an order, and in exercising its discretion it must take into account the means of the person against whom the order is proposed to be made.

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I think that really answers the noble Lord's question, in that if it can be shown quite clearly that someone has amassed a very large amount against which the criminal court can act, that is possible under the 1973 Act. But the criminal courts have made it quite clear that the power should be exercised only where the legal position is relatively straightforward. Obviously, it would be very unsatisfactory to use powers of this kind in complex situations involving more than one party. Situations of the kind that we are dealing with in Amendment No. 200 are likely to be very complex indeed. We would not wish to impose on the courts an obligation to grant compensation without giving them any guidelines, first, on how to decide compensation; secondly, who is to request them to do so and, thirdly, what sort of compensation is to be envisaged—is it to be in money or, as we heard earlier, in non-cash assets?
We believe the normal civil procedure is much more suitable for dealing with litigation arising out of situations such as have been described by the noble Lord, Lord Lloyd. In regard to Amendment No. 199 we did clarify civil remedies, and Amendment No. 200 expressly preserves any other remedies, including remedies for third parties, that may be available. I hope that my reply has been of some help to the noble Lord. We are not altogether in agreement that his amendment is likely to be helpful in compelling the criminal courts to award compensation where situations may be very complex. We believe that in these complex situations the civil procedures would be far more effective and more appropriate.
Lord LLOYD of KILGERRAN: My Lords, I am very much obliged to the noble Lord for his full explanation of the Government's position; but I should have thought that if the Government were undertaking seriously the task of discouraging this kind of contravention of sections, they would have accepted some clause which would have indicated that if a company or a person has contravened these sections, apart from fines or imprisonment, there was the clear right for compensation or restitution to be made. In the circumstances, I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENT
201 After Clause 45 insert the following new clause:
Substantial contracts, etc., with directors and others to be disclosed in account.
.—(1) Subject to subsections (5) and (6) and to section (Transactions, etc., excluded from ss. (Substantial contracts, etc., with directors and others to be disclosed in accounts) and (Further provisions relating to recognised banks)) below, group accounts prepared by a holding company in accordance with the requirements of section 1 of the 1976 Act in respect of a financial year (the"relevant period ") ending on or after the appointed day shall contain the particulars specified in section (Particulars required to be included in accounts by s. (Substantial contracts, etc., with directors and others to be disclosed in accounts)) below of—

(a) any transaction or arrangement of a kind described in section (Prohibition of loans, etc., to directors and connected persons) above entered into by the company or by a subsidiary of the company for a person who at any time during the relevant period was a director of the company or was connected with such a director;

(b) an agreement by the company or by a subsidiary of the company to enter into any such transaction or arrangement for a person who at any time during the relevant period was a director of the company or was connected with such a director; and

(c) any other transaction or arrangement with the company or with a subsidiary of the company in which a person who at any time during the relevant period was a director of the company had, directly or indirectly, a material interest.

(2) Subject as aforesaid, accounts so prepared by any company other than a holding company in respect of a financial year (the "relevant period") ending on or after the appointed day shall contain the particulars specified in section (Particulars required to be included in accounts by s. (Substantial contracts, etc., with directors and others to be disclosed in accounts)) below of—

(a) any transaction or arrangement of a kind described in section (prohibition of loans, etc.. to directors and connected persons) above entered into by the company for a person who at any time during the relevant period was a director of the company or of its holding company or was connected with such a director;

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(b) an agreement by the company to enter into any such transaction or arrangement for a person who at any time during the relevant period was a director of the company or of its holding company or was connected with such a director; and

(c) any other transaction or arrangement with the company in which a person who at any time during the relevant period was a director of the company or of its holding company had, directly or indirectly, a material interest.

(3) Where by virtue of section 150(2) of the 1948 Act a company does not produce group accounts in relation to any financial year, subsection (I) above shall have effect in relation to the company and that financial year as if the word - group"were omitted.
(4) For the purposes of subsections (1)(c) and (2)(c) above—

(a) a transaction or arrangement between a company and a director of the company or of its holding company or a person connected with such a director shall (if it would not otherwise be so treated) be treated as a transaction, arrangement or agreement in which that director is interested; and

(b) an interest in such a transaction or arrangement is not material if in the opinion of the majority of the directors (other than that director) of the company which is preparing the accounts in question it is not material (hut without prejudice to the question whether or not such an interest is material in any case where those directors have not considered the matter).

(5) Subsections (1) and (2) above do not apply, for the purposes of any accounts prepared by any company which is or is the holding company of a recognised bank, in relation to a transaction or arrangement of a kind described in section (Prohibition of loans, etc., to directors and connected persons) above, or an agreement to enter into such a transaction or arrangement, to which that recognised bank is a party.
(6) Subsections (1) and (2) above do not apply in relation to the following transactions, arrangements and agreements—

(a) a transaction, arrangement or agreement between one company and another in which a director of the first or of its subsidiary or holding company is interested only by virtue of his being a director of the other;

(b) a contract of service between a company and one of its directors or a director of its holding company;

(c) a transaction, arrangement or agreement which was not entered into during the relevant period for the account in question or which did not subsist at any time during that period;

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(d) a transaction, arrangement or agreement which was made before the appointed day and which does not subsist on or after that day.

(7) Subsections (1) and (2) above apply whether or not—

(a) the transaction or arrangement was prohibited by section (Prohibition of loans, etc., to directors and connected persons) above;

(b) the person for whom it was made was a director of the company or was connected with a director of the company at the time it was made;

(c) in the case of a transaction or arrangement made by a company which at any time during a relevant period is a subsidiary of another company, it was a subsidiary of that other company at the time the transaction or arrangement was made."

7.24 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 201. I have spoken earlier about this amendment when I dealt with Amendments Nos. 194 to 214.
Moved, That this House doth agree with the Commons in the said amendment. —(Lord Leyll.)
Lord WEDDERBURN of CHARLTON Lord WEDDERBURN of CHARLTON moved, as an amendment to Commons Amendment No. 201, Amendment No. 201A:
201A In subsection (6) leave our paragraph (b).
The noble Lord said: My Lords, the amendment standing in the names of my noble friends and myself is directed towards retaining within the scope of the section contracts of service entered into between a director and his company. This amendment is part of a series of amendments which arise from the fact that the Government chose to do something quite extraordinary; that is, to go beyond the provisions even of the 1978 Act and to be daring enough on Report in another place to introduce amendments to Section 26 of the 1967 Companies Act. I applaud the objective, but the route taken by the Government has made Section 26 of the 1967 Act much worse than it is already.
That section requires contracts of service between a director and his company to be registered on a register kept by the company. All lawyers know, as indeed do most people, that there is a distinction

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between contracts of service and contracts for services. As the right honourable gentleman the Minister for Trade agreed on 4th December in Committee in another place (column 518):
"The company must disclose in its accounts under this clause contracts in which the director has a material interest directly or indirectly which would include consultancies and other contracts for services; but according to sub-clause (6)(b), it must not include contracts of service."
I shall be returning to that distinction later, in connection with Amendment No. 208. The reason for excluding contracts of service under this clause was given by the Minister for Trade on 4th December at column 505, when he said:
"Paragraph (b) exempts contracts of service because separate provision is already made for their disclosure in Section 26 of the 1967 Act."
In other words, there is a register of contracts of service, and because of that it need not be mentioned in a note in the accounts.
For that there are three answers. First, there is no inherent reason in nature why a contract of service should not appear in the accounts and on the company's register at the company's office. Secondly, is it not the case—and I would ask the noble Lord to answer this point—that it would fit in much better, as would our later amendments on Section 26 (which originated in the Government's choice to put Section 26 on the agenda) with the Stock Exchange's listing requirements in Schedule 8, paragraph 11 of which deals with service contracts which have to be disclosed beyond a certain period. They do not make this distinction between "service" and "services". Thirdly, the Government cannot be right on this answer if it is right in another way, because the Government themselves go in for double disclosure, quite properly, on contracts for services: for example, consultancies which go on over five years.
A contract for services which extends beyond five years has to be disclosed and approved by the general meeting under the clause in Amendment No. 194, which we have already approved. Also, it has to be disclosed and approved in the accounts under this clause. Therefore a contract for services is subject to double disclosure; and yet the Government say in another place—I am sure they will not be so illogical in this House—that contracts for services are subject to double disclosure,
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but contracts of service must not be subject to double disclosure. What is sauce for the goose of "services" is sauce for the gander of "service".
The right honourable gentleman Mr. Parkinson said on 4th December in another place, at column 509, in respect of this clause dealing with consultancies:
"For some time it has seemed to me that shareholders ought to have the right to know what other rights or income the directors are obtaining from the company".
I agree with the right honourable gentleman. I hope that the noble Lord will agree with me, and that he will not put contracts of service outside this clause, because shareholders who do not choose to go to the company's office and look at the register still have the right to have contracts of service as much as contracts for services drawn to their attention when they receive the accounts. I hope very much that the Government will seriously consider accepting this amendment.
Moved, That this House doth agree with the amendment to Commons Amendment No. 201.—(Lord Weddederburn of Charlton.)
Lord LYELL: My Lords, the noble Lord, Lord Wedderburn, fired three very quick service balls at me and I shall attempt to answer them. I hope that my answers will be satisfactory, because I believe that two of his questions are already covered. The effect of the noble Lord's amendment seems to be to require double disclosure of these arrangements in respect of contracts for services; the amendment deletes the exemption in the Commons amendment for the disclosure of contracts of service. Therefore, it seems to have the effect of requiring double disclosure of this more conventional type of service contract as well—that is, the contract of service. This seems to be a logical extension of the position, but we are not entirely convinced of the wisdom of extending Section 26 of the 1967 Act in this manner.
This amendment raises the wider question of the most appropriate way of disclosing matters pertaining to a director's interest in his company's contracts. The 1967 Act requires the disclosure of contracts other than those of employment on the directors' report, while it seems that ordinary contracts of service are dis-

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closed in a special register kept at the company's registered office, or other "appropriate place". What we hope we have done in Amendment No. 201 is to strengthen this provision by widening the notion of "contract" to any "transaction, arrangement or agreement", by requiring the disclosure of their principal terms, and by stipulating that the details must appear in the accounts themselves. We have not therefore made any innovation in the separate treatment of contracts for service, but simply continued a distinction made in Section 26 of the 1967 Act. This amendment, in seeking to end this distinction, raises various important issues to which the noble Lord alluded relating to methods of disclosing matters pertaining to directors' personal benefits.
These matters require very careful study, and I hope that the noble Lord will agree that they need much further consultation. I also consider that, in the absence of any great advantage in putting on the Section 26 register information which will anyway be required to be disclosed in the company's accounts, it would be unnecessary to impose on companies this double burden.
The method of disclosure required in Amendment No. 201 is a much more "open" one than the Section 26 method, as the accounts are distributed automatically to members and are available to members and non-members alike, while the Section 26 register is available to members only at a specified place and time. We believe that there is some merit in the noble Lord's amendment, but we regret that for the moment the obstacles to accepting it as it stands are too great.
Lord WEDDERBURN of CHARLTON: My Lords, while thanking the Minister for his intervention, I find his response little less than extraordinary. Perhaps I might make three points. First, let me point out that the basis of our company law has honourably and traditionally been that of disclosure. Disclosure is breaking down as a basis of our company law. I personally believe that in 10 years' time we shall see it broken down, and it will have to be replaced by greater administrative control. I may be wrong, hut at least the Government should try to use disclosure to the limit rather than illogically.
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Secondly, the Minister put his case on the basis of a distinction between service and services; the distinction between having a contract for consultancy and a contract, say, as a managing director or executive who is wholetime with the company. Why should that make a difference as to what is put into the accounts? Why should the lawyer's distinction—which I hope to show to your Lordships on Amendment No. 208 has become somewhat absurb—between contracts of service and for services govern what the shareholders know?
I was disturbed by the Minister's third reason, which was to suggest that the accounts were much more open, were available to members and non-members alike, and that therefore the service contract of employment of a director should remain on a register to he seen only by shareholder members. I cannot believe that directors are that afraid of the non-members seeing what contracts they have with their company—or is that the Government's view? I do not believe it. I find such a suggestion quite extraordinary. I hope that my right honourable and honourable friends in another place will take note of this point. But in view of the circumstances in this House I have no alternative, very reluctantly, to ask leave to withdraw the amendment.
Amendment to the amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENTS
202 After Clause 45, insert the following new clause:
"Particulars required to be included in accounts by s. (Substantial contracts, etc., with directors and others to be disclosed in accounts).
".—(1) The particulars of a transaction, arrangement or agreement which are required by section (Substantial contracts, etc., with directors and others to be disclosed in accounts) to be included in the annual accounts prepared by a company are particulars of the principal terms of the transaction, arrangement or agreement and (without prejudice to the generality of the foregoing provision)—

(a) a statement of the fact either that the transactions, arrangement or agreement was made or subsisted, as the case may be, during the financial year in respect of which those accounts are made up;

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(b) the name of the person for whom it was made, and, where that person is or was connected with a director of the company or of its holding company, the name of that director;

(c) in any case where subsection (1)(c) or (2)(c) of section (Substantial contracts, etc. with directors and others to be etc., in accounts) applies, the name of the director with the material interest and the nature of that interest;

(d) in the case of a loan or an agreement for a loan or an arrangement within section (Prohibition of loans, etc., to directors and connected persons) (3) or (4) above relating to a loan—

(i) the amount of the liability of the person to whom the loan was or was agreed to be made, in respect of principal and interest, at the beginning and at the end of that period;

(ii) the maximum amount of that liability during that period;

(iii) the amount of any interest which, having fallen due, has not been paid; and

(iv) the amount of any provision (within the meaning of Schedule 8 to the 1948 Act) made in respect of any failure or anticipated failure by the borrower to repay the whole or part of the loan or to pay the whole or part of any interest thereon;

(e) in the case of a guarantee or security or an arrangement within section (Prohibition of loans, etc., to directors and connected persons) (3) above relating to a guarantee or security—

(i) the amount for which the company (or its subsidiary) was liable under the guarantee or in respect of the security both at the beginning and at the end of the financial year in question;

(ii) the maximum amount for which the company (or its subsidiary) may become so liable; and

(iii) any amount paid and any liability incurred by the company (or its subsidiary) for the purpose of fulfilling the guarantee or discharging the security (including any loss incurred by reason of the enforcement of the guarantee or security); and

(f) in the case of any other transaction, arrangement or agreement, the value of the transaction or arrangement, or, as the case may be, the value of the transaction or arrangement to which the agreement relates."

203 After Clause 45, insert the following new clause:
"Particulars of amounts outstanding to be included in accounts.
.—(1) This section applies in relation to the following classes of transactions, arrangements and agreements—
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(a) loans, guarantees and securities relating to loans, arrangements of a kind described in subsection (3) or (4) of section (Prohibition of loans, etc., to directors and connected persons) relating to loans and agreements to enter into any of the foregoing transactions and arrangements;

(b) quasi-loans, guarantees and securities relating to quasi-loans, arrangements of a kind described in the said subsection (3) or (4) relating to quasi-loans and agreements to enter into any of the foregoing transactions and agreements;

(c) credit transactions, guarantees and securities relating to credit transactions, arrangements of a kind described in the said subsection (3) or (4) relating to credit transactions and agreements to enter into any of the foregoing transactions and arrangements.

(2) The group accounts of a holding company and the accounts of any other company prepared in accordance with the requirements of section I of the 1976 Act in respect of a financial year (the relevant period") ending on or after the appointed day, shall contain a statement in relation to transactions, arrangements and agreements made by the company and, in the case of a holding company, by a subsidiary of the company for persons who at any time during the relevant period were officers of the company (but not directors) of the aggregate amounts outstanding at the end of the relevant period under transactions, arrangements and agreements within paragraphs (a), (b) and (c) respectively of subsection (1) above, and the numbers of officers for whom the transactions, arrangements and agreements falling within each of those paragraphs were made.
(3) Subsection (2) above shall not apply in relation to any transaction, arrangement or agreement made by a recognised bank for any of its officers or for any of the officers of its holding company.
(4) The group accounts of a company which is, or is the holding company of, a recognised bank, and the accounts of any other company which is a recognised bank, prepared in accordance with the requirements of section 1 of the 1976 Act in respect of a financial year (the "relevant period") ending on or after the appointed day, shall contain a statement in relation to transactions, arrangements and agreements made by the company preparing the accounts, if it is a recognised hank, and (in the case of a holding company) by any of its subsidiaries which is a recognised bank, for persons who at any time during the relevant period were directors of the company or were connected with a director of the company, of the aggregate

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amounts outstanding at the end of the relevant period under transactions, arrangements and agreements within paragraphs (a), (b) and (c) respectively of subsection (1) above, and the numbers of persons for whom the transactions, arrangements and agreements falling within each of those paragraphs were made.
(5) For the purpose of the application of subsection (4) above in relation to loans and quasi-loans made by a company to persons connected with a person who at any time is a director of the company or of its holding company, a company which a person does not control is not connected with him.
(6) Where by virtue of section 150(2) of the 1948 Act a company does not produce group accounts in relation to any financial year, subsections (2) and (4) above shall have effect in relation to the company and that financial year as if the word "group" were omitted.
(7) Subsections (2) and (4) above do not apply in relation to a transaction, arrangement or agreement which was made before the appointed day and which does not subsist on or after that day.
(8) For the purposes of this section, "amount outstanding" means the amount of the outstanding liabilities of the person for whom the transaction, arrangement or agreement in question was made, or, in the case of a guarantee or security, the amount guaranteed or secured."
7.36 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in Amendments Nos. 202 and 203.
Moved, That this House doth agree with the Commons in the said amendments. —(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
204 After Clause 45, insert the following new clause:
"Further provisions relating to recognized banks.
.—(1) Subject to section (Transactions, etc., excluded from ss. (Substantial contracts, etc., with directors and others to be disclosed in accounts) and (Further provisions relating to recognised banks)) below, a company which is, or is the holding company of, a recognised bank shall maintain a register containing a copy of every transaction, arrangement or agreement of which particulars would, but for subsection (5) of section (Substantial contracts, etc., with directors and
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others to be disclosed in accounts) above be required by subsection (1) or (2) of that section to be disclosed in the company's accounts or group accounts for the current financial year and for each of the preceding ten financial years or, if such a transaction or arrangement is not in writing, a written memorandum setting out its terms.
(2) Subject to section (Transactions, etc., excluded from ss. (Substantial contracts, etc., with directors and others to be disclosed in accounts) and (Further provisions relating to recognised banks)) below, a company which is, or is the holding company of, a recognised bank shall before its annual general meeting make available, at the registered office of the company for not less than the period of 15 days ending with the date of the meeting, for inspection by members of the company a statement containing the particulars of transactions, arrangements and agreements which the company would, but for subsection (5) of section (Substantial contracts, etc., with directors and others to be disclosed in accounts) above, be required by subsection (1) or (2) of that section to disclose in its accounts or group accounts for the last complete financial year preceding that meeting, and such a statement shall also be made available for inspection by the members at the annual general meeting.
(3) It shall be the duty of the auditors of the company to examine any such statement before it is made available to the members of the company in accordance with subsection (2) above and to make a report to the members on that statement; and the report shall be annexed to the statement before it is made so available.
(4) A report under subsection (3) above shall state whether in the opinion of the auditors the statement contains the particulars required by subsection (2) above and, where their opinion is that it does not, they shall include in the report, so far as they are reasonably able to do so, a statement giving the required particulars.
(5) Subsection (2) above shall not apply in relation to a recognised bank which is for the purposes of section 150 of the 1948 Act the wholly-owned subsidiary of a company incorporated in the United Kingdom.
(6) Where a company fails to comply with subsection (1) or (2) above, every person who at the time of that failure is a director of the company shall be guilty of an offence and liable on conviction on indictment to a fine and on summary conviction to a fine not exceeding the statutory maximum.
(7) It shall be a defence in proceedings against a person for an offence under subsection (6) above for him to prove that he took all reasonable steps for securing compliance with subsection (1) or (2) above, as the case may be.
(8) For the purposes of the application of this section in relation to loans and quasi-loans made by a company to persons connected with a person who at any time is a director of the company or of its holding company, a company which a person does not control is not connected with him."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in Amendment No. 204.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lye11.)
7.37 p.m.
Lord SELSDON Lord SELSDON moved, as an amendment to the amendment, Amendment No. 204A:
204A In subsection (2), line 6, after ("available") insert ("during business hours").
The noble Lord said: my Lords, I beg to move, as an amendment to Commons Amendment No. 204, Amendment No. 204A. This subsection would require a recognised bank to make available at its registered office for a period of at least 15 days prior to the company's annual general meeting a statement summarising certain transactions with directors and others. That is perfectly laudable and acceptable, but there is no limitation of the hours of the day during which the statement must be made available for inspection.
It therefore appears that the statement must be made available to members of the company throughout all 24 hours of the day, although this obviously is not the Government's intention. Unfortunately, there is a precedent in earlier companies Acts dealing with comparable provisions —for example, Section 57(2) of the 1948 Act and Section 26(4) of the 1967 Act. These state that inspection shall take place:
"during business hours (subject to such reasonable restrictions as the company in general meeting may impose so that not less than two hours in each day may be allowed for inspection)".
With such provisions in earlier Acts, the omission of a daily time limit in this subsection of the Bill may be taken to indicate a deliberate intent that the statement should be available throughout the whole of each relevant day. Thus, this amendment seems desirable in order to limit availability at least to business hours.
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I do not propose to press this amendment if the Government make it clear that it is not their intention that the information should be available throughout the 24 hours.
Lord LYELL: My Lords, I thank my noble friend Lord Selsdon for outlining his amendment so clearly. But I hope that he and the House will consider the drafting of subsection (2) of Amendment No. 204. It is clear from that provision that it is the company which is required to make the statement available. It states in line 6 that this availability is to be:
"at the registered office of the company".
I am advised that the provision as constructed implies that a statement will be available each day for the period during which business is usually transacted. That is the advice I have been given, and for that reason it would appear that my noble friend's amendment is superfluous. However, I give him the assurance that I shall check the situation and let him know.
Lord SELSDON: My Lords, as my noble friend Lord Lyell is, like me, an hereditary Peer, I hope that we are not "superfluous". My advisers disagree with his advisers, but in view of the respect I have for my noble friend and the way in which he has conducted this Bill today, I beg leave to withdraw the amendment.
Amendment to the amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENT
205 After Clause 45, insert the following new clause:
"Transactions, etc., excluded from ss. (Substantial contracts, etc., with directors and others to be disclosed in accounts) and (Further provisions relating to recognised banks)).
.—(1) Subsections (1) and (2) of section (Substantial contracts, etc., with directors and others to be disclosed in accounts) above do not apply, in relation to the accounts prepared by a company in respect of a relevant period, to transactions of the kind mentioned in subsection (2) below which are made by the company or by a subsidiary of the company for a person who at any time during the relevant period was a director of the company or of its holding company or was connected with such a director, if the aggregate of the values

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of each transaction, arrangement or agreement so made for that director or any person connected with him, less the amount (if any) by which the liabilities of the person for whom the transaction or arrangement was made has been reduced, did not at any time during the relevant period exceed £5,000.
(2) The said transactions are—

(a) credit transactions;

(b) guarantees provided or securities entered into in connection with credit transactions;

(c) arrangements within subsection (3) or (4) of section (Prohibition of loans, etc., to directors and connected persons) above relating to credit transactions;

(d) agreements to enter into credit transactions.

