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Clause 36—(Ordinary Powers Of Investment)

Volume 464: debated on Tuesday 3 May 1949

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I beg to move, in page 41, line 17, after "Corporation." to insert:

"or any publicly-owned company."
I suggest it would be for the convenience of the House if we were also to discuss the Amendments in lines 19, 21, 23 and 24, all of which are consequential. At long last we have reached an Amendment which I think the right hon. Gentle- man will be prepared to accept. So far, he has not given way on a single point, and I do not think he has given a single undertaking to look at any matter again. I have logic and tidiness in support of this Amendment, and on this I think that the views of the Government and the Opposition can march together.

Clause 36 deals with the ordinary powers of investment of the Corporation. It says:
"Any sums in the hands of the Corporation which are not immediately required for the purposes of their business may be invested in such manner as the Corporation think proper."
The Government have then seen fit to include this proviso:
"Provided that the Corporation shall not have power under this section to invest money in the securities of any company so as to make that company a subsidiary of the Corporation or so as to enable the Corporation to exercise an effective influence on the policy of the company."
I gather that on this issue the Government are being sufficiently straightforward to say that, if it is the intention to acquire a controlling interest or domination over a particular company, it will be done in some other way, and that they will not use the back-door method of investment of the surplus funds of the Corporation for such a purpose. As the Clause stands, the only body which is prevented from using that method is the Corporation. It would be possible for one of the Corporation's subsidiaries to use its reserves or in some other way to obtain control over another company. I imagine, therefore, that the safeguard the Government intend to provide is wholly illusory.

5.15 p.m.

We desire that the Clause should read:
"Any sums in the hands of the Corporation or any publicly-owned company which are not immediately required for the purposes of their business may be invested in such manner as the Corporation or the publicly-owned company, as the case may be, think proper:
Provided that neither the Corporation nor any publicly-owned company shall have power under this section to invest money in the securities of any company so as to make that company a subsidiary of the Corporation or of any publicly-owned company so as to enable the Corporation or any publicly-owned company to exercise an effective influence on the policy of the company."
I would remind the House that the word "subsidiary" is defined in the definition Clause in accordance with Section 154 of the Companies Act, 1948. A company can become a subsidiary of another if that other company is either a member of the board or controls the composition of the board, or holds more than half the nominal value of the equity share capital. I urge the Government at long last to concede something to the Opposition. If they do not make this concession, then, like so many other things, this safeguard is only a sham.

I beg to second the Amendment.

My hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) has covered the point very effectively. He has provided the Minister with an opportunity to insert something into the Bill to give the Minister a safeguard which I am sure he wishes to have. It is surely intended in this Clause to debar the Corporation from exercising powers in regard to any sums of money they may have at a particular moment to obtain control of a company. Surely it is also the wish that these powers should apply to any of their subsidiaries. Unless the Minister can give a good reason why these words should not be inserted, I cannot but agree with my hon. and learned Friend that he is proposing something which tidies up the Bill and which the Government would wish to have inserted at this point.

I wish briefly to support this Amendment. If it has been found desirable that sums in the hands of the Corporation should be treated in this way under the Clause and that the Corporation should have powers to be able to invest such sums, surely it is equally clear and desirable that the publicly-owned companies should also have the same powers.

I have no quarrel with the general purpose of this Amendment, but I have a very good reason to suggest why it is undesirable. It is our intention that control of the finances of the various companies should rest with the Corporation. The public companies should not be able to decide for themselves where and how they are to invest their surplus funds. There must be central control of those surplus funds and of investment. The Amendment would deliberately give power to the publicly-owned companies to invest how they liked, with a specific exception. I am sure that we do not want that to happen.

It is desirable, in a big organisation of this kind, that there should be central administration of investment of surplus funds. I agree that there should not be investment of any funds where they happen to be in the hands of the Corporation or of the wholly owned company along the lines we are discussing, but it must be the responsibility of the Corporation to see that does not happen. If we accepted the Amendment it would give to the publicly-owned companies power to invest surplus funds which, in our view, they should not have, and for that reason perhaps the hon. and learned Member for Wirral (Mr. Selwyn Lloyd) will withdraw the Amendment.

