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Companies Bill Lords

Volume 980: debated on Monday 3 March 1980

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As amended (in the Standing Committee), further considered.

Clause 40

Restriction On Distribution Of Assets

4.49 pm

I beg to move amendment No. 56, in Page 48, line 42 at end insert—

'(6) A Company to which this subsection applies shall not after the appointed day apply its assets in furtherance of political objects otherwise than in accordance with the provisions of Schedule (Distribution of profits and of assets for political objects) and shall accordingly act in relation to distributions in accordance with that Schedule.
(7) Where, in accordance with subsection (6) above, a company transfers into its political fund an amount otherwise payable to a member by reason of a distribution that member shall not at any time have any proprietary interest whatsoever in that amount.
(8) Where, in accordance with subsection (6) above, a company transfers an amount into its political fund, the computation of its net assets in the relevant accounting reference period for the purposes of subsection (1) (a) above shall be deemed to exclude an amount equal to that amount.
(9) In subsection (8) above "the relevant accounting reference period" means that period prescribed by regulation made by statutory instrument by the Secretary of State.
(10) Subsection (6) above applies to a public company, and to a subsidiary of a public company; and in this subsection "public company" includes, nothwithstanding section 8(2) or any other provision of this Act, an old public company from the appointed day.'.

No. 57, in clause 41, page 51, line 3, at end insert—

(14) The Secretary of State may by regulation made by statutory order apply section 40(6), (7), (8), (9), (10) and Schedule (Distribution of profits and of assets for political objects) to investment companies with such variations in the provisions of the said Schedule which he considers appropriate:—
Provided that no such regulation shall abrogate or vary the provisions of the said Schedule concerning: the restriction of the application of a company's assets to political objects to applications of assets only from its political fund; the requirement for an ordinary resolution in general meeting authorising such a political fund; the requirement that the political fund must be financed out of sums otherwise distributable to members and not otherwise; the rights of exempt members; and the definition of "political objects.".'.

No. 58, in clause 42, page 51, line 33, at end insert—

(3) Section 40(6), (7), (8), (9) and (10) Above shall apply to insurance companies with such variations in those subsections and in Schedule (Distribution of profits and of assets for political objects) as the Secretary of State may prescribe by regulations made by statutory instrument.'.

No. 157, to insert a new schedule:

'Distribution Of Profits And Of Assets For Political Objects

1. The assets of a public company shall not be applied, either directly or in conjunction with any other company, association or body, or otherwise indirectly, in furtherance of the political objects to which this Schedule applies, (without prejudice to the furtherance of any other political objects) unless the furtherance of those objects is within the capacity of the company under the provisions of its memorandum of association and has been approved by an ordinary resolution of the company in general meeting in accordance with the provisions of its articles of association and in accordance with regulations made by statutory instrument by the Secretary of State.

2. Regulations made by statutory instrument by the Secretary of State under this Schedule shall include provision:

  • (a) to ensure that notice of the general meeting includes the terms of the said ordinary resolution and an explanation by the directors of the company of the nature of the proposed political fund;
  • (b) to require the directors to make that resolution, together with a statement of the terms entitled to the said notice not less than 28 days before the general meeting;
  • (c) to require the directors to make similarly available at the same time a written statement of the right of members to be exempt as described in the following provisions of this Schedule, together with the necessary notice in such form as he shall prescribe, whereby members may establish their right to be exempt members;
  • (d) to ensure that, in voting upon such an ordinary resolution, no share shall, on a poll, carry a greater number of votes than it would carry in relation to the generality of matters to be voted on at a general meeting of the company (and where a share carries special voting rights different from those of the same nominal value, the "generality of matters" shall be construed in this sub-paragraph as referring to matters in relation to which the share carries no special voting rights);
  • (e) to make such provision as is in his opinion necessary to give effect to paragraph 4 below concerning subsidiary companies;
  • (f) to regulate the methods of calculation of payments to exempt members as provided by paragraph 7 below;
  • (g) for any other purpose necessary in his opinion for the effective operation of this Schedule.
  • 3. Where a company has passed an ordinary resolution in accordance with the provisions of this Schedule for the furtherance of political objects, it shall establish a separate fund (in this Schedule referred to as "the political fund"); and any application of the assets of the company in furtherance of political objects within the meaning of paragraph 1 above shall be made or financed only out of that fund and by no other application of the assets of the company whatsoever.

    4. Where a subsidiary of a public company has passed an ordinary resolution in accordance with the foregoing provisions of this Schedule for the furtherance of political objects, it shall not establish a political fund unless and until an ordinary resolution has been passed in accordance with the foregoing paragraphs of this Schedule in a general meeting of its holding company approving the establishment of a political fund by the company.

    5. Section 143(1) of the Companies Act 1948 (Registration and copies of certain resolutions and agreements), shall apply to ordinary resolutions passed for the purposes specified by the foregoing paragraphs of this Schedule, which shall accordingly be forwarded to the registrar of companies and recorded by him.

    6. (1) No assets of a company shall be transferred into its political fund other than amounts available for distribution.

    (2) At the time of the declaration or other announcement of any distribution, interim or otherwise, the directors of a company which has registered a resolution under paragraph 5 above shall state what amount, if any, the company proposes to transfer to its political fund and date, being not less than one week and not more than one month following such declaration or announcement, at which such transfer will be made.

    (3) Where a statement is made under subparagraph (2) above, any member being an exempt member shall be entitled to receive:

  • (a) that part of the dividend or other distribution to which he is entitled as a member of the company; and
  • (b) a further distribution representing such proportion of the amount to be transferred to the political fund as would have been payable to him as a member if the said amount had been included in the total amount of the dividend or other distribution so declared or announced.
  • (4) Where an exempt member is entitled to a further distribution under sub-paragraph (3)( b) above, the directors shall, before effecting the transfer, deduct the amount of that further distribution from the amount to be transferred to the political fund and apply it for the purpose of that further distribution.

    7.—(1) This paragraph applies to a company of which the share capital is divided into shares of different classes.

    (2) Where the articles of association contain no provision for the method of calculating the different amounts payable by virtue of paragraph 6(3)( b) above to exempt members of different classes, that method shall be prescribed by the Secretary of State by regulation made by statutory instrument.

    (3) After complaint to him by an exempt member of a company that any such method of calculation provided for in the articles of association is unfair, the Secretary of State may after consulting the directors of the company and any other person appearing to him to have an interest by regulation made by statutory instrument, render void any provision in the articles of association prescribing such method, if it appears to him necessary so to do in order that different classes of member be treated fairly.

    (4) Where a regulation is made under sub paragraph (3) above, the Secretary of State shall publish his reasons for regarding the method provided for in the articles of association as unfair, and may substitute for that provision a method prescribed by regulation made by statutory instrument.

    8. In this schedule an "exempt member" means—

  • (a) any member who voted, whether by proxy, on a poll, or otherwise, at the general meeting of the company against the adoption of the ordinary resolution required by paragraph 1 above; or
  • (b) any member who lodges at the company's registered office a notice in prescribed form stating that he wishes from the date of receipt of such notice to be an exempt member of the company.
  • 9. An exempt member shall continue to be exempt so long as—

  • (a) in respect of a member falling within paragraph 8(a) above, he does not communicate to the company in writing his consent to the establishment of the political fund; or
  • (b) in respect of a member falling within paragraph 8(b) above, he does not in writing withdraw his notice lodged with the company.
  • 10. Notwithstanding any provision in a company's memorandum or articles of association, but subject to paragraph 7 above, an exempt member shall not be excluded from any benefits or placed in any respect either directly or indirectly under any disability or disadvantage by the company as compared with other members of the company (except in relation to the control and management of the political fund) by reason only of his being so exempt, save as expressly provided by this Schedule and no person shall be excluded from membership of a company by reason of his intention to become an exempt member; and any provision in the memorandum or articles imposing any such exclusion, disability or disadvantage shall be void.

    11. The following words shall be added to section 110(1)( a) of the Companies Act 1948 (Register of Members):

    "and, in the case of exempt members within the meaning of the Companies Act 1979, the designation (E) before the name of each such exempt members."

    12. Where an exempt member has agreed to sell or otherwise transfer his shares, the company shall, on receipt of the instrument of transfer, notify the purchaser or, as the case may be, transferee of the fact that the member is an exempt member and that the purchaser or, as the case may be, transferee will be an exempt member unless and until he communicates in writing to the company his wish not to be an exempt member.

    13. Where shares owned by an exempt member are transferred by reason of the death of that member or by operation of law, the company shall, before it enters the name of any new holder of such shares upon its register of members, notify such holder that he will be an exempt member unless and until he communicates in writing to the company his wish not to be an exempt member.

    14.—(1) Where a member of a company owns a share as a nominee or trustee for any other person or persons, or has concluded with any other person or persons a contract which controls the manner in which he will cast a vote attached to a share (other than the appointment of a proxy) he shall consult with and act in accordance with the wishes of such person or persons in respect of any act or omission by which he may become, continue or cease to be an exempt member.

    (2) Where persons with whom the owner of a share is obliged by virtue of sub-paragraph (I) above to consult hold differing views about whether he should be an exempt member or not, he shall, unless a majority of such persons express their wish to the contrary, be an exempt member.

    (3) The wishes of such person or persons shall be binding upon a member falling within the foregoing sub-paragraphs only after those wishes have been communicated to him in writing.

    (4) Section 113(1)(2) of the Companies Act 1948 (Inspection of register and index) shall apply to such person or persons with the exception that no charge shall be made by the company for inspection of, or the sending of any copy of the register, or any part thereof, to such person or persons.

    15.—(1) The following sub-paragraph shall be added to Section 19 of the Companies Act 1967 (Director's Report to include certain particulars of contributions for political or charitable purposes):—

    "(c) where the company has a political fund, the amount standing at the beginning and at the end of that year in the political fund."

    (2) The following sub-paragraph shall be added to paragraph 2 of the Eighth Schedule to the Companies Act 1948:—

    (e) Where the company has a political fund, the amount, if any, standing in that fund."

    (3) The following paragraphs shall be added to the Eighth Schedule to the Companies Act 1948:

  • (a) "16(A) The balance sheet of a company which is a subsidiary of another body corporate, whether or not it is itself a holding company, shall show the aggregate amount of the political funds, if any, of all bodies corporate of which it is a subsidiary or a fellow subsidiary (within the meaning of the preceding paragraph) together with the amount, if any, of its own political fund."
  • (b) "17(A) The consolidated accounts shall show the aggregated amount standing in the political funds, if any, of the holding company and of the subsidiaries, and the separate amount in the political fund, if any, of each of the companies."
  • 16. The political objects to which this Schedule applies are:

  • (a) a donation or subscription to or other application of assets for the benefit of a political party of the United Kingdom or of any part thereof, or to or for the benefit of a person, who, to the knowledge of the company, is carrying on, or purposing to carry on, any activities which can, at the time the donation or subscription was given or the application made, reasonably be regarded as likely to affect public support for such a political party as aforesaid;
  • (b) the expenditure of money or application of assets
  • (i) on the payment of any expenses incurred either directly or indirectly by a candidate or prospective candidate for election to Parliament, or to any public office before, during or after the election in connection with this candidate or election; or
  • (ii) on the holding of any meeting or the distribution of any literature or documents in support of any such candidate or prospective candidate; or
  • (iii) on the maintenance of any person who is a member of Parliament or who holds a public office; or
  • (iv) in connection with the registration of electors or the selection of a candidate for Parliament or any public office; or
  • (v) on the holding of political meetings of any kind, or the distribution of political literature or political documents of any kind;
  • and the expression "public office" in this sub-paragraph means the office of member of any county, county borough, district or parish council or of any public body who have power to raise money, either directly or indirectly, by means of a rate.

    17.—(1) In this Schedule "distribution", "divided" and "amount available for distribution" have the meaning ascribed to "distribution" in section 45(2) below, and related terms shall be construed accordingly.

    (2) In this Schedule "assets" means any property, real or personal, of any character whatsoever, and wherever situated whether in Great Britain or otherwise.

    18. It is hereby declared for the avoidance of doubt that no assets of a company shall be applied in furtherance of political objects after the commencement of its winding up, notwithstanding any contract, agreement, arrangement or other transaction entered into by it or by any other person.'

    The object of amendment No. 56 is to provide that, where a company makes donations or subscriptions of a political character, they should be made only out of a political fund, in broadly the same way as trade unions are restricted about the way in which they can make political contributions.

    Amendments Nos. 57, 58 and 157 concern the method whereby the principle can be put into effect.

    Amendment No. 56 does not seek to prevent companies from making political donations, just as there is no suggestion that trade unions should not make political donations. It seeks to introduce fairness and equity by applying the same principles to company donations as have for over 60 years been applied to donations and subscriptions by trade unions.

    I believe that the only restriction in law that applies to limited companies is section 19 of the Companies Act 1967, under which companies are obliged to disclose political contributions in excess of £50. Many of my hon. Friends will know that since 1967 there have been revealing disclosures in annual reports.

    Out of the 1,000 major companies in the country, about 350 regularly make political contributions. In the year to March 1979, which did not include a general election, they gave almost £2 million to the Conservative Party and associated organisations. It appears that about half the contributions go directly to the Conservative Party. The remainder go to such organisations as British United Industrialists, which is a curious body with the apparent object of collecting contributions from companies to pass on to the Conservative Party or associated causes.

    As my right hon. and learned Friend says, it appears to be a front organisation, which gave up its corporate status after section 19 of the 1967 Act was passed so that it would not have to answer embarrassing questions as to what happened to the funds.

    Other bodies occasionally receive contributions. In the past the Liberal Party has collected the odd crumb from the rich man's table. It is significant that there is no Liberal Member here today. The crumbs may not be big enough to be of interest to Liberal Members. However, we may recruit them to the side of fairness and equity. They appear not to be as much in favour with British companies as the Conservative Party and its associated causes.

    Does my right hon. Friend find their absence surprising when surely this is one of the great Liberal themes—the liberty of the individual to do what he wants with his money?

    That is a valid reason for the Liberal Party supporting our amendment. I also hope to appeal to whatever instincts of individual liberty remain among Conservative Members.

