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Bonus Issues

Volume 436: debated on Tuesday 15 April 1947

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I have given further special thought to one type of transaction which has attracted much attention, some of it uncomplimentary, namely, the bonus issue. These issues may sometimes be a defensible method of capitalising reserves or genuine profits. They may be. But often they are nothing more than a watering of capital, a method of concealing profits, and so misleading customers, employees, and the general public, and heading off demands for lower prices or better conditions of employment. My two predecessors at the Treasury forbade bonus issues altogether during the war, save in very exceptional cases; and there is something to be said for maintaining this prohibition. I have heard much argument about this question; I have taken much advice; I have consulted many experts. In a quiet way, I have been looking round to see how I might, at the same time, both give a little pleasure and collect a little revenue. It seemed to me that there was a case for my being a little more forthcoming in permitting bonus issues, on condition that the public also participated in a reasonable rake-off from these somewhat debatable operations.

I intend, therefore, to impose an additional Stamp Duty of 10 per cent. on the value of all bonus issues passed by the Capital Issues Committee, to which well-trusted body I propose to give an extended discretion in regard to these issues.

I should, perhaps, remind the Committee that a bonus issue may take either of two forms. First, there is the bonus issue proper, which is a gratuitous issue of new shares to existing shareholders in proportion to their holdings. The characteristic of this type of issue. is that no new money whatsoever is subscribed. This, if one may use a colloquialism, is sheer "money for jam." The second type is an issue of new shares, containing a "bonus element," to existing shareholders; that is to say, an issue of new shares, for which, indeed, the shareholders pay something, but less—and, sometimes, very much less—than their market value. Here, indeed, some new money is put up by the shareholder, but, often, relatively speaking, not very much. Last year I gave the Capital Issues Committee discretion to recommend to the Treasury that consent should be given to bonus element cases—that is, to the second of the two types which I have described—when having regard to all the circumstances, the issue price appears to them to be fair and reasonable. I now propose to give the Capital Issues Committee a similar discretion to recommend consent or refusal, as the case may be, in the case of bonus issues proper.

I am prepared to give the bonus issue this degree of benefit of the doubt. But I should make it clear that this concession is not meant unduly to encourage these transactions, even though I can expect revenue from them; and I ask all promoters of such issues to think carefully before making up their minds that a bonus issue is really essential to the proper management of their business.

The new Stamp Duty will, in the case of public companies, be at the rate of 10 per cent. on the excess of the market value of the bonus share over the sum, if any, which the shareholder pays for it. The market value will be taken as the Stock Exchange valuation of the shares after the issue. In the case of private companies, whose shares are not quoted on the Stock Exchange, the charge of 10 per cent. will fall on the excess of the par value of the share over the sum, if any, paid for it. This duty will be payable by the company making the issue, and will be levied on any bonus issue made from today. It is estimated to yield £5,000,000 in a full year and the same amount this year. Therefore, from Stamp Duties as a whole, I expect to get a further £25 million in a full year, and £17 million this year.