I quite see the point which the right hon. Gentleman has made, but as we are discussing several Amendments at the same time would not the best course to adopt be for the right hon. Gentleman to say that he cannot accept the insertion of the words "publicly-owned company" after "Corporation" in line 17 or line 19 but that the words "publicly-owned company" should be added to the proviso which prohibits the Corporation from investing money in such a way as to make other companies subsidiaries of the Corporation, or so as to enable the Corporation to exercise an effective influence on the policy of the company. It would seem to be completely in accord with what the right hon. Gentleman has said is his intention about central control of finance by the Corporation to allow the first four lines of the Clause to stand as drafted, without the addition of the words "publicly-owned company" but to go on, in the proviso, to place an embargo not only on the Corporation investing its funds in such a way as to bring other concerns within its effective control, but also an embargo upon any publicly-owned company investing its money in such a way as to make other companies subsidiaries of it, or to give it an effective influence on the policy of those other companies.

If we did that we should be carrying out what the Minister has in mind and be putting into the statute something which makes it clear that the investments of these publicly-owned companies will be dealt with centrally by the Corporation and not piecemeal by the companies themselves. If my hon. and learned Friend the Member for Wirral will withdraw the Amendment perhaps the Minister might see his way, on the third Amendment, to accept my hon. and learned Friend's suggestion.

With the leave of the House, may I say that we have looked at this matter but have found that in practice, and legally, it will not work. It would by implication give power to the publicly-owned companies to invest for other purposes, and we do not want to give specific powers to the boards of these companies. There is no difference of intention between us, but we cannot meet the situation by accepting a subsequent Amendment.

Is not the constitution such that the Corporation will, as things stand, have control of the finances of the publicly-owned companies?

They will have control by virtue of the fact that they are the sole shareholders.

Is that good enough? They are the sole shareholders, but ought not the Minister to insert words in the Bill which will regulate the position and show that the Corporation have powers of overall investment of the capital of the whole of these publicly-owned companies? If he will not do that then we are back to the flexibility regime. If he agrees with the general intention of the remarks of my right hon. Friend the Member for North Leeds (Mr. Peake), that the tightening up should apply to the publicly-owned companies, will he leave the first part of the Clause so that the Corporation shall have overall powers of investment? We ask the Minister to be specific in the Bill and he refuses, although he gives no adequate reason except to say that the Corporation, by virtue of its holding all the shares of these publicly-owned companies, automatically has that power. Between now and the next stage of the Bill—it might be done in Clause 2, which defines the powers of the Corporation—the right hon. Gentleman should make it clear that the Corporation should have this overriding right of investment planning.

The right hon. Gentleman has met this Amendment in a much more conciliatory spirit than he has met many others, and although I am anxious not to be obstinate there are certain difficulties about what he suggested. There must be sums of money in the hands of the companies as well as in the hands of the Corporation. There must be power, somewhere, to invest those sums of money. At the moment, the Clause does not appear to cover sums of money in the hands of the companies and which are to be invested. They will be invested in accordance with their articles of association. They can be invested without any restriction at all.

I understand that the Minister wishes to put a proviso into the Bill about the investment of the moneys of publicly-owned companies. Supposing a situation is reached when there is no exact accord between the Corporation and the Minister, it will be possible for the Corporation to get round this proviso by using the surplus funds of some of the companies to branch out in undertakings which, technically, will be ruled out under this Clause if the Corporation seek to do it with their own funds. It is to cover that contingency that some words are required in the Bill. If the right hon. Gentleman will look at the matter again before the Bill reaches another place, I should ask leave to withdraw the Amendment.