    I do not know the total contribution from companies in the current year, but it will be significantly more. At the time of a general election the begging bowl is passed around more ostentatiously and effectively. The calculations that I have seen suggest that in excess of £2 million was contributed by British companies in 1979, and that most of it went to the Conservative Party. From time to time it is the ambition of Conservative Party treasurers to get much more from British companies through political contributions.

    There is no limit to what companies can contribute. There is no limit on their assets or dividends. There is no control whatsoever. The shareholder who disagrees with a company's contributions has no rights in law. Under section 3 of the Trade Union Act 1913, as amended, a trade union member has a legal right not to contribute to the political fund out of which only political contributions can be made. There has been argument about contracting in and contracting out. Contracting out started in 1913, became contracting in in 1927 and contracting out again in 1946, since when neither political party has thought fit to change it. Whichever it is, members of trade unions have the legal right to decide whether they wish to contribute to the political fund. The Conservative Party is always running campaigns to suggest that trade union members should have the right not to make political contributions, particularly those who do not share its political views, but is not prepared to offer that right to shareholders in British companies.

    There is no legal restriction on political contributions. It is said in defence of that that those who do not agree with a company's decision to contribute to the Conservative Party do not need to buy shares, or can sell them and buy others.

    It is an extraordinary argument that an individual is not able to hold shares in a company when he believes in its commercial prospects and approves of its policies in every other respect, apart from its political contribution.

    As my hon. Friend the Member for Swansea, East (Mr. Anderson) reminded me, it would be an advance in individual liberty to construct the law so that a shareholder was not obliged to sell his shares to indicate disagreement with political contributions.

    An important change is occurring in the structure of British companies. The influence of the private investor is greatly diminishing with the increase of institutional investors. A large amount of money invested in British industry now comes from pension funds. Contributions from people of all political persuasions go into pension funds and are subsequently invested in British industry, which is a distinctive feature of the present scene.

    A lot of money invested in companies now comes from ordinary people of differing political persuasions who are deprived of the opportunity to choose whether that money goes to a particular party through political contributions. Money being invested through insurance premiums and pension contributions is an important change. The inactivity of the law might be less important if companies were still largely owned by private persons, although I do not believe that it would make much difference. However, the recent development is a dramatic and important change.

    If the Government believe that trade unionists should dissociate themselves from the political fund, in all fairness they should recognise that shareholders who do not agree with the board's decision to support the Conservative Party should be given the same rights. Our amendments propose a method to achieve equity. They suggest that a political fund should be established and only moneys from it should go towards political contributions.

    I shall not bore the House with the details of the mechanism proposed. I believe that it is a workable scheme. More importantly, we should consider the underlying principles. Much the same rules should exist for companies as for trade unions. If the Government resist the principle, they will be seen to want one law for trade unions and their members and another for companies and their members. It will not have escaped the public's attention that the Conservative Party happens to be an important beneficiary from one and not from the other.

    5 pm

    The Conservative Party constantly campaigns for trade union members to contract out. Therefore, it must think that that is an important legal requirement of trade unions. We do not object to the right of trade union members to contract out—we have always accepted that as an aspect of individual liberty. We ask now that the same right be given to shareholders and to the vast body of indirect shareholders—people who invest and have their superannuation contributions invested in British industry through our institutions.

    To disagree with these amendments or the principle that underlies them is an admission of an inequitable and one-sided situation in the law of this country. I believe that it is time it was changed. It is important that companies should be obliged to disclose their contributions—this has applied since 1967, and we have seen the extent to which political contributions have developed in that time. Now it is time to take the second step and bring political contributions under some form of legal regulation. This is not an attempt to stop companies making contributions to political parties. If they wish to make such contributions no doubt they will continue to do so in the same way as the trade unions have clearly committed themselves to supporting the Labour Party. I do not think that any accusation can be made that we are trying in any way to upset the balance between political parties' fund-raising efforts in this country, except to say that so far the balance seems to be pretty heavily tilted in favour of the Conservatime Party.

    I apologise for interrupting the right hon. Gentleman. I was absolutely fascinated by what he was saying. He said two things that astounded me. The first was that companies naturally supported the Conservative Party, although companies can make donations to any political party they wish. Secondly, he said something which has been disproved by a recent ruling in the courts about a constituent of mine. That ruling says that the political levy, or a portion of it, can be sent to any political party which is decided by the committee concerned. I hope that in the coming years many trade unions will wish to disaffiliate from the Labour Party.

    Even though the hon. Member wandered into the House just as I was speaking, he had that look of intense expectancy on his face which prompted me to give way to him. I am glad I did.

    First, I have not been arguing the case simply on the basis of companies contributing only to the Conservative Party. We know that they can make contributions to other parties. But almost uniquely they contribute to the Conservative Party. As I pointed out earlier, they used to give a few crumbs to the Liberal Party, but it appears that that is not currently fashionable. I think that the hon. Member knows as well as I do that, while it is legally possible for them to give contributions to any political party, on the whole they prefer the Conservative Party. My amendments would not fetter them in any way.

    In the second part of his intervention, the hon. Member referred to the case of Parkin v. ASTMS, which was before the courts recently, and in which a judgment was given about political funds. I do not think that at the end of the day Mr. Parkin won that case, but by and large the hon. Member thinks that it is a good idea that trade union members should have the right under section 3 of the Trade Union Act 1913 not to participate in the political fund, although he might argue for contracting in rather than contracting out. All that I am saying is that shareholders should have the same rights not to contribute to the political fund of a company and to be able to dissociate themselves from the decision to support the Conservative Party. If I have the logic of this wrong, perhaps the hon. Member will tell me why it is appropriate in one case and not in the other.

    I should like to discuss this matter for an hour or so, but that would not be fair to the House. The right hon. Member made the point when he spoke of the voluntary nature of contributions. I was offended because he seemed to be saying that trade union funds must automatically go to the Labour Party.

    The hon. Member must have misheard me, or perhaps I did not express myself very clearly. I do not think that I said that trade union funds automatically go to the Labour Party. It is an observable fact that the vast majority of trade union contributions go to the Labour Party, just as it is an observable fact that the vast majority of company contributions go to the Conservative Party. The point is that there are legal inhibitions on what the trade unions can do, but absolutely none, except disclosure, on what companies can do. The hon. Member has not made clear why what is sauce for the goose should not be sauce for the gander also.

    That is at the heart of the amendment. It would be an equitable change in the law and an extension of individual liberty which the Conservative Party allegedly espouses. I have noted that when there is a clash between their financial interests and individual liberty the Conservatives' pursuit of individual liberty wobbles a little. Their attitude towards this branch of company law is a typical example of that. We argue this case in equity and fair dealing, and on that basis I commend the amendments to the House.

    I shall follow my right hon. Friend the Member for Lanarkshire, North (Mr. Smith) in his submission in favour of the amendment. I remember that, once before, there was a Companies Bill in Committee which I attended and this point also arose then. It was a matter of great interest.

    I speak today as an active trade union member. I am a sponsored member of the National Union of Railwaymen and am proud of it. There is a big difference between contributions being made by companies to the Conservative Party and other front organisations and contributions made by the trade union movement to the Labour Party and other labour organisations in this country. For example, my own trade union has regular branch meetings which are held every three weeks. Also there are regular district council meetings which are attended by delegates from branches all over the district. There is the national executive committee, and the district officers who are appointed on a permanent basis, and they are highly qualified people. There is a proper educational department on which large sums of money are spent to educate trade union members in carrying out their jobs as secretaries, chairmen, treasurers and auditors. Because of these regular meetings, the ordinary rank and file members of the trade union movement can express their opinions when it comes to a proposal to affiliate with the Labour Party or to make a contribution from the political fund. I emphasise that aspect.

    When my right hon. Friend referred to contributions made by companies to the Conservative Party or its front organisations he obviously realised that the average shareholder does not have an interest to that extent in the way in which his funds are used by the board of directors. The first that any shareholder usually learns of any sum of money being passed by a company to a political party is when he receives the annual report, or, if he is able to attend the annual meeting, when he hears the report of what has happened to the money that should be shared between all those who have invested in the company.

    I share my right hon. Friend's philosophy. He said that we are not against the support of the Conservative Party by those who believe that it should be supported. However, to be fair and honest to the shareholders in a company it is completely wrong—and at the worst dishonest—to use moneys that are intended for dispersal among those who have invested their money in a company for the support of the Conservative Party or other front organisations.

    The trade union movement willingly pays a separate contribution to a specific political fund for the purposes of furthering the interests of the Labour Party, the Parliamentary Labour Party and Labour councillors throughout the country. But it does so knowingly. Many meetings are held throughout the country at local branch and district council level. While the National Executive political subcommittee can, at any time, decide to make contributions to the Labour Party or any other political party, members have the right—and they use that right—to decide whether that money is enough, too much, or whether the contribution should not be made.

    On the question of affiliation fees and the principle of affiliation to the Labour Party, the ordinary trade union workshop member—in my case the ordinary railwayman—has the right to decide, almost every month of the year, whether an affiliation should be considered by placing a motion before his branch. He can ask that any reference to a sum of money proposed as a contribution to the Labour Party should not be made. If that motion is moved and seconded, the chairmen of our branches—being experts in their jobs—would put that motion to the meeting. It would be debated, and a decision would be reached. In the 30 years that I have been active in the trade union and political movement, I have been present at many hundreds of meetings.

    I must tell Conservative Members and the Government that it is wrong to allow companies to use shareholders' funds to support a political party. People who invest in companies do so in the belief that, if there are any profits, they will be divided and distributed according to the rules of the company.

    Anyone who wishes to criticise the trade union movement will find that the deeper he delves into its rules the more he will understand that the trade union movement is 100 per cent. democratic. Its decisions are democratic in every way. When a motion is put before a branch, or through the national machinery, it is debated fully before any decision is reached. No one, at the end of the day, could say that moneys from the political fund have been used dishonestly.

    When debating this issue earlier, during the Standing Committee which considered the Companies Bill introduced by the Labour Government, I remember that the then Opposition spokesman—now the Minister for Trade—tried to minimise the question of political contributions made by companies. He told us—and it is an excuse that has been offered in other circumstances—that the political contributions to the Conservative Party from companies did not amount to very much. He said that they were a small proportion only of the funds of the Conservative Party—about 15 per cent. In a glowing report he told us of the Conservative Party associations up and down the country, consisting of 2,000 hard-working members apiece. No doubt they work their fingers to the bone holding jumble sales, wine and cheese parties, or whatever they do when trying to raise money to provide the bulk of the funds.

    5.15 pm

    His claim that the contributions from companies amounted to only 15 per cent. of the Conservative Party funds in any one year was, perhaps, a little misleading. On that occasion he omitted—I hope that he will not do so again—to refer to the various front organisations. My right hon. Friend the Member for Lanarkshire, North (Mr. Smith) has mentioned already, for example, the British United Industrialists.

    I wish to quote from the Investors Chronicle of 25 August 1978, which states:
    "We pointed out on 5 August 1977 that BUI's Park Lane office is a poste restante for political money. Most is earmarked for Mrs. Thatcher".
    The management of those funds is in the hands of a 15-man governing council, the membership of which stays completely anonymous. Other funds come from other front organisations, such as the Economic League. That is a mysterious organisation, and one that causes concern not only because it gives money to the Conservative Party, but because of its other activities which The Guardian has reported in the past, namely, supplying employers with information about their employees. It appears that that information is not always in accordance with the facts.

    That strikes me as an extraordinary way to deal with the question of principle involved. Conservative Members say "Yes, we receive money from companies but it is a small proportion only of our funds." In anybody's view, a sizeable amount of money is involved. The estimate for 1979 is about £2·5 million. As my right hon. Friend suggested, that might be a conservative estimate.

    I find it a little astonishing that, since the Government were elected in May, companies have continued to contribute to the funds of the Conservative Party. Perhaps it is the largest companies only which contribute—those that have benefited most from the Conservative Party, such as the banks whose profits have been increasing at an amazing rate since the Tories took office.

    Let us consider the other side of the story. Claims are often made that trade unionists, although they have theoretically and formally the right to opt out of their contribution to the political levy, are prevented from exercising that right. My hon. Friend the Member for St. Helens (Mr. Spriggs) helped us to understand the matter further by describing the conduct of branch meetings.

    There are two more objective facts that should be taken into account. Very often the card that one has as a member of a trade union has two columns. One column takes the monthly or weekly contributions to the normal funds of the trade union and the other takes the political levy. I am a member of ASTMS and my card has two such distinct columns. The one labelled "political levy" is separate from the other and shows that one pays 10p per month.

    It is thoughtful of Conservative Members to be so concerned for the liberties of members of trade unions who are obliged to fork out 10p a month when they do not really want to. It is delightful that they wish to protect the interests of trade unionists to such an extent. The point is that a trade union member cannot make a mistake about which part of his subscription goes to the trade union and which part goes towards the political levy, out of which he can opt.

    My right hon. Friend the Member for Lanarkshire, North pointed out that the Conservative Party frequently campaigns among trade unionists to discourage them from paying the political levy. The campaigns have been remarkably unsuccessful, because about 190,000 trade unionists opt out of paying the levy each year and that number has remained fairly static for the past few years.

    Between 1976 and 1978 the number of complaints received by the certification officer from trade union members about the difficulties of opting out of paying the political levy totalled only 15. Only 15 people—compared with 190,000 who opt out each year—had any difficulty in obtaining the necessary forms from their branch secretary or in informing him that they did not wish to pay the political levy. It is important that that should be clearly on the record.

    During the term of the previous Government and, no doubt in Committee on the Bill, we have heard Conservative Members say that it is difficult for trade unionists to avoid paying the political levy. That is simply not true. In most trade unions, certainly in my own, the political levy and its labelling on the contribution card is made clear. The fact that so few complaints have been scraped together makes that point.

    Order, I am sorry to interrupt the hon. Lady, but the amendment does not relate to the trade union levy. I take it that she is drawing attention to the levy in relation to the amendment, but she ought to concentrate on companies and not trade unions.