(3) Subsections (1)(c) and (2)(c) of section (Substantial contracts, etc., with directors and others to be disclosed in accounts) above do not apply, in relation to the accounts prepared by a company in respect of a relevant period, to any transaction or arrangement made by the company or by a subsidiary of the company for a person who at any time during the relevant period was a director of the company or of its holding company or was connected with such a director, if the aggregate of the values of each transaction or arrangement within the said subsection (1)(c.) or (2)(c), as the case may be, so made for that director or any person connected with him, less the amount (if any) by which the liabilities of the person for whom the transaction or arrangement was made has been reduced, did not at any time during the relevant period exceed £1,000 or, if more, did not exceed £5,000 or one per cent. of the value of the net assets of the company which is preparing the accounts in question as at the end of the relevant period for those accounts, whichever is the less.
(4) Section (Further provisions relating to recognised banks) above does not apply in relation to transactions or arrangements made or subsisting during a relevant period by a company or by a subsidiary of a company for a person who at any time during that period was a director of the company or of its holding company or was connected with such a director, or to any agreement made or subsisting during that period to enter into such a transaction or arrangement, if the aggregate of the values of each transaction or arrangement made for that person, and of each agreement for such a transaction or arrangement, less the amount (if any) by which the value of those transactions, arrangements and agreements has been reduced, did not exceed £1,000 at any time during the relevant period.
7.40 p.m.
Lord LYELL: My Lords, I beg to
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move that this House doth agree with the Commons in their Amendment No. 205. I have already spoken to this amendment. My Lords, I beg to move.
Moved, That the House doth agree with the Commons in the said amendment.—(Lord Lyell.)
Lord SELSDON Lord SELSDON had given notice of his intention to move Amendment No. 205A, as an amendment to Commons Amendment No. 205:
205A In subsection (4), line 12, leave out ("£1,000") and insert ("£2,000").
The noble Lord said: My Lords, in view of the comments of my noble friend on Amendment No. 197A, I propose not to move this amendment.
On Question, Motion agreed to.

COMMONS AMENDMENTS
206 After Clause 45, insert the following new clause:
"Duty of auditors of company in breach of s. (Substantial contract, etc., with directors and others to be disclosed in accounts) or (Particulars of amounts out-standing, to be included in accounts).
s. If in the case of any group or other accounts of a company the requirements of section (Substantial contracts, etc., with directors and others to be disclosed in accounts) or (Particulars of amounts outstanding to be included in accounts) above are not complied with, it shall be the duty of the auditors of the company by whom the accounts are examined to include in their report on the balance sheet of the company, so far as they are reasonably able to do so, a statement giving the required particulars."
207 After Clause 45, insert the following new clause:
"Disclosure by directors of interests in contracts, etc.
.—(1) Any reference in section 199 of the 1948 Act (disclosure by a director of a company of his interest in a contract with the company) to a contract shall be construed as including a reference to any transaction or arrangement (whether or not constituting a contract) made or entered into on or after the appointed day.
(2) For the purposes of the said section 199, a transaction or arrangement of a kind described in section (Prohibition of loans, etc., to directors and connected persons) above made by a company for a director of the company or a person connected with such a director shall, if it would not otherwise be so treated (and whether or not prohibited by that section), be treated as a transaction or arrangement in which that director is interested."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 206 and 207. My Lords, I beg to move.
Moved, That the House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
208 After Clause 45, insert the following new clause:
"Extension of section 26 of 1967 Act.
—(1) In subsection (1) of section 26 of the 1967 Act (disclosure of director's service contract with company) the following paragraph shall be inserted after paragraph (b)—
"(c) in the case of each director who is employed under a contract of service with a subsidiary of the company, a copy of that contract or, if it is not in writing, a written memorandum setting out the terms of that contract;".
(2) The following subsection shall be inserted after subsection (3) of that section—
"(3A) Subsection (1) above shall not apply in relation to a director's contract of service with the company or with a subsidiary of the company if that contract required him to work wholly or mainly outside the United Kingdom, but the company shall keep a memorandum—

(a) in the case of a contract of service with the company, setting out the name of the director and the provisions of the contract relating to its duration;

(b) in the case of a contract of service with a subsidiary of the company, setting out the name of the director, the name and place of incorporation of the subsidiary and the provisions of the contract relating to its duration,

at the same place as copies and the memorandums are kept by the company in pursuance of subsection (1) above.".
(3) Each reference in subsections (4), (5) and (7) of that section to subsection (1) shall be construed as including a reference to subsection (3A) of that section; the reference in subsection (7) of that section to a contract of service with a company shall be construed as including a contract of service with a subsidiary of a company; and in subsection (8) of that section, paragraph (a) shall cease to have effect."
Lord LYELL: My Lords, I beg to move that this House doth agree with the
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Commons in their Amendment No. 208. I have already spoken to the main amendment. My Lords, I beg to move.
Moved, That the House doth agree with the Commons in the said amendment.—(Lord Lyell.)
Lord MISHCON Lord MISHCON moved, as an amendment to Commons Amendment No. 208, Amendment No. 208A.
208A Leave out subsection (2).
The noble Lord said: My Lords, I said earlier that there were unfortunate examples of where, as a result of the Government not having taken advantage of the advice of the Opposition in this House in July last, material and important clauses were being hurriedly prepared and put before Parliament. It is only right that I should cite examples of this, having made that statement, and I certainly come to one now. Amendment No. 208 is, as we have prevously heard, an extension of Section 26 of the 1967 Act. Very sensibly, in subsection (1) of the new clause there is a provision that,
"in the case of each director who is employed under a contract of service with a subsidiary of the company "—
that means, as if it were the company itself—
"a copy of that contract or, if it is not in writing, a written memorandum setting out the terms of that contract "
shall be duly disclosed and registered. Your Lordships will appreciate that the words"terms of that contract"obviously mean the duration of it, the remuneration and the various duties under the service contract into which the director and the company have entered.
It had not been thought of by the Government at the Committee stage of this Bill—and we are dealing with a very important matter of disclosure of service contracts of directors—but at the Report stage a few weeks ago there was suddenly flung before another place subsection (3A) of this new clause, which provides:
"Subsection (1) above shall not apply in relation to a director's contract of service with the company or with a subsidiary of the company if that contract required him to work wholly or mainly outside the United Kingdom".
May I pause there for a moment, in regard to clear thinking about the wording of a clause in a Bill dealing with a very important matter. It is not the main

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gravamen of my dislike, and the dislike of my friends, of this new subsection, but it is an illustration, in my respectful submission, of the way in which this matter has been hurried. Does this clause mean that if there is a service contract, which provides that the company can require the director wholly or mainly to carry out duties outside the United Kingdom, it is supposed to be free of the requirements of subsection (1)? Without any doubt at all, this clause is capable of that interpretation.
There are many contracts which, I assume, if that interpretation is correct, could now be worded by companies to provide that the company most certainly required the director to carry out his services wholly or mainly outside the United Kingdom. In fact, he will not be doing it, but if the contract requires that he may do it there is certainly doubt as to whether the company would have to register the contract. That is an example of not very clear thought or very clear wording, but it is not my main objection.
My main objection and that of my friends is that we see no reason whatsoever for there not being as frank a disclosure in regard to the terms of such a contract, as there is in regard to an ordinary service contract for carrying out work in the United Kingdom. Shareholders ought to know and the public ought to know, because there can be very extraordinary arrangements made for such conduct of a director's services abroad, which may operate in a way which it suits the company and the director concerned to conceal. What can be the reason for excluding such a contract from proper disclosure?
I may be wrong about this, but I tried to discover whether anybody had observed the very essential differentiation which occurred in this subsection. This was so hurried when it was thrown in at the Report stage, and nobody seems to have commented upon the fact that there is no requirement for the terms of the contract of a director, who is serving wholly or mainly abroad, to be registered. If your Lordships will look very closely at paragraph (a) you will see that it provides as follows:
"in the case of a contract of service with the company, setting out the name of the director and
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the provisions of the contract relating to its duration".
That is the requirement in regard to the memorandum which must be kept. In other words, not even if a shareholder wishes to go to the registered office of the company and look at the memorandum, can he see anything else but the name of the director and how long the contract will last. Much joy may that inspection give him, in regard to the proper disclosure of the circumstances!
If your Lordships look at paragraph (b), you find that it is exactly the same in regard to the subsidiary company. The reason why I move for the deletion of subsection (2), and the consequential words that follow in subsection (3), is that all these contracts ought to be subject to precisely the same provisions in regard to disclosure and registration; namely, the terms of the contract should be there for all the world to see. My Lords, I beg to move.
Moved, That this House doth agree with the said amendment to the Commons Amendment No. 208.—(Lord Mishcon.)
Lord WEDDERBURN of CHARLTON: My Lords, I hope that the noble Lord's reply will not be, in effect. "Look at Section 26(7)(a)". Section 26(7)(a) already says that this section shall not require there to be kept a copy of the terms of the contract
"so long as the contract requires him "—
that is, the director—
"to work wholly or mainly outside the United Kingdom".
My noble friend's amendment would perhaps require some reconsideration of of that. What we on this side of the House are saying is that this loophole is now so enlarged, via the contracts with subsidiaries, just by mentioning their duration, that it has become such a serious matter, like so many other things in Section 26, that it has to be reconsidered. If this matter goes back to another place, as now it has to do, then the whole of Section 26 should be reconsidered. Therefore I support my noble friend's amendment as one which the Government ought to accept in the knowledge that Section 26(7)(a) will also need amendment in another place.
Lord LYELL: My Lords, I should like to thank the noble Lord, Lord Mishcon, for very clearly spelling out his amendment. I tried to follow the noble Lord, Lord Wedderburn of Charlton, but I must admit that he was very swift. I think, though, that I followed some parts of what he said. If I could attempt to reply to the noble Lord, Lord Mishcon, I hope he is not arguing that the Government's Amendment No. 208 as it stands is relaxing in any way the provisions—not necessarily the provisions of subsection (7) but any of the provisions of Section 26 of the 1967 Act. We believe that Amendment No. 208 imposes new requirements in relation to overseas service contracts which did not apply under the 1967 Act, whether by Section 26 or by any other section. We believe that there is not this doubt. We hope that Amendment No. 208 removes any doubt about the spread of Section 26. However, the amendment which has been tabled by the noble Lord, Lord Mishcon, would delete the exemption which is provided for directors' contracts of service overseas from this particular requirement in Section 26.
Your Lordships will have noticed that Commons Amendment No. 208 is a very technical clause. It deals with the disclosure of directors' contracts of service. It brings these into line with the substantive provisions of the Bill. However, the important change which Amendment No. 208 makes is to require merely the duration term of overseas contracts to be placed on the register so that it can be ascertained whether the provisions of Amendment No. 194 have been respected.
I would quickly remind your Lordships that Commons Amendment No. 194 deals with the duration of any agreement relating to a director's employment, whether at home or overseas. In particular, if it cannot be terminated by the company by notice after a period of five years, it must have been approved by the company in general meeting. That is the exact scope of Amendment No. 208. Rut we have not sought to alter the exemption in Section 26, as was spelled out by the noble Lord, Lord Mishcon, for terms relating to matters other than duration. The main policy that lies behind the exemption already in existence in Section 26 is to prevent any details emerging on the other side of disclosure, a point which has
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been raised by the noble Lord, Lord Wedderburn of Charlton, and, indeed, by the noble Lord, Lord Mishcon, which might, and, indeed, would, be embarrassing either to the director or to the company in its dealings with customers, or any prospective customers abroad.
I am sure that your Lordships will be aware of at least two directors who are at this moment in custody in countries around the world. Whether they did or did not do anything which was against the law of this country for which they are at present incarcerated remains to be seen. However, we envisage circumstances in which the details of various contracts of service in certain parts of the world ought to be kept confidential. I think the noble Lord, Lord Mishcon, might agree with me upon that point. We take his point that Section 26 is fairly wide—
Lord MISHCON: My Lords, before the noble Lord turns to another point, I wonder whether he will permit an intervention. He said that I would no doubt agree with him in a proposition that I thought he was putting before the House; namely, that certain directors are incarcerated abroad for certain offences. I do not know to which directors the noble Lord is referring. I learned only a few days ago that one of them had been released. There is no need to mention names in this House. If, however, the noble Lord is trying to associate me or my friends with the suggestion that we ought to try to protect people who have breached the laws of a foreign country, I want to dissociate both myself and my friends from this immediately. I do not know what point the noble Lord was trying to make.
Lord LYELL: My Lords, that is the brief: that there are certain parts of the world where details ought to be kept confidential. That is the point I was making.
Lord MISHCON: My Lords, I wonder whether the noble Lord would give an example to the House.
Lord LYELL: No, my Lords; I think it would be better that I should not give an example to the House, because it could be embarrassing. I would much rather not do that. I think the noble Lord will understand that there are certain cases of this type—
Lord LLOYD of KILGERRAN: My Lords, surely the noble Lord can give us some examples. If he continues to say that there are these cases, surely he should reply to the noble Lord, Lord Mishcon, by giving an example.
Viscount TRENCHARD: My Lords, I think the analogy was unfortunate; in fact, it forms no part of the Government's answer. The noble Lord, Lord Lyell, is aware of a number of details going on in this kind of area. What I want to say is that the policy lying behind the exemption in Section 26 is to prevent details—not the kind of details that we may have put into your Lordships' minds—from emerging that could be embarrassing to the director or the company in its dealings with customers or prospective customers abroad. One can, in that situation, imagine circumstances in which details of contracts of service in various parts of the world, like the Middle East, are best kept confidential. I cannot give examples, but I do need to withdraw the kind of example that we introduced into this debate.
Lord MISHCON: My Lords, the noble Viscount has brought a breath of fresh and clean air into the House. I was wondering what sort of atmosphere we were walking into before he did so; but he has done it, and I will not take any more advantage of the point. The point I was trying to make was specifically related to remuneration. For the life of me, I cannot see for the moment how the question of the remuneration of a director could in any way be adverse to the interests of any company in regard to its directors' operations abroad, but no doubt I shall be enlightened by the noble Lord, Lord Lyell, when he comes to deal with a different sort of point from the one he was trying to make before.
The DEPUTY SPEAKER: (Lord Nugent of Guildford): My Lords, does the noble Lord wish to press his amendment?
Lord MISHCON: My Lords, I hoped that the noble Lord, Lord Lyell, would answer the amendment in full.
Lord LYELL: My Lords, we are getting a little out of order. I have spoken at least twice so far and there have been interruptions. With leave, may I com
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plete my comments. I understand that one example that I am authorised to give of such details, where we believe that they ought to be kept confidential, covers the Arab-Israeli boycott. I am told that that would be an example of where such remuneration might well be kept confidential. The noble Lord, Lord Mishcon, asked for an example, and I have given him one. He may not regard it as satisfactory, but that is the best I can do so far.
Lord WEDDERBURN of CHARLTON: My Lords, may I be quite sure that I am clear about what the noble Lord is saying?
Lord LYELL: Yes, my Lords, by leave.
Lord WEDDERBURN of CHARLTON: The noble Lord is speaking about remuneration which would be a matter of some delicacy in relation to the particular international situation which he described. I hope the noble Lord will assure the House that he is not talking of anything in the nature of association with "slush funds" or the like. I think the Government had better give that assurance because when we come to read Hansard this debate so far will read as a very extraordinary one.
Lord LYELL: My Lords, by leave I really think it is the noble Lord, Lord Wedderburn, who is introducing what he calls "slush funds" and that is not a term, I am sure, that he would approve of being used in his examination papers or even being bandied around your Lordships' House in a debate of this kind. No, my Lords, let us leave it there and I do not think I can go further than I have already gone, which is to say that we believe that Amendment No. 208 covers the duration of any agreement under 194 and it does not seek to go any further. That is just one example of where we believe that remuneration should be kept confidential. I hope the noble Lord, Lord Mishcon, may accept it and I do not think we can go much further than that, apart from mentioning that we have altered Section 26 only so far as is necessary for the effective functioning of this Part of this Bill which is dealing with directors' conflicts of interest. We do not think that a wider revision of Section 26

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and the various other provisions relating to statutory disclosure of the terms of a director's relationship with his company is a matter for this Bill.
Lord BRUCE of DONINGTON: My Lords, I must apologise for detaining the House on this particular point and also for a slight inaudibility which I think for me, the House will agree, is not quite customary. I am still a little mystified by the situation with regard to this amendment that has been revealed by the noble Lord, Lord Lyell. Let us take a circumstance where a director whose terms of contract or whose contract of service does not explicitly state that his work lies mainly overseas. Let us say that he is in the position of an executive director, a sales director or a managing director and be goes abroad to negotiate a very large deal. Let us say that he takes with him a director who, because his duties are explicitly within his agreement, is required to perform his duties wholly or mainly overseas. Here we are then with a circumstance where two directors are involved in negotiations, presumably with an important foreign customer. The agents of the company concerned can go hack to London and, if they happen to know a shareholder, they can of course get full particulars of the managing director's contract, including the salary, the duration and everything else, but in respect of the other director accompanying him they simply cannot get that information.
That does not seem to me to make any logic at all and certainly the reply which the noble Lord, Lord Lyell, has given so far I regret to say does not help to elucidate the position. I am hopeful, particularly after the lucid comments made by my noble friend Lord Mishcon and my noble friend Lord Wedderburn, that the Government can give the House some assurance that this aspect of the matter can be looked at again because quite clearly some rather more convincing explanation has to be given than that which the noble Lord has given to the House so far.
Lord LYELL: My Lords, I am sorry that I cannot elucidate further and especially on the point raised by the noble Lord, Lord Bruce of Donington. I think that is going a little way off. As I have said several times, as we understand
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it, Amendment No. 208 is dealing with the duration of the contract of service and especially on the conflict of any interests which might occur between the director and the company and I cannot see how further details that the noble Lord has raised in these interesting examples logically need be put into this particular Part of this Bill. I see that there is merit in what the noble Lord is saying, but not necessarily in this Part of the Bill. That is why I am afraid I cannot go further than I have already done. Indeed, as your Lordships will see, I have been in trouble already in attempting to help and I regret that I cannot go further.
Viscount SIMON: My Lords, I really do not follow the logic of the noble Lord's argument.
Lord DENHAM: My Lords, I wonder whether I may come in at this point because I think we are getting very much out of order on this. This is not a Committee stage. I know it is difficult because some of these points are new. My noble friend has the ability to speak again by leave of the House, but I do not think he can do it again and again, and again and again. I wonder whether it would not be possible after this amendment—when we come on to the other amendments—for noble Lords to make all their points together, so that my noble friend does not have to speak too often, because at this stage we are rather going beyond the rules of order.
Viscount SIMON: My Lords, perhaps I may continue what I was saying—and this is the first time that I have spoken on this amendment. It is rather hard to say that we cannot speak after the noble Lord has expressed the Government's view, as we do not know what the Government's view is until we hear it. On this occasion I merely wanted to say that I did not follow the logic of his argument. In paragraph I it is provided that these particulars about the directors' remuneration will be made known and then there follows a clause which says that they need not be made known if his work is principally abroad. I think the noble Lord, Lord Lyell, said that this had nothing to do with remuneration, but is that not exactly the case?
Lord MISHCON: My Lords, I think I had better save the Government from further embarrassment by merely saying that I propose to divide the House.
8.5 p.m.
On Question, Whether the said amendment (No. 208A) to the amendment shall be agreed to?
[Amendment No. 208B not moved.]

LORDS AMENDMENT TO COMMONS AMENDMENT No. 208
208C At end insert—
(" (4) The following subsection shall be inserted after subsection (8) of that section:
" (9) Subsection (1) above shall apply to a contract for services as it applies to a contract of service ".").
8.14 p.m.
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move as an amendment to Commons Amendment No. 208, Amendment No. 208C. This amendment is also a very serious matter which is caused by the same events as those which my noble friend Lord Mishcon described. It arises from the very unsatisfactory discussion on 26th February in another place at cols. 1162 to 1165, where this issue of Section 26 was put on the agenda by the Government. As I have suggested to your Lordships in speaking to a previous amendment, it
Their Lordships divided; Contents, 20; Not-Contents, 46.

CONTENTS

Boston of Faversham, L.

Howie of Troon, L.

Ross of Marnock, L.

Bruce of Donington L.

Lloyd of Kilgerran, L. [Teller.]

Simon, V.

Collison, L.

Lovell-Davis, L.

Stone, L.

Galpern, L.

Mishcon, L.

Wade, L.

Gregson, L.

Pitt of Hampstead, L.

Wedderburn of Charlton, L.

Hale, L.

Ponsonby of Shulbrede, L. [Teller.]

Whaddon,L

Houghton of Sowerby, L.

Wynne-Jones, L.

NOT-CONTENTS

Airey of Abingdon, B.

Kinnaird, L.

St. Just, L.

Bellwin, L.

Long, V.

Sandys, L. [Teller.]

Belstead, L.

Lyell, L.

Selkirk, E.

Caithness, E.

Mackay of Clashfern, L.

Selsdon, L.

Cork and Orrery, E.

Macleod of Borve, B.

Sharples, B.

Cullen of Ashbourne, L.

Mansfield, E.

Strathclyde, L.

Denham, L. [Teller.]

Margadale, L.

Sudeley, L.

Falkland, V.

Merrivale, L.

Torphichen, L.

Fortescue, E.

Morris, L.

Trefgarne, L.

Galloway, E.

Mottistone, L.

Trenchard, V.

Glasgow, E.

Mowbray and Stourton, L.

Tweedsmuir, L.

Gowrie, E.

Nugent of Guildford, L.

Vickers, B.

Greenway, L.

Redesdale, L.

Vivian, L.

Hampden, V.

Renton, L.

Wardington, L.

Hives, L.

Rochdale, V.

Young, B.

Hornsby-Smith, B.