I have already said that we are not quarrelling on this matter. It is our intention that no moneys held either by the publicly-owned companies or the Corporation should be used for this purpose. The point is covered by the fact that the Corporation is the sole shareholder and can give a general direction to all its companies. If necessary, the Minister can give a direction to the Corporation if it did not do so. Therefore, I am not worried about the situation. I am perfectly happy to look at the matter again and to consider whether it is necessary to give an opportunity in another place to insert some words to cover it. But even if we cannot, I do not think that we need fear that anything is likely to go wrong.

5.30 p.m.

One of the firms within the Third Schedule may be engaged in, shall we say, the manufacture of some article in competition with other firms outside the Third Schedule. In the day-to-day working of that particular firm in the Third Schedule they might find, with the concurrence of another firm manufacturing those articles, that it would be wise for that other firm to come into the management of the main firm. As I see it at the moment, it is possible for a firm in the Third Schedule, by agreement with another firm, to take over, by investment of money, the shares of this other firm. If something is inserted into this Bill which will prevent any firm which is in the Third Schedule from engaging in, shall we say, the hotel business, we should be preventing that Third Schedule company from performing its activities in its best interests; and we shall leave a firm outside which is willing to come into the management of the Third Schedule company. I am wondering what the Minister's case would be in regard to that?

I think my hon. Friend's point can be met by Clause 2, because Clause 36 only deals with money not immediately required for the purpose of their business. Under Clause 2 there is specific power to acquire companies by an agreement of the kind which he has described.

In view of the intimation of the right hon. Gentleman I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

I beg to move, in page 41, line 20, at the end, to insert:

"in any statutory security (as defined for the purposes of the Seventh Schedule to this Act)."
That would make the Clause read:
"Any sums in the hands of the Corporation which are not immediately required for the purposes of their business may be invested in such manner as the Corporation think proper in any statutory security (as defined for the purposes of the Seventh Schedule to this Act)."
In the proviso the Corporation are not to have the power to exercise any effective influence on the policy of the company in whom they invest their temporary moneys. We on this side of the House consider that to be an inadequate safeguard. If some authority like the Corporation were to invest in the shares of a company with sums equal to about 20 per cent. or 25 per cent. of the total shareholding, that might not be regarded legally as making them a subsidiary. They would need 51 per cent. of the shares for that. But they would have a very remarkable influence on the board, not only by virtue of the 25 per cent. holding, but by virtue of whom they are and with what authority they act.

It seems to us that there is still a loophole in the proviso to exercise an influence on a subsidiary of the Corporation, which influence is really not intended to be there by virtue of the wording which the right hon. Gentleman himself has put in. Therefore, in order to make the position absolutely sure, we wish to add that the investment must be in any statutory security. That is defined in the Seventh Schedule as meaning—I will not go into the whole thing—trustee stocks. We say therefore that the temporary moneys of the Corporation shall be invested in that way. They could at no stage be assumed to have any real control of the operations of the subsidiary company, but would be confined to those stocks and debentures and other things of that kind. That would effectively employ their money for the purposes of receiving revenue thereon. It would be on hand, on easy call, and could be re-invested at any other stage in whatever the ultimate investment was to be.

I beg to second the Amendment.

It seems to me that as the Clause stands at present it is far too wide. Presumably the Minister, and probably the whole House, assumed that funds which are unnecessary for the working of the Corporation for the time being will be invested in the way suggested by the proposal in this Amendment; but as the Clause remains at present it is far too wide, and the House would be much happier if it were laid down definitely that these funds should be invested in this way. Then we should know exactly where we were.

The Government cannot accept this Amendment. This is another of the Amendments which have been moved during the various stages of the Committee, and the Report stage, to restrict the Corporation and handicap it in a way in which no commercial concern is handicapped. It is suggested here that their surplus funds can, broadly speaking, be invested only in trustee securities. That is a restriction which does not apply to commercial concerns of any sort, and I see no reason whatever why a limitation of this description, which is not a normal commercial practice, should be put on this public Corporation. I think this body should have the same rights and privileges and opportunities as any ordinary industrial con- cern, and not less, and for these reasons I cannot accept the Amendment.

Amendment negatived.