    I wanted to move on to the second part of my argument by making a parallel between the political levy of trade unions and the contributions of companies to political parties. We consider that that parallel should be made clear and it was therefore necessary for me to draw attention to the fact that trade unionists do not have to pay the political levy and that the ways in which they can opt out are always made clear to them. There do not appear to have been any difficulties in the operation of that system for more than 60 years.

    I turn to the question of principle. The proportion of money that goes to the Conservative Party from companies—whether 15 per cent. as the Minister for Trade once estimated, or much more, because of the contributions from front organisations or informal contributions made at business lunches and such events —is not the point at issue. I am concerned not with the amount of money, but with the question of principle. Whether a shareholder gives lop or £10 a year to the Conservative Party is not the point. The point is that he should be at liberty to opt out of that payment, as is a trade unionist. The trade unionist is free to use effectively the mechanism provided for opting out.

    The amendment was discussed in Committee and falls at an entirely appropriate place within the Bill, since we are dealing with the part that concerns the distribution of profits. Shareholders should have the right to say that they want the whole of their share of the profits given to them without any deduction or contribution to any political party, whether the Conservative Party or any other. They should have the freedom to exercise that choice.

    In opposition, the present Minister produced no arguments against the parallel principle applying to shareholders. He went all round the subject and talked about where the parties got their funds and how much was involved, but none of those things are to the point. The issue is a matter of principle. It is a question of individual liberty.

    I hope to demonstrate that the political fund system works in a scandalous fashion. It is in no way to be admired and if a major reform is needed it is probably the reform of the working of trade unions' political funds.

    In view of what I said earlier about the number of complaints, I think that the Minister will find it hard to make his case. It seems that he wants, at all costs, to avoid the question of principle, which is the liberty of the individual to decide whether he or she wishes to contribute to a political party. That issue has been settled for trade unionists, but it has never been settled for shareholders.

    The Minister will obviously try to avoid facing up to the issue of principle. He has no defence against our arguments except to try to throw dust in everybody's eyes by making false accusations about the political funds of trade unions. I doubt whether he will be able to produce evidence to support his case.

    We want to hear a reply to the question of principle. Why does the Minister not wish to defend the liberties of shareholders? Why is he concerned only about the liberties of trade unionists? When will he face up to the question? He never did so when he was an Opposition spokesman. Now that he is a Minister let him tell us why he is not prepared to defend the liberties of individual shareholders.

    The law permits companies to spend money on political campaigns and to finance a political party out of their profits or assets.

    No shareholder has the right to contract out even when he disagrees violently with the political party or the organisations concerned. I concur with my hon. Friends who have described what happens in the other part of industry, the trade union movement. It is necessary to make the comparison with what happens in the trade union world—the Minister nods assent—and what happens in companies.

    5.30 pm

    As I said in Standing Committee, I was a national trade union leader for 20 years. I was responsible for looking after the political funds of about 900,000 members who had agreed to pay the political levy into the union's political fund. That money was kept separate from the general funds of the union. Incidentally, for the information of the Minister—I am sure he does not know—this fund is controlled by the district committees throughout the length and breadth of Britain consisting of those members and on behalf of those members who contribute to the political fund. No one else is involved. The fund is under the direct control of those within the districts who make the contributions and decide how the money shall be spent. They are compelled to do this by the 1930 law to which reference has been made.

    Members have the right to contract out from paying the political levy to the Labour Party. In my union, with 1 million members, about 300,000 exercise that right and contract out of paying a political levy. As the officer responsible for looking after the political funds and answerable to the membership, I received only three or four complaints a year, out of a total membership of 1¼ million, by members saying that they were not allowed to contract out or were being compelled to pay the political levy when they did not wish to do so. Those cases were easily and soon ironed out when they were brought to my attention on behalf of the union.

    The union concerned is the Amalgamated Union of Engineering Workers. If the hon. Gentleman were to bring a complaint, he would find that the principle I have outlined works.

    I understand that about 200,000 new members and some of the older members of the trade union movement actually contract out. That is out of a total figure of almost 12 million members belonging to unions who pay the political levy. Of these, 6½ million are satisfied to pay the political levy to the Labour Party. When the levy is paid, those workers are made members of the Labour Party. They are, therefore, acting openly and deliberately. They know what the levy entails. They know that it makes them a member of a political party that they want to join.

    The Opposition are saying that shareholders should have the opportunity to contract out of paying to a political party with which they disagree. Workers are not told that if they do not pay the political levy they will have to get out of the union. That has never been said to any member of my union, the AUEW. If they do not wish to pay the political levy, they do not pay. The payment of the contribution and the administration of funds are covered by the rules of the trade union movement that have to be registered with the registrar.

    The rules of the union and the decisions of union members make clear how the funds shall be looked after. Why should not the shareholder in a company have the right to say that he does not like the Tory Party? Many, I am sure, do not like that party, especially the treatment they are receiving through the Government's economic policies.

    Does the hon. Gentleman accept that there is a difference between being a shareholder in a company and being a member of a trade union? A shareholder can always sell his shares and opt out of the company. A trade union member who seeks to withdraw from the union may lose his job.

    The logic of the hon. Gentleman's suggestion is that a worker who does not like contributing to the political fund of a union should leave his job, get out, and find himself another job. That is palpably absurd. Unions do not operate on that sort of basis. The shareholder should have the right to say that he wishes to keep his investments within a company but that political parties or organisations with which tic, disagrees should have no share of them.

    The company should be compelled to set up a separate political fund. Why not? What are companies afraid of? If there is so much support for the Tory Party or the organisations to which they make subscriptions, why are those companies afraid of setting up a fund at the will of shareholders belonging to the company? These shareholders would be making contributions freely instead of being compelled to make them by a body of directors which then takes a decision to pass the money on to the political party of its choice. Not only profits can be used. Assets of a company can be used, and are used, on occasion, to finance the objectives of the Tory Party and other organisations that I will mention.

    I find that in 1978, 378 companies gave £1,400,000 to the Tory party, the Economic League and other associated bodies. The Economic League is an anti-trade union organisation. That is why the money is contributed. It has listed about 35 companies which each year contributed over £1,000 each to that organisation. Eight of these companies are among the top 50 companies in the United Kingdom.

    The list includes all the top clearing banks. One can understand that. They are doing very nicely. Of the joint stock banks, Lloyds increased its profit by £270 million this year, while the Midland Bank had an increase of 40 per cent. in profit. Between them, the joint stock banks will declare profits more than £1,000 million higher this year than last year. They can afford to give, as they do give, some financial contribution to their representatives in this place.

    Of the top 16 insurance companies, six make contributions to the Economic League. There are other anti-working class, anti-Labour and anti-trade union organisations to which companies make donations.

    I should mention Aims of Industry, particularly, as my hon. Friend reminds me.

    There have also been a number of campaigns. Some important political campaigns conducted by big business are anti-Labour in content. Hon. Members will recall Mr. Cube, the campaign of the sugar industry and the money it spent for political purposes. They will also recall the campaign against the nationalisation of the building industry and the money that was spent. There have been a number of such campaigns, conducted by big business using the funds of the shareholders, for a political campaign against another political party, in this case the Labour Party.

    Does my hon. Friend accept that, given the poor return on their investment because of the body blows to the construction industry by the Conservative Party, some members of the Campaign Against Building Industry Nationalisation will be asking for their money back?

    I am sure they will, particularly the building trade workers, of whom about 250,000 are unemployed as a result.

    It is not a small sum of money that we are talking about. When the facts are disclosed, it is estimated that about £2½ million will prove to have been given in 1979 in political donations to the Tory Party and other organisations. Also, companies do not have just a small political fund. The unions' political funds amount to £4 million. That sounds a great deal, but we should remember that companies can in theory use all their assets and profits—many hundreds of millions of pounds—in this way.

    Companies should be compelled to give shareholders the democratic right to decide whether their money shall be used for political purposes and, if so, for which purposes. Many of them may decide, because of their disenchantment with this Government's efforts to solve their economic problems, to transfer some of their political funds to the Labour Party. Individuals should be permitted to decide whether their assets should be used for political purposes.

    I should have thought that the Government would support the amendments overwhelmingly, since they are always talking about ballots—for strike action or the election of officers—when it comes to trade unions. They are even legislating on those lines. The present Employment Bill provides several million pounds for this purpose. If they are so concerned about balloting in the unions, why not accept these modest amendments, which would enable people to influence the way in which their companies make donations to political organisations?

    The Tories also say that nationalisation of the insurance companies and pension funds is unnecessary because the public already own them. The man from the Pru or the Pearl collects the subscriptions of 25p, they are invested in those companies and democracy is the result. If that is so, why should not those who contribute to this "democracy" have a voice in deciding how those funds are used? I am merely going by what the Tories say. We know that it is nonsense that people who contribute to pension funds and pay into insurance companies have no say in how the funds are used, but the Conservatives must not expect us to ignore the arguments that they use in other respects.

    5.45 pm

    We should all be alarmed that the Government have two standards—one for the unions, on which they are lavishing £2 million or £3 million of public money for ballots. They are closing nursery schools and cutting meals on wheels services but they are so obsessed with improving balloting practices in the unions that they are providing money for it.

    The companies which make political donations may not use the money in the interests of the shareholders—who include pensioners and local authorities. Labour-controlled authorities may invest in companies which are spending money without their authorisation on the Tory Party and its associated front organisations.

    In the year ending 1978, the Tory Party received from big business just under £1 million. I was at a splendid rally at Rotherham recently, attended by 7,500 people protesting at the Government's inaction on the steel issue. The best slogan I saw was:
    "Preserve Wild Life: Pickle Keith Joseph".
    It was the right hon. Member for Leeds, North-East (Sir K. Joseph) who, with the Prime Minister, set up the Centre for Policy Studies, which received £28,250 from British companies. British United Industrialists received £603,000; the Economic League received £128,000; Aims of Industry received £25,000; various other minor organisations received £38,000. That is a total for that year of almost £2 million. I cannot believe that the Minister of State will simply accept that all the shareholders all the time believe that £2 million should be spent in that way by these major companies.

    Let us take a closer look at some of the companies that have spent this money. Taylor "We built Ronan Point" Woodrow is continually advertising the virtues of free enterprise. It contributed more than any other company to all these organisations—the significant sum of £67,000. It might have been more useful if the company had spent that money on compensating the local authority whose flats it built with such disastrous results and contributed towards the £34 million that local authorities had to spend on strengthening blocks of flats of the same design.

    Allied Breweries contributed. The brewers have received dividends since in the return of a Tory Government. Ranks Hovis McDougall provided £46,000. Among the donors to the Conservative Party itself, Taylor Woodrow gave £34,050, Ranks Hovis McDougall gave £30,000, the Rank Organisation £30,000, and so on.

    I hope that my hon. Friend will not omit Consolidated Gold Felds Ltd., a company that we on this side sought to protect as best we could, with no help from the Conservative Party—yet the latter received £25,000 from that company last year.

    My information was that the company contributed £20,000 but no doubt my hon. Friend is right and inflation increased the sum. Victor "Fingers" Matthwes, who produces the "Pravda" of the Conservative Party at Trafalgar House, donated £20,000 in the year ending 30 September 1978. I wonder whether all the shareholders at Trafalgar House agreed with that.

    Significant sums are involved in the lists which I have before me. The lists are obviously curtailed, but the contributions contained therein range from £20,000 upwards. It is not surprising that Thorn Electrical Industries paid £20,000 to the Conservative Party. The Minister of State and the Secretary of State stand firmly at the Dispatch Box rejecting import controls, yet in 1978 Thorn closed the biggest television assembly factory in Europe in order to take imports from Korea and West Germany. That company has received some repayment for its handsome donation. I do not say that the payment was direct, but it illustrates Conservative policy in action.

    We are discussing payments by companies to the Conservative Party and to Conservative Party front organisations such as the Centre for Policy Studies and the Economic League. The Economic League makes the most invidious and savage attacks on industrial relations through the blacklist service that it provides to subscribers. Evidence about employee vetting through the Economic League came, to light in 1974 at Strachans Hampshire factory, at the British Steel subsidiary reinforcement steel services at Greenwich in 1977 and at the Great Southern Cemetery and Crematorium in 1978. That blacklisting organisation is disgraceful. I am sure that even Conservative shareholders would hesitate to support a spying organisation which breeds such bad industrial relations.

    Has my hon. Friend noticed that he is speaking to the converted, since those who should be listening are absent from the Government Benches and will not get the message?

    Perhaps I am predictable. I do not mind that because I am fighting for justice. Over the years many people have fought for justice and, when that is expected of one, it is praise rather than criticism. I was sent to the House to talk about justice and about the right of shareholders to have a say in the way in which significant sums are spent. I was certainly not sent here to keep quiet, and my record acquits me of any such charge.

    We should give shareholders the power to exercise supervision. We are asking for nothing more than an element of accountability so that shareholders, many of whom are Conservatives, can at least say "Just a moment, we should discuss this matter and take a vote upon it". Shareholders cannot do that at present.

    Some shareholders will be horrified at what we propose. Many local authorities will not wish to contribute to the Conservative Party or its front organisations, such as Aims of Industry, but others will wish to contribute. Conservative Members are always talking about the freedom of choice—the right to choose whether to make a contribution to a particular organisation.

    I predict that the Minister of State will reply by attacking the trade unions, although trade union political funds are governed by legislation. Trade unionists have the right to opt out of making a contribution. Shareholders do not have that right. Our proposal is a step in the direction of accountability. However, the Minister will repeat his usual platitudes. The move towards more accountability is irreversible. As the Conservative Government's economic policies put the country deeper and deeper into economic morass a Labour Government will be returned. The Minister of State may be a U-turner, like so many of his colleagues. If the Conservative Government do not agree to such reforms, we shall. The Conservative Party's claim that it is not the party of reaction and that it recognises needs for reform will go by the board.

    The Conservatives have a reputation for being deeply reactionary, deeply dogmatic and opposed to any reform. I expect the Minister to oppose the reforms which we suggest, but he will be spitting against the wind. The more the Conservative Government belie the need for reform, the sooner we shall have a Labour Government who will introduce such accountability.