Resolved in the negative, and amendment disagreed to accordingly.

raises the whole question of the difference between a contract of service, sometimes described as a contract of employment, which is registrable under Section 26 of the 1967 Act, and a contract for services, which is in most people's opinion not registerable under Section 26 of the 1967 Act. I say "most people" advisedly because this is not just a technical legal point. Section 26 does speak of "a contract of service" between the director and the company, and to a lawyer that clearly excludes contracts for services. If we may make the distinction, an executive contract is one whereby the director works whole time for the company. A consultancy contract is a contract for services. But businessmen, like the Stock Exchange, tend to talk about "service contracts".
I had no reply on the previous occasion when I touched on this matter in regard to the Stock Exchange listing requirements in Schedule 8 speaking of "service contracts". I can only hope that the noble Lord has now taken advice and has some reply to make on it, because it is this business term "service contracts" which leads to what I am advised is a variation in practice between companies. Some believe that "contract of service" in the

1093
1967 Act does not mean what it says and that they have to register contracts for services. I think in policy those companies are right, but they are a very small minority. Most keep to the letter of the law, disclosing on the register contracts of service.
Having raised Section 26 of the 1967 Act on Report in another place, the Government have a responsibility to get it as right as possible. The contention of myself and my noble friends is that having put Section 26 on the agenda the Government have not fulfilled their obligation to the House and to the country and especially to the business community by getting Section 26 into a proper state. They have certainly not fulfilled their obligation to the country as a whole, in the respect that our company law demands disclosure properly and fairly and fully made, and there is absolutely no reason why the technicalities of a distinction between contracts of service and contracts for services should be the metes and bounds of the obligation, even in the face of the other obligations which are exposed by the amendments from another place which we have already passed.
There is no reason why this distinction should be made in Section 26 in policy. There is even less reason if one turns to the law. How does a lawyer recognise a contract of service rather than a contract for services? I quote from the leading book three little sentences or episodes; Hepple and O'Higgins on Employment Law, the third edition; they give the following as the possible tests of a contract of service. As the noble and learned Lord the Lord Advocate will know, even in Scotland the practice is somewhat similar and the difficulties somewhat similar to those in England, though the Scottish answer is no doubt superior. In England, the traditional test—and here I quote Hepple and O'Higgins—is control:
"An employee works under the control of another not only as to what he must do but how and when he must do it".
Then there arose the difficulty of the difference between the taxi driver who drives his employer from one place to another as an independent contractor and the taxi driver who is an employee. So the cases were not enough, especially in regard to skilled workers, and the
1094
courts introduced a different test. I quote again from Hepple and O'Higgins:
"Did the alleged servant form part of the alleged master's organisation?"
What a test to apply to a director! Whether he is a consultant as well as a director, and a chief executive as well as a director, he is obviously part of the organisation.
How do we use that test? Lastly, I should like to quote again from Hepple and O'Higgins. They say:
"The courts have come in recent times to prefer a more flexible, multiple or mixed test. At its most casuistic level this is simply said to be a common sense approach of the reasonable man".
When you get to the common sense approach of the reasonable man in the mouths of lawyers you know that they have reached the end of their tether and cannot really give you a definition at all. Indeed, Hepple and O'Higgins say:
"Recently it has been suggested that a multiple of tests should be applied".
It has been suggested that they should all be mixed up.
This is a matter that has come to the attention of the courts in the case of Parsons v. Albert Parsons and Sons Limited, reported in 1979 Industrial Cases Reports at page 271. The Court of Appeal had to deal with the case where a director was dismissed and claimed unfair dismissal. This he could do, of course, if he was an employee under a contract of service; but not if he was not an employee, but merely acting by way of rendering services to his company as well as being a director in office. The industrial tribunal thought that he was not an employee. The employment appeals tribunal thought that he was or might well be, even though there was no express contract. The Court of Appeal thought that the industrial tribunal had the better view.
If a learned tribunal, a learned employment appeal tribunal and the Court of Appeal take three distinct views of the same transaction upon which a director is engaged with his company, how can it be right to place upon company secretaries and businessmen, albeit with advice, the responsibility to decide what to put and what not to put upon the register? It is, in policy, a bad formulation in Section 26. I say that in the full knowledge that the noble Lord will probably say that it was passed by a Labour

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Government, but that would never inhibit me from saying that something was bad. It was very bad in 1967. I believed that it should cover services then, and so did many other people; including many businessmen; and I believe that it should cover services now. It is bad in policy and it has been shown to be absurd.
Case law has shown it to be ridiculous. Any company secretary who is to deal with this matter must read all the cases, including the case last year concerning whether the principal oboist of the London Philharmonic Orchestra was a servant or a consultant—and he turned out to be a consultant. It is quite absurd to keep Section 26 in its present form if the Government have put it on the agenda. In view of the difficulty that they ran into with the last amendment—although they will not run into the same embarrassment, I hope, over this amendment (albeit they won—that is not the point; it is when they read Hansard, that they will be embarrassed, not with the"verb ")—I hope that their embarrassment on this clause can be a little less and that they can give us some comfort and idea that they are prepared to look at it again.
I hope that the noble Lords and Ministers opposite will take this matter seriously. What has happened is that a very important area of commercial law—and I say this seriously to the noble Lord, Lord Lyell—is being legislated upon on the basis of 10 minutes in another place, on Report, and a refusal of the Government to answer the arguments in this House. If that is the basis for bicameral government, then unicameralism may have something to be said for it. Noble Lords are not doing themselves justice in paying attention to these important matters of commercial law on the basis of things, put in at Report at the last moment in another place, which will never be properly debated. I say for the record that if the Government refuse to consider this matter seriously, as they did the last amendment, and as they perhaps will our future amendments concerning Amendment No. 208, then they will have a lot to answer for when some poor litigant or poor person who could have received justice with a proper registration of director's contracts, comes knocking at their door after they have left office. I beg to move.
Moved, That this House doth agree with the said amendment to Commons Amendment No. 208.—(Lord Wedderburn of Charlton.)
Lord MACKAY of CLASHFERN: My Lords, I entirely appreciate the point which the noble Lord, Lord Wedderburn of Charlton, is making, and I think that I should be right in saying that most of the cases to which he has referred in respect of which difficulty has arisen in distinguishing between contracts of service and contracts for services, have not arisen in relation to Section 26 of the Companies Act 1967. If what we could do by accepting his amendment tonight would be to rid the law of that difficulty in all circumstances, then I think that it would be well worthy of very serious consideration. However, that is not to say that the point is not worthy of serious consideration.
The position so far as we are concerned is as follows. Section 26 of the 1967 Act has been on the statute book for some time. What we have sought to do so far—the noble Lord speaks about putting Section 26 on the agenda—is to put into Section 26 those amendments which are consequential upon the policy which has been promoted in the rest of these amendments.
I certainly agree that the situation is not by any means happy, but I do not feel that simply to accept the amendment would solve the matter. I think that the view that Section 26 requires independent consideration, consideration independently of these policy considerations which have led to some amendment to Section 26, is the correct course and that the Government should take time to do that. It looks as though—and again one must be careful about prophesying—an opportunity might present itself in due course.
So far as the listing agreement is concerned and so on, one can approach the matter in the following way. Section 26 contains stipulations as to what must be recorded. There is no harm, if one is in doubt, in erring on the side of safety, and that may well be the wise practice. So, while I appreciate the point that the noble Lord is making, I would respectfully submit to your Lordships that this is not the time to give effect to it.
Lord MISHCON: My Lords, the noble and learned Lord talks about looking at this matter "in due course" and he regarded it as a matter which certainly ought to be looked into for the reasons that were advanced so cogently by my noble friend. Did he mean in the course of this Bill, or did he mean in the course of time? If he meant in the course of this Bill, he will make everybody happy. However, if he meant in the course of time, then we may be postponed to eternity.
Lord MACKAY of CLASHFERN: My Lords, with the leave of the House, I distinguish between time and eternity, but it is in the course of time that I had in mind, but I hope not such time that it might trespass on eternity, as I hope this debate will not. I think that there are reasonable prospects of a fairly early reconsideration of company law. I think that enough has been said to show that Section 26 is quite a difficult area in that it requires proper consideration. I would respectfully submit that due time—not in this Bill—would be the correct time in which to do it.
Lord WEDDERBURN of CHARLTON: My Lords, I thank the noble and learned Lord for what he has said, although I cannot agree with it. I should like to make two points in reply. First, the Government's attitude—and I think this ought to be said this evening because one should be frank about it—seems to be that they are determined not to accept any amendment, however reasonable, albeit that there are arguments for and against—there are always such arguments. But they are not really seriously concerned to accept any amendment to this Bill, obviously because they want it on the statute book before Easter.
I cannot understand what is so magical about getting a Companies Bill. At long last we shall have one that will reach the statute book. It failed in 1973 and it failed in 1978. Now we shall have one. The 1976 measure was, after all, not a very big reform. Now we shall have a major Bill and little bits and pieces are put in amending previous Acts. I cannot understand why, for the sake of a week and getting it on the statute book before Easter, the Government are taking this obdurate attitude.
1098
Secondly, I do not find in my breast the same incorrigible optimism as that in the noble and learned Lord's, that the Government will be here to present any further Companies Bill to this or any other House. Indeed, events may make it very difficult for them, even if they are here, to put it in their parliamentary timetable. I am most disappointed that the Government will not put right what could so easily be put right, but in view of the circumstances I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 208
208D At end insert—
(" (4) There shall be added to that section the following subsection:
"( ) Where a director is a partner in or other member of a firm or a member, director or shadow director of a company instructed or employed by his company as stockbrokers, there shall be attached to the copy required by subsection (1)(a) above or to the memorandum required by subsection (1)(b) above, as the case may be, a note stating that fact." ").
Lord BRUCE of DONINGTON: My Lords, I beg to move, as an amendment to the Commons amendment, Amendment No. 208D. This amendment arises within the context of the Government's expressed intentions to introduce at some future time a further Companies Bill dealing with the EEC Fourth Directive, which implies that the next Bill will deal largely with accounting matters, with the standardisation of a form of accounts, and so on. It also takes place at a time when the country, in so far as it has been informed, has had an opportunity of considering the implications of the Dowgate Report, a report which your Lordships will recall was made by Mr. Joseph Jackson, QC, and Mr. Young, a chartered accountant, appointed by the Board of Trade under Section 165B to investigate the affairs of a group of companies, which for the moment we shall call the Dowgate group.
This report disclosed—and I do not think it is any exaggeration to say this—a degree of lying, cheating, double-dealing, concealment from shareholders of transactions that had actually taken place affecting the directors personally, breaches of trust

1099
and refusal by some of the witnesses summoned to co-operate with the inspectors themselves. One is happy to say that this is not typical of the City as a whole. One accepts the view that it is the exception. But it makes bloodcurdling reading, as the noble Lord opposite will know if he has read through it.
Quite clearly, the current Bill before your Lordships makes no pretence of dealing with any of the matters that have been revealed in the Dowgate Report; the Government have taken very little account of its conclusions and certainly have not acted specifically on any of its recommendations. That being so, and in view of the fact that the next important Companies Bill will deal largely with matters of account stemming from the Communities Fourth Directive, and the very dubious likelihood of yet a further Bill dealing, to some extent, with the evils revealed in the Dowgate Report, we on this side of the House think that we should persuade the Government to take one tentative step towards the recommendations made by the inspectors in this particular report.
Those of your Lordships who have read the very comprehensive report of the inspectors will recall that there was a firm of stockbrokers acting for one of the companies within the group and that certain members of that firm of stockbrokers were also members of the board of the particular company with which they were having dealings. I do not want to recite any names, just the principles involved. It was revealed in the evidence, and accepted by the inspectors, that certain directors of the company had used the firm of stockbrokers, of which their colleagues were members, in order to conduct a series of transactions that would not stand up to the very high standards that are normally in force in the City of London.
Briefly, the stockbrokers would buy shares on behalf of one of the directors. If the shares went up. they would be put down to the directors' account; on the other hand, if they went down, they would be charged to the company's account. That is the broad outline of it. I shall not go into any further details of the report, but at paragraph 7 of their recommendations the inspectors say:
"Consideration should be given to the prohibit
1100
tion of a company instructing or employing a firm or company of stockbrokers, one of whose members or directors is also a director of the company in question".
This amendment does not go as far as that. We take the view that at some future time we hope soon—some legislative action will be taken to implement those detailed recommendations that were made by the inspectors appointed by the Board of Trade. However, as an interim, with a Government that will certainly be beset with many problems as the years roll on, within that context, we think that as a minimum and preliminary step it would be proper at this stage for Section 26 to be amended in such a way that information about the relationships between a director and a firm of stockbrokers, of which he is also a member, ought to be available to the members of that particular company by its entry on a register in the form set out in Section 26 of the Companies Act 1967.
This is a very modest amendment which will enable the Government to find out the extent of the problem. Of course, it is no answer to say that the provisions of the Companies Acts already require directors to disclose their directorships in other limited companies. That is, of course, so, but stockbrokers operate very largely as firms, and where this is so there would be no requirement for them to disclose that information at the present time, whether in a form in which it can be apprehended only by members of the company or whether, as in the case of those particulars that are registrable anyway on the company file, in a form open to the public.
This modest amendment provides the Government with an opportunity to consider the matter. I sincerely hope that they will not reject it on the grounds that it does not go far enough, that it does not go as far as the comprehensive legislation that they may have in mind on some future date, on the assumption that they will have the parliamentary time to deal with it. At any rate, acceptance of this amendment would be an earnest that they take the problem seriously and that they are prepared to ensure that members of public companies covered by this Bill are in a position to be informed as to those of their colleagues who happen to be members of stockbroking firms with which the company is in a contractual relationship. I beg to move.
Moved, That this House doth agree with the said amendment to the Commons Amendment No. 208.—(Lord Bruce of Donington.)
Lord LYELL: My Lords, the noble Lord, Lord Bruce of Donington, has gone into this amendment in considerable detail, and in support of his amendment has quoted the Dowgate Report. The Government have consulted widely on the recommendations made by the inspectors in the report which the noble Lord, Lord Bruce, mentioned. Comments have been sought from the Stock Exchange, and indeed from every other form of organisation. As regards this particular recommendation, it seems that the general feeling in the City is that it is far the best thing to rely on the Stock Exchange's disciplinary control over its members in this particular aspect of the Dowgate Report. Certainly the Government have not, and are not, brushing aside any of the inspectors' other recommendations. We hope that there will be action to implement any of the inspectors' powers which need to be strengthened.
I am advised that Section 199 of the Companies Act 1948, which has been strengthened by the Bill before your Lordships today, already requires directors to disclose their interests in contracts with the company including their interests by virtue of the fact that they are members of partnerships which are party to such contracts. I think that Section 199 is still on the statute book, and I believe that that is a valuable safeguard.
It is already recognised, in regard to the noble Lord's amendment, in the Stock Exchange guidance for brokers—and these are its own members—that when a broker is also a director of a quoted company problems arise in relation to dealings with the securities of that company. We do not think that there is any purpose in requiring disclosure of that relationship to members of the company itself if the object is to strengthen the insider dealing provisions which already cover this problem by preventing any person with inside information, as we heard in the Dowgate Report, from dealing as an agent either as a director or a member of the Stock Exchange. We do not think that this amendment is relevant for this particular part of the Bill.
Lord BRUCE of DONINGTON: My Lords, I am grateful to the noble Lord for his reply. What he has said reinforces my view that it ought to be incorporated in the Bill. If it is so unexceptional that it commends itself to the Stock Exchange in terms of their voluntary approval, then there does not seem to be any reason why it should not be incorporated in the Bill itself. I do not think that the provisions of Section 199 of the old Act at all cover the situation which is described here, otherwise there can be no doubt that the inspectors would have referred specifically to that fact. It is precisely because the inspectors appointed by the noble Lord's department thought that extra action was necessary over and above that which was incorporated in the existing legislation, that they made the recommendations they did.
Talking of insider dealing, I entirely agree that where a rigid contractual relationship exists between a firm of stockbrokers and a company which can be reduced to written form, or which might even in certain circumstances be under seal, these are things for disclosure. But, as anybody who has read the Dowgate Report knows, the relationship was a completely unofficial one. The transactions were carried out over the telephone. There was perfect amity between the directors involved and those in the company concerned. There was a relationship that could not be expressed in terms of any contract that was in fact disclosable within the provison of any Act. There was, if you like, what is euphemistically termed "an understanding". That understanding expressed itself in the whole series of events which were reported in detail, and with great clarity, by the inspectors appointed by the Board of Trade.
We on this side of the House would take it as a sign of good faith, and a sign that, so far as noble Lords opposite and we are concerned, these are not profoundly party political matters but are matters essentially of firm purpose in establishing good faith and honour within this great commercial and industrial centre, if the noble Lord, on behalf of the Government, would accept this amendment, and certainly on the basis that they will pursue far more vigorous action afterwards when they next bring a Companies Bill before this House.
On Question, amendment negatived.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 208
208E At end insert—
(" (4) Subsection (1) above shall apply to a contract whether the director is to perform his obligations under it in his capacity as a director of the Company or in any other capacity.").
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move as an amendment to Commons Amendment No. 208, Amendment No. 208E. This is an amendment which can be expressed briefly in three points. Prefacing them, I should like to say to the Minister that this really seems to me something which is justifiably moved as an amendment to this Bill. It is something on which the Government must have an attitude, and I hope it will be to accept this amendment. It arises because Section 26 is put on the agenda by the Government's move at Report in another place. Section 26 of the 1967 Act has an ambiguity in it. Because it has an ambiguity in it this amendment is a consequential amendment upon the Government's own amendment in another place.
It is consequential because the new subsection (3)(a) which the Government wish to put in Section 26 will also contain the ambiguity as to the registration of the duration of a contract where the work is abroad, unless the Government cure that ambiguity in Section 26 as a whole. This is a golden opportunity to do some law reform. Having had time to ponder it, I say in reply to the Lord Advocate's point that no cases have arisen under Section 26, and certainly none of any magnitude or of report. I accept that, but it is my contention that in commercial and company law whether there has been a lot of litigation is not the test of whether there is a problem. Businessmen may have varying practices, and different companies with a register like this may adopt different practices which are in fact unfair on the directors of one, or the shareholders of the other. It is on standard practice in disclosure, which is where the law intervenes, that the law ought at least to insist.
My second point is what the ambiguity
1104
is. I can put it no better than by quoting two passages, again from text books, but that is quicker than doing it by reference to case law. In the fourth edition of Professor Gower's Modern Company Law, at page 589, it is stated:
"The intention"—
that is, the intention of Section 26 dealing with contracts of service—
"was presumably to cover all service contracts with someone who was a diector, but it is arguable that only contracts for service as a diector are caught."
My second quotation is from a book which is not yet published, but I have had the privilege of seeing the page proofs of a book by Mr. Joffe on this very Act before it has become an Act. It is an interesting work. In the course of it he says in Chapter 10:
"It is uncertain whether ' contract of service ' includes a contract of service in some capacity other than director"—
That is, under Section 26,
"or whether it is restricted to directors' contracts of service qua director".
That is not a point of mere technicality because I know of a company where directors take the view that it is only their contracts of service which they conclude qua director with the company that they will put on the register. I know of that happening in one case.
The noble and learned Lord may tell me that it is not very widespread, but there is an uncertainty. Other companies I am sure take the view, which I believe must be the intention of the section, that where the director has a contract of service—now that we have even lost contracts for services—having gone through that horrible morass he surely does not get into another one in asking himself, "Am I required to register the contract because I perform my obligations qua director rather than as anything else?" The noble and learned Lord, without the Lord Advocate, will allow me to advert to the decision of the Privy Council since it is not technically an English law in Lee v. Lee's Air Farming 1961, in the Appeal Cases, which I am sure he will know, where the person who held 99 per cent. of the shares was also the chief director and chief pilot of the aeroplane which the company ran, and that was more or less its business; he was held to be both director and employee in another capacity. In

1105
fact, he was employing himself, in layman's language, but we lawyers know that there is more to it than that. I say that in such a case, in English, in Scottish and in British law he should be obliged to register his contract on the register at Companies House. That is what this amendment is designed to do.
The Government must have a view about it. I hope their view is what is stated here, because if they resist this amendment a great many companies are going to have to take in their lawyers rather more often to decide which contract is a contract qua director and which is not. I cannot believe that that is the Government's view, so I hope that for once they will accept this amendment. This Bill has to go to another place. Why can we not cure a minor defect in our law of this kind?
Moved, That this House doth agree with the said amendment to Commons Amendment No. 208.—(Lord Wedderburn of Charlton.)
Lord LYELL: My Lords, the noble Lord believed that there was some ambiguity. I am advised that it seems that the amendment is designed to specify that the register of director service contracts, which is kept in accordance with Section 26, should include the contracts whether the director is to perform his obligations under it in his capacity as director of the company or not. I am advised that the reference in Section 26 to contracts of service is open-ended. Therefore, it would apply to contracts of service qua employee, manager, and so on, in just the same way as it applies to contracts of service qua director. I hope that that will go some way to answering the noble Lord in his amendment.
Lord WEDDERBURN of CHARLTON: My Lords, I am filled with nothing but delight to learn that the noble Lord's advisers are in agreement with me. I am mystified as to why the Government will not adopt this little clause in this important Bill. If there is a doubt about it, I could cite many other works and discussions where the ambiguity has been referred to. This is a legislature. It will probably create litigation, or if it does not it will cause expense, because people will have to go to their solicitors to get the advice which the Minister receives for free from his advisers. Why should he put the
1106
business community, merely because of the Government's obduracy this evening, to the expense of going to see their solicitors every week to decide on this matter?
It is quite extraordinary how if this Government, who are supposed to favour enterprise, and wanted to remove obstacles from the way of the businessman, saying that employment legislation must go, and all sorts of other rights must go before the small business, are posed with a little ambiguity, a nasty, nagging little thing which the small businessman with a company may come up against—like our chief pilot in the Lee case any week—they say that it is much too dfficult; although they agree with me that it is right, they will not put it in the Bill.
When one reads these debates on Amendment 208, I think the Government may well consider, when this Bill goes to another place, that their right honourable friends ought perhaps—as they did before—to take another look at these matters. The Government were wrong in this House before, and are wrong in this House tonight, on a large number of the matters that we have debated. I only hope that they will be put right in another place, as to some extent they were put right before. As the Government are obdurate, I beg to withdraw the Amendment.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.
COMMONS AMENDMENTS
209 After Clause 45, insert the following new clause:
"Power to increase financial limits.
.—(I) The Secretary of State may by order made by statutory instrument substitute for any sum of money specified in this Part of this Act a larger sum specified in the order.
(2) An order under this section shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(3) An order under this section shall not have effect in relation to anything done or not done before the coming into force of the order and, accordingly, proceedings in respect of any liability (whether civil or criminal) incurred before that time may be continued or instituted as if the order had not been made."
210 After Clause 45, insert the following new clause:
"Shadow directors.
.—(1) Subject to subsections (2) and (5) below, a person in accordance with whose directions or instructions the directors of a company are accustomed to act (" a shadow director ") shall be treated for the purposes of this Part of this Act as a director of the company unless the directors are accustomed so to act by reason only that they do so on advice given by him in a professional capacity.
(2) A shadow director shall not be guilty of an offence under section (Further provisions relating to recognised banks) (6) above by virtue only of subsection (1) above.
(3) Section 199 of the 1948 Act (disclosure by a director of a company of his interests in a contract, transaction or arrangement with the company) shall apply in relation to a shadow director of a company as it applies in relation to a director of a company, except that the shadow director shall declare his interest, not at a meeting of the directors, but by a notice in writing to the directors which is either—

(a) a specific notice given before the date of the meeting at which, if he had been a director, the declaration would be required by subsection (2) of that section to be made; or

(b) a notice which under subsection (3) of that section (general notices) falls to be treated as a sufficient declaration of that interest or would fall to be so treated apart from the proviso;

and section 145 of that Act (minutes of proceedings of meetings) shall have effect as if the declaration had been made at the meeting in question and had accordingly formed part of the proceedings at that meeting.
(4) A shadow director of a company shall be treated for the purposes of section 26 of the 1967 Act (directors' service contracts, etc., to be open to inspection by a company's members) as a director of the company.
(5) A body corporate shall not be treated as the director of any of its subsidiary companies by reason only of subsection (1) above."
8.55 p.m.
Viscount TRENCHARD: My Lords, there are no amendments to these two Commons amendments—Nos. 209 and 210—and therefore I should like to move their adoption formally. I beg to move.
Moved, That this House doth agree with the Commons in the said amendments.— (Viscount Trenchard.)
On Question, Motion agreed to.

COMMONS AMENDMENT
211 After Clause 45 insert the following new clause:
"Connected persons.
.—(1) For the purposes of this Part of this Act, a person is connected with a director of a company if, but only if, he is—

(a) that director's spouse, child or step-child; or

(b) except where the context otherwise requires, a body corporate with which the director is associated; or

(c) a person acting in his capacity as the trustee (other than as trustee under an employees' share scheme or a pension scheme) of any trust the beneficiaries of which include the director, his spouse or any of his children or step-children or a body corporate with which he is associated or the terms of which confer a power on the trustees that may be exercised for the benefit of the director, his spouse or any of his children or step-children or any such body corporate; or

(d) a person acting in his capacity as partner of that director or of any person who, by virtue of paragraph (a), (b) or (c) above, is connected with that director;

unless that person is also a director of the company.
(2) In subsection (1) above a reference to the child or step-child of any person includes a reference to any illegitimate child of that person, but does not include a reference to any person who has attained the age of 18 years.
(3) For the purposes of this Part of this Act—

(a) a director of a company is associated with a body corporate if, but only if, he and the persons connected with him, together, are interested in shares comprised in the equity share capital of that body corporate of a nominal value equal to at least one-fifth of that share capital or are entitled to exercise or control the exercise of more than one-fifth of the voting power at any general meeting of that body; and

(b) a director of a company shall be deemed to control a body corporate if, but only if—

(i) he or a person connected with him is interested in any part of the equity share capital of that body or is entitled to exercise or control the exercise of any part of the voting power at any general meeting of that body; and

(ii) that director, the persons connected with him and the other directors of that company, together, are interested in more than one-half of that share capital or are entitled to exercise or control the exercise of more than one-half of that voting power.

For the purposes of this subsection, a body corporate with which a director is

1109
associated and a trustee of a trust the beneficiary of which is or may be such a body corporate shall be regarded as if they were not connected with that director.
(4) The rules set out in section 28 of the 1967 Act (interest in shares) shall have effect for the purposes of subsection (3) above with the substitution of the words "more than one-half" for the words "one-third or more" in subsection (3)(b) of that section, and in subsection (3) above—

(a)"equity share capital has the same meaning as in section 154 of the 1948 Act; and

(b) references to voting power the exercise of which is controlled by a director shall, without prejudice to the other provisions of that subsection, include references to voting power the exercise of which is controlled by a body corporate controlled by that director.