    My hon. Friend the Member for Keighley (Mr. Cryer) made a remarkable speech. He proved his ability as an investigative journalist. Perhaps the editor of the the Conservative Party "Pravda" will try to recruit him

    Our suggestion is modest. It is suggested that each company above a certain size should have a political fund and that shareholders should be allowed to opt out if they disagree with the political objects to which the fund is devoted. The Minister has given us his advance reaction to our modest proposal and it bodes ill for the tone of the debate. It is not surprising that there are Benches of emptiness around him and that he sits in such godlike isolation. Perhaps his hon. Friends wish in no wise to be linked with his reaction. He has said that he intends to attack the way in which trade union political funds are disbursed.

    My hon. Friend the Member for St. Helens (Mr. Spriggs) talked of the model of democracy in the National Union of Railwaymen. I declare an interest in that I am a member of that union. My hon. Friends the Members for Thurrock (Dr. McDonald) and for Hackney, North and Stoke Newington (Mr. Roberts) said that there were few complaints to the certification officer or to the leaders of the trade unions about the way in which political funds are operated.

    Let us suppose—although it is difficult to do so—that there are faults in the way in which the political funds of trade unions are operated. Even if that were so, it does not attack the point of principle that we make. If there are faults, let them be dealt with in the proper way. But we should at least put members of companies on the same basis as members of trade unions. That is essentially fair and just. A basis of parity should be established. Any shareholding member of a company should have the same opportunity to contract out as a member of a trade union.

    6 pm

    I hope that the Minister will not engage in a self-indulgent attack on the political fund, perhaps fortified with a brief—I trust not from the Civil Service; no doubt it will be from Conservative Central Office—giving him facts of alleged injustices within the political fund. Let the Minister face the point of principle and tell us why members of companies should not be put on the same footing as ordinary members of trade unions. Trade unions have nothing to hide. Everything is above board, as my hon. Friends have said. We only wish to see the same principles apply to members of companies.

    Does the hon. Member agree—as he is trying to equate two things which in my view are not capable of being equated—that Parliament should legislate about every aspect of how a trade union should organise its affairs, that we should have a table A and exactly the same regulations for trade unions? Is that what the hon. Gentleman is arguing? We are constantly told by his right hon. and hon. Friends that we must keep the law out of trade unionism. The two matters are different. The hon. Gentleman should be careful what he is arguing about.

    The Minister is trying to put words into my mouth. I have never suggested that companies and trade unions should be put on all fours in terms of legislation. All I am asking—and this demands an answer—is: why do trade union members at present have greater freedom than members of a company in respect of contributions to political funds? As my hon. Friend the Member for Hackney, North and Stoke Newington said, trade unionists have an opportunity to choose whether to contribute to the political fund. Even in a highly politicised union such as the Amalgamated Union of Engineering Workers a significant portion of the membership exercises that right; that union being a democratic organisation the membership has every right to do so. As trade unionists have that freedom, why should it be denied to ordinary members of a company?

    The reason why I am disappointed in the early warning of a negative response from the Minister is that in Committee he was so often reasonable. He sought—

    In his effort to answer the Minister in a proper manner, my hon. Friend is trying to make a point about what trade unions do and relating it to company law. Trade unions have their own rules. An annual conference is held at which the rules are revised. Those rules, when agreed, are submitted to the Registrar of Friendly Societies and, if they are within the law, they are registered as rules. In general, the trade unions guard those rules jealously and it is the duty of chief officers of the trade union movement to guard those rules against misuse by anyone.

    As always, my hon. Friend the Member for St. Helens has made a valuable point. I was paying a tribute to the Minister. I was saying how, in Committee, he was so genial, reasonable and willing to try to answer the points that we put forward. By and large, from the party political point of view, it was a non-controversial Committee. As so often happens when debating companies Bills it is the Back Benchers on both sides who contribute. One thinks of the distinguished contributions made by the right hon. Member for Crosby (Sir G. Page) and the hon. Member for Kensington (Sir B. Rhys Williams). We have been able, cross-party, on a Back-Bench basis, to make reasonable points that have often been opposed by the Government, of whichever party.

    In the early part of last year, on the basis of Back Benchers versus the Executive, the Executive had begun to take this point on board. I was heartened when I saw the reaction of the Executive, in the words of my hon. Friend the Member for Caithness and Sutherland (Mr. Maclennan) as reported in the Official Report of the proceedings of the Committee. He had this to say in relation to a similar proposal to establish a political fund:
    "whereas the Government find wholly laudable, and have considerable sympathy with, the objectives behind the amendments of my hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) which seek to achieve parity of treatment in respect of political contributions between shareholders in a company and members of a trade union, there are a number of considerable technical difficulties in the way of applying directly to companies provisions which were drafted specifically within the context of trade union law".
    So at least a point of principle had been achieved. The Executive was accepting, on a basis of fairness, that if it were possible we should surmount the technical hurdles and seek to approximate company law with the position of trade unions in respect of contributions for political purposes. Following this major step by the Executive—an acceptance in principle that something should be done—we have sought to meet some of those technical points in this amendment.

    My hon. Friend the Member for Caithness and Sutherland also said in Committee that:
    "A company's shares may be transferred. If shares are sold,"—
    he posed the question—
    "does the new shareholder have to choose again whether to contract out or will the share continue to be contracted out automatically?"—[Official Report, Standing Committee F, 20 February 1979; c. 679–80.]
    In our refined, amended version of that same proposal we have sought to deal with that point and shares will remain contracted out unless and until the purchaser of those shares decides otherwise.

    If, as I hope, the Executive still has sympathy with the objectives, perhaps the Minister will help us over any technical difficulties that remain. Otherwise we can only conclude that when, as has been said, there is a conflict between a point of principle—that point of parity, justice and fairness—and the self-interest of the Conservative Party, it is the latter that will prevail. That must necessarily be our conclusion if this point is not met.

    It is no answer to suggest, as did the hon. Member for Grantham (Mr. Hogg) that any individual member of a company can sell his shares. Why should he sell his shares if he does not want to? The shares may be at a market low. The duty of the trustees of a trade union pension fund is to maximise the return tor the members of that fund. They may find that they can best do that by investing in a company which happens to make political contributions. Why should an ordinary rank and file member of a trade union who contributes to his pension fund make an indirect contribution to a political party of whose aims he may disapprove? fhat would be quite wrong in principle. A similar point was made in respect of insurance companies, and pension funds in general, by my hon. Friend the Member for Hackney, North and Stoke Newington.

    On the point about freedom, I feel somewhat revolted with myself if I walk into Marks and Spencer rather than the Co-op to purchase goods, or if I buy a pint of beer brewed by Allied Breweries, because I realise that by so doing I am contributing to Conservative Party funds. However, as a modest individual I do not suggest that I should be able to opt out in any purchases I make—

    It is always open to the hon. Member, if he is so appalled by the prospect he has described, not to go into that shop or to buy that pint of beer.

    Yes, and it is on that basis that I do not carry my proposals so far as to suggest that if I have such unwisdom as to go into that shop or public house I should in some way be entitled to a reimbursement for the portion of my outlay that goes to the Conservative Party.

    Does my hon. Friend accept that while there may be some element of choice in the retail trade, the people who live in Ronan Point, for example, which was built by Taylor Woodrow at ratepayers' and taxpayers' expense, have no alternative but to contribute to Taylor Woodrow, because when the contract is awarded that company occupies a monopoly position?

    That is precisely the point. I may have a choice as to whether I go into Marks and Spencer or buy a pint of Allied Breweries beer, but the shareholder and the unfortunate resident of Ronan Point have no such choice. That is the essence of our case. It is a matter of freedom, and it is sad that the party of freedom is not strongly represented here. It is a question of principle and of individual rights. We say that it is wrong that a member of a trade union should have greater freedom in this respect than that enjoyed by shareholders.

    I noticed that in replying on the question of political funds in Committee on the previous Companies Bill, the hon. Member who is now the Minister said
    "I am not arguing, on the basis of narrow self-interest, that this is a major aspect of our party's financing and that a change would damage us irrevocably. It would not. We are very much more broadly based in our source of finances than hon. Members opposite wish to believe."—[Official Report, Standing Committee F, 15 February 1979; c. 650.]
    I had not intended to descend to that sort of argument. The Minister said elsewhere that contributions from companies amounted to only 15 per cent. of total Conservative funds. Yet in 1979—the election year—the Minister said that his party received between £2 million and £2·5 million under that head, and if that represented 15 per cent. of the total, the party must have received £15 to £16 million in all. We do not argue the issue on that basis, however. If the Conservative Party were to become hard up, and if it were considered proper for democratic purposes that it should have another source of finance, perhaps the Exchequer should consider the matter.

    We do not argue the matter on that basis. We say only that there is currently an imbalance and an inconsistency in our law and that, as a non-party, non-controversial measure, the amendment should be accepted and a political fund established out of which shareholders could opt if they so wished.

    6.15 pm

    I apologise to Labour Members for having been slightly tetchy from time to time during their speeches. I think that battle fatigue is setting in. Twenty-seven sittings on the last Companies Bill in Committee, and 20 or so this time, coupled with several days on Report have finally affected me. I hope, however, that in the course of my remarks I shall be able to deal with the points raised in the debate.

    I do not speak as one who wishes to pour scorn on the trade union movement, or attack it. I do not believe that the way in which we fund our political parties currently is satisfactory. There is reason for re-examining that. However, I argue that, until that is done on a broad basis, it would be wrong to make a piecemeal change such as that proposed tonight. It is piecemeal. It is saying effectively that we should make an attack on one party's source of funds, without changing any of the rules, however unsatisfactory they may be, which apply to those of the others.

    I should therefore like to set the argument in perspective. First, I shall put into perspective the importance of industrial contributions as a source of funds to my party. Including all the other organisations which so excite Labour Members our finance from industry and from donations amounts to between 15 and 20 per cent. of the party's total income. It is not easy to put an exact figure on the contributions because it involves adding up the income of each of the 630 or so independent Conservative associations which exist in all the constituencies. Our inability to produce a total sum is a sign of our strength, because no other party can match that commitment in one constituency after another.

    The Houghton researches into party finance showed quite clearly that the Conservative Party is by far the most broadly-based in the country. The average membership of a constituency Labour party is 500. In a good year the Liberals can muster 300. Spread throughout the country each association in the Conservative Party can claim an average of 2,400 members.

    Perhaps not, but in Hertfordshire, South—my constituency—we have 8,000 members which more than makes up for the smaller number of very dedicated members in Hackney, Central.

    Is the Minister aware that in the local elections that will eventually come upon us it is doubtful whether as many as 2,000 people will actually vote Conservative in Hackney, Central?

    I would rather answer the hon. Member for Hackney, Central (Mr. Davis), and I hope that he will not mistake that for any kind of personal popularity on his part. I can only say that there are misguided people in all corners of the land. I even have some in my constituency who vote Labour and, even more strange, some who vote Liberal.

    I want to make quite clear that our party has a huge number of members among the general public who decide of their own accord to subscribe to our funds. My association raises money in substantial sums, and we contribute money to the centre. Some of those sums are included in the donations.

    I am a little puzzled by the Minister's remarks, since he seems to be making two contradictory claims. He says that he knows for sure that the contributions from companies and from the other organisations amount to about 15 or 20 per cent. of total funds, but he also maintains that he does not know what the total of Conservative Party funds is. He says with great pride that Conservative Party associations throughout the country work extremely hard and make great achievements in the amount of funds that they produce. If they do that and it is a source of such pride to him, why does he not encourage his party to discover the nature and extent of the achievement so that he could further encourage his party activists by being able to show how much Hertfordshire, South produces as opposed, say, to the amount raised by the Hackney, Central Conservative association?

    In fact, we provide that information because, unlike the hon. Lady's party, we are not a centrally directed organisation. Our Conservative associations are independent associations of Conservatives who choose of their own accord whether to join the National Union. We do not believe in the centrally directed, highly regimented type of organisation which is essential in the Labour Party if Members such as the right hon. Member for Bristol, South-East (Mr. Benn), the hon. Member for Liverpool, Walton (Mr. Heffer) and the hon. Lady herself are ever to have any power in the party of which they are members.

    May I just carry on? I wish to point out that the 15 per cent. to 20 per cent. to which I have referred is to be compared with the 90 per cent. which is the contribution made by the trade union movement to the funds of the Labour Party.

    In fact, the contribution of the trade union movement is much nearer 50 per cent. of the total expenditure. The Minister should understand that we have about 630 constituency parties raising funds for local elections and for running the party. As a democratic party, we do not maintain centralised accounts for each individual constituency party, so I cannot give the exactly accurate proportion of expenditure coming from the trade union movement, but the Minister can take it from me that it is about 50 per cent.

    The hon. Gentleman has confirmed that the proportion of the Labour Party's funds coming from the trade unions is far in excess of any proportion which industry contributes to my own party.

    Yes, indirectly and directly. The arguments today have followed very much the arguments advanced in another place by Lord Wedderburn. The word "equity" is often bandied about by Labour spokesmen on these occasions. The great search for equity and justice is supposed to be motivating them, and the fact that they are attacking a source of income of a political rival never crosses their minds. It is always the great search for justice and equity.

    Let us therefore consider how equitable and just are the arrangements for the political funds of the trade union movement. If there be something admirable which should be emulated, let us see what it is. First, I remind the House of the 1913 Act and the fact that members of trade unions could have a ballot about which party they would pay their funds to. There has not been a ballot since before the 1913 Act. In fact, there has not been a ballot since 1908. So there is one great democratic right which the trade union movement did not use.

    Let hon. Members read "The Fifth Estate" by Robert Taylor. [An HON. MEMBER: "What is the relevance of this?"] There is an important point here, and I wish to emphasise it. If everything said and repeated today had not been said in the Chamber over the past three days, we could have finished about two and a half days ago. Let us look at what happened when the law changed so that the onus was moved from contracting out to contracting in. There was a huge and dramatic fall in the number of members contributing. The moment that members had to do something to join or to pay the levy, nobody bothered, or very few bothered. [HON. MEMBERS: "Oh."] Yes, that was an overstatement, but there was a huge fall in the numbers. When the law was reversed, there was an increase. Plainly, therefore, there is a substantial apathy vote or apathy element in the political contribution of trade unionists.

    We know full well that the hon. Members for Hackney, North and Stoke Newington (Mr. Roberts), for Thurrock (Dr. McDonald), for St. Helens (Mr. Spriggs) and for Keighley (Mr. Cryer) are trade union enthusiasts. They are here, every one of them, sponsored by their trade union. Their enthusiasm is obvious from what they have said. They are—it is no criticism—passionately devoted to the trade union movement.

    I am a member of ASTMS, but I am not sponsored by that union. The Minister should check his facts before bandying these arguments about.

    Then that is another thing which the hon. Lady does not have in common with her hon. Friends.

    No. I shall give way in a moment. Let me put it in this way. Whether sponsored or not, they are members of trade unions and committed—this came through in every word that they said—to the notion that the trade union movement is a bastion of democracy. They believe in it passionately. The point does not depend on sponsorship. They passionately believe in the trade union movement.

    If I may say so, the hon. Member for St. Helens made an excellent speech and, as usual, his sincerity on this matter shone through. But that commitment to the trade union movement is not shared by tens of thousands, or probably hundreds of thousands, of people who are members of trade unions. People have to join because of the closed shop, or they are trade union members because they just find it easier if they are. More and more have to be members now. They certainly do not have the great commitment to the movement shown by the enthusiasts and activists such as those hon. Members who have spoken today.

    I should like to continue my argument, if my hon. Friend does not mind. I wish to underline the point. Detailed research was done by Mr. Michael Moran in 1975 into some groups of Post Office workers. Some interesting statistics emerged. First, 95 per cent. of the sample paid the levy, but only 51 per cent. realised that they did, and only 21 per cent. thought that that their union should be affiliated to the Labour Party. Therefore, 44 per cent. did not realise that they were paying and 30 per cent. of those who paid did not think that they should pay to the Labour Party.

    May I take up the point made by the hon. Member for Thurrock (Dr. McDonald)? As a member of her trade union—we are brother and sister in this matter—I wish to underline the point that my hon. Friend has made. I was delighted to hear that the hon. Lady is not a sponsored Member, and that may well be due to the fact that 80 per cent. of the members of our union have already opted out of the political levy.

    A very sensible decision that was, too. I refer now to another example which I gave in Committee and which I wish to repeat because of its interest in this context. In Vauxhall Motors, in four out of five occupational groups interviewed, as many as 70 per cent. paid the levy, although between a third and a half did not realise that they did so.

    Because I want to make my speech—which is a very good reason. But worse than that—

    On a point of order, Mr. Speaker. The Minister did not give way, and I must clarify the position because I am particularly sensitive about declaring financial interests—

    Order. I shall give the hon. Gentleman an opportunity, but he cannot seek to clarify that on a point of order. The Minister promised to give way, but he did not say when, though I gather that "when" will come.

    As you know, Mr. Speaker, by a resolution of the House, Members have to declare a financial interest. The Minister said that I was sponsored. I did not declare a financial interest because I am not a Member sponsored by a trade union, although I am a members of the T & GWU. I wish to make clear on a point of order, since the Minister denied me the opportunity, that I am not a sponsored Member and that therefore, in making no declaration, I was not contravening the resolution of the House.

    We all know that if there were a degree for barrack-room lawyers, the hon. Gentleman would have graduated with starred first-class honours. There was no question of his getting tripped up on a minor procedural point of that kind.

    I was about to say that matters are worse than the facts which I have so far given—the fact that tens of thousands, or probably hundreds of thousands, of people paying the levy are not aware that they do, that many of those who do 90 pay actually do not support the Labour Party, and, at the TUC congress last year a speaker admitted that a majority of trade unionists who voted at the last election voted Conservative.

    But even on the basis of all that, armed with these votes, based on unwitting contributions by people who do not wish to subscribe to the party, and many of whom are not aware that they do, trade unions go to the annual conference of the Labour Party and control it. It is through the power given to them by tens of thousands of people who do not even support the party that the future policy of the Labour Party is dictated. It is on the basis of those spurious contributions that people such as the right hon. Member for Bristol, South-East plan to take over the Labour Party.

    6.30 pm

    The Minister said that he would give way, and he has done so eventually. He obviously does not know that a person who pays a political levy becomes a member of the Labour Party and is represented as a member within the Labour Party. There are 2,500 branches of my union where the political levy-paying members are affiliated to the local Labour Party. They are represented there, and as members they play their part.

    I do not wish to repeat myself, but the hon. Gentleman has obviously missed my point. When detailed research was carried out, of 95 per cent. of those interviewed who subscribed to trade unions, only 51 per cent. knew that they paid a political levy. Of that 51 per cent., only 21 per cent. thought that they should support the Labour Party. Yet the hon. Gentleman is arguing that, because people forget to contract out, or do not contract out, they become ardent devotees of the Labour Party. But we know that more than half of all trade unionists who voted at the general election voted Conservative. However, according to the hon. Gentleman, they are paid up members of the Labour Party.

    I must get on, and I think that I have given way sufficiently.

    I turn now from this democratically run, much-to-be-admired organisation—the political fund—to how companies run their affairs. First, they run them in an infinitely more democratic way. [HON. MEMBERS: "Oh."]Their activities are regulated by law. Secondly, no board of directors can pay a political donation unless it is within the powers given to it by the articles of association and memorandum of the company.

    No, I will not. Thirdly, at the annual general meeting, the amount paid over in political donations has to be revealed, and any shareholder can attend the annual general meeting, object to the fact that the donation has been paid, and make his point of view known. If there is widespread support for his view, the shareholders can refuse to adopt the accounts and they can order the company to cease paying the contributions. They have that right every year. This matter must be brought to their attention at every annual general meeting.

    No, I shall not. Only 350 of the top 1,000 companies subscribe to the Conservative Party, and two-thirds of the top 50 do not. Therefore, those who hold shares and who do not wish to contribute to the Conservative Party still have a wide range of options at their disposal, unlike those who work in closed shops and do not wish to be members of trade unions.

    If a shareholder does not like the activities of the directors, he can sell his shares and move out. I should like to quote from remarks made by a much admired former Secretary of State for Trade, Mr. Edmund Dell, who said:
    "There is a difference in position between companies and trade unions, apart from the administrative problems which would be involved. The difference is that it is easy for a shareholder to contract out if he thinks fit."—[Official Report, 10 July 1968; Vol. 768, c. 510.]
    The sums involved are relatively small. The average donation by companies is £200. I draw the attention of Labour Members to the consequences if the amendment were to be carried. All the amendments are technically defective, but, even if they were perfect, they would involve the erection of an elaborate and expensive bureaucratic system, imposing burdens on companies, shareholders and the Secretary of State which are completely disproportionate to the benefits to the shareholders. For example, there are requirements for two ordinary resolutions, special arrangements for shareholders' polls, the creation of a special fund, complicated provisions for distributions, regulations by statutory instrument and a review by the Secretary of State.

    That is what the sums involved represent. From an extensive sample of companies in manufacturing and distribution, we know that political contributions have been equivalent to less than 0·1 per cent. of distributions by way of dividends, 0·02 per cent. of expenditure on fixed assets and 0·007 per cent. of turnover.

    No, I shall not. People give directors the power to have control over the assets of the company and to disburse huge sums of money on behalf of the shareholders. But the argument is that they are not to be trusted with taking a decision on behalf of their shareholders, which they can take only if they have the legal power, to disburse 0·007 per cent. of the turnover of the company.

    Labour Members dressed up their words with talk about equity and justice. They would create an elaborate and totally unnecessary machinery to deal with a problem which exists only in their own warped minds.

    The case for the amendments rests on the inconsistency between the position of a member of a trade union and the position of a company shareholder. That was the nature of the case as outlined by my right hon. Friend the Member for Lanarkshire, North (Mr. Smith) when he introduced the amendments.

    Judging from what the hon. Gentleman has just said, it seems to be common ground that there are certain parallels between the two situations. The company and the trade union are subject to law. Each is subject to its own rules and each has at least an occasional meeting of its members. The distinctions between them are twofold. First, a trade union has an identifiable political fund, and it decides democratically how that fund will be applied. My hon. Friends the Members for St. Helens (Mr. Spriggs) and Hackney, North and Stoke Newington (Mr. Roberts) described in some detail how those decisions were taken. Very frequently, they are taken at local level, at branch meetings or at district committee meetings.

    Possibly late at night, and for that very reason probably rather more democratically than the time of day at which the general meetings of most companies are held.

    Shareholders' rights are rather more slender. Of course, they know what has happened to the political contributions. They know that after the event, when it is too late to influence the event. They know it because of section 19 of the Companies Act 1967. The Minister relied for part of his argument on that provision.

    My memory is somewhat fallible these days as I advance into middle age. However, I do not seem to remember Conservative Members rushing into the Lobby to support that proposition. It is a power which is available to company shareholders. When they have the knowledge they can turn it to good account, because it is open to a shareholder to go to a company's general meeting and, if his rhetoric is up to it, sway the decision of the meeting. We all know the way in which that was done from time to time at annual general meetings of Lonrho and of some of the other companies that have been mentioned this evening. We know how all the cards were stacked in favour of the platform. We know how the accountants were ready to answer the arguments. However, I accept that it is a possible right available to company shareholders.

    Surely not even the Minister would try to argue that there is not a distinction between the democratic control of the political funds of a trade union and control on the political donations of a company. If he believes that the two forms of control are genuinely parallel, he believes that the moon is made of green cheese.

    Does the right hon. and learned Gentleman agree that there is a distinction to be made between a trade union in which an individual is locked for his employment and a company in which an individual shareholder is not locked, although he may be partially committed?

    I hope that the hon. Gentleman will have patience. I intend to deal with that argument. It is always open to a shareholder to get rid of his shares. I am aware of the argument and I promise the hon. Gentleman that I shall try to deal with it.

    I have referred to the first distinction between the power of a member of the trade union and the power of a company.

    I recollect that the hon. Gentleman did not give way to me, but that is not the difference between us.

    I gave way to a number of the right hon. and learned Gentleman's hon. Friends. I apologise it I did not give way to him.

    In view of this great democratic stuff that the right hon. and learned Gentleman is giving us, will he explain how it could be that within three weeks of trade union leaders voting hundreds of thousands of pounds into the Labour Party election fund at the last general election 50 per cent. of the trade union movement's membership voted for the Conservative Party? Does not that worry him?

    If the Minister is saying that the Conservative Party won the election, it is unhappily on the record that it did so. That is why we are having the debate. I do not propose to become involved in the political history of the past 12 months.

    The second distinction is that in trade unions the accounts are kept quite separate. As my hon. Friend the Member for Thurrock (Dr. McDonald) said, each individual has a card which indicates what sum is attributable to that individual. That individual can take a decision on the destination of that specific sum. A company shareholder, in so far as he has any rights in the matter, can try only to influence a collective decision over a total fund. There is a clear inconsistency that is not explained by any distinction between the two situations.

    6.45 pm

    My right hon. and hon. Friends waited agog to hear what the Minister had to say about the explanation. We had to wait for the Minister. This is a debate about individual liberty, but exponents of individual liberty on the Government Benches did not flock into the Chamber to explain their views. Let us consider the Minister's explanation. He said, first, that it does not matter because companies do not give much, anyway. He quoted some figures. He ignored the argument advanced by some of my hon. Friends. At the outset of the debate my hon. Friend the Member for Thurrock referred to the front organisations, which we know are recipients of this form of generosity.

    There are many more contributions of this sort which have not appeared in the accounts. It was observed by my hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) in an earlier debate that when Saatchi & Saatchi mounted a massive poster campaign not all that long ago it did not encounter a difficulty that the Labour Party meets from time to time. It finds that sometimes it is too late to book poster sites. Saatchi & Saatchi had every poster site that it wanted. The sites were made available to it. I am not sure that the cost of those poster sites appeared in the accounts in an identifiable form. That is the first comment that my right hon. and hon. Friends make about that part of the Minister's argument.

    However, what is that, even if it is true, to do with the issue of principle? The proportion of the assets over which many individuals would like to make an individual decision are substantial sums to them. The Minister's argument appears to be simply that of the well-known Victorian housemaid who when accused of having a baby replied that it was only a little one.

    The Minister argued that there are shortcomings in the administration of the political funds of trade unions. Even if that were true, I am not sure what would follow for the purpose of the debate. We are not debating trade unions. We are debating the rights of shareholders in companies.

    If there are matters to which the trade unions should give their attention, we should know what they are. As I am talking of attention, Mr. Deputy Speaker, I wonder whether the Minister would do me the courtesy of paying me some. I tried to follow his speech.

    The right hon. and learned Gentleman has been explaining the difference between trade unions and shareholdings in companies. It is a most interesting distinction. Is there not another difference on which he may care to reflect? The funds held by trade unions are essentially collective whereas the interest of the shareholder is limited to a readily identifiable and quantifiable shareholding.

    I am not sure whether the hon. Gentleman's intervention was intended to argue in favour of the amendment or against it. It seems to tell in favour of it. As there is an identifiable proportion of the fund, which could be calculated arithmetically, the individual is entitled to say "My proportion of the fund shall"—or "shall not"—"be devoted to political purposes". That is the inference that I draw from the hon. Gentlman's intervention.

    My right hon. and hon. Friends were waiting agog to hear what the Minister had to say about the shortcomings of the way in which trade unions apply their political funds.

    I shall give way to the hon. Gentleman when I have completed this part of my argument. What was the hon. Gentleman's indictment when it emerged? What was the argument that was to conclude the debate? It transpired to be that many trade unionists who pay the political levy are not necessarily committed to the Labour Party. I assume that the implication is that every shareholder whose company contributes to the Conservative Party fund is totally committed to the philosophy of Disraeli. May I withdraw that remark, Mr. Deputy Speaker? If the shareholder were totally committed to Disraeli, he would not support the Government. However, even assuming that that were true, it would not allow for the many beneficiaries of institutional shareholdings. If they were asked about it, I am sure that not many of them would vote in favour of their minuscule contribution being directed to a campaign that resulted in the return of the Government and their present troubles.