Viscount TRENCHARD: My Lords, I do not intend to describe Amendment 211. My noble friend Lord Lyell mentioned it in his general introduction to this section. It covers connected persons, family and otherwise. I am aware that there are amendments tabled to it, and that will give me an opportunity to speak to those points which I know Members of the House wish to press. I beg to move.
Moved, That this House doth agree with the Commons in the said amendment. —(Viscount Trenchard.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 211
211A In subsection (2), line 3, leave out from first ("person") to the end of subsection.
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move Amendment No. 211A to the Commons amendment. The object of the new section is to define the persons connected with directors, to stop up loopholes and prevent them from escaping from their obligations in what would be Part IV of the Bill. We have already come across the "connected person" in a large number of clauses that we have adopted this evening, among them Amendments Nos. 196 and 201: the director must or must not do certain things, and a connected person must not be the loophole, or way out.
The first obvious loophole is the family. Company law is now well adapted to using phrases to stop the family from being used as the method of evasion of a
1110
director's duties. It was done quite well in the 1967 Act for certain purposes, but the 1967 Act was rather different from this statute and does not have the equivalent of the Part IV obligations, as I have called them; that is, the clauses with which this has just dealt. Into the stopping up of loopholes, the obstacles to evasion, naturally come the spouse, child or stepchild in this clause. But then we find in subsection (2) that the evasion is stopped only if the child or stepchild is not over 18 years of age. This was criticised in another place on 4th December, especially in cols. 537 to 538 of the Official Report. The answer of the right honourable friend of the noble Lords, the Under-Secretary of State for Trade, was first of all that it was in the same form as in the 1978 Bill. That, as I explained to noble Ministers, does not deter me at all—nor indeed any of my noble friends—because we are always willing to improve on our own work. The Government should take a lesson from that. That is no deterrent.
Secondly, the Under-Secretary of State for Trade, Mr. Eyre, said this:
"I am advised that the connection is only a matter of the nuclear family. Once the children are over 18 in law they are no longer dependent".
Later he said:
"The child over 18 has reached maturity".
But it was put to him that this part of the Bill was not to protect the child. It was to protect the company, the shareholders, the employees, the creditors and the public. The last person it is there to protect is the child. It may be even to protect the director against his sinful wishes to evade his obligations, but certainly not to protect the child, except I suppose, from exploitation by the father when it is under the age of 18. If the object is to stop up a loophole, why should the protection be afforded only when the child is under 18? Why should it not be afforded merely because the director has found in his family a child of 19 who might be able to make rather more sympathetic suggestions about loopholes and evasions to his father than a child of six? Why should an evasion by a child of 21 be all right when an evasion by someone between the age of nought and 18 is all wrong?
It seems that it is impossible for the Government to accept anything tonight, but the Minister in another place made

1111
noises of the kind that indicated he might be prepared to consider this matter. I hope that noble Ministers tonight will answer the question. Are they refusing this amendment because it is wrong and there is a good reason why a loophole through someone of nought to 18 is not all right, but after 18 it is all right, or are they refusing it simply because they cannot amend the Bill because it will hold up the Government's timetable?
Viscount TRENCHARD: My Lords, the straight answer to the noble Lord is that all the reasons given in the other place have a bearing, but particularly that a child over 18, certainly in the experience of Members on this Front Bench, is fully independent, has no more dependency or connection or likely connection or likelihood to do wrong with his father than almost any other acquaintance. As we know, in the whole of this area of the Bill we have a problem against the determined criminal acting in a collusive way. But I believe it is quite unfair to single out an adult child who in many cases will have left his family home, and I cannot see there is any more likelihood of problems from a grown-up child than from any other person.
Lord WEDDERBURN of CHARLTON: My Lords, the answer to my question is really that the Government will not accept any amendments, and I say that with respect to the noble Viscount. He says it is unfair to single out the grownup child who has left home. The Bill says nothing about him leaving home. Children over 18 are fully independent and the likelihood to do wrong is less. Is that so? I know some people over 18 who are crooks and would do wrong at the drop of a hat, much sooner than children under 18. Children over 18 are fully independent, the noble Viscount says, but the spouse is in the clause. The loophole via the wife or husband is blocked up, whatever the age. Why do the Government not restrict the loophole relating to wives under 18? Or have they not heard of women's lib? Wives over 18 can be very independent, more independent than a son or daughter of 19 living at home, who has perhaps never left home or who may not be well. The line taken by the Minister is quite astonishing. Given that the object of the Bill—
1112
and the noble Viscount did not challenge this—in this case is to protect the company, shareholders, employees, the public and creditors, and not to protect the director or the child, it is quite astonishing that the Government cannot accept an amendment which seems to have logic with it all the way. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
LORDS AMENDMENTS TO COMMONS AMENDMENT No. 211
211B In subsection (3)(b)(ii), line 3, leave out ("more than one-half") and insert ("one-third or more")
211C In subsection (4), line 3, leave out from ("above") to ("and") in line 5.
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move these amendments formally, simply to get them on the record.
Moved, That this House doth agree to the said amendments to Commons Amendment No. 211.—(Lord Wedderburn of Charlton.)
On Question, amendments negatived.
On Question, Motion agreed to.
The DEPUTY SPEAKER (Viscount Simon): I understand that Amendments Nos. 212 to 214 can be taken en bloc.
Viscount TRENCHARD: My Lords, I an not sure whether I can move those amendments en bloc because of an amendment to No. 213 down in the name of the noble Lord, Lord Lloyd of Kilgerran.
Lord LLOYD of KILGERRAN: There is a misprint in the list of amendments, my Lords, and it is not my fault.
Viscount TRENCHARD: I stand corrected, my Lords. I understood that the noble Lord had an amendment down to Amendment No. 213. That must have been withdrawn.

COMMONS AMENDMENTS
212 After Clause 45 insert the following new clause:
"Interpretation
.—(1) In this Part of this Act—
"guarantee" includes indemnity, and

1113
cognate expressions shall be construed accordingly;
"money-lending company" means a company the ordinary business of which includes the making of loans or quasi-loans or the giving of guarantees in connection with loans or quasi-loans;
"recognised bank" means a company which is recognised as a bank for the purposes of the Banking Act 1979;
"relevant company" means any company which—

(a) is not a private company; or

(b) is a subsidiary of a company which either is itself not a private company or has another subsidiary which is not a private company; or

(c) has a subsidiary which is not a private company;

"services" means anything other than goods or land.
(2) For the purposes of this Part of this Act

(a) a quasi-loan is a transaction under which one party ('the creditor') agrees to pay, or pays otherwise than in pursuance of an agreement, a sum for another ('the borrower '), or agrees to reimburse, or reimburses otherwise than in pursuance of an agreement, expenditure incurred by another party for another ('the borrower ')—

(i) on terms that the borrower or a person on his behalf) will reimburse the creditor; or

(ii) in circumstances giving rise to a liability on the borrower to reimburse the creditor;

(b) any reference to the person to whom a quasi-loan is made is a reference to the borrower; and

(c) the liabilities of a borrower under a quasi-loan include the liabilities of any person who has agreed to reimburse the creditor on behalf of the borrower.

(3) For the purposes of this Part of this Act, a credit transaction is a transaction under which one party ("the creditor"
under which one party ("the creditor"),—

(a) supplies any goods or sells any land under a hire-purchase agreement or conditional sale agreement;

(b) leases or hires any land or goods in return for periodical payments;

(c) otherwise disposes of land or supplies goods or services on the understanding that payment (whether in a lump sum or instalments or by way of periodical payments or otherwise) is to be deferred.

(4) For the purposes of this Part of this Act, the value of a transaction or arrangement is—

(a) in the case of a loan, the principal of the loan;

(b) in the case of a quasi-loan, the amount, or maximum amount, which the person to whom the quasi-loan is made is liable to reimburse
1114
the creditor;

(c) in the case of a transaction or arrangement, other than a loan or quasi-loan or a transaction or arrangement within paragraph (d) or (e) below, the price which it is reasonable to expect could be obtained for the goods, land or services to which the transaction or arrangement relates if they had been supplied at the time the transaction or arrangement is entered into in the ordinary course of business and on the same terms (apart from price) as they have been supplied or are to be supplied under the transaction or arrangement in question;

(d) in the case of a guarantee or security, the amount guaranteed or secured;

(e) in the case of an arrangement to which subsection (3) or (4) of section (Prohibition of loans, etc., to directors and connected persons) above applies, the value of the transaction to which the arrangement relates less any amount by which the liabilities under the arrangement or transaction of the person for whom the transaction was made have been reduced.

(5) For the purposes of subsection (4) above, the value of a transaction or arrangement which is not capable of being expressed as a specific sum of money (because the amount of any liability arising under the transaction is unascertainable, or for any other reason) shall, whether or not any liability under the transaction has been reduced, be deemed to exceed £50,000.
(6) For the purposes of this Part of this Act, a transaction or arrangement is made for a person if—

(a) in the case of a loan or quasi-loan, it is made to him;

(b) in the case of a credit transaction, he is the person to whom goods or services are supplied, or land is sold or otherwise disposed of, under the transaction;

(c) in the case of a guarantee or security, it is entered into or provided in connection with a loan or quasi-loan made to him or a credit transaction made for him;

(d) in the case of an arrangement within subsection (3) or (4) of section (Prohibition of loans, etc., to directors and connected persons) above, the transaction to which the arrangement relates was made for him; and

(e) in the case of any other transaction or arrangement for the supply or transfer of goods, land or services (or any interest therein), he is the person to whom the goods, land or services (or the interest) are supplied or transferred.

(7) This Part of this Act, except sections (Substantial contracts, etc., with directors and others to be disclosed in accounts), (Particulars of amounts out-

1115
standing to be included in accounts) and (Further provisions relating to recognised banks), does not apply to arrangements or transactions entered into before the appointed day but, for the purposes of determining whether an arrangement is one to which section (Prohibition of loans, etc., to directors and connected persons) (3) or (4) applies, the transaction to which the arrangement relates shall, if it was entered into before the appointed day, be deemed to have been entered into after that day.
(8) For the purposes of this Part of this Act it is immaterial whether the law which (apart from this Act) governs any arrangement or transaction is the law of the United Kingdom, or of a part of the United Kingdom, or not."
213 After Clause 45, insert the following new clause:
"Consequential repeals and savings
'.—(1) Section 190 of the 1948 Act (prohibition on loans to directors) shall cease to have effect.
(2) Section 197 of the 1948 Act (particulars in accounts of loans to officers, etc.) and section 16(1)(c) of the 1967 Act (particulars in the director's report of contracts in which a director has a significant and material interest) shall, except—

(a) in relation to accounts and directors' reports prepared in respect of any financial year ending before the appointed day; and

(b) in relation to accounts and director's reports prepared in respect of the first financial year ending after the appointed day but only in relation to loans and contracts entered into before the appointed day which do not subsist on or after that day, cease to have effect."

214 After Clause 45 insert the following new clause:
"Application of ss. (Substantial contracts, etc., with directors and others to be disclosed in accounts) to (Transactions, etc., excluded from ss. (Substantial contracts, etc., with directors and others to be disclosed in accounts) and (Further provisions relating to recognised banks)) and (Power to increase financial limits) to (consequential repeals and savings) to unregistered companies
. Section 435 of and Schedule 14 to the 1948 Act (which provide for the application of certain provisions of that Act to unregistered companies) shall have effect as if sections (Substantial contracts, etc., with directors and others to be disclosed in accounts) to (Transactions, etc., excluded from ss. (Substantial contracts, etc., eith directors and others to be disclosed in accounts) and (Further provisions relating to recognised banks)) and (Power to increase financial limits) to (Consequential repeals and savings) above were provisions of that Act and were included among the provisions of that Act specified in that Schedule which relate to accounts
1116
and audit; and the reference in the last entry in column 3 of that Schedule to provisions applied by virtue of the foregoing entries in that Schedule shall be construed accordingly.
Viscount TRENCHARD: My Lords, I beg to move that the House doth agree with the Commons in Amendments Nos. 212 to 214 en bloc.
Moved, That this House doth agree with the Commons in the said amendments. —(Viscount Trenchard.)
On Question, Motion agreed to.

COMMONS AMENDMENT
215 After Clause 45 insert the following new clause:
"Prohibition on stock exchange deals by insiders, etc.
.—(1) Subject to subsection (8) below, an individual who is, or at any time in the preceding six months has been, knowingly connected with a company shall not deal on a recognised stock exchange in securities of that company if he has information which—

(a) he holds by virtue of being connected with the company;

(b) it would be reasonable to expect a person so connected and in the position by virtue of which he is so connected not to disclose except for the proper performance of the functions attaching to that position; and

(c) he knows is unpublished price sensitive information in relation to those securities.

(2) Subject to subsections (8) and (10) below, an individual who is, or at any time in the preceding six months has been, knowlingy connected with a company shall not deal on a recognised stock exchange in securities of any other company if he has information which—

(a) he holds by virtue of being connected with the first company;

(b) it would be reasonable to expect a person so connected and in the position by virtue of which he is so connected not to disclose except for the proper performance of the functions attaching to that position;

(c) he knows is unpublished price sensitive information in relation to those securities of that other company; and

(d) relates to any transaction (actual or contemplated) involving both the first company and that other company or involving one of them and securities of the other or to the fact that any such transaction is no longer contemplated.

(3) Subject to subsections (8) and (10) below, where—

(a) any individual has information which he knowingly obtained (directly or indirectly) from another

1117
individual who is connected with a particular company, or was at any time in the six months preceding the obtaining of the information so connected and who the former individual knows or has reasonable cause to believe held the information by virtue of being so connected; and

(b) the former individual knows or has reasonable cause to believe that, because of the latter's connection and position, it would be reasonable to expect him not to disclose the information except for the proper performance of the functions attaching to that position;

then, the former individual—
(i) shall not himself deal on a recognised stock exchange in securities of that company if he knows that the information is unpublished price sensitive information in relation to those securities; and
(ii) shall not himself deal on a recognised stock exchange in securities of any other company if he knows that the information is unpublished price sensitive information in relation to those securities and it relates to any transaction (actual or contemplated) involving the first company and the other company or involving one of them and securities of the other or to the fact that any such transaction is no longer contemplated.
(4) Subject to subsections (8) and (10) below, where an individual is contemplating, or has contemplated, making, whether with or without another person, a take-over offer for a company in a particular capacity, that individual shall not deal on a recognised stock exchange in securities of that company in another capacity if he knows that information that the offer is contemplated or is no longer contemplated is unpublished price sensitive information in relation to those securities.
(5) Subject to subsections (8) and (10) below, where an individual has knowingly obtained (directly or indirectly), from an individual to whom subsection (4) above applies, information that the offer referred to in subsection (4) is being contemplated or is no longer contemplated the former individual shall not himself deal on a recognised stock exchange in securities of that company if he knows that the information is unpublished price sensitive information in relation to those securities.
(6) Subject to subsections (8) and (10) below, an individual who is for the time being prohibited by any provision of this section from dealing on a recognised stock exchange in any securities shall not counsel or procure any other person to deal in those securities, knowing or having reasonable cause to believe that that person would deal in them on a recognised stock exchange.
(7) Subject to subsections (8) and (10) below, an individual who is for the time being prohibited as aforesaid from
1118
dealing on a recognised stock exchange in any securities by reason of his having any information, shall not communicate that information to any other person if he knows or has reasonable cause to believe that that or some other person will make use of the information for the purpose of dealing, or of counselling or procuring any other person to deal, on a recognised stock exchange in those securities.
(8) The provisions of this section shall not prohibit an individual by reason of his having any information from—

(a) doing any particular thing otherwise than with a view to the making of a profit or the avoidance of a loss (whether for himself or another person) by the use of that information;

(b) entering into a transaction in the course of the exercise in good faith of his functions as liquidator, receiver or trustee in bankruptcy; or

(c) doing any particular thing if the information—

(i) was obtained by him in the course of a business of a jobber in which he was engaged or employed; and

(ii) was of a description which it would be reasonable to expect him in the ordinary course of that business;

and he does that thing in good faith in the course of that business.
(9) In subsection (8) above "jobber" means an individual, partnership or company dealing in securities on a recognised stock exchange and recognised by the Council of the Stock Exchange as carrying on the business of a jobber.
(10) An individual shall not, by reason only of having information relating to any particular transaction, be prohibi-ted—

(a) by subsection (2), (3)(ii), (4) or (5) above from dealing on a recognised stock exchange in any securities; or

(b) by subsection (6) or (7) above from doing any other thing in relation tion to securities which he is prohibited from dealing in by any of the provisions mentioned in paragraph (a) above;

if he does that thing in order to facilitate the completion or carrying out of the transaction.
(11) Where a trustee or personal representative, or, where a trustee or personal representative is a body corporate, an individual acting on behalf of that trustee or personal representative, who, apart from subsection (8)(a) above, would be prohibited by this section from dealing, or counselling or procuring any other person to deal, in any securities deals in those securities, or counsels or procures any other person to deal in them, he shall be presumed to have acted as mentioned in that paragraph if he acted on the advice of a person who—

1119

(a) appeared to him to be an appropriate person from whom to seek such advice; and

(b) did not appear to him to be prohibited by this section from dealing in those securities."

9.5 p.m.
Viscount TRENCHARD: My Lords, I beg to move that the House doth agree with the Commons Amendment No. 215. I will, with the permission of the House, speak at the same time to Amendment No. 216. These are the first two clauses, perhaps the most important of the first of the clauses, in the insider dealing section of the amendments, which was Clause 5 in the other place, and to Amendment No. 215 a number of amendments have been tabled. These two clauses are, as I say, concerned with insider dealing and there is wide agreement, both in this House and outside, that insider dealing should be made a criminal offence.
Noble Lords will no doubt recall that when this Bill was last before us we said that the Government's view was that insider dealing was wrong and should be discouraged and condemned in every way possible. We pointed out, however, that the task of sorting our the problems was not a straightforward one and that the dangers involved in getting the legislation wrong were very great. We therefore resisted the attempt of noble Lords opposite to include in this Bill provisions on insider dealing which we considered carried with them a real risk of doing damage to desirable market functions and normal investment functions. We said we would be reconsidering the topic and undertaking further consultations before bringing forward legislation. That we have done. We issued a Consultative Document in October of last year which took the form of draft clauses. These commanded considerable support and, as a result, as I have said, the clauses were introduced, with minor modifications, during the Committee stage in another place.
They are different in a number of respects from the 1978 Bill. One of the central issues is, of course, the definition of what we can loosely term inside information. The 1978 Bill contained a very wide definition: it was simply information which the individual knew was not generally available but which would, if it were
1120
so available, be likely materially to affect the price of those securities. "Generally available" was at that time to be defined by an amendment put forward by the Government as:
"available on request to those members of the public likely to take an interest in it".
We felt that this was imprecise, and that it would have hindered, or prevented entirely, legitimate activities. Indeed, this was the view of a considerable number of bodies who criticised the definition, among them the Council for the Securities Industry, the Confederation of British Industry, the Engineering Employers' Federation, the Industrial Society, and the Law Society.
We have therefore drawn the definition much tighter in our new clauses; in particular in subsection (1)(a),(b) and (c) of the new clause contained in Amendment No. 215. There are three elements, all of which have to be met. First, there is information which the individual holds by virtue of being connected with the company. We are therefore focusing now on insiders, and their tippees, who receive certain information because of their employment, or connection with the company. The second element is that it is information which it would be reasonable to expect a person in the position by virtue of which he is connected with the company not to disclose, except for the proper performance of the functions attaching to that position. What this means is that we are talking of information which should be kept in confidence, or used only for the purposes of the company, for example, information which could quite properly be made available generally would therefore not be inside information. The third part of the definition is that it is information which the individual knows is unpublished price-sensitive information. The key elements here are a restriction to specific matters and a better test of price sensitivity.
I should like to say one or two things about subsequent clauses relating to insider dealing. The definition is set out in the interpretation clause, which is contained in Amendment No. 220, which we shall be considering shortly. We have omitted the requirement in face-to-face transactions of disclosure of an insider's connection with a company. We felt that that was an unsatisfactory approach,

1121
and instead we have extended the prohibitions to cover certain off-market deals. This is provided for in Commons Amendments Nos. 217 and 218. Finally we have dropped the powers to appoint inspectors to investigate suspected insider dealing cases. We do not believe that such special powers are necessary or justified.
These are significant changes from the previous Act. However, we should not overlook the common ground, the central issue of which is of course that these clauses will make insider dealing a criminal offence. The penalties are spelt out in Commons Amendment No. 219. I believe that these clauses deserve the support of the House, and I trust that they will receive it. I beg to move.
Moved, That this House doth agree with the Commons in the said amendment.—(Viscount Trenchard.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 215
215A In subsection (6), line 6, leave out ("would") and insert ("might").
Lord MISHCON: My Lords, I beg to move, as an amendment to Commons Amendment No. 215, Amendment No. 215A. I imagine that there is complete agreement on all sides of the House as to the necessity for legislation to deal with insider dealings. I also imagine that there is no difference of opinion within the House on whether insider dealings should be made criminal offences. The Opposition previously took that view, and we agree with the Government now. If one is to legislate in regard to insider dealings, and to legislate properly, one must be quite sure that those who have cast upon them the duty of deciding whether or not a prosecution would lie under the clauses of a Bill, should have their task made clear and their duty made equally clear where certain facts emerge. Those responsible for initiating a prosecution cannot be expected to protect the public by bringing charges where they are given a completely impossible task.
I make those preparatory remarks before drawing your Lordships' attention to subsections (6) and (7) of the new clause proposed in Commons Amendment No. 215. Subsection (6) deals with the individual who is connected with a company,
1122
and who is in receipt of information, where dealing takes place in the shares of that company. Subsection (7) deals with the other case of the individual who is connected with the company, who is in receipt of information, and who is prohibited from dealing in shares of any other company. Thus there is the necessity for the two subsections.
I should like to direct your Lordships' attention to what a prosecution would have to prove, as the Bill now stands, in regard to subsections (6) and (7). Before I do that may I draw your Lordships' attention to, and ask for your sympathy in relation to, Amendment No. 215C. I think that it would be for the convenience of the House if I spoke to Amendments Nos. 215A, 21513, and 215C.
The amendments that I put down under Amendment No. 215C have unfortunately suffered torture, if not complete decimation, in the offices of your Lordships' House. Indeed, while 215C is moved as one amendment, I ask for your Lordships' leave to regard it as being two amendments and to their being in manuscript form. I therefore ask to withdraw Amendment No. 215C and to have the manuscript amendments substituted. What I asked for was that the word "will" should be left out in subsection (7), line 6, and for the substitution of the word "may". Then, at the end of the clause I asked for these words to appear,
"and the burden of proof that the individual did not know or had no reasonable cause to believe as aforesaid shall be on that individual".
I think it was pretty clear from the wording of the amendment to subsection (6), and I apologise to the House for having to waste time clarifying the matter.
My Lords, I was discussing the question of a prosecution concerning subsections (6) and (7). The offence we are dealing with is the imparting of information to a third party, and of counselling or procuring that third party or any other person to deal in those securities. Your Lordships will find that, as the Bill now stands, what the prosecution would have to prove is that the individual concerned counselled or procured the other person,
"to deal in those securities, knowing or having reasonable cause to believe that that person would deal in them on a recognised stock exchange."
It does not require a lawyer to see how difficult (if not impossible) it would be to