    The right hon. and learned Gentleman may be aware of a company that is in the position that he describes. However, in my trade union, as the hon. Member for Thurrock (Dr. McDonald) is well aware, the majority of the members have already opted out of the political fund. Therefore, they have taken a specific decision not to support the Labour Party. However, the union is still affiliated to the Labour Party. Does that seem to be equitable to the right hon. and learned Gentleman?

    The hon. Gentleman seems to be making the very point that my right hon. and hon. Friends are making. They have exercised their democratict right to opt out of the political levy. That is their right. We wish them to share that right with other people. The union cannot use its part of the political fund for political purposes.

    The Minister took up a point made in an intervention by the hon. Member for Grantham (Mr. Hogg). The hon. Member said that if a shareholder does not like a company's policy, he has a valid form of redress. He said that he had only to sell his shares and to invest in a different company. I notice that the hon. Gentleman is still awaiting an answer. It is perhaps a little unfair to tell a shareholder that if he wishes to exercise his right and to sell his shares—and the individual is entitled to such liberty—he must incur a loss if the timing is wrong and if prices are depressed. That is charging a fee for something that should be a free right.

    The hon. Gentleman's suggestion was echoed by the Minister. He suggested a remedy that would operate after the mischief had run its course. Shareholders will learn of the destination of their political donations from the company balance sheet. The shareholder can only see what happened last year. If he disapproves of that, he may get up at the annual meeting and say that he wishes that it had not happened. He therefore has a right to slide the stable door across after the animal has galloped into the Conservative Party's coffers.

    I was awaiting one other argument that did not materialise. It might have been argued that, even if the amendment were appropriate it should not be included in the Bill. However, the Minister accepts that that argument is unacceptable. My hon. Friend the Member for Hackney, Central (Mr. Davis) gave the Minister that option in Committee. If it had been the intention of the Government to include such legislation, we would have been content to leave it to parliamentary draftsmen.

    The right hon. and learned Gentleman has spoken about the mischief that might occur. In practice there is no mischief. Provided that the directors have applied the company's funds for the purposes of the company, including paying contributions to a political party, they have benefited the shareholders. If mischief exists, it is that the shareholder does not wish to be associated with a political party. He therefore has a remedy. He can dissociate himself at a later stage.

    The hon. Gentleman appears to argue that money which should be in the individual's control having been extracted and placed in the Conservative Party's coffers, the individual has a right publicly to state that he wishes that it had not happened. That right of dissociation is equivalent to saying that one must pay the bill at the same time as telling the waiter that one did not like the meal. We are arguing for a more effective form of dissociation.

    We have listened to arguments against these amendments. We have dismissed them for the reasons that I have given. We always return to the rights of the individual. As my hon. Friend the Member for Keighley (Mr. Cryer) pointed out, we have listened to arguments from a party which professes concern about the right to a ballot. It professes to be concerned about an individual's right to express his view. Whenever industrial relations are discussed, the Conservative Party repeatedly expresses a Hippocratic dogma that we have come to expect. Perhaps I should have said that it expresses a hypocritical dogma.

    I agree that it is Hippocratic. For once I am prepared to stand corrected by the hon. Member for Grantham. When the Labour Party refers to precisely the same right of an individual to express a view, the Government do not wish to know. Tonight will not be the first time that power politics will vote against an attempt to establish the rights of the individual. However, at least the Conservative Party will have to use such power politics. Let the arguments, our stand and the Government's use of power to deny that right, go on the record.

    Question put, That the amendment be made:—

    The House divided: Ayes 117, Noes 170.

    Division No. 207]


    [6.55 pm

    Alton, DavidFletcher, L. R. (Ilkeston)Orme, Rt Hon Stanley
    Anderson, DonaldFletcher, Ted (Darlington)Palmer, Arthur
    Archer, Rt Hon PeterFoot, Rt Hon MichaelParker, John
    Ashton, JoeFord, BenPowell, Raymond (Ogmore)
    Atkinson, Norman (H'gey, Tott'ham)Foulkes, GeorgePrescott, John
    Barnett, Guy (Greenwich)Fraser, John (Lambeth, Norwood)Radice, Giles
    Beith, A. J.Garrett, John (Norwich S)Richardson, Jo
    Boothroyd, Miss BettyGarrett, W. E. (Wallsend)Roberts, Ernest (Hackney North)
    Bradley, TomGraham, TedRooker, J. W.
    Bray, Dr JeremyGrant, John (Islington C)Sever, John
    Brown, Ronald W. (Hackney S)Hamilton, W. W. (Central Fife)Sheldon, Rt Hon Robert (A'ton-u-L)
    Buchan, NormanHarrison, Rt Hon WalterSilkin, Rt Hon S.C. (Dulwich)
    Callaghan, Jim (Middleton & P)Haynes, FrankSilverman, Julius
    Campbell-Savours, DaleHealey, Rt Hon DenisSmith, Rt Hon J. (North Lanarkshire)
    Carmichael, NeilHogg, Norman (E Dunbartonshire)Snape, Peter
    Carter-Jones, LewisHome Robertson, JohnSpearing, Nigel
    Cartwright, JohnHomewood, WilliamSpriggs, Leslie
    Clark, Dr David (South Shields)Hughes, Mark (Durham)Stallard, A. W.
    Cocks, Rt Hon Michael (Bristol S)Hughes, Robert (Aberdeen North)Steel, Rt Hon David
    Coleman, DonaldJones, Barry (East Flint)Stewart, Rt Hon Donald (W Isles)
    Cook, Robin F.Kerr, RussellStoddart, David
    Cryer, BobKilfedder, James A.Straw, Jack
    Cunliffe, LawrenceLamond, JamesSummerskill, Hon Dr Shirley
    Cunningham, Dr John (Whitehaven)Leadbitter, TedTinn, James
    Davis, Clinton (Hackney Central)Litherland, RobertTorney, Tom
    Davis, Terry (B'rm'ham, Stechford)Lyon, Alexander (York)Wainwright, Richard (Colne Valley)
    Deakins, EricLyons, Edward (Bradford West)Weetch, Ken
    Dean, Joseph (Leeds West)McDonald, Dr OonaghWelsh, Michael
    Dormand, JackMcKay, Allen (Penistone)White, Frank R. (Bury & Radcliffe)
    Dubs, AlfredMaclennan, RobertWhitehead, Phillip
    Duffy, A. E. P.Marks, KennethWhitlock, William
    Dunwoody, Mrs GwynethMaynard, Miss JoanWigley, Dafydd
    Eadie, AlexMellish, Rt Hon RobertWilley, Rt Hon Frederick
    Eastham, KenMikardo, IanWilson, William (Coventry SE)
    Edwards, Robert (Wolv SE)Millan, Rt Hon BruceWinnick, David
    Ellis, Raymond (NE Derbyshire)Mitchell, R. C. (Soton. Itchen)Woolmer, Kenneth
    English, MichaelMorris, Rt Hon Charles (Openshaw)
    Evans, John (Newton)Morton, GeorgeTELLERS FOR THE AYES:
    Faulds, AndrewMoyle, Rt Hon RolandMr. Hugh McCartney and
    Field, FrankOgden, EricMr. James Hamilton.
    Flannery, Martin


    Adley, RobertCritchley, JulianHawksley, Warren
    Alexander, RichardDean, Paul (North Somerset)Hayhoe, Barney
    Ancram, MichaelDickens, GeoffreyHeddle, John
    Aspinwall, JackDorrell, StephenHenderson, Barry
    Atkins, Robert (Preston North)Douglas-Hamilton, Lord JamesHicks, Robert
    Baker, Nicholas (North Dorset)Dover, DenshoreHill, James
    Beaumont-Dark, AnthonyDunn, Robert (Dartford)Hogg, Hon Douglas (Grantham)
    Bell, Sir RonaldDykes, HughHolland, Philip (Carlton)
    Best, KeithEdwards, Rt Hon N. (Pembroke)Howell, Rt Hon David (Guildford)
    Bevan, David GilroyEggar, TimothyHunt, David (Wirral)
    Blackburn, JohnElliott, Sir WilliamJessel, Toby
    Blaker, PeterEyre, ReginaldJopling, Rt Hon Michael
    Bowden, AndrewFairgrieve, RussellKellett-Bowman, Mrs Elaine
    Boyson, Dr RhodesFenner, Mrs PeggyKnight, Mrs Jill
    Braine, Sir BernardFletcher, Alexander (Edinburgh N)Knox, David
    Bright, GrahamFletcher-Cooke, CharlesLawrence, Ivan
    Brinton, TimFookes, Miss JanetLawson, Nigel
    Brocklebank-Fowler, ChristopherFowler, Rt Hon NormanLe Marchant, Spencer
    Brown, Michael (Brigg & Sc'thorpe)Gardiner, George (Reigate)Lennox-Boyd, Hon Mark
    Browne, John (Winchester)Gardner, Edward (South Fylde)Lester, Jim (Beeston)
    Bruce-Gardyne, JohnGarel-Jones, TristanLewis, Kenneth (Rutland)
    Bulmer, EsmondGlyn, Dr AlanLloyd, Peter (Fareham)
    Burden, F. A.Goodhew, VictorLyell, Nicholas
    Cadbury, JocelynGoodlad, AlastairMacGregor, John
    Carlisle, John (Luton West)Gorst, JohnMacKay, John (Argyll)
    Carlisle, Kenneth (Lincoln)Gray, HamishMajor, John
    Carlisle, Rt Hon Mark (Runcorn)Grieve, PercyMarlow, Tony
    Chalker, Mrs. LyndaGriffiths, Eldon (Bury St Edmunds)Marshall, Michael (Arundel)
    Chapman, SydneyGriffiths, Peter (Portsmouth N)Marten, Neil (Banbury)
    Clark, Hon Alan (Plymouth, Suttton)Grist, IanMather, Carol
    Clark, Sir William (Croydon South)Grylls, MichaelMaude, Rt Hon Angus
    Clarke, Kenneth (Rushcliffe)Gummer, John SelwynMaxwell-Hyslop, Robin
    Cockeram, EricHamilton, Hon Archie (Eps'm&Ew'll)Mellor, David
    Cope, JohnHamilton, Michael (Salisbury)Meyer, Sir Anthony
    Corrie, JohnHaselhurst, AlanMiller, Hal (Bromsgrove & Redditch)
    Costain, A. P.Hawkins, PaulMills, Iain (Meriden)

    Mills, peter, (West Devon)Pollock, AlexanderTownend, John (Bridlington)
    Moate, RogerPowell, Rt Hon J. Enoch (S Down)Townsend, Cyril D. (Bexleyheath)
    Molyneaux, JamesPrice, David (Eastleigh)Trippier, David
    Monro, HectorProctor, K. HarveyVaughan, Dr Gerard
    Montgomery, FergusRaison, TimothyWakeham, John
    Morrison, Hon Charles (Devizes)Rathbone, TimWaldegrave, Hon William
    Morrison, Hon Peter (City of Chester)Rees-Davies, W. R.Walker, Bill (Perth & E Perthshire)
    Myles, DavidRhodes James, RobertWalker-Smith, Rt Hon Sir Derek
    Neale, GerrardRifkind, MalcolmWall, Patrick
    Needham, RichardShepherd, Colin (Hereford)Waller, Gary
    Nelson, AnthonySkeet, T. H. H.Walters, Dennis
    Newton, TonySpeed, KeithWard, John
    Normanton, TomSpeller, TonyWarren, Kenneth
    Nott, Rt Hon JohnSpicer, Jim (West Dorset)Wells, Bowen (Hert'rd & Stev'nage)
    Page, Rt Hon Sir R. GrahamSquire, RobinWilliams, Delwyn (Montgomery)
    Page, Richard (SW Hertfordshire)Stainton, KeithWolfson, Mark
    Parkinson, CecilSteen, AnthonyYoung, Sir George (Acton)
    Parris, MatthewStewart, John (East Renfrewshire)Younger, Rt Hon George
    Patten, Christopher (Bath)Stradling Thomas, J.
    Patten, John (Oxford)Tebbit, NormanTELLERS FOR THE NOES
    Pattie, GeoffreyThompson, DonaldMr Robert Boscawen and
    Peyton, Rt Hon JohnThorne, Neil (Ilford South)Mr. David Waddington

    Question accordingly negatived.

    Clause 41

    Distributions Of Investment Companies

    7 pm

    Amendments made:

    No. 327, in page 49, leave out lines 1 to 18 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—'.

    No. 328, in page 49, line 25, leave out '(5)' and insert '(1)'.

    No. 329, in page 49, line 33, leave out from 'company' to 'consists' in line 36 and insert

    'which has given notice in the 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'.

    No. 330, in page 49, line 37, leave out 'land or other assets'.

    No. 331, in page 49, leave out lines 40 to 44 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), it 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 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)(b) 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.'
  • No. 332, in page 50, line 1, leave out subsections (8) to (12).—[ Mr. Eyre.]

    Clause 43

    The Relevant Accounts

    Amendment made: No. 340, in page 54, line 42, at end add—

    '"reserves" includes undistributable reserves within the meaning of section 40 above;'.—[Mr. Eyre.]

    Clause 45

    Ancillary Provisions

    Amendments made:

    No. 334, in page 55, line 23, 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.'.

    No. 60, in page 56, line 9, leave out 'issued' and insert 'allotted'.—[ Mr. Eyre.]

    Clause 46

    Directors To Have Regard To Interests Of Employees

    I beg to move amendment No. 61, in page 56, line 34, at end insert—

    '(2) Any trade union which is recognised by the company for the purpose of Part I of the Employment Protection Act 1975 may in a representational capacity petition the court on behalf of any or all of the persons employed by the company to enforce the duty imposed upon directors of subsection (1) of this section.
    (3) No such petition should be filed without leave of the court which may be obtained upon application to a judge of the High Court.'.

    With this we will take amendment No. 62, in page 56, line 35. leave out subsection (2).

    In Committee, the Minister of State said that he had spent a considerable time wrestling with the problem. For some reason he identified himself with the problems of a young man in a harem who on this occasion knew what he wanted, how to start his operations and accomplish his objectives. I do not agree with the conclusions that the Minister has reached in arriving at the so-called solution that he has presented to the House. It was interesting to observe that the Minister of State during the last debate represented to the House a thoroughly naive and idealised view of the sort of democroacy which operates in companies and which led him to this erring conclusion on this very important issue.