1123
bring any prosecution where a statement was made by the person concerned: "I know I was in receipt of information which I should not have passed on and that I did pass it on, but I had not got the slightest idea that the individual to whom I spoke would use that information in this way and would in fact deal on the Stock Exchange. I thought he was highly respectable; or, indeed, I thought that as a matter of conviction and principle he never dealt on the Stock Exchange at all".
In those circumstances, I ask your Lordships to consider that in this clause as it is now worded we will be presenting an impossible case for any prosecutor to prove. I am therefore asking, not for vicious language to be incorporated into this clause, but for common sense language, to deal with the offence that we have in mind. I have therefore asked for the words "would deal in them on a recognised stock exchange" to be altered to "might deal in them on a recognised stock exchange". I have further made it clear that the burden of proof, instead of being on the prosecution in a case of that kind, shall be planted firmly on the person who has parted with that information which he ought not to have imported to any third person. It would be perfectly reasonable for that person to discharge the burden of proof that he was not guilty of counselling or procuring by showing, the onus being cast upon him, that he had no reasonable cause for thinking that that person, after receipt of the information, would deal with the matter by dealing in shares on the Stock Exchange in relation to the information which had been given.
As the noble Viscount said, we are dealing here with a very important matter which has worried the City of London and has worried the public. There have been reports and there have been investigations. There have been worrying circumstances which, we all know, concern a minority of people in the City who behave in this way; but they have caused a great deal of damage, and if we are dealing with this matter of insider dealing we ought to be legislating in a proper, comprehensive manner. I was amazed, and so were my noble friends, that when this matter was dealt with at a pretty late stage by the Government they had before them a quite
1124
dreadful instance of what can occur in the City. I am referring to the case of Consolidated Goldfields and De Beers. If ever there was a case of an outsider trying to become an insider, I suppose it was the case of Consolidated Goldfields and De Beers.
I do not intend to use my own language in order to describe what happened a matter of some weeks ago. It was a set of circumstances, as your Lordships will remember, when some 25 per cent. of one of our most important companies was brought by a company which is a foreign company from our point of view. It became almost a controlling shareholder, if not completely a controlling shareholder, even by holding 25 per cent.; because my information is that there was no other holder of anything more than 5 per cent. in the whole company. Your Lordships will realise, therefore, that someone who has bought in 25 per cent. has a very important interest in the company, if not a controlling interest in the company. After that, some activities took place in the shares of this company which certainly relate to the question of insider dealing.
I quote, if I may, not my own words, but, as I said, words quoted in another place from the Financial Times:
"' De Beers bought its shares on a first come first served basis, which inevitably meant that the institutions got the lion's share of the action. Rowe and Pitman told the four jobbers in the stock what was happening at 8.30 a.m., but it was not until nearly an hour later that many leading brokers heard what was going on.
'"For an hour and a half, the City telephones were humming with specific, privileged, price sensitive information. It would be challenging to explain to anyone not wise in the ways of the Square Mile why this does not count as insider trading ".'"—[Official Report (Commons); col. 1390; 27/2/80.]
The Government had their opportunity in this clause, at the Committee stage and at the Report stage. We all know that an investigation was ordered by The Stock Exchange; we all know that until an inquiry was ordered at the instance of the Department of Trade no disclosure was made by De Beers as to what had happened in regard to their acquisition, and so on.
It is with great regret that my noble friends and I note that no opportunity has been taken in the insider dealings clause, in this clause we are dealing with, and in the criminal offences and so on connected with this matter, to deal with

1125
a most serious situation which arose in the City and which can destroy--and I use the word advisedly—some of the great commercial and industrial institutions in this country, jeopardise their shareholders and jeopardise their employees. I beg to move.
9.24 p.m.
Lord WEDDERBURN of CHARLTON: My Lords, I should like to support my noble friend's cogently-argued amendment. I am sure that the Government once again will not give way, but that is no reason for not placing on record certain facts which should be placed on record in this House. The amendment is only one example of the weakness of Part V of this Bill in the face of what I might call traditional insider trading which, however much it be a minority practice in the City—and I am sure it is—is nevertheless one that all now agree should be met by legislation creating a criminal offence.
Those of us who have been calling for legislation of this kind since the 1960s rejoiced when the City was converted in 1972; and one remembers the remarkable speech by Lord Shawcross. We rejoiced when the Government, too, were converted in another place after explaining here why it was impossible to legislate this year on this matter. But our rejoicing ceased when we saw Part V of the Bill because, as my noble friend has suggested, in so many ways— in this way and in many others—in relation to the prosecution's burden in prosecutions relating to tippees, in relation to lack of civil remedies or the definition of price-sensitive information, insiders and tippees; in all these matters this is a weak Bill which might have been all right in the 1960s but which after the debate of the last 15 years, is unsatisfactory on insider dealings generally. As my noble friend suggested, it is not only a Bill which is out of date by modern standards of the debate on insider trading; it has failed to take the opportunity to deal with a new form of insider trading which threatens the heart of British industry. My right honourable and honourable friends in another place raised this issue with the Government on the Committee and Report stages. The Minister at one point (on 22nd February, at col. 1419 of Hansard) took the matter very seriously. He said:
"we shall be legislating fairly regularly on company law. That will include next Session and,
1126
I am sure, the Session after that. There will be opportunities therefore, and these problems will be dealt with."
But by the Session after next large parts of the heart of British industry may be owned abroad. If there is no risk of ownership from abroad why did the Government insist on putting an article into the now incorporated British Aerospace Limited'? They conveniently placed a copy of this article in the Library on 6th February. This article will form part of the standard articles of British Aerospace Limited, which will become a private company because of the Government's dogmatic denationalisation of industry, and will prevent British Aerospace from being owned by anyone other than United Kingdom interests in terms of its control. They have an admirably drafted article. I read it and my heart went out to the hours that the draftsman must have spent on it. It is an admirable article. But what is good for British Aerospace is also good for a large number of other British companies. What the Government should have done is not only put before the House an updated provision on insider dealing of the traditional kind; they should have done for a number of other British companies what they have done for British Aerospace; and, not having done it, the Government and the country may live to regret their failure.
Lord LLOYD of KILGERRAN: My Lords, briefly, may I support the noble Lord's amendments and congratulate the Government that they have recognised the great public concern about insider dealing matters and that self-regulation is not enough. That is a view which has been widely held in the City, in industry and in commerce for a long time. My fear is that these prodecures which the Government have set up will be extremely difficult to enable a conviction to be obtained. They have set up so many hurdles to be overcome in the prosecution that it would be difficult to persuade the Director of Public Prosecutions that a conviction should be sought. Your Lordships know that the DPP (as he is affectionately called) will not usually bring a case unless there is something like a 50 per cent. chance of success. In my view, the hurdles that have been introduced into this clause are too severe and these amendments should be allowed.
Viscount TRENCHARD: My Lords, I should like to deal first with the Amendments Nos. 215A, 215B and 215C; and, secondly, to make a brief remark arising out of the remarks on the Consolidated Goldfields case, which I do not believe bears on these amendments, and I do not think that the noble Lord thinks it does, either. He was kind enough to explain the purpose of it.
The purpose of the amendments, as we understand it, is to reverse the onus of proof so far as one element of the offences in subsections (6) and (7) of Amendment 215 is concerned. Subsection (6) prohibits insiders who are prohibited from dealing on a recognised stock exchange from counselling or procuring someone else to deal when they know or have reasonable cause to believe that the person would deal on a recognised stock exchange. As drafted, as the noble Lord said, it is for the prosecution to establish that the insider knew that or had reasonable cause to believe it. The noble Lord's amendment would mean that it was no longer for the prosecution to establish that the individual had such knowledge or had such reasonable cause for belief.
Perhaps I may depart from my brief for a second to say that the situation, if I understand it correctly—and I am speaking as a non-lawyer to lawyers—is that one would not expect, if after dinner one told a bishop a piece of information in confidence that he would immediately be dealing in the shares on a recognised stock exchange—at least, I would not anyway, and I might have a very confidential relationship. I give that only as an example. On the other hand, to complete the analogy, if I were dealing with someone with whom I was not very well acquainted, someone whose background I did not know but who worked somewhere in the City, then I would have considerable difficulty in not being convicted under this clause.
Instead, therefore, as we have this clause, once it has been established that the individual had been prohibited from dealing and had counselled or procured another person, it would be for the defence to raise and establish that the individual did not know, and did not have reasonable cause to believe, that the person might—not would—deal on a recognised stock exchange.
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Similar issues arise in respect of subsection (7), which is concerned with the passing of inside information. The issues are the same and, if I may, I shall concentrate on subsection (6). The amendments therefore make the prosecution's job easier and place greater burdens on the defence. One is concerned here with a difficult and delicate balance. In principle, in offences it is right that the prosecution should have to prove guilt and that the accused should not have to establish his innocence: a man is presumed innocent until he is found guilty. But, where the unqualified application of that principle would make successful prosecutions impossible or undesirably difficult, the law sometimes relieves the prosecution of establishing all the elements, and leaves it open to the accused to establish a defence. Of course, that should only be done where it is really necessary, since the cardinal principle, as I have said, is innocence until guilt is proved.
The question in subsection (6) is this: is one placing too great a burden on the prosecution if they have to prove that the individual knew that a person would deal on a recognised stock exchange or had reasonable cause to believe that? It does not seem to me that this is too great a burden to place on the prosecution. The facts of the case would be there: a listed security which, by its very nature, has a ready market freely available for dealings on the stock exchange and the vast majority of deals taking place in all probability on the stock exchange. Those facts will serve to demonstrate clearly what was in mind. One should not overlook the fact that the test which the prosecution has to meet is proof of knowledge or proof of a reasonable cause for belief. The latter is an objective test and deals not with the subjective appreciation of that particular individual or of the particular situation. Rather it is an objective test of what a reasonable man would believe in all the circumstances.
We are anxious, and indeed determined, to provide firm and effective criminal sanctions against insider dealing, but equally they must be fair and balanced. I believe that the clause as drafted meets those criteria and I am therefore opposed to the changes proposed by the noble Lord. Of course, we are breaking new ground with this legislation and we shall closely watch its operation to ensure that

1129
it is fair and effective. If weaknesses emerge in practice we shall seek to remedy them; but I urge the House at this time to maintain the delicate balance on the terms presently set out in Amendment No. 215. I hope that in the light of what I have said the noble Lord will not press his amendment.
Perhaps I may now, for reasons of courtesy and also to make a comment from the Government, mention the Consolidated Goldfields case, which really would not be affected by these amendments at all. We accept that the circumstances surrounding the acquisition by Anglo-American of a 25 per cent. shareholding in Consolidated Goldfields raises a number of issues of legitimate concern both to the statutory and the non-statutory authorities. I believe that the Government could not have acted more rapidly in appointing Section 172 inspectors within 24 hours of the company approaching the department. The Stock Exchange and the Council for the Securities Industry subsequently set up their own inquiries. We can all speculate as to what happened in this case and what lessons we should draw. It would be wrong to come to conclusions or to rush into legislation when inquiries into the particular case are still in train. Those inquiries will be completed as rapidly as possible. We shall then all wish to consider the reports.
The Government for their part will certainly lose no time in considering what lessons are to be learned, including lessons for legislation. To have rushed into any legislation in this Bill within a week or two of the episode and without knowing exactly who has done what would have been absurd.
Noble Lords on the Opposition Benches appear to want it both ways. They criticised us for suggesting that we should leave certain matters and take time to examine current instances to make sure that we improved the position. However, when we adopt the course which they recommend they then want us to include measures to cover a case that is still under inquiry. I am referring mainly to Lord Wedderburn's support for the noble Lord, Lord Mishcon. I hope that the House will not accept thse amendments to Commons Amendment No. 215.
Lord MISHCON: My Lords, the
1130
Minister has spoken with his usual courtesy and clarity. He believes that this matter could be re-examined in the light of experience. We believe that the prosecution's task is being made impossible but the Minister takes a different view. Let us see what experience we have; in those circumstances I shall not proceed with the amendment.
The Minister was kind enough to deal with my observations on Consolidated Goldfields. I appreciate that I was testing the patience of the House in regard to matters of order when I raised the matter, but I regarded it as essential. The quick observation I wish to make is that the Minister was not quite fair to say that one was pushing at a recent event and that the Government could not be expected to deal with this in connection with insider dealings. We have all known, ever since exchange control regulations were lifted, that there was a possibility of transfers of shares being made without the old certificate being giventhat they were not transfers outside the sterling area. That risk has been apparent to the Government ever since they decided to lift those regulations. However, I must not take that point any further. We have all heard what the Minister has said, and can only hope that some steps will be tak,:n at a fairly early date to deal with what is obviously a most serious matter. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 215B, 215C and 215D not moved.]

LORDS AMENDMENT TO COMMONS AMENDMENT No. 215
215D In subsection (8), in line 3 of paragraph (b), leave out (" or ").
Lord ROBERTSON of OAKRIDGE: My Lords, I beg to move, as an amendment to Commons Amendment No. 215, Amendment No. 215D. I wish also to speak to Amendments Nos. 215E and 215F.
I wish first to declare an interest as a partner in a firm of stockbrokers. As a stockbroker, I in general welcome the proposed rules on insider dealing. I doubt whether, in fact, they will make it easier to catch people who try to act unfairly, but the deterrent will be there. On the whole, they reflect current practice,

1131
but I believe that it will enhance public confidence in the securities market to move from self-regulation to regulation by means of the criminal law. Such a move is bound to produce problems in certain areas; and may I confess to a certain element of unease that the revising work of your Lordships' Chamber has had to be compressed into this one evening.
However, I am grateful to note that those responsible for framing the new rules have been at pains not to damage the market, by creating conditions that might lead to the frustration of legitimate business or to disorderly markets. To this end, the other place in considering the Bill gave special recognition to the position of jobbers and also to that of dealers in international bonds. The amendment in my name seeks to remove difficulties that are foreseen in another area; that of stockbrokers who act in the capacity of broker to a listed company and therefore fall under subsection (1)(a).
The amendment proposes that such a broker should not be precluded from accepting unsolicited orders to deal in the securities of a company, on account of his being in possession of price-sensitive information on a capital issue, a takeover or a large market transaction affecting the company. When capital issues or takeovers arise, there comes a stage—perhaps seven or 10 days beforehand—when the corporate finance side of the firm has to pass through what I believe is always a green baize door, to consult and inform certain other partners who are in daily contact with institutional clients: partners who have the requisite knowledge of the requirements of those clients. Those partners advise on the size and terms on which the operation can be successfully carried out and they construct the list of proposed underwriters and participants in the operation.
The tasks involving these partners might include, first the underwriting or placing of issues of shares or debentures in the market; secondly, the underwriting or placing of large lines of existing securities—and one has only to cast one's mind back to last October to think of the sizeable sale by the Bank of England of shares in BP; thirdly, the preliminary
1132
arrangements for a share or cash offer for the whole or part of another company's share capital and, lastly, the underwriting of cash alternatives to such share offers.
The amendment also covers a situation where the broker to a company has information about a substantial market transaction in the company's shares. Depending on the size of the transaction, and of course the circumstances, such a transaction may very well be highly price-sensitive from the time at which it is decided upon to the moment, not later than five days after completion, when it has to be publicly disclosed.
The kind of problem that is foreseen is that brokers, in any of the situations that I have described, might well feel that under the legislation now proposed it would be imprudent for them to deal in the shares of the company concerned, even to carry out unsolicited orders from other clients. If brokers felt this way in situations of this kind, it could lead to a number of undesirable results. First, they would have to turn away legitimate business. Secondly, what reason would they give to their clients for so doing—that they were in possession of price-sensitive information? That would certainly set the tongues wagging and would lead to unruly markets. Thirdly, the job of broker to a company, now much sought after, might become unwanted. Lastly, the raising of capital by industry might be made that much more difficult.
It may be asked: Why should a broker have these fears? Does not the defence in paragraph (a) of Commons Amendment No. 215 give adequate protection? May I, however, read it out, starting at (8):
"The provisions of this section shall not prohibit an individual by reason of his having any information from—(a) doing any particular thing otherwise than with a view to the making of a profit or the avoidance of a loss (whether for himself or another person) by the use of that information;".
Whatever one thinks of the wording of this subsection—and it must certainly have been difficult to draft—the advice I have been given is that it would be a difficult defence upon which to rely.
By the very nature of his business, a broker is almost always trying to make a profit or to minimise a loss for his client, so the broker might well find himself in the position of having to establish his own innocence by proving that although he was

1133
in possession of price-sensitive information, he did not allow it to colour his actions. Like other people, brokers do sometimes have to have split personalities, but certainly they would rather not have to prove it.
I shall await with interest the comments of the noble Viscount on the question of this defence in subsection (8)(a), particularly following his remarks when we considered the last block of amendments on the question of burden of proof. However, I should like to remind your Lordships that if this kind of case came before the courts they would have to disregard what was said in your Lordships' Chamber. The only thing that would matter, so I understand, is how the court interpreted the wording of the law.
May I stress that the amendment concerns only compliance with an unsolicited order. It would of course be quite wrong for a broker to give to a client advice that was based on privileged information. Such action is already naturally prohibited under Stock Exchange practice. I think it is relevant to state that the City code on takeovers and mergers prohibits brokers to companies involved in a takeover from dealing in the shares of either company when in possession of price-sensitive information, yet the takeover panel has never regarded the bona,fide execution of an unsolicited order as a breach of their rules.
Your Lordships will therefore realise that my amendment is designed to ensure that a broker to a listed company will feel free to act in accordance with current practice as now recognised under the new law and that the market should continue to fulfil its role both in the primary and the secondary capital markets without unnecessary hindrance. My Lords, I beg to move.
Moved, That this House doth agree with the said amendment, as an amendment to Commons Amendment No. 21 5—(Lord Robertson of Oak ridge.)
9.49 p.m.
Viscount TRENCHARD: My Lords, the noble Lord, Lord Robertson of Oak-ridge, was kind enough to give us advance warning of these amendments and to explain the worries that he and his colleagues on the Stock Exchange have about the effect of this Commons Amendment
1134
on the cases which he has so very clearly described. In the interests of saving time, I shall not go over the details of the cases he has already described to the House. I found myself wondering when first we discussed this suggested amendment just how possible it was to have a totally unsolicited order, but I am assured by people who know and work on the Stock Exchange that this does happen. Therefore, I must accept it. I know that, as the noble Lord said, the advice and the rules of the Stock Exchange cover the point or making sure that a partner in such circumstances, put in this situation, does not give advice or any counsel.
This leads me to feel that it must be—and indeed from a little experience as a client I know that it is so—that in quite a large number of cases a particular partner of a broker firm (not cases such as the noble Lord has raised, but cases generally) refuses to advise and passes the client on to a partner. Therefore, I think that the remarks he made about not wanting to start speculation (which I can understand is a case in point) should be taken against the background that there is an established practice, I understand, of brokers passing on business from one partner to another. The Whole of this part of the Bill deals with the position of the individual.
There are two protections for brokers in this position which the noble Lord has mentioned. One has to look at all the clauses in the Bill but in particular I think one should say that it is essential, if the charge is to be raised, or prosecuted at all, for Amendment No. 215, subsection 1(b) to be met. I will just read that to the House again:
"it would be reasonable to expect a person so connected and in the position by virtue of which he is so connected not to disclose except for the proper performance of the functions attaching to that position".
All those elements in that sentence taken together seem to us to present a situation where, in the case of the second client coming on with an unsolicited order, and the broker's information had come not from the company concerned but from the fact that there had been a previous order, the function would be one of loyalty to the client who gave an unsolicited order. So we suggest that taking those three elements together the charge would not stand up in most of the circumstances to which the noble Lord has referred.

1135
He himself further referred to the defence which is found in Amendment No. 215, subsection 8(a), and since he has read it to the House, I shall not repeat it. But we also believe that this is a strong and general defence and there would be problems in putting in any particular specific defence, including the ones that are suggested in the noble Lord's amendments, in terms of the possible weakening in law of the general defence, which is covered by those terms.
The Government really have given a lot of consideration to these amendments and the thoughts behind them. I am perfectly prepared to continue the dialogue with the noble Lord, but I do not believe that the defences that he suggests will make the position of brokers in the circumstances which he outlines any stronger than they are under the two parts of this Part of the Bill which I have quoted. Therefore, I would say to the noble Lord that I believe these circumstances are covered as things are written at the moment and the Government must resist this amendment.
Lord ROBERTSON of OAKRIDGE: My Lords, I am grateful to the noble Viscount for his comments on my amendment. I think one small point is worth mentioning. It might be a case if the worse came to the worst not of passing from one partner to another but of one lirm of brokers having to pass the business over to another broker. I would like to study the noble Viscount's other remarks further. In the circumstances I beg leave to withdraw my amendment.
Amendment to the amendment, by leave, withdrawn.
[Amendments Nos. 215E and 215F not moved.]
On Question, Motion agreed to.

COMMONS AMENDMENTS
216 After Clause 45 insert the following new clause: "Prohibition on abuse of information obtained in official capacity.
.—(1) This section applies to any information which—

(a) is held by a Crown servant or former Crown servant by virtue of his position or former position as a Crown servant or is knowingly
1136
obtained by an individual (directly or indirectly) from a Crown servant or former Crown servant who he knows or has reasonable cause to believe held the information by virtue of any such position;

(b) it would be reasonable to expect an individual in the position of the Crown servant or former position of the former Crown servant not to disclose except for the proper performance of the functions attaching to that position; and

(c) the individual holding it knows is unpublished price sensitive information in relation to securities of a particular company (relevant securities).

(2) This section applies to a Crown servant or former Crown servant holding information to which this section applies and to any individual who knowingly obtained any such information (directly or indirectly) from a Crown servant or former Crown servant who that individual knows or has reasonable cause to believe held the information by virtue of his position or former position as a Crown servant.
(3) An individual to whom this section applies—

(a) shall not deal on a recognised stock exchange in any relevant securities;

(b) shall not counsel or procure any other person to deal in any such securities, knowing or having reasonable cause to believe that that other person would deal in them on a recognised stock exchange; and

(c) shall not communicate to any other person the information held or, as the case may be, obtained by him as mentioned in subsection (2) above if he knows or has reasonable cause to believe that that or some other person will make use of that information for the purpose of dealing, or of counselling or procuring any other person to deal, on a recognised stock exchange in any such securities.

(4) Section (Prohibition on stock exchange deals by insiders, etc.) (8) and (11) above shall apply for the purposes of this section as they apply for the purposes of that section.
(5) An individual shall not, by reason only of having information relating to a particular transaction, be prohibited by any provision of this section from doing anything if he does that thing in order to facilitate the completion or carrying out of the transaction.
217 After Clause 45 insert the following new clause:
Off-market deals
(1) Subject to section (International bonds) below, sections (Prohibition on

1137
stock exchange deals by insiders, etc.) and (Prohibition on abuse of information obtained in official capcity) above shall apply in relation to—
(a) dealing otherwise than on a recognised stock exchange in the advertised securities of any company—
(i) through an off-market dealer who is making a market in those securities, in the knowledge that he is an off-market dealer, that he is making a market in those securities and that the securities are advertised securities; or
(ii) as an off-market dealer who is making a market in those securities or as an officer, employee or agent of such a dealer acting in the course of the dealer's business;
(b) counselling or procuring a person to deal in 'advertised securities in the knowledge or with reasonable cause to believe that he would deal in them as mentioned in paragraph (a) above;
(c) communicating any information in the knowledge or with reasonable cause to believe that it would be used for such dealing or for such counselling or procuring,
as they apply in relation to dealing in securities on a recognised stock exchange and to counselling or procuring or communicating any information in connection with such dealing.
(2) An individual who, by reason of his having any information, is for the time being prohibited by any provision of section (Prohibition on stock exchange deals by insiders, etc.) or (Prohibition on abuse of information obtained in official capacity) above from dealing in any securities shall not—

(a) counsel or procure any other person to deal in those securities in the knowledge or with reasonable cause to believe that that person would deal in the securities outside Great Britain on any stock exchange other than a recognised stock exchange; or

(b) communicate that information to any other person in a knowledge or with reasonable cause to believe that that or some other person will make use of the information for the purpose of dealing or of counselling or procuring any other person to deal in the securities outside Great Britain on any stock exchange other than a recognised stock exchange.

Sections (Prohibition on stock exchange deals by insiders, etc.) (8) and (11) and (Prohibition on abuse of information obtained in official capacity) (5) shall have effect as if any reference therein to either of those sections included a reference to this subsection.
(3) In this section—
"advertised securities", in relation to
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a particular occurrence, means listed securities or securities in respect of which, not more than six months before that occurrence, information indicating the prices at which persons have dealt or were willing to deal in those securities has been published for the purpose of facilitating deals in those securities
"off-market dealer" means a person who—

(a) holds a licence under section 3 of the Prevention of Fraud (Investments) Act 1958 (principals' and representatives' licences for dealers in securities); or

(b) is a member of a recognised stock exchange or recognised association of dealers in securities within the meaning of that Act; or

(c) is an exempted dealer within the meaning of that Act.

(4) For the purposes of this section an off-market dealer shall be taken to deal in advertised securities if he deals in such securities or acts as an intermediary in connection with deals made by other persons in such securities; and references in this section to such a dealer's officer, employee or agent dealing in such securities shall be construed accordingly.
(5) For those, purposes an individual shall be taken to deal through an off-market dealer if the latter is a party to the transaction, is an agent for either party to the transaction or is acting as an intermediary in connection with the transaction."
Viscount TRENCHARD: My Lords, I do not know whether I may move these two amendments formally. I have spoken very briefly to them. If noble Lords wish me to expand I will, but otherwise I beg to move that this House doth agree with the Commons in their Amendments Nos. 216 and 217.
Moved, That this House doth agree with the Commons in the said amendments.—(Viscount Trenchard.)
On Question, Motion agreed to.

COMMONS AMENDMENT
218 Insert the following new clause:
"International bonds
.—(1) Section (Prohibition on stock exchange deals by insiders, etc.) above shall not by virtue of section (Off-market deals) above prohibit an individual from doing anything in relation to any debenture if—
(a) that thing is done by him in good faith in connection with an international bond issue—
(i) not later than three months after the issue date, or,
(ii) in a case where the international bond issue is not proceeded with, before the date on which it is decided not to proceed with the issue, and he is an issue manager for that issue or is an officer, employee or agent of an issue manager for that issue; or
(b) he is or was an issue manager for an international bond issue who is making a market in that debenture, or is an officer, employee or agent of such an issue manager, and that thing is done by him in good faith as a person making a market in that debenture or as an officer, employee or agent of such a person;
and in either case the unpublished price sensitive information by virtue of which section (Prohibition on stock exchange deals by insiders, etc.) would but for this section apply in relation to that thing is information which he holds by virtue of his being (or having been) such an issue manager or an officer, employee or agent of such an issue manager, and is information which it would be reasonable to expect him to have obtained as an issue manager, or as such an officer, employee or agent.
(2) In subsection (l) above—
"international bond issue" means an issue of debentures of a company (the "issuing company")—

(a) all of which are offered or to be offered by an off-market dealer to persons (whether principals or agents) whose ordinary business includes the buying or selling of debentures, and

(b) where the debentures are denominated in sterling, not less than 50 per cent. in nominal value of the debentures are so offered to persons who are neither citizens of the United Kingdom and Colonies nor companies incorporated or otherwise formed under the law of any part of the United Kingdom;

"issue date" means the date on which the first of those debentures is issued by the issuing company; and
"issue manager" means—

(a) an off-market dealer acting as an agent of the issuing company for the purposes of an international bond issue; or

(b) where the issuing company issues or proposes to issue the debentures to an off-market dealer under an arrangement in pursuance of which he is to sell the debentures to other persons, that off-market dealer."

9.57 p.m.
Viscount TRENCHARD: My Lords, the noble Lord, Lord Mishcon, wishes to
1140
move amendment, No. 218A, so I will make no initial statement except to move that this House doth agree with the Commons in their Amendment No. 218.
Moved, That this House doth agree with the Commons in the said amendment.—(Viscount Trenchard.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 218
Lord MISHCON: My Lords, I beg to move, as Amendment 218A, that this House do disagree with the Commons in their amendment No. 218. It is a method or lodging a protest as to the manner in which yet another important clause in this 13111 has been dealt with by the Government. I made a general observation at the very commencement when these parts of the Bill were being dealt, that as a result of the use of extraordinary speed, which need not have happened if the Government had dealt with this matter as we wanted them to do last July, there are half-baked, unexamined measures coming before this House in this way.
If I may immediately ask your Lordships to turn to the subject of this amendment, it is that Eurobonds, international bonds, should be excluded from insider dealing in regard to certain activities which would be carried on by managers of the Eurobond market. This is an important exemption to insider dealing, and your Lordships may be interested to know that it was a clause that was tabled as late as 20th February of this year, a mere few weeks ago. and it came before the Standing Committee of another place on 26th February, less than a month ago. I think I ought in sheer duty to read to your Lordships—and I am reading from col. 1171 of the Official Report of the other place for Tuesday. 26th February—what my honourable friend Mr. Anderson had to say when this clause came before the Committee:
"Clearly, we have had insufficient time as an Opposition to appraise the matter and to make the relevant consultations among the affected bodies and among those who could be of assistance to us. As a result, we cannot carry out our job to scrutinise and to improve Government legislation. We cannot obtain in time properly considered responses. It is asking too much of an Opposition when contrasted with the veritable army of advisers available to the Minister.
"Hence the need for the other place. Their Lordships will not recognise the Bill that we shall eventually return to them. It is of a wholly

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different character from the minor Bill which left them in July last year ".—[Official Report, Commons, 26/2/80; col. 1171.]
I close the quotation, at all events for my honourable friend Mr. Anderson. I shall go on to quote Sir Brandon Rhys Williams, an honourable Member of the Government. I am quoting from column 1174. Mr. Brandon Rhys Williams said:
"I should like to echo the grumble of the hon. Member for Swansea, East (Mr. Anderson) that a new clause of this complexity has been tabled so recently. It does not give hon. Members the opportunity to study the implications. It is really beyond the majority of us in the House, even those who take an active interest in company law, to be perfectly certain about the implications of this and similar clauses".
I cannot over-emphasise in sheer genuineness the complexity of a clause which deals with international bonds in the international market. It is supposed to deal with Eurobonds. Eurobonds are not mentioned at all, and the reason why Eurobonds are not mentioned was again given at that stage in the other place, only a few weeks ago, as being that the Government found it rather difficult, if not impossible, to describe precisely what is a Eurobond. It gives exemptions to managers, to agents, and to employees in certain circumstances dealing in international bonds; and it would be laughable, if it were not so sad and serious, that a clause of this type, with a total exemption, should have been thrust before the legislature literally only a few weeks ago, and before your Lordships' House without the Opposition here being able to get any sort of technical advice on the matter.
It may be a criticism generally of the way in which we deal with matters that when we have to have a discussion upon technical matters of this type, obstruse matters of this type with which only a few of your Lordships' House are at all acquainted, it may be a criticism of our procedure generally that we do not have the ability to call evidence, as it were, and to examine things in some specialised committee. However, that may be a general observation. As regards this clause, as I have said, placed before Parliament literally only a few weeks ago with this House now being asked to pass it, I have put down my amendment to register a protest so that it is on the official record that the Opposition here can accept no responsibility whatsoever for this clause or for clauses like it which are of a technical nature and as regards which no proper
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opportunity has been given for examination or consultation.
It is in that spirit that I move my amendment and your Lordships will not be surprised to know that, in due course, after having heard the Minister in reply, I shall ask your Lordships' leave to withdraw it. I beg to move.
Moved, That this House doth disagree with the Commons in their Amendment No. 218.
Viscount TRENCHARD: My Lords, I have quite a lot of information on the degree to which the Government believe that they have thought out pretty clearly, admittedly in some hurry, the necessary exemptions which are the subject of Amendment No. 218. But I do not think that I shall weary the House in going through them in great detail. If I may, I shall commit myself to writing to the noble Lord, Lord Mishcon, at some length as to how we see the difference in Eurobonds, and other similar dealers, and the needs for this exemption in full.
The Law Society of England and Wales pointed out—
WEDDERBURN of CHARLTON: My Lords, if the noble Viscount is to deal with these very important matters by way of a letter to my noble friend which I thought I heard him say, would he make a copy of that letter available in the Library? This is a most important matter. Albeit my noble friend no doubt deserves a letter for putting down the amendment, but some of the rest of us would like to know the reasoning which the noble Viscount is going to put forward.
Viscount TRENCHARD: Yes, my Lords. The Law Society of England and Wales pointed out to us that certain well-established practices in the Eurobond market seemed to come within the off-market dealing provision, and that the clause did not seem to be intended to affect that market. This is where the information and suggestion came from originally.
The Eurobond market is, of course, a highly professional market and is not in need, to anything like the same extent as other markets, of the protection offered by the insider-dealing clauses. The lead managers in an issue will have, as the market

1143
will be aware, a wide range of information which is not available to others. But equally the market is much more affected by such things as currency movement and interest rate fluctuations than it is by news about particular companies.
It should also be remembered that the Eurobond market is highly international. In view of these factors, we think that it is right to exclude activities by Eurobond issue managers from the operation of the off-market deals clause. The defence is not exactly simple. Noble Lords will appreciate that it is a very difficult task to define Eurobond operations, for which we wish to provide the defence. However, it could not be simplified without providing a much wider defence than is necessary to meet the particular points of difficulty. For those reasons and with the promise that I shall put in the Library of the House a much longer statement as to the fuller considerations that the Government went into, I hope that the noble Lord will not press his amendment.
Lord MISHCON:My Lords, the House has heard the protest from the Opposition, and I shall merely say, therefore, that I ask the leave of the House to withdraw my amendment.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENT
219 After Clause 45, insert the following news Clause:
"Contravention of ss. (Prohibition on stock exchange deals by insiders, etc.) anti (Prohibition on abuse of information obtained in official capacity).
.—(1) An individual who contravenes the provisions of section (Prohibition on stock exchange deals by insiders, etc.) or (Prohibition on abuse of information obtained in official capacity) above shall be liable—

(a) on conviction on indictment to imprisonment for a term not exceeding two years or a fine, or both; and

(b) on summary conviction to imprisonment for a term not exceeding six months or a fine not exceeding the statutory maximum, or both.

(2) Proceedings for an offence under this section shall not be instituted in England and Wales except by the Secretary of State or by, or with the
1144
consent of, the Director of Public Prosecutions.
(3) No transaction shall be void or voidable by reason only that it was entered into in contravention of section (Prohibition on stock exchange deals by insiders, etc.) or (Prohibition on abuse of information obtained in official capacity) above".
10.7 p.m.
Viscount TRENCHARD: My Lords, I beg to move that this House doth agree with the commons in their Amendment No. 219.
Moved, That this House doth agree with the Commons in the said amendment.—(Viscount Trenchard.)
Lord LLOYD of KILGERRAN Lord LLOYD of KILGERRAN had given notice of his intention to move an amendment to Commons amendment No. 219:
219A After subsection (1)(b) insert ("; and (c) The Court by or before which the individual is convicted of a contravention under this clause shall on application or otherwise make an order requiring payment by way of compensation, restitution or otherwise in respect of any gain, loss or damage resulting from the contravention.").
The noble Lord said: My Lords, in view of the answer given by the Government to Amendment No. 200A, which was in somewhat similar terms to this one and intended to be an increase in the deterrent effect on insider dealers, I do not propose to move this amendment.
On Question, Motion agreed to.

COMMONS AMENDMENT
220 After Clause 45, insert the following new Clause:
"Interpretation.
.—(1) For the purposes of this Part of this Act, an individual is connected with a company if, but only if,—

(a) he is a director of that company or a related company; or

(b) he occupies a position as an officer (other than director) or employee of that company or a related company or a position involving a professional or business relationship between himself (or his employer or a company of which he is a director) and the first company or a related company which in either case may reasonably be expected to give him access to information which, in relation to securities of either company, is unpublished price sensitive information, and which it would be

1145
reasonable to expect a person in his position not to disclose except for the proper performance of his functions.

(2) Any reference in this Part of this Act to unpublished price sensitive information in relation to any securities of any company is a reference to information which—

(a) relates to specific matters relating or of concern (directly or indirectly) to that company, that is to say, is not of a general nature relating or of concern to that company; and

(b) is not generally known to those persons who are accustomed or would be likely to deal in those securities but which would if it were generally known to them be likely materially to affect the price of those securities.

(3) For the purposes of this Part of this Act a person deals in securities if (whether as principal or agent) he buys or sells or agrees to buy or sell any securities; and references in this Part of this Act to dealing in securities on a recognised stock exchange shall include references to dealing in securities through an investment exchange.
(4) In this Part of this Act, except where the context otherwise requires—
"company" means any company, whether a company within the meaning of the 1948 Act or not;
"Crown servant" means an individual who holds office under, or is employed, by the Crown;
"debenture" has the same meaning in relation to companies which were not incorporated under the 1948 Act as it has in relation to companies which were so incorporated;
"investment exchange" means an organisation maintaining a system whereby an offer to deal in securities made by a subscriber to the organisation is communicated, without his identity being revealed, to other subscribers to the organisation, and whereby any acceptance of that offer by any of those other subscribers is recorded and confirmed;
"listed securities", in relation to a company, means any securities of the company listed on a recognised stock exchange;
"related company", in relation to any company, means any body corporate which is that company's subsidiary or holding company, or a subsidiary of that company's holding company;
"securities" means listed securities and, in the case of a company within the meaning of the 1948 Act or a company registered under Part VIII of that Act or an unregistered company, the following securities (even if they are not listed securities), that is to say, any shares, any debentures
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or any right to subscribe for, call for or make delivery of a share or debenture;
"share" has the same meaning in relation to companies which were not incorporated under the 1948 Act as it has in relation to companies which were so incorporated;
"take-over offer for a company"means an offer made to all the holders (or all the holders other than the person making the offer and his nominees) of the shares in the company to acquire those shares or a specified proportion of them, or to all the holders (or all the holders other than the person making the offer and his nominees) of a particular class of those shares to acquire the shares of that class or a specified proportion of them; and
"unregistered company" means any body corporate to which the provisions specified in Schedule 14 to the 1948 Act apply by virtue of section 435 of that Act (application of provisions to unregistered companies)."
10.8 p.m.
Viscount TRENCHARD: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 220. Although there are amendments to this Commons amendment, I shall move it formally at this stage and try to deal with the main points on the next amendment.
Moved, That this House doth agree with the Commons in the said amendment.—(Viscount Trenchard.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 220
220A Line 5, after ("he") insert ("is a member of or").
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move as an amendment to Commons Amendment No. 220, Amendment No. 220A. May I say in respect of Amendments Nos. 220A, 220B and 220C that there is a limited amount of powder and shot available to any of us at this time of night? If the House will permit it, I would like to move these amendments formally, because then they will appear in the Official Report. May I, therefore, move them formally in the knowledge that at this late hour and in view of the Government's attitude to amendments, there is no point in doing very much more? However, I should like them to appear on the record.
On Question, amendment negatived.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 220
220B Line 10, leave out ("which in either case") and insert ("and thereby he").
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move as an amendment to Commons Amendment No. 220, Amendment No. 220B.
On Question, amendment negatived.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 220
220C Line 11, leave out ("give him") and insert ("have").
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move as an amendment to Commons Amendment No. 220, Amendment No. 220C.
On Question, amendment negatived.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 220
220D In subsection (2), line 4, leave out ("specific").
10.10 p.m.
Lord MISHCON: My Lords, I beg to move as an amendment to Commons Amendment No. 220, Amendment No. 220D. I hope to be brief. With your Lordships' permission, it may be for the convenience of the House if I speak to Amendments Nos. 220D to 220G. I have moved these amendments in order once again to draw the attention of the House to the half-baked way in which some of these new clauses have come before the House from the other place. Perhaps I can use the examples that are incorporated in these amendments. I do not suppose that it is necessary for any of us to legislate in the purest possible prose, but unless the noble Viscount, for whom we have so much respect, wishes to go down in some Trenchard Thesaurus of the English language with a certain amount of shame, he will accept at least one of these amendments.
I ask your Lordships to refer to the English of subsection (2) of this Amendment No. 220. Would your Lordships bear in mind the words "relates" and "relation" and imagine the comments of any judge of our courts before whom this clause may come? I quote:
"Any reference in this Part of this Act to unpublished price sensitive information in relation to any securities of any company is a reference to information which—
1148
(a) relates to specific matters relating or of concern (directly or indirectly) to that company".
If any one of our children, whether going to an assisted place or not in any one of our schools, were to turn out a phrase of that kind before any English master, one can imagine how many marks he would get. It is quite disgraceful that in a responsible and serious Act of Parliament such clumsy language should occur. With great humility and respect, and never pretending that I am a master of the language, that I love I have at least asked that one "relating" be turned into "in connection with" or something of that kind.
The clumsiness of the wording and the half-baked approach is a little more seriously shown in the other amendments I have tried to draft. The first example is in subsection (2)(a). Please forget all the things I said about the words "relate" and "relating" when I repeat those words. It reads:
"relates to specific matters relating or of concern … to that company. …"
Obviously the draftsman meant matters specifically relating, not specific matters relating, because a specific matter relating to a company is that it happens to have a share capital. The specific matter relating to a company is that it happens to have had so many shares issued.
What is meant here when talking about secret information is matters specifically relating to that company and therefore not relating to any other company at all. That is obviously the information which is sought to be protected here in this so called interpretation clause.
My last example is not of tautology but of the sheer lack of clarity that is imparted into the language of this subsection by words which are completely otiose. May I read subsection (2)(a) for your Lordships' delight? It reads:
"relates to specific matters relating or of concern (directly or indirectly) to that company".
Leave it at that, and one would know what one was talking about, and any learned judge trying to interpret it would at least know what he was supposed to be dealing with, especially if you provided that "specifically" takes the place of "specific" and succeeds the words "matters relating". But the clause then goes on:
"that is to say, is not of a general nature relating or of concern to that company".

1149
What is the point of confusing the whole of that clause when the word "specifically" is there? Why is it necessary to acid words which only import confusion into the section and nothing more—not clarity—by saying that"that is to say, is not of a general nature relating or of concern to that company"?
I merely give these as examples of hurried, clumsy phraseology in legislation which is of the utmost importance and which will have to be interpreted for our courts. Again I say for the official record that the Opposition takes no responsibility for the clumsy way in which some of these clauses have been worded and the unclear way in which they have been imported into the Bill.
My Lords, again you will not be surprised to know that, after having heard the noble Viscount's reply, which I am sure will be in much better English than is contained in this clause, I shall be asking the House's leave to withdraw the amendment.
Lord MACKAY of CLASHFERN: My Lords, I think it would be difficult to say that some of the language in some parts of this Bill could not, if one had much more time to think about it, be somewhat improved. However, I do not accept all that the noble Lord has said in criticism of this clause and in particular I take serious issue with the idea that the word "specific" should be replaced by" matters specifically relating to"or"of concern to a particular company". The idea here is that the information must be about specific matters, not, for example, what one learns by general acquaintance with the company, such as having been associated with it for a while, getting an idea of its general standards of management and that sort of thing. It is specific matters relating to the company such as. for example, that it has landed a particular contract or something of that sort.
If instead of that the word "specifically" were put in in the way suggested by the noble Lord, it would mean information which affected all of the companies in a particular industry, like the construction industry, for example. If a Minister of the Crown knew that the tax treatment of construction companies was to be altered, that information would not relate specifically to a particular company. It
1150
would be a specific matter relating to a number of companies. Obviously that kind of information could be very highly price sensitive, so the change from "specific" in the place that we have it to "specifically" in the place that the noble Lord is proposing it would make a considerable and to our mind very damaging change. That is the essence of the matter.
I have no doubt that with a lot of thought it might be possible to improve this. I do not know that it would, but at any rate we consider the substance to be right and I hope that the noble Lord will carry out his intention of withdrawing the amendment.
Lord MISHCON: My Lords, the intention is carried out. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Lords Amendments Nos. 220E, 220F and 220G to Commons Amendment No. 220 not moved.]

LORDS AMENDMENT TO COMMONS AMENDMENT No. 220
220H After subsection (3) insert—
(" (3A) For the purposes of this Part of this Act, an off-market dealer shall be taken to make a market in any securities if in the course of his business as an off-market dealer he holds himself out both to prospective buyers and to prospective sellers of those securities (other than particular buyers or sellers) as willing to deal in them otherwise than on a recognised stock exchange.").
Viscount TRENCHARD: My Lords, may I formally move Amendment No. 220H, which is strictly to define the off market dealer.
Moved, That this House doth agree with the said amendment.—(Viscount Trenchard.)
On Question, Motion agreed to.
On Question, Commons Amendment No. 220, as amended by Lords Amendment No. 220H, agreed to.

COMMONS AMENDMENT
221 Clause 46, page 57, line 1, leave out from "subsidiary" to end of line 10 and insert—
"(2) The power conferred by subsection (1) above to make any such provision may be exercised notwithstanding that its exercise is not in the best interests of the company.
(3) The power which a company may exercise by virtue only of subsection (1) above shall only be exercised by the company if sanctioned—

(a) in a case not falling within paragraph (b) or (c) below, by an ordinary resolution of the company; or

(b) if so authorised by the memorandum or articles, a resolution of the directors; or

(c) if the memorandum or articles require the exercise of the power to be sanctioned by a resolution of the company of some other description for which more than a simple majority of the members voting is necessary, with the sanction of a resolution of that description;

and in any case after compliance with any other requirements of the memorandum or articles applicable to its exercise.
(4) On the winding up of a company (whether by the court or a voluntary winding up) the liquidator may, subject in the case of a winding up by the court to section 245(3) of the 1948 Act as applied by subsection (7) below, make any payment which the company has, before the commencement of the winding up, decided to make under subsection (3) above.
5) The power which a company may exercise by virtue only of subsection (1) above may be exercised by the liquidator after the winding up of the company has commenced if, after the company's liabilities have been fully satisfied and provision has been made for the costs of the winding up, the exercise of that power has been sanctioned by such a resolution of the company as would be required of the company itself by subsection (3) above before that commencement if paragraph (b) of that subsection were omitted and any other requirement applicable to its exercise by the company has been met.
6) Any payment which may be made by a company under this section may—

(a) in the case of a payment made before the commencement of any winding up of the company, be made out of profits of the company which are available for dividend; and

(b) in the case of any other payment be made out of the assets of the company which are available to the members on its winding up.

(7) On a winding up by the court section 245(3) of the 1948 Act (powers of the liquidator to be subject to the control of the court on winding up by the court) shall apply to the exercise by the liquidator of his powers under subsection (4) or (5) above as it applies to the exercise of his powers under that section.
(8) Subsections (4) and (5) above shall have effect notwithstanding anything in any rule of law or in section 302 of the 1948 Act (property of company after satisfaction of liabilities to be distributed among members)."
Lord MACKAY of CLASH FERN: My Lords, I spoke of this amendment earlier and I believe the detail of it is reasonably self-explanatory. I beg to move.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Mackay of Clashfern.)
On Question, Motion agreed to.

COMMONS AMENDMENT
222 Clause 47, page 57, line 13, after "being" insert "or have been".
10.20 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in the said amendment. I hope the amendment is self-explanatory.
Moved, That this House doth agree with the Commons in the said amendment. —(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
223 Clause 47, page 57, line 24, leave out from "that" to end of line 26 and insert "the affairs of the company are being or have been conducted in a manner which is unfairly prejudicial to the interests of some part of the members or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial,"
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in the said amendment.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lyell.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 223
223A Line 4, after ("members") insert ("debenture holders, creditors, directors or officers").
Lord WEDDERBURN of CHARLTON: My Lords, in moving this amendment I must say that this clause is such a rare and tender plant that it is cherished by my noble friends and I because it took root in this Bill on that rare occasion on its passage through this House last July when the Government actually gave way.