    Clause 46(1) seeks to provide a mandatory duty on directors to have regard to the interests of employees, and then all the good work that that seeks to do is ruined by the addition of subsection (2) which will ensure that the employees have no way whatsoever of enforcing that obligation. There is to be no civil remedy for them. One is bound to ask why the Government bother to impose this mandatory duty at all if, in fact, it is incapable of enforcement.

    I must say that the Government remind me of the practice indulged in by some people in their very early youth—that of ringing doorbells and running away when there is the slightest chance of the door being opened. That is what this is like.

    In Committee the Minister ran away from all the real issues. I suggested to the Committee, as I do again today, to the House, that the role of the law on this subject is extremely important. Should the law be seen as an instrument of change or as a rather useless desiccated instrument which is insulated from the real needs of a dramatically changing society? That is very germane to the subject we are considering.

    My complaint about the clause is that it simply pays lip service to the expansion of the concept of co-partnership about which the Government prate so often. The clause perpetuates the inadequacies of the existing law.

    The Minister of State often suggested to the Committee that the Government were proud to be even-handed on this matter. There is no even-handedness about this proposal. A shareholder can enforce the obligations which are imposed on directors. Minority shareholders have their rights strengthened under clause 71 of the Bill, but the employee must rest on the goodness of heart and the sense of propriety of the directors.

    As my right hon. and learned Friend the Member for Warley, West (Mr. Archer) said in our last debate, not all directors are so munificent in the pursuit of their legal obligations. We heard of a number of companies where there had been no such pursuit at all.

    Can the hon. Member tell me what he means by the phrase "to enforce the duty" which is part of the amendment? Does it mean that the court should impose a penalty on directors for failure to discharge their duties, or does it mean alternatively that the court will undertake a supervisory role and direct the directors to act in future in a specified manner?

    The Government have imposed a duty in subsection (1). This would not enable a criminal sanction to apply, but it would enable an employee to ensure that by resorting to an action in the courts the directors would fulfil their duty. That would be a matter for the courts to determine. I shall come to the question of vexatious litigation in due course.

    The Government assert that they have somehow miraculously had a change of heart about all this. At one time—back in 1973—there was to be a permissive measure imported into the law. There was not to be a mandatory requirement for directors to take account of employees at all. Now the Government boast that they have fallen into line with some of the more modern thinking. But if the provision is needed, who is it needed for? It must be needed for the company directors who do not fall into line with that naive concept of what a company director is all about, as outlined by the Minister of State. If he has said this once he has said it a dozen times during our debates. He claims that in well-run companies boards of directors further the interests of their shareholders by making sure that the interests of their employees are properly taken into account.

    7.15 pm

    Obviously the Government did not think that in practice, otherwise they would not have found it necessary to have this clause. What they are really saying is that they were wrong about this matter, that there are some laggards and therefore there must be legislation. Therefore, if there is a need to legislate to provide for rights of members of the company, why is it not right to see that employees have the same rights as well?

    The Minister of State posed a number of arguments against this. He said that there would be an inducement to vexatious litigation. We have sought to provide a reasonable safeguard against that. We provide that:
    "No such petition should be filed without leave of the court which may be obtained upon application to a judge at the High Court".
    One wonders whether legal aid is so bountiful that there will be a flood of litigation on this matter. It is all part of the way in which the Minister of State misleads himself. I believe that a flood of litigation on this score is absolutely fanciful. It is not a course to which most trade unions or employees will readily resort. But, on the other hand, one must take account of those workers to whom the Government proclaim so much fealty—those who are not trade unionists. Not all these people enjoy the benefits of collective bargaining arrangements which the trade unionists are able to enjoy. Why should they be shut out and be barred from a legal remedy?

    We would say that people who work in an industry should be provided with at least similar rights to the sort of people who in the early 1970s played a substantial part in British industry—the asset-strippers. They claimed to be acting in the best interests of shareholders, but all too often they were denying ordinary folk the rights of jobs and of a future in the work force. I would have thought that the elementary right that should be enjoyed by a member of that work force should at least be equal to that of the asset-stripper.

    I believe that the Minister made another assertion when he said:
    "the duty to consider the interests of the employees is enforceable in the same manner as is any fiduciary duty, that is, by the company,"—[Official Report, Standing Committee A; 27 November 1979, c. 361.]
    That is a strange way of articulating the law because, as we shall see in a later debate, we know that breaches of fiduciary duty can be validated by ordinary resolution in a general meeting. This is just one of those duties that could be so validated. It does not fall into that area of duty that cannot be validated or into the area of fraud, to which we shall refer later. Is it not certain, almost beyond peradventure, that if there is such a breach the shareholders would obviously validate the acts of the directors in refusing to take account of the interests of the work force? I can hardly imagine the contrary happening.

    The Minister said that to provide employees with the sort of rights that he contemplates would put the employees in a precarious position as compared with the shareholders. That bodes well for amendment No. 126, which we shall discuss later. That amendment is designed to provide employees and others with rights under clause 71, where provision is made for granting relief against a company where members are unfairly prejudiced. The Under-Secretary of State cannot have it both ways. I hope that he will either repudiate what his Minister has said, or at least acknowledge that he will subscribe to the views that we are expressing on clause 71. There is a huge gap between both sides about employee rights. We ate offering genuine rights. The Government are offering an empty and wholly bogus gesture.

    Clause 46 as presently drafted imposes, by subsection (1), a duty on company directors to have regard in the performance of their functions to the interests inter alia of the company's employees in general. By subsection (2), this new duty is submitted to the existing fiduciary duties of company directors, in the sense that breach of it is made actionable in the same way as any other fiduciary duties owed by the directors to the company. I shall come to the point raised by the hon. Member for Hackney, Central (Mr. Davis) on this matter in due course.

    I wish to show how far these two amendments would have the effect of changing the persons who would be able to sue for a breach of the new duty created by subsection (1). In the first place, it would be clear that the duty would be actionable at the suit of trade unions recognised by the company for the purpose of part I of the Employment Protection Act 1975—that is, for the purpose of collective bargaining on behalf of the company's employees.

    Secondly, it is unusual to have a duty created by statute which is enforceable by one person on behalf of others, but not by those latter, and because of the common law principle that a statutory duty created for the protection of given persons is usually to be construed as enforceable by those persons, it is highly likely that these amendments would permit individual employees of the company concerned to sue for breach of the duty created by subsection (1).

    Thirdly, because a director's duties in the performance of his functions are owed to the company of which he is a director, and those duties are enforceable, in accordance with the exceptions to the rule in Foss v Harbottle, by a member on behalf of the company, it is highly probable that these amendments would leave the duty created by subsection (1) actionable in this way by a member of the company.

    Broadly, therefore, the effect of these amendments would be to make the duty of directors to have regard to employees, interests created by subsection (1) of clause 46 enforceable by the company's members, the company's employees and, on the latter's behalf, by trades unions recognised by the company for the purposes of collective bargaining.

    The hon. Gentleman may have thought that he had brought forward a proposal which was simple, and which would even make a positive contribution. With respect, I ask him to consider the position that would be created were these amendments to be brought into effect. I hope that I have demonstrated that the consequence of his amendments would be to give rise to the possibility of a multiplicity of actions. The directors of a company would become something of a sitting target for actions brought by a whole range of litigants.

    Will the Minister address his mind to subsection (3) of amendment No. 61, which provides the sort of safeguards—which apply already over a wide range of litigation—to avoid vexatious and frivolous litigation? It emphasises markedly that point.

    I understand the hon. Gentleman's thoughts in that respect, but I do not think that they are watertight. I wish to emphasise that there is great importance attached to collective bargaining by many Opposition Members. They would not, I believe, think that court proceedings were by any means the best way to—

    I cannot understand the Minister's logic. He is saying that collective bargaining arrangements would prevail, and that people would not pursue remedies in the courts, but the next moment he is saying that there would be a multiplicity of vexatious and frivolous actions.

    I am indicating that one would have reservations about the line of thought pursued by the hon. Gentleman with regard to the availability of the right of action. I am pointing out that the right of action would be very much more widespread than he contemplated at the time that he drafted the amendments.

    Another example of the potentially disruptive effect that these amendments would have stems from the fact that a union recognised for collective bargaining purposes may represent only a small percentage of the employees of a given company, and there may be several of them so recognised. Any one of them could sue on behalf of all employees if it were thought that all employees' interests had been disregarded. However, there is no way of knowing what would happen if one only of several recognised unions wished to sue and the others did not wish to do so. There is, further, the possibility that each union could take separate actions. Either way, there would be a grave risk that vexatious actions would be encouraged.

    The Opposition amendment represents a substantial change of approach. Until last May, their policy was to make the duty to have regard to the interests of employees owed, in some sense, to those employees. The hon. Member for Oldham, West (Mr. Meacher) who was a Minister at that time, explained, in relation to the clause introduced by his Government, that
    "The principal effect of the clause will therefore be—this is very much inherent in our reasoning—to give directors a shield against attack where they act with due regard to employees' interests, rather than to give employees a sword to use against them when they do not."
    The Opposition's arguments in Committee against clause 46 were not consistent with that statement. The hon. Member for Oldham, West said that his Government did not wish
    "to encourage employees to look to the courts as a natural forum for the resolution of industrial relations disputes."—[Official Report, Standing Committee F, 8 March 1979; c. 856–8.]
    That was the point that I was trying to make to the hon. Member for Hackney, Central at an earlier stage.

    Under the terms of these amendments, there is created a real danger of disruptive effects upon the activities of companies. The effect of these amendments would be to lessen the prospect of investment in and success of our companies, and, consequently, would be against the long-term interests of employees.

    In seeking to resist the amendments recommend that clause 46, as drafted, provides precisely what is needed. It emphasises that a company's best interests are served when the directors have regard to the interests of employees and it does so in a way which makes it part of the directors' fiduciary duty which is owed to the company. The clause does not aim to give employees a cause of action, because we think it right that the enforceability of the directors' duty to the company should remain clear and unambiguous and, as with other fiduciary duty, it should be the company which has the right to take action.

    7.30 pm

    It must not be forgotten that employees have many rights to take action against directors under various other statutes. We are, therefore, not trying in the clause to create a new right of action for employees. What we want to do is to encourage directors to take seriously the need to take a broader view of the interests of the company so that their consideration of their employees' interests will improve to the standard of the best companies.

    It has been generally recognised that the extent of the directors' obligation to take account of the interests of employees has for some years been unclear. That is the reason for the clause. I hope that hon. Members will agree with me that the clause properly redresses the situation and thereby makes a contribution to the success of our companies, upon which the well-being of our economy so much depends.

    I have the feeling that the hon. Gentleman is drawing to a close and he has not dealt with my argument about the validation of breaches of the provision by directors. That validation can occur at a general meeting with an ordinary resolution. Does not that render the whole thing a farce?

    The hon. Gentleman underrates the sense of obligation properly experienced among the great mass of companies. The purpose of the clause is to declare the true position. In those circumstances it is unlikely that the sort of case that the hon. Gentleman envisages will develop.

    I agree with the comments of my hon. Friend the Under-Secretary about the nature of the amendments, which seem to be a recipe for industrial guerrilla warfare. I am sure that the hon. Member for Hackney, Central (Mr. Davis) is well aware of their implications. Litigation does not have to be vexatious or frivolous in order to snare a company and prevent it from being properly managed.

    I wish to make two brief points. I am concerned about the new duty that the clause imposes on directors. My concerns are not entirely technical. First, the clause does not exclude action brought by an employee, as distinct from an employee or shareholder, to enforce the duty owned by directors to a company. Subsection (2) says that the duty is enforceable "in the same way" as other fiduciary duties. It it, therefore, conceivable that an employee or a trade union might be entitled to enforce the duty and to produce the litigation about which my hon. Friend is right to be worried.

    My second point arises out of the words "enforce the duty" in the amendment and relates to the position of directors when the interests of employees and shareholders conflict, for example, in the case of a takeover or when a branch of a company's business that was highly labour-intensive was making a loss.

    Are the directors to close the branch or business even though the employees argue that it would become more profitable with further capital investment? I see a posibility of conflict there. I hope that my hon. Friend will consider my concerns and perhaps give me some reassurance.

    The hon. Member for Dorset, North (Mr. Baker) has missed the bus. All that directors have to do is to take account of the interests of the work force. They must not dismiss matters lightly or ignore those interests, but if they properly take them into account and come to a conclusion that the work force does not find agreeable they could not be held liable under our provisions.

    I hope that the Under-Secretary will not take my remarks as being personally offensive, because he knows that I have a high regard for him, but his emollient explanation was thoroughly unconvincing. Of course, he has to pass on what is handed down by the Minister for Trade, but what he was handed was a sham.

    There is no question of an evenhanded approach. I cannot accept that what we are doing would lead to industrial guerrilla warfare. There is a satisfactory safeguard in subsection (3). We feel that the Government should have met us on this point and the fact that they have chosen not to do so means that we shall divide the House.

    I shall reply briefly to my hon. Friend the Member for Dorset, North (Mr. Baker). I must emphasise the importance of the fact that the duty is subsumed in the fiduciary duty of directors to the company as a whole. That is a proper answer to my hon. Friend's first question.

    On my hon. Friend's second point, the hon. Member for Hackney, Central (Mr. Davis) pointed out that directors are under an obligation to take account of the interests of workers. It does not mean that, automatically, all problems could be solved. I urge the House to accept that the clause sets out the basis of the best principle that applies in companies and I believe that its incorporation in our law will have a beneficial effect.

    The hon. Member for Hackney, Central usually asks whether there has been consultation with the TUC. He did not do so on this occasion, but I can tell him that in July my right hon. Friend the

    Division No. 208]


    [7.40 pm

    Alton, DavidField, FrankMitchell, R. C. (Soton Itchen)
    Anderson, DonaldFlannery, MartinMorris, Rt Hon Charles (Openshaw)
    Ashton, JoeFletcher, L. R. (Ilkeston)Moyle, Rt Hon Roland
    Atkinson, Norman (H'gey, Tott'ham)Fletcher, Ted (Darlington)Ogden, Eric
    Barnett, Guy (Greenwich)Ford, BenPalmer, Arthur
    Beith, A. J.Foulkes, GeorgeParker, John
    Boothroyd, Miss BettyFraser, John (Lambeth, Norwood)Powell, Raymond (Ogmore)
    Bradley, TomGarrett, W. E. (Wallsend)Prescott, John
    Bray, Dr JeremyGraham, TedRadice, Giles
    Brown, Ronald W. (Hackney S)Grant, John (Islington C)Roberts, Ernest (Hackney North)
    Buchan, NormanGrimond, Rt Hon J.Rooker, J. W.
    Callaghan, Jim (Middleton & P)Hamilton, James (Bothwell)Sever, John
    Campbell-Savours, DaleHamilton, W. W. (Central Fife)Silverman, Julius
    Carmichael, NeilHarrison, Rt Hon WalterSmith, Rt Hon J. (North Lanarkshire)
    Carter-Jones, LewisHaynes, FrankSnape, Peter
    Cartwright, JohnHogg, Norman (E Dunbartonshire)Spearing, Nigel
    Clark, Dr David (South Shields)Home Robertson, JohnSpriggs, Leslie
    Cocks, Rt Hon Michael (Bristol S)Homewood, WilliamStewart, Rt Hon Donald (W Isles)
    Coleman, DonaldHughes, Mark (Durham)Stoddart, David
    Cook, Robin F.Hughes, Robert (Aberdeen North)Straw, Jack
    Cryer, BobLamond, JamesSummerskill, Hon Dr Shirley
    Cunliffe, LawrenceLeadbitter, TedTinn, James
    Davis, Clinton (Hackney Central)Litherland, RobertWelsh, Michael
    Davis, Terry (B'rm'ham, Stechford)Lyon, Alexander (York)White, Frank R. (Bury & Radcliffe)
    Deakins, EricLyons, Edward (Bradford West)Whitehead, Phillip
    Dormand, JackMcCartney, HughWhitlock, Williiam
    Dubs, AlfredMcDonald, Dr OonaghWigley, Dafydd
    Duffy, A. E. P.McKay, Allen (Penistone)Willey, Rt Hon Frederick
    Dunwoody, Mrs GwynethMaclennan, RobertWilson, William (Coventry SE)
    Eadie, AlexMcNamara, KevinWinnick, David
    Eastham, KenMarks, KennethWoolmer, Kenneth
    Edwards, Robert (Wolv SE)Maynard, Miss Joan
    Ellis, Raymond (NE Derbyshire)Mellish, Rt Hon RobertTELLERS FOR THE AYES:
    English, MichaelMikardo, IanMr. Joseph Dean and
    Evans, John (Newton)Millan, Rt Hon BruceMr. George Morton.
    Faulds, Andrew


    Adley, RobertBlackburn, JohnBrowne, John (Winchester)
    Alexander, RichardBlaker, PeterBruce-Gardyne, John
    Alison, MichaelBoscawen, Hon RobertBulmer, Esmond
    Ancram, MichaelBowden, AndrewBurden, F. A.
    Aspinwall, JackBoyson, Dr RhodesCadbury, Jocelyn
    Atkins, Robert (Preston North)Braine, Sir BernardCarlisle, John (Luton West)
    Baker, Nicholas (North Dorset)Bright, GrahamCarlisle, Kenneth (Lincoln)
    Beaumont-Dark, AnthonyBrinton, TimCarlisle, Rt Hon Mark (Runcorn)
    Bell, Sir RonaldBrocklebank-Fowler, ChristopherChalker, Mrs. Lynda
    Best, KeithBrotherton, MichaelChapman, Sydney
    Bevan, David GilroyBrown, Michael (Brigg & Sc'thorpe)Clark, Hon Alan (Plymouth, Suttton)

    Secretary of State wrote to the general secretary of the TUC to inform him that it was our intention, following discussions, to introduce such a clause. The general secretary replied on 4 July:

    "You said that you would be prepared to look again at the case for including in the Companies Bill a clause on the duties of directors to state the principle that directors should have due regard, inter alia, to the interests of employees. This would fit naturally into the present Bill and would constitute, as I think we both agreed, a long overdue opportunity to bring company law more into line with good company practice."

    Those were true and accurate comments and on that basis I ask the House to reject the amendment.

    Question put, That the amendment be made:—

    The House divided: Ayes 102, Noes 160.

    Clarke, Kenneth (Rushcliffe)Knox, DavidPeyton, Rt Hon John
    Cockeram, EricLawrence, IvanPollock, Alexander
    Cope, JohnLawson, NigelPowell, Rt Hon J. Enoch (S Down)
    Corrie, JohnLe Marchant, SpencerPrice, David (Eastleigh)
    Critchley, JulianLennox-Boyd, Hon MarkProctor, K. Harvey
    Dean, Paul (North Somerset)Lester, Jim (Beeston)Raison, Timothy
    Dickens, GeoffreyLewis, Kenneth (Rutland)Rathbone, Tim
    Dorrell, StephenLloyd, Peter (Fareham)Rees-Davies, W. R.
    Dover, DenshoreLyell, NicholasRhodes James, Robert
    Dunn, Robert (Dartford)MacGregor, JohnRhys Williams, Sir Brandon
    Edwards, Rt Hon N. (Pembroke)MacKay, John (Argyll)Shepherd, Colin (Hereford)
    Elliott, Sir WilliamMajor, JohnSkeet, T. H. H.
    Eyre, ReginaldMarlow, TonySpeed, Keith
    Fairgrieve, RussellMarshall, Michael (Arundel)Speller, Tony
    Fenner, Mrs PeggyMarten, Nell (Banbury)Spicer Jim (West Dorset)
    Fletcher, Alexander (Edinburgh N)Mather, CarolStainton, Keith
    Fookes, Miss JanetMaude, Rt Hon AngusSteen, Anthony
    Fowler, Rt Hon NormanMaxwell-Hyslop, RobinStewart, John (East Renfrewshire)
    Gardner, Edward (South Fylde)Mellor, DavidStradling Thomas, J.
    Garel-Jones, TristanMeyer, Sir AnthonyTebbit, Norman
    Glyn, Dr AlanMiller, Hal (Bromsgrove & Redditch)Thompson, Donald
    Goodhew, VictorThorne, Nell (Ilford South)
    Gorst, JohnMills, Iain (Meriden)Townend, John (Bridlington)
    Griffiths, Eldon (Bury St Edmunds)Mills, Peter (West Devon)Townsend, Cyril D. (Bexleyheath)
    Griffiths, Peter (Portsmouth N)Moate, RogerTrippier, David
    Grylls, MichaelMolyneaux, JamesVaughan, Dr Gerard
    Gummer, John SelwynMonro, HectorWakeham, John
    Hamilton, Hon Archie (Eps'm&Ew'll)Montgomery, FergusWaldegrave, Hon William
    Hamilton, Michael (Salisbury)Morrison, Hon Charles (Devizes)Walker, Bill (Perth & E Perthshire)
    Hawkins, PaulMorrison, Hon Peter (City of Chester)Walker-Smith, Rt Hon Sir Derek
    Hawksley, WarrenMyles, DavidWall, Patrick
    Hayhoe, BarneyNeale, GerrardWaller, Gary
    Heddle, JohnNeedham, RichardWard, John
    Henderson, BarryNelson, AnthonyWarren, Kenneth
    Hicks, RobertNewton, TonyWatson, John
    Hill, JamesNormanton, TomWells, Bowen (Hert'rd & Stev'nage)
    Hogg, Hon Douglas (Grantham)Nott, Rt Hon JohnWilliams, Delwyn (Montgomery)
    Holland, Philip (Carlton)Page, Rt Hon Sir R. GrahamWolfson, Mark
    Hunt, David (Wirral)Page, Richard (SW Hertfordshire)Young, Sir George (Acton)
    Jessel, TobyParkinson, CecilYounger, Rt Hon George
    Jopling, Rt Hon MichaelParris, Matthew
    Kaberry, Sir DonaldPatten, Christopher (Bath)TELLERS FOR THE NOES:
    Kellett-Bowman, Mrs ElainePatten, John (Oxford)Mr, David Waddington and Lord James Douglas-Hamilton.
    Knight, Mrs JillFattie, Geoffrey

    Question accordingly negatived.

    Clause 47

    Contracts Of Employment Of Directors

    I beg to move amendment No. 309, in page 57, line 10, leave out 'agreement' and insert 'employment'.

    With this it will be convenient to take amendment No. 63, in page 57, line 11, after second 'by', insert 'reasonable'.

    No. 64, in page 57, line 11, after 'notice', insert not exceeding six months'.

    Government amendments Nos. 310 to 314, 242, 315 and 316.

    No. 65, in page 57, line 44, at end insert not exceeding six months'.

    7.45 pm

    Although this appears to be a large group of amendments, all are of a technical nature and have been tabled in response to representations made both to the Government and to the Opposition, chiefly by the Law Society, to which we are grateful for bringing these matters to our attention.

    Amendment agreed to.

    Amendments made: No. 310, in page 57, line 14, after 'is', insert 'or is to be'.

    No. 311, in page 57, line 19, after 'is', insert 'or is to be'.

    No. 312, in page 57, line 23, leave out 'his employment' and insert

    'he is to be employed.'

    No. 313, in page 57, line 24, leave out from 'group' to end of line 26.

    No. 314, in page 57, line 28, leave out 'the later' and insert 'that further'.

    No. 242, in page 57, line 33, at end insert 'proposed'.

    No. 315, in page 57, line 42, leave out 'but instead the agreement' and insert

    'and that agreement and in a case where subsection (3) above applies the original agreement'.

    No. 316, in page 57, line 43, leave out 'the agreement' and insert 'it'.—[ Mr. Eyre.]

    Clause 48

    Substantial Property Transactions Involving Directors, Etc

    I beg to move amendment No. 404, in page 58, leave out lines 13 to 20 and insert—

  • (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;
  • With this it will be convenient to discuss also Government amendments Nos. 401, 276, 277, 278 and 285.

    This group of amendments deals with the definition of a non-cash asset for the purpose of clause 48. The original clause was criticised on the grounds that, because certain transactions were created rather than transferred, an asset would escape the scope of the clause. On reviewing the clause, we agreed with the substance of those criticisms. Amendment No. 404 sets out a simpler redraft of clause 40(1)(a) and (b).

    Amendment agreed to.

    On a point of order, Mr. Deputy Speaker. If amendment No. 67 is not moved, may I move No. 378, which is grouped with it?

    I beg to move amendment No. 378, in page 59, line 1, after 'voidable', insert 'within a reasonable period'. This should be taken with amendment No. 69, in page 59, line 13, leave out 'within a reasonable period'.

    The effect of the subsection as it appears in the Bill is that the arrangements there referred to would remain voidable notwithstanding that they had been affirmed in general meeting if the affirmation took place after the expiration of a reasonable period. By the amendments, the right of rescission would be exercised within a reasonable period. The right drafting to overcome that difficulty should be that the words "within a reasonable period" should be deleted from line 11—that is, amendment No. 378—and inserted in line I after the word "voidable".

    The effect of amendments Nos. 67, 88 and 378 would be to limit the right of the company to set aside transactions whatever the circumstances and whether or not those who had retained the property transferred were knowingly in contravention of the relevant sections. If, for example, a director had manipulated offers so that he had obtained for a derisory price, without approval under clause 48, a lucrative income-producing property which he retained after the expiry of the period for the exercise of the company's right of avoidance—that is, six months under amendment No. 67 or "a reasonable period" under amendment No. 378—why should he not be compelled to restore it to the company in exchange for the money he paid for it? The company should surely have the option of suing for an indemnity or an account of profits, or for restitution of the property.

    As clauses 48 and 52 stand, restitution is possible only if bona fide rights of innocent third parties have not intervened. If, for example, the property acquired by the director is consequently sold to a purchaser who is unaware of the nature of the dealings between the director and the company, the company will be unable to recover the property and would be left with an action against the director.

    These amendments are therefore not needed in order to protect innocent third parties: we have already further ensured such protection by the insertion of the word "actual" before "notice" in clause 48(3)(b) and in clause 52(1)(b). In practice, therefore, these amendments would severely restrict the remedies available to the company without increasing the protection of the innocent third party. I therefore urge the House to reject the amendments.

    With respect, I am not in the least concerned with amendment No. 67, which would only mess the whole thing up if it were accepted. I am concerned with amendments Nos. 378 and 69. If they are not accepted, nobody knows when this arrangement becomes affirmed and valid and, for ever, anybody dealing with that arrangement in the background will never know when his own arrangements are confirmed. The arrangement will remain for ever rescindable. That is not something that should be allowed.

    These are simple amendments and I urge my hon. Friend to look at them again. My amendment No. 378, combined with that which was already on the Amendment Paper—No. 69—would simplify the clause, would, with great respect to my hon. Friend, give protection to third parties, and would make some sense of the clause. Otherwise, it will be extremely difficult for anyone to deal with these matters after such an arrangement, even though it has been approved and confirmed by the company in general meeting. If the company has not confirmed it in a specific time, the arrangement remains voidable for ever.

    I press my hon. Friend to look again at this to see whether he can accept the amendments here and now to correct an error in the clause.

    I believe that I have answered my right hon. Friend in the main, but of course I will look at the matter again to make sure that we have got it right.

    Amendment negatived.

    Amendment made: No. 273, in page 59, line 10, at beginning insert 'actual'.

    Amendment proposed: No. 286, in page 59, line 21, after 'subsection', insert 'but subject to subsection (4A) below'.—[ Mr. Eyre.]

    Government amendment No. 287.

    Amendment No. 379, in page 59, line 39, at end add

    and he may apply to the court for such relief (which the court shall have power to grant to him) as the court might grant him in proceedings under the foregoing provisions of this section'.

    Government amendments Nos. 288 and 289.

    8 pm

    Amendment No. 379, which stands in my name, gives certain rights under clause 48. The amendment is reasonable and everybody seems to want to save time by not explaining amendments. I shall not detain the House by explaining the amendment, but I ask my hon. Friend to explain why he