1153
They introduced a clause, which went to the other place, to replace and strengthen the present Section 210 of the 1948 Act, which provides a remedy, or has tried unsuccessfully to provide remedies, in the case of oppression of minority shareholders. It is true that the present clause put forward to your Lordships' House represents an advance, especially in regard to the recommendations of the Jenkins Committee of 1962. However, my amendment attempts to nudge the Government a little further, and I feel I should comment on it because it is a rather important matter in terms of bringing our company law up to date. I mentioned it in my speech on Second Reading in this House and it was adverted to, albeit briefly, but now that the Government have amended the Bill in so many other ways, I was a little surprised they did not go in our direction here.
It is true that my amendment would require consequential amendments if the Government accepted it, but I need not go into those because they are purely drafting matters. The effect of the amendment would be, if incorporated properly into the clause, to allow persons other than shareholders to make application to the court in the case of acts or courses of conduct which are unfairly prejudicial to them, and in particular debenture holders, creditors, directors or officers. Again, my noble friends and I have been more restrained than our honourable and right honourable friends in another place, who also put forward the possibility of employees being complainers. But we have not done that. In our usual modest manner, we are merely trying to nudge the Government a little more in the direction of a modern stance instead of one of 1962, because the Jenkins Report was rather a long time ago.
It was suggested in another place by the Under-Secretary of State that these amendments or amendments like them:
"represent a radical departure from the broad measure of agreement in the country which has prevailed on the strengthening of Section 210 ".— (Official Report, Commons, 3/3/79, col. 160).
He also mentioned the Jenkins Committee. However, that was 18 years ago, and since then the Canada Corporations Act, in particular Section 234(2), allows for applications to the courts in Canada in the case of oppressive or unfairly prejudicial conduct disregarding the interests of
1154
security holders, creditors, directors or officers. The Singapore Companies Act as long ago as 1967 allowed shareholders or debenture holders eqaul access to the courts in cases of unfairly prejudicial conduct.
Even before the Jenkins Committee, undoubtedly under the influence of Professor Gower, the Ghanaian Companies Ordinance of 1961 provided that shareholders, officers or debenture holders could bring a complaint. There are other company law systems in the world which allow for complaint outside this very narrow area from which the British system seems unable to escape. It is that the complainant who alleges unfairness must appear not only by virtue of being a shareholder, but also in his capacity as a shareholder, as is shown by the cases, which would still apply to this clause when it is enacted, if he is a shareholder, and is said by the court to be suing as a debenture holder because he is both, he fails at the very outset of his case.
This cannot be right in a modern system. The difference between the preference shareholder and the debenture holder, to take one example, is not now of interest to many persons in many companies, other than the lawyers, and it surely cannot be right to be so out-of-date. I ask the Government whether they would not at least consider bringing our company law as up-to-date as the Ghanaian code of 1961.
Moved, that this House doth agree to the said amendment to the Commons Amendment No. 233—(Lord Wedderburn of Charlton).
Lord LYELL: My Lords, we believe that this amendment, which has been lucidly explained by the noble Lord, Lord Wedderburn of Charlton, would extend very considerably the power of the Secretary of State, following an investigation of a company, to apply to the court under Clause 47, which is what we are dealing with at the moment. At present the Secretary of State is empowered to apply, when it appears to him that the interests of the members of the company are being unfairly prejudiced. We believe that the amendment would empower the Secretary of State to apply when the interests of debenture holders, creditors, directors or

1155
officers of the company who are being unfairly prejudiced.
As was pointed out by the noble Lord, Lord Wedderburn, Clause 47 as it now stands in the Bill was moved by noble Lords opposite on Committee, and indeed was accepted by your Lordships. The noble Lord, Lord Wedderburn, explained that there was a precedent in Canadian legislation, as well as in the legislation of many other members of the Commonwealth. Indeed, in another place earlier this month an amendment similar to that of the noble Lord's was withdrawn at Report stage.
The position of the Government is that Clause 47, as it now stands, is both a long-considered and much welcomed attempt to remedy the shortcomings of Section 210 of the Companies Act 1948, by providing a more effective remedy for the protection of minority shareholders. We believe that that is an important concept. Clause 47 follows the recommendations of the Jenkins Committee on company law, and was contained in the Conservative Companies Bill of 1973, and in the Companies Bill put forward in 1978 by noble Lords opposite. Thus we believe that this clause is both thoroughly considered and widely supported.
We wonder whether the same can be said about the noble Lord's amendment, because it seems that the Canadian precedent has attracted little attention world-wide, and we do not have much evidence of how it works in practice. To seek to improve the existing provision under which the Companies Court is intended to have wide powers to settle disputes between shareholders is one thing; to provide a parallel jurisdiction when, for instance, the manager or director of a company complains that he is being unfairly prejudiced, is quite a different question. This new point raises all sorts of queries, as indeed does the idea of debenture holders or creditors having similar rights. Is it intended to provide them with rights that they do not have at present? Does this mean that contracts freely negotiated can be rewritten by the courts to provide more extensive benefits to creditors?
These are just two of the much wider questions, and we believe that they
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deserve much fuller consideration, and indeed wide consultation. In another place my honourable friend the Parliament Under-Secretary of State for Trade gave an undertaking on behalf of the Government that we would consult on the merits of the proposals and discuss them with a wide range of interested parties, and we would also seek to discover how the Canadian provisions are working in practice. This would form part of the consideration of proposals for inclusion in the next Companies Bill, though I would stress that no commitment is given about the eventual conclusions to be reached on the merits of this present proposal.
I am happy to report this assurance to your Lordships, though I have no doubt that the noble Lord, Lord Wedderburn, will have seen and will have taken in the report of the proceedings in the other place. I hope that, in the light of what I have said and, in particular, of the assurance that I have given, the noble Lord will see no need to press this particular amendment.
Lord WEDDERBURN of CHARLTON: My Lords, I thank the Minister for his reply. I am naturally glad that the Government will consult and consider this matter further. I accept that to allow the director to sue under such a clause would be a large step; to allow the creditor to bring a complaint would be a middling step; to allow the secured debenture holder to bring a complaint would not in most cases involve the renegotiation of a contract any more than giving a special remedy to the minority shareholder in very many cases. But I am glad the Government will consider this. I only note that where they have to consult, when it comes to matters of this kind—a minority shareholder or tidying up, with all they have put on the agenda—they move rather slowly, but when it comes to exempting the Eurobond market from insider dealing, they move like the wind.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENTS
224 Clause 47, page 58, line 3, leave out from "section" to end of line 13, and insert requires the company not to make any, or any specified, alteration in its

1157
memorandum or articles then, notwithstanding anything in the Companies Acts, the company shall not have power without the leave of the court to make any such alteration in breach of that requirement.
(5A) Any alteration in the memorandum or articles of the company made by virtue of an order under this section shall be of the same effect as if duly made by resolution of the company and the provisions of the Companies Acts shall apply to the memorandum or articles as so altered accordingly."
225 Clause 47, page 58, line 15, leave out
"or adding to"
226 Clause 47, page 58, line 15, leave out
"or add to".
10.32 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 224 to 226. We have already spoken to these. I beg to move them formally.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
227 Clause 48, page 59, line 2, leave out from "if" to end of line 4 and insert "in circumstances in which the fact that it is a public company is likely to be material to any person, it uses a name which may reasonably be expected to give the impression that it is a private company."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 227. We have already discussed this on an earlier amendment.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lyell.)
Lord MOTTISTONE: My Lords, before we go any further, and having waited a long time, I wish to thank the Government very much for these amendments, which they kindly promised when this Bill was before this House and put into the Bill in another place.
Lord LYELL: My Lords, I thank my noble friend. I think it was I who, at an earlier stage, dealt with these amendments, and we are very glad that there is some approval on our side of the House, at least, for them.
On Question, Motion agreed to.

COMMONS AMENDMENT
228 Clause 48, page 59, line 7, leave out from "then" to "as" in line 18 and insert—

"(a) during the twelve months following the re-registration, any provision of section 108(0(0 or (c) of the 1948 Act (publication of name of company), and

(b) during the three years following the re-registration, section 108(1)(a) of the i948 Act or any provision of any other Act or subordinate instrument requiring or authorising the name of the company to be shown on any document or other object,

shall apply"
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 228.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lyell)
[Amendment No. 228A not moved.]
On Question, Motion agreed to.

COMMONS AMENDMENTS
229 Clause 48, page 59, line 20, leave out from first "name" to "its" in line 21 and insert "which either is its name or was".
230 Clause 50, page 60, line 1, leave out from "and" to end of line 4 and insert "any reference in those Acts to the name of a company or to the inclusion of any of those words in the name of a company shall include a reference to the name of the company including (in place of any of the words so specified) the appropriate alternative, or to the inclusion of the appropriate alternative, as the case may be."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 229 and 230.
Moved, That this House doth agree with the Commons in the said amendments. (Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
231 After Clause 50 insert the following new clause:
"Qualifications of company secretaries.
It shall be the duty of the directors of a public company to take all reasonable steps to secure that the secretary or each joint secretary of the company is a person who appears to them to have the requisite knowledge and experience to discharge the functions of secretary of the company and who—

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(a) on the appointed day held the office of secretary or assistant or deputy secretary of the company; or

(b) for at least three years of the five years immediately preceding his appointment as secretary held the office of secretary of a company other than a private company; or

(c) is a member of any of the bodies specified in subsection (2) below; or

(d) is a barrister, advocate or solicitor called or admitted in any part of the United Kingdom; or

(e) is a person who, by virtue of his holding or having held any other position or his being a member of any other body, appears to the directors to be capable of discharging those functions.

(2) The bodies referred to in subsection (1)(c) above are:—

(a) the Institute of Chartered Accountants in England and Wales;

(b) the Institute of Chartered Accountants of Scotland;

(c) the Association of Certified Accountants;

(d) the Institute of Chartered Accountants in Ireland;

(e) the Institute of Chartered Secretaries and Administrators;

(f) the Institute of Cost and Management Accountants;

(g) the Chartered Institute of Public Finance and Accountancy."

Lord MACKAY of CLASHFERN: My Lords, this clause was moved into the Bill in another place, and provides some indication of the manner in which a company secretary should be appointed. There are some amendments to this amendment, and perhaps I can reserve what I have to say until we hear what is said on those amendments. I beg to move that this House doth agree with the Commons in their Amendment No. 231.
Moved, That this House doth agree with the Commons in the said amendment. (Lord Mackay of Clashfcrn.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 231
231A In subsection 1, line 15, leave out from ("Kingdom") to end of subsection.
Lord MISHCON: My Lords, I am going to ask the House to bear with me yet once again—I promise it will be for only a short time—to listen to an example of the manner in which this serious Bill has come before the House from the Commons, and of the rush and the unpreparedness with which this Bill is drawn. Your Lordships may or may not agree with me, but this is a clause which imposes for the first time, so far as I am
1160
aware, a duty upon directors to select a person who is defined as "a qualified person "as a secretary of the company—a very important administrative position because the secretary is the officer who, as a rule, has to carry out many of the formal requirements of the Companies Act.
I asked for your Lordships' patience because the new clause starts in this way:
"It shall be the duty of the directors of a public company to take all reasonable steps to secure that the secretary or each joint secretary of the company is a person who appears to them to have the requisite knowledge and experience to discharge the functions of secretary of the company and who…".
Your Lordships will have gathered so far, since I have ended the quotation, that the person who is to be considered as secretary must, prior to appointment, have had the sort of experience and knowledge that appears to the directors to be suitable. On top of that the clause provides, from paragraphs (a) to (d), certain additional qualifications.
Then, at the Report stage, only a few weeks ago, something was thrown into this clause. It was paragraph (e). You will remember what I quoted of the first part: that he has to have had experience and the sort of qualifications the directors think suitable. Then there is an "and" —and your Lordships may think that you will hear something very different from the first part of the clause. Your Lordships will not do so because (e) reads:
"[and who] is a person who, by virtue of his holding or having held any other position or his being a member of any other body, appears to the directors to be capable of discharging those functions."
I have tried hard to be as tolerant and understanding as I can; but I fail to see the difference between the first part of the qualifications and the additional qualifications. There is none. In that circumstance, I put this before the House purely as yet another example of something thrown into the Bill at Report stage (only a few weeks ago) which comes to this House in a half-baked condition and which, in my respectful submission would make your Lordships ashamed when a clause like this comes before any court of law and a judge as trenchant as some of our learned judges can be comments on the wording of the clause and the sense of those who passed it. I beg to move.
Lord MACKAY of CLASHFERN: My Lords, it appears clear that the intention of this clause is to give some guidance on persons who will be qualified to hold the office of company secretary. I think I may have misheard the noble Lord. He said that (e) was preceded by "and". I think it is "or" in the version before the House.
Lord MISHCON: My Lords, if the noble and learned Lord will read from the beginning of the new clause, he will see that the words are "and who" has any of these qualifications. The or is at the end of (d). My reference was to the "and" at the beginning. I pointed out that the beginning is precisely the same as the end. I do not know why both are there.
Lord MACKAY of CLASHFERN: My Lords, at least it makes for consistency. I am obliged to the noble Lord for pointing out the "and" to which he was referring. I think that (e) is somewhat different from the first part, the opening part, of the clause because it gives an indication of the way in which the requisite knowledge and experience is to be had—that is, by virtue of his holding or having held any other position or his being a member of any other body and so on. These are types of qualifications by reference to which the directors would be entitled to take the view that the requisite knowledge and experience was possessed.
Lord MISHCON: My Lords, if the noble and learned Lord is content to allow (e) to stand, having read it once again; and if the House feels at this time of night that it does not want to debate the matter further, I shall understand; but at least the protest will be on record. I ask leave of the House to withdraw my amendment.
Amendment, by leave, withdrawn.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 231
231B Leave out subsection (2).
10.40 p.m.
Lord LLOYD of KILGERRAN: My Lords, I beg to move, as an amendment to the Commons amendment, Amendment No. 231B. My attack on this clause is far more serious than that of Lord Mishcon. He explained how Amendment No. 231 imposes duties
1162
upon directors of a public company to take reasonable steps to secure that the secretary shall be qualified and, as he has pointed out, there are certain subsections indicating the type of person who would be suitable as a secretary. What the noble Lord did not do was to read out subsection (1)(c) which says that in order to qualify as the secretary of a public company the secretary shall be a member of any of the bodies specified. In subsection (2) there are set out seven institutes or associations of which this gentleman or lady should be a member before he or she becomes a secretary of a company.
I ask rhetorically: Why is it the duty of the Government to select certain professional bodies for notice at the expense of other equally reputable societies? From the correspondence I have had—no doubt other noble Lords have had a lot of correspondence—many reputable associations not listed in this clause have protested. I will read the words from one which has written to me:
"It is most invidious for such names to be included, and it is not the duty of Government to select certain professional bodies for notice at the expense of other equally reputable societies".
Therefore, my amendment is to leave out subsection (2) and the consequential amendment is to leave out subsection (1)(c) where it refers to subsection (2).
May I also speak to my Amendment No. 231C? If the Government refuse to accept Amendment No. 231B, the second amendment is that there should be added at least three other societies, institutes or associations to the list which has been set out in subsection (2). I am told that foreign firms would come to the conclusion, reading this clause, that it is only these seven institutes or associations that are named that are proper to have men or women as their members suitable to become secretaries.
In my amendment I add three others. In this connection, so far as paragraph (i) in Amendment 231C is concerned, I must declare an interest. i have suggested that there should be included there the Institute of Management Services. I am an honorary fellow of that institute. It has over 26,000 members and is an institute of the highest respectability. The honorary president is Sir Monty Finniston, and

1163
there are a number of very distinguished vice-presidents and other honorary fellows.
I am fully aware that that institute arranges courses for members of the highest order, in order to get qualifications as suitable, so I am told, as some of the qualifications that can be given by the other listed institutes and associations. I must repeat that it is most invidious for a Government department—does the noble Lord, Lord Lyell, want to speak?
Lord LYELL: No, my Lords.
Lord LLOYD of KILGERRAN: I thought he wanted to say something from a sedentary position. This is a serious matter, if I may say so, although the noble Lord, Lord Lyell, appears to consider it amusing. When the Government decide to pick out about seven institutes and associations, one immediately inquires: Why should they do that, leaving out other reputable institutions that could give qualifications just as suitable as some of those specified? I beg to move.
Lord MACKAY of CLASHFERN: My Lords, I appreciate the noble Lord's feelings in this matter. I have no doubt that the association of which he has spoken is well qualified to be included in the list. On the other hand, the clause is designed to give guidance to company directors on the obligations that they have to select a suitable person or persons to be the secretary or secretaries of the company. The purpose of the list is simply to give an indication of the nature of the bodies that might be regarded as suitable. These indications are, I agree, not by any means exhaustive, and the subsection to which the noble Lord, Lord Mishcon, particularly referred —(1) (e)—makes that perfectly plain, because it talks about the person being a member of"any other body". The various bodies to which the amendment of the noble Lord, Lord Lloyd, referred would obviously come into that category as being "just and generous" as the bodies mentioned in Clause 2.
The situation is that guidance is being given here. It would be very difficult without undue length to mention every possible body whose qualifications are
1164
suitable, and the line has been drawn at the bodies from which a very substantial proportion, at least, of company secretaries are drawn. I appreciate what the noble Lord has said, but I hope that in the light of that explanation he will feel able to withdraw his amendment.
Lord LLOYD of KILGERRAN: My Lords, as always, the noble and learned Lord is very persuasive and very courteous; but to say that the introduction of subsection (2) with its references to seven institutes is a matter of guidance is not to appreciate the attitude which, as I have indicated, people abroad will adopt on reading this section. They will at once say that the Government in this Bill have stated quite categorically that the bodies referred to are those which will give suitable qualifications for people who wish to become secretaries. And that is totally untrue. In my Amendment No. 231C, I have given the names of three other reputable bodies which ought to be added to that list.
On Question, amendment negatived.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 231
231C Subsection (2) at end insert—
(" (h) The Society of Company and Commercial Accountants;
(i) The Institute of Management Services;
(j) The British Association of Accountants and Auditors.").
Lord LLOYD of KILGERRAN: My Lords, I beg to move as an amendment to Commons Amendment No. 231, Amendment No. 231C.
On Question, amendment negatived.
On Question, Motion agreed to.

COMMONS AMENDMENT
232 After Clause 51, insert the following new Clause:
"Amendment of s. 454 of the 1948 Act.. In section 454(1) of the 1948 Act (power of Secretary of State to alter or add to requirements of 1948 and 1967 Acts relating to balance sheets and accounts) after the words "group accounts there shall be inserted the words" and a report of the directors of a company which is required by section 157 of this Act to be attached to the company's balance sheet "."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 232.
Moved, That this House doth agree with the Commons in the said amendment. —(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
233 After Clause 52, insert the following new clause:
"Continued application of provisions of Protection of Depositors Act 1963.
.—(1) The repeal by the Banking Act 1979 (the "1979 Act") of the Protection of Depositors Act 1963 (the "1963 Act") shall not affect, and shall be deemed never to have affected, the application of the following provisions of the 1963 Act to unexempted companies on and after the commencement of Parts I and III of the 1979 Act, that is to say—

(a) sections 6 to 17; and

(b) so far as relevant to the operation of those sections, sections 5 and 22 to 27.

(2) In this section "unexempted company" means any company within the meaning of the 1963 Act which is not excepted by section 2(1) of the 1979 Act from the prohibition on the acceptance of deposits imposed by section I of the latter Act".
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amemndent No. 233.
Moved, That this House doth agree with the Commons in the said Amendment. —(Lord Lyell.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 233
233A In subsection 1(a), leave out ("17") and insert ("19")
Lord M1SHCON: My Lords, I beg to move an amendment to Commons Amendment No. 233, Amendment No. 233A. This is the last time I shall burden your Lordships with any remarks of mine. I can be very brief in regard to this manuscript amendment. It deals with a situation which has to be covered by a clause in this Bill. The Bankers Act revoked the protection of the Depositors Act, because the Bankers Act had in mind that there would be licensed people who would hold deposits from the public. What was overlooked was the fact that there were people who might have deposits with a company which either did not apply for a licence, or which, having applied, didnot obtain one. Therefore, if all the provisions of the Protection of Depositors Act went, depositors with the unlicensed company would have no protection at all.
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Very correctly, the power which was contained in Section 17 of the Protection of Depositors Act is by retrospective action reinstated.
It is obviously necessary, as the Government have recognised, to protect such depositors. Section 18 of that Act gave very necessary powers to require the production of documents, and Section 19 gave a power of entry and search. Both powers may be very necessary in order to protect depositors in such cases. Therefore, the purpose of my amendment is merely to revive not only Section 17 of that Act but also Sections 18 and 19 as well.
Moved, That this House doth agree with the said amendment to Commons Amendment No. 233. (Lord Mishcon).
Lord LYELL: My Lords, the manuscript amendment of the noble Lord, Lord Mishcon, would have the effect of extending the powers reserved to the department. It would include the powers of inspection and search set out in Sections 18 and 19 of the 1963 Act. But I assure the noble Lord that his amendment is unnecessary because both those sections were repealed by Schedule 3 to the 1976 Companies Act. The reason for that repeal was that the department had already been given adequate powers in this respect under Section 109 and following sections in the 1967 Companies Act. I hope the noble Lord will accept that explanation.
Lord MISHCON: My Lords, I have no opportunity of checking what the Minister has said, but I am quite sure that if he has said it on advice, it has been said very correctly. On that basis, I am happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENTS
234 Clause 54, page 62, line 8, leave out from "section" to end of line 23 and insert "which increases the authorised minimum may—

(a) require any public company having an allotted share capital of which the nominal value is less than the amount specified in the order as the authorised minimum to increase that value to not less than that amount or make an application to be re-registered as a private company;

1167

(b) make, in connection with any such requirement, provision for any of the matters for which provision is made by any enactment in the Companies Acts relating to acorn-patty's registration, re-registration or change of name, to payment for any share comprised in a company's capital and to offers of shares in or debentures of a company to the public, including provision as to the consequences (whether in criminal law or otherwise) of a failure to comply with any requirement of the order; and

(c) contain such supplemental and transitional provision as the Secretary of State thinks appropriate, make different provision for different cases and, in particular provide for any provision of the order to come into operation on different days for different purposes."

235 Clause 56, page 63, line 13, at end insert—
" "conditional sale agreement" has the same meaning as in the Consumer Credit Act 1974;"
10.52 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 234 and 235.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
236 Clause 56, page 63, line 15, after "shares" insert "or debentures"
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 236. This is a complicated clause, but I think your Lordships would wish me to move it formally because I understand there is an amendment to it.
Moved, That this House doth agree with the Commons in the said amend-men t.—(Lord Lyell.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 236
236A After ("or") insert (", where any employee within the scheme is, or any former employee within the scheme was at the time of employment a member of an independent trade union recognised by the employer within the meaning of section 11 of the Employment Protection
1168
Act 1975, with the agreement of that trade union,")
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move, as an amendment to Commons Amendment No. 236, Amendment No. 236A. It is unfortunate that this amendment is the last on the Marshalled List, but sometimes as the field crowds round the last man has to play a few extra overs. I hope that as the last man in I shall have the sympathy of the House, because this is the only point in the Bill where this point can be raised.
With great respect to the noble Lord, Lord Lyell, I do not think it is a very complicated matter. This is the definition clause of an employees' share scheme. We have never had a definition of this sort before, but it has always been understood that an employees' share scheme covered cases in which employees got shares. But in this Bill we are introducing the wholly new element that an employees' share scheme can include a scheme to encourage or facilitate the holding of shares and, as this amendment would have it, or debentures. I am not making the semantic point that an employees' share scheme should not include debentures, but the substantive point that this is a break of a very serious kind.
Again, without labouring the point, I note that it was moved in Committee on 22nd November, met with doubt and some opposition by the right honourable friends in another place of noble Lords opposite and by some of their Back-Bench Members; then was said to be coming back on Report and was never brought back on Report; was, in effect, nodded through in Committee on 11th December and, finally, on Report on 4th March. So there were no substantive discussion and arguments from the Government in support of this addition.
Instead, if one reads the reports of the speeches of noble Lords' honourable friends on the Back-Benches, one finds Sir Brandon Rhys Williams, on 22nd November, at column 340 of the Official Report, being very doubtful as to whether debentures should be allowed in. I must read to your Lordships what Sir Brandon said, because I cannot put it any better. He suggested that he would not welcome—and I quote, if I may—
Lord LYELL: My Lords, will the noble Lord give way? I understand that it is against the Standing Orders of your Lordships' House to quote a Member of another place who is not a Minister. I am sorry, but I understand that that is the Standing Order.
Lord WEDDERBURN of CHARLTON: My Lords, I thank the noble Lord for bringing to my attention the Standing Orders. I had rather reflected as the evening went on, having heard of that Standing Order, that perhaps the number of times on which it had been broken had meant it to be in some form of obsolescence. However, if the noble Lord is so afraid of the point that he wants me to put it in my own words, I will put it in my own words, which happen to agree precisely with the sentiments generally expressed by Sir Brandon Rhys Williams on 22nd November. I am sorry that the noble Lord should hold up your Lordships in this way, and I have no alternative. He hurries me.
I, too, like Sir Brandon, do not particularly welcome the use of employees' share schemes, if they are primarily seen by management as a way of providing a new source of capital which is so dispersed that it does not threaten the controlling interest of the directors, or where rights of employees are strictly limited. I, too, feel that, at present, debentures are not a popular form of investment, for the obvious reason that inflation steadily erodes the asset, and most people prefer to put their savings into equities which give them some reasonable hope that their income and capital will move along with the depreciation in the value of money, of which the Government are very aware, and that they will not suffer too badly. I, too, feel like Members of another place, that if employees' share schemes are to invest in debentures, there will be friction when employees discover the character of the asset which their employers have given to them. I quite understand that it must embarrass noble Lords on the Front Bench opposite, but these are sentiments which I share with their honourable friends in another place and there are—
Lord DENHAM: My Lords, if the noble Lord will forgive me, it is a rule that noble Lords do not quote, and my noble friend was quite right to say so.
1170
I hope that the noble Lord will not take exception to that.
Lord WEDDERBURN of CHARLTON: Not at all, my Lords. I take the point of the noble Lord, which he put courteously to me, and I put courteously back to him that I share precisely the sentiments of Sir Brandon Rhys Williams, and that if he had been in the House earlier this evening he would have heard, time and time again from both sides of the House, reference made to sentiments expressed in another place. If we have all been out of order for the whole evening, I trust that those on the Front Benches and the usual channels will take steps to correct noble Lords on their own Back-Benches. It would, of course, be necessary for almost the whole debate.
I have established that I agree with the sentiment that to introduce debentures into an employees' share scheme introduces a novel element, which is, at least, to introduce something very different from equity shares, which in days of inflation could lead to friction if employees are at all misled about the nature of the security which they are being offered. Having established that somewhat more laboriously than I hoped to do, since I took the course that I did only in order to quote quickly something that somebody else had put better than I could, and having established that in six rather than two minutes, I wish to touch upon the areas of the Bill to which this definition is important.
I will do this very quickly by noting that the definition is important to Clause 15 and Schedule 13 by Amendment No. 315, to which we are coming in relation to the definition of "offer of shares to the public". Secondly, it is important to Clause 4. I spoke in your Lordships' House on Amendment No. 8 to Clause 4, about the allotment of share capital and the nominal value of a company's allotted share capital. Third, it is important to Section 54 of the 1948 Act in relation to financial assistance given by a company for the purchase or cash acquisition of its own shares. The fourth important part is Clause 22, which your Lordships have already dealt with. This deals with placing conditions on the right of a public limited company to allot its shares.
The clear intention of the Government and their advisers is to use the same

1171
definition in all fourplaces. Mysuggestion to the noble Lords opposite is that they may have been misled by a desire for tidiness, in that the same definition may not be wholly appropriate to all four places.
In view of the lateness of the hour, I will not extend my argument on this matter. However, I am perfectly willing, as other noble Lords have suggested, to put documents in the library if anyone should be interested. But there are very serious arguments whereby it could easily be established that this very serious new intervention could perhaps lead to different definitions in different parts of the Bill of an employees' share scheme. And it certainly leads to the point which was made in another place, that employees who are asked to take debentures might be in need of advice in a way which would be quite different if it were an offer of equities. They may be in need of advice on equities, but I think they certainly would need advice on debentures. In many cases they will not understand the difference unless it is explained to them.
My noble friends and I are suggesting in this amendment that the right people to give that advice, if there is a trade union recognised for consultation by the employer, is the trade union. The amendment does not in any way force an employer to recognise a union; it merely says that where there are good industrial relations and consultation with the union, what could be better than to explain to the employees concerned, through their union channel, that these are debentures and not shares. No doubt the union, in doing so after consultation, will explain why in this case it is a good buy. At least the workers will not afterwards be able to turn round and say, "You misled us; we thought this was an employees' share scheme. We know about shares. They go up when inflation goes tip, but debentures do not''.
I suggest that the Government should consider very seriously the need for advice for employees in their introduction of this new element into employee share schemes. I have taken a moment or two longer than I intended, and I trust that because it is the last amendment the Government will show a somewhat more relaxed attitude towards it than was possible earlier in the evening.
Moved, That this House cloth agree with the amendment to the Commons
Amendment No. 236.—(Lord Wedderburn of Charlton.)
11.3 p.m.
Lord LYELL: My Lords, the noble Lord, Lord Wedderburn of Charlton, has given a fairly lengthy and detailed explanation of his amendment. I have listened as carefully as I can to what he has had to say. There are two points which I should like to make. The Government are of the firm opinion that there is no reason at all why debentures should in any way be a more wise or unwise investment for employees than anything else. We believe that employees are perfectly capable of having such share schemes, debenture schemes or investment schemes in their own company explained to them, and that they are quite capable of making up their own minds.
I understand that there were problems about the possibility of trade union members in private companies, but this is not likely to be a major problem, especially in view of what I had to say about debentures as against shares. The Government certainly do not take the view that there is any difference in investment, as an investment medium, between debentures and shares just because debentures have a fixed rate of interest. There might be other attractive conditions attached to those debentures. They might carry conversion rights—indeed, many of them do—at a later stage. But I do not think that there is any outstanding reason to accept the noble Lord's amendment tonight. I am sorry to disappoint him and not to be more flexible, but I am afraid that is as far as I can go.
Lord WEDDERBURN of CHARLTON: My Lords, I thank the noble Lord for his reply. One point I omitted was the point on conversion and I am glad that he has mentioned it, because that does show one point on which employees might well need advice; but whereas he says that the company could give it, the company might not. However, in view of the circumstances, I naturally ask leave to withdraw this amendment.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENTS
237 Clause 56, Page 63, line 22, after "children" insert "or step-children"
238 Clause 56, Page 63, line 23, at end insert
" "hire-purchaser agreement" has the same meaning as in the Consumer Credit Act 1974; "
239 Clause 56, Page 63, line 28, at end insert
"(including foreign currency)"
240 Clause 56, Page 63, line 46, at end insert—
"(1A) In relation to an allotment of shares in a company, the shares shall be taken for the purposes of the Companies Acts to be allotted when a person acquires the unconditional right to be included in the company's register of members in respect of those shares.
(1B) For the purposes of the Companies Acts—

(a) a share in a company shall be taken to have been paid up (as to its nominal value or any premium on it) in cash or allotted for cash if the consideration for the allotment or the payment up is cash received by the company or is a cheque received by the company in good faith which the directors have no reason for suspecting will not be paid or is the release of a liability of the company for a liquidated sum or is an undertaking to pay cash to the company at a future date; and

(b) in relation to the allotment or payment up of any shares in a company, references in the Companies Acts, except in section 17 of this Act, to consideration other than cash and to the payment up of shares and premiums on shares otherwise than in cash include references to the payment of, or an undertaking to pay, cash to any person other than the company;

and for the purposes of determining whether a share is or is to be allotted for cash or paid up in cash, "cash" includes foreign currency."
241 Clause 56, Page 64, line 2, after "sheet" insert "or to a profit and loss account"
242 Clause 56, Page 64, line 6, after "transfer" insert" or acquisition "
243 Clause 56, Page 64, line 8, leave out "land" and insert"any property
244 Clause 59, page 65, line 28, leave out from "purposes" to end of line 30 and insert" of this Act or for different purposes of the same provision; and references in this Act to the appointed day shall be construed accordingly."

COMMONS AMENDMENTS
In the Schedules
245 Schedule 2, page 68, line 8, leave out "£25" and insert "£10"
246 Schedule 2, page 68, line 14, leave out "£25" and insert "£5"
247 Schedule 2, page 68, line 20, leave out "£25" and insert "£5"
248 Schedule 2, page 69, line 25, leave out "£25". and insert "£5"
249 Schedule 2, page 71, line 16, leave out "£25" and insert "£5"
250 Schedule 2, page 71, line 22, leave out "£25" and insert "£5"
251 Schedule 2, page 72, line 21, leave out "£25" and insert "£5"
252 Schedule 2, page 72, line 27, leave out "£25" and insert "£5"
253 Schedule 2, page 73, line 6, leave out "£25" and insert "£5"
254 Schedule 2, page 73, line 28, leave out "£25" and insert "£2"
255 Schedule 2, page 74, line 27, leave out "£25" and insert "£5"
256 Schedule 2, page 75, line 13, leave out "£25" and insert "£2"
257 Schedule 2, page 76, line 12, leave out "£25" and insert "£2"
258 Schedule 2, page 76, line 24, leave out "£25" and insert "£5"
259 Schedule 2, page 77, line 11, leave out "£25" and insert "£5"
260 Schedule 2, page 77, line 17, leave out "£25" and insert "£5"
261 Schedule 2, page 77, line 25, leave out "£25" and insert "£2"
262 Schedule 2, page 77, line 30, leave out "£25" and insert "£5"
263 Schedule 2, page 78 line 6, leave out "£25" and insert "£5"
264 Schedule 2, page 78 line 12, leave out "£25" and insert "£5"
265 Schedule 2, page 78 line 18, leave out "£25" and insert "£5"
266 Schedule 2, page 78 line 24, leave out "£25" and insert "£5"
267 Schedule 2, page 79, line 16, leave out "£25" and insert "£2"
268 Schedule 2, page 80, line 6, leave out "£25" and insert "£2"
269 Schedule 2, page 80 line 17, leave out "£25" and insert "£5"
270 Schedule 2, page 80 line 25, leave out "£25" and insert "£2"
271 Schedule 2, page 81, line 16, leave out "£25" and insert "£5"
272 Schedule 2, page 81, column 3, leave out lines 24 to 28 and insert "on conviction on indictment, a term of imprisonment not exceeding six months or a fine or both."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their amendments.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
273 Schedule 2, Page 82, column 3, leave out lines 5 to 9 and insert "on conviction on indictment, a term of imprisonment not exceeding six months or a fine or both".
274 Schedule 2, Page 82, column 3, line 16, leave out "£25" and insert "£5"
275 Schedule 2, Page 82, column 3, line 27, leave out "£25" and insert "£5"
275A Schedule 2, Page 83, line 21, leave out "£25" and insert "£5"
276 Schedule 2, Page 84, line 23, leave out "£25" and insert "£5"
277 Schedule 2, Page 85, line 6, leave out "£25" and insert "£10"
278 Schedule 2, Page 85, column 3, leave out lines 24 to 28 and insert "on conviction on indictment, a term of imrpisonment not exceeding six months or a fine or both."
279 Schedule 2, Page 86, line 12, leave out "£25" and insert "£5"
280 Schedule 2, Page 86, line 18, leave out "£25" and insert "£5"
281 Schedule 2, Page 87, line 9, leave out "£25" and insert "£5"
282 Schedule 2, Page 87, line 15, leave out "£25" and insert "£5"
283 Schedule 2, Page 87, line 24, leave out "£25" and insert "£5"
284 Schedule 2, Page 90, line 24, leave out "£25" and insert "£5"
285 Schedule 2, Page 91, line 9, leave out "£25" and insert "£5"
286 Schedule 2, Page 91, line 15, leave out "£25" and insert "£10"
287 Schedule 2, Page 91, line 21, leave out "£25" and insert "£5"
288 Schedule 2, Page 92, line 13, leave out "£25" and insert "£5"
289 Schedule 2, Page 93, line 6, leave out "£25" and insert "£5"
290 Schedule 2, Page 93, line 13, leave out "£25" and insert "£5"
291 Schedule 2, Page 93, line 18, leave out"£25" and insert "£5"
292 Schedule 2, Page 93, line 25, leave out"£25" and insert "£5"
293 Schedule 2, Page 94, line 6, leave out "£25" and insert "£5"
294 Schedule 2, Page 95, line 12, leave out "£25" and insert "£5"
295 Schedule 2, Page 95 line 18, leave out "£25" and insert "£5"
296 Schedule 2, Page 96, line 12, leave out "£25" and insert "£5"
297 Schedule 2, Page 96, line 19, leave out "£25" and insert "£5"
298 Schedule 2, Page 97, line 19, leave out "£25and insert "£5"
299 Schedule 2, Page 97, line 23, leave out "£25" and insert "£5"
300 Schedule 2, Page 99, line 17, leave out "£25" and insert "£5"
301 Schedule 2, Page 99, line 26, column 4, leave out paragraph (a).
302 Schedule 2, Page 100, line 27, column 3, leave out from "continues" to end of line 29.
303 Schedule 2, Page 101, line 6, leave out "£25" and insert "£5"
304 Schedule 2, Page 101, line 17, column 3, leave out from "continues to end of line 19.
305 Schedule 2, Page 101, line 25, leave out "£25" and insert "£5"
306 Schedule 2, Page 102, line 8, leave out "£25" and insert "£5"
307 Schedule 2, Page 102 line 21, column 3, leave out from "continues" to end of line 23.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their amendments.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
308 Schedule 3, page 103, line 21, leave out "and additions to"
309 Schedule 3, page 103, line 24, leave out from beginning to "notwithstanding" in line 26 and insert "Where an order under this section requires the company not to make any, or any specified, alteration in its memorandum or articles, then"
310 Schedule 3, page 103, line 29, leave out "or addition"
311 Schedule 3, page 103, line 30, leave out "or addition to"
312 Schedule 3, page 103, line 36, leave out "or added to"
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their amendments.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
313 Schedule 3, page 103, line 37, leave out paragraph 5.
314 Schedule 3, Page 104, line 33, at end insert—
"10A. In section 54 (prohibition on company providing financial assistance for purchase of own shares, etc.)—
(a) the following paragraph shall be substituted for paragraph (b) of subsection (1)—
"(b) the provision by a company in accordance with an employee share scheme (within the meaning of the Companies Act 1980) of money for the purchase of, or subscription for, fully-paid shares in the company or its holding company by the trustees of the scheme; ";
(b) after subsection (1) there shall be inserted the following subsections—
"(1A) The proviso to the foregoing subsection shall authorise a public company to give financial assistance to any person only if the company's net assets are not thereby reduced or, to the extent that those assets are thereby reduced, if the financial assistance is provided out of profits which are available for dividend.
(1B) In this section, "net assets" in relation to any company, mean the aggregate of that company's assets less the aggregate of its liabilities: and"liabilities"includes any provision (within the meaning

1177
of Schedule 8 to this Act) except to the extent that that provision is taken into account in calculating the value of any asset to the company."."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their amendments.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
315 Schedule 3, page 104, line 36, leave out from "following" to end of line 47 and insert"subsections—
(3) For the purposes of this section an offer of shares in or debentures of a private company or an invitation to subscribe for such shares or debentures shall, if it is of any of the following descriptions—

(a) an offer or invitation made to any member of a relevant class;

(b) an offer or invitation to subscribe for shares or debentures to be held under an employees' share scheme;

(c) an offer or invitation falling within paragraph (a) or (b) above and made on terms which permit the person to whom the offer or invitation is made to renounce his right to the allotment of shares or issue of debentures, but only in favour of a member of a relevant class or, where there is an employees' share scheme, of a person entitled to hold shares or debentures under the scheme;

be regarded, unless the contrary is proved, as being a domestic concern of the person or persons making and receiving the offer or invitation.
(4) In this section—
"employees' share scheme" has the same meaning as in the Companies Act 1980;
"family" means, in relation to a person, that person's husband or wife, widow or widower and children (including step-children) and their descendants and any trustee (acting in his capacity as such) of a trust the principal beneficiary of which is that person or any of those relatives; and
"member of a relevant class" means an existing member of the company making the offer or invitation, or an existing employee of that company, or a member of the family of such a member or employee, or an existing debenture holder."
316 Schedule 3, page 104, line 36, after the words last inserted, insert—
"11A. In section 56(2) (application of
1178
share premium account in paying up bonus shares, etc.) for the word "issued" there shall be substituted the word "allotted".
317 Schedule 3, Page 105, line 4, at end insert—
"12A. In section 58(5) (application of capital reverse redemption in paying up bonus shares) for the word "ssued" there shall be substituted the word "allotted"."
318 Page 105, line 20, at end insert—
"15A. In section 149(6) (accounts not complying with requirements of Act)

(a) for the words "this Act" there shall be substituted the words "the Companies Acts 1948 to 1980"; and

(b) for paragraphs (a) and (b) there shall be substituted the following paragraphs:—

"(a) on conviction on indictment, to a fine;
(b) on summary conviction, to a fine not exceeding the statutory maximum (within the meaning of the Companies Act 1980) "."
319 Page 105, line 23, after the words last inserted—
"16A. In section 150(3) (group accounts not complying with requirements of Act)—

(a) after the word "Act" there shall be inserted the words "and with the other requirements of the Companies Acts 1948 to 1980 as to the matters to be stated in group accounts"; and

(b) for paragraphs (a) and (b) there shall be substituted the following paragraphs:—

"(a) on conviction on indictment, to a fine;

(b) on summary conviction, to a fine not exceeding the statutory maximum (within the meaning of the Companies Act 1980)".

320 Page 105, line 23, after the words last inserted—
"16B. In section 165 (circumstances in which Secretary of State may appoint inspectors to investigate affairs of company)—

(a) at the beginning there shall be inserted the word "(1)";

(b) for paragraph (b)(i) there shall be substituted the following sub-paragraph:—

"(i) that its affairs are being or have been conducted with intent to defraud its creditors or the creditors of any other person or otherwise for a fraudulent or unlawful purpose or in a manner which is unfairly prejudicial to some part of its members, or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial, or that it was

1179
formed for any fraudulent or unlawful purpose; or "; and
(c) at the end there shall be added the following subsection—
"(2) The power conferred by subsection (1)(b) above shall be exercisable with respect to a body corporate notwithstanding that it is in course of being voluntarily wound up; and the reference in sub-paragraph (i) of that paragraph to the members of a company shall have effect as if it included a reference to any person who is not a member but to whom shares in the company have been transferred or transmitted by operation of law."."
321 Page 105, line 37, at end insert—
'"19A. In section 199(3) (general notice of director's interest in contract made with a specified company or firm) for all the words before the proviso there shall be substituted the following provision—
"For the purposes of this section, a general notice given to the directors of a company by a director to the effect that—

(a) he is a member of a specified company or firm and is to be regarded as interested in any contract which may, after the date of the notice, be made with that company or firm; or

(b) he is to be regarded as interested in any contract which may after the date of the notice be made with a specified person who is connected with him (within the meaning of section (Interpretation of Part IV) of the Companies Act 1980);

shall be deemed to be a sufficient declaration of interest in relation to any such contract.".'
322 Page 105, line 37, after the words last inserted, insert—
"19B. In section 205(b) (exclusion of prohibition on indemnifying officers of company against liabilities) after the words "this Act" there shall be inserted the words or section 36 of the Companies Act 1980"."
323 Page 105, line 38, leave out paragraph 20 and insert.—
"20. In section 222 (grounds for winding up), for paragraph (b) there shall be substituted the following paragraphs—
"(b) being a public company which was registered as such on its original incorporation, the company has not been issued with a certificate under section 4 of the Companies Act 1980 and more than a year has expired since it was so registered;
(bb) after the end of the transitional period, within the meaning of that
1180
Act, the company is an old public company within the meaning of that Act".
21. In section 224(1) (persons who may apply for winding up), for paragraph (b) of the proviso, there shall be substituted the following paragraph—
"(b) if the ground of the petition is that in section 222(6) or (bb) of this Act, a winding up petition may be presented by the Secretary of State; and"."
324 Schedule 3, page 106, line 37, leave out or add to"
325 Schedule 3, page 107, line 26, at end insert—
"(8) In the proviso to regulation 128 (power to apply reserve funds in paying up bonus shares) for the word "issued there shall be subtsituted the word "allotted".
(9) The following regulation is added after regulation 128:
"128A. The company in general meeting may on the recommendation of the directors resolve that it is desirable to capitalise any part of the amount for the time being standing to the credit of any of the company's reserve accounts or to the credit of the profit and loss account which is not available for distribution by applying such sum in paying up in full unissued shares to be allotted as fully paid bonus shares to those members of the company who would have been entitled to that sum if it were distributed by way of dividend (and in the same proportions), and the directors shall give effect to such resolution."
(10) In regulation 129 (duties of directors on resolutions under regulation 128) for the words from the beginning to "have been passed" there shall be substituted the words "Whenever a resolution is passed in pursuance of regulation 128 or 128A above."."
326 Schedule 3, page 107, line 46, leave out from "a" to first "or" in line 3, on page 108 and insert "public company, other than an old public company within the meaning of the Companies Act 1980 (the "1980 Act") are acquired by the company by forfeiture or surrender in lieu of forfeiture or in pursuance of section 35(1A) of the 1980 Act or are acquired by another person in circumstances where paragraph (c) or (h) of section 37(1) of the 1980 Act applies"
327 Schedule 3, page 108, line 5, leave out "the Companies Act 1979" and insert "the 1980 Act"
328 Schedule 3, page 108, line 7, leave out "such a person" and insert "another person in such circumstances"
329 Schedule 3, page 108, line 11, leave out "such a person" and insert "another person in such circumstances"
330 Schedule 3, page 108, line 13, after "company" insert "or that other person"
331 Schedule 3, page 108, line 15, leave out "such a person" and insert "another person in such circumstances"
332 Schedule 3, page 108, line 17, after "of" insert "by the company or that other person"
333 Schedule 3, page 108, line 27, leave out "such a person" and insert "the person who acquired them in such circumstances"
334 Schedule 3, page 109, line 12, at end insert—
" 33A. In section 23(1) (penalties for default in relation to directors' report) for paragraphs (a) and (b) there shall be substituted the following paragraphs:—

"(a) on conviction on indictment, to a fine;

(b) on summary conviction, to a fine not exceeding the statutory maximum (within the meaning of the Companies Act 1980)."."

335 Schedule 3, page 109, line 15, at end insert—
"34A. In section 44 (unlimited companies may be re-registered as limited), for subsection (2) there shall he substituted the following subsection—
"(2) The said requirement is that the resolution must state whether the company is to be limited by shares or by guarantee and—

(a) if it is to be limited by shares, must state what the share capital is to be and provide for the making of such alterations in the memorandum as are necessary to bring it, both in substance and in form, into conformity with the requirements of this Act with respect to the memorandum of a company so limited, and such alterations in the articles as are requisite in the circumstances;

(b) if it is to be limited by guarantee, must provide for the making of such alterations in its memorandum and articles as are necessary to bring them, both in substance and in form, into conformity with the requirements of this Act with respect to the memorandum and articles of a company so limited."."

336 Schedule 3, page 110, line 4, leave out "certified as such under section 41(7)" and insert "within the meaning of Part III"
337 Schedule 4, page 111, line 6, column 3, at end insert—
"In section 10, in subsection (1) the words "or add to" and in subsection (2) the words "or addition"."
338 Schedule 4, page 111, line 29, at end insert—
"Section 190.
Section 197.
In section 198, in subsection (1) the words from "and of" to the end, and in subsection (3), paragraph (a) and in paragraph (6) the words "and the last foregoing section"."
339 Schedule 4, page 111, line 31, leave out "paragraph (b) and"
340 Schedule 4, page 111, line 43, leave out and paragraph (b)"
341 Schedule 4, page 111, line 47, column 3, at end insert—
"In section 454(2)(b) the words "or add to"."
342 Schedule 4, page 112, line 25, column 3, at end insert—
"Section 16(1)(c).
Section 26(8)(a)."
343 Schedule 4, page 112, line 25, column 3, leave out lines 26 to 29 and insert—
"Section 35(2).
Section 38.
In section 43, in subsections (2)(b) and (3)(d) the words "and additions thereto" and in subsection (4)(b) the words "and additions" and or added to"."
344 Schedule 4, page 112, line 33, column 3, at end insert—
"In Schedule 4, the entry relating to section 149(6) of the Companies Act 1948."
345 Schedule 4, page 113, line 8, at end insert—
"(bb the repeal by this Schedule of section 197 of the 1948 Act and section 16(1)(c) of the 1967 Act shall have effect subject to the saving in section (Consequential repeals and savings) (2) above."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their amendments.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.
House adjourned at seven minutes past eleven o'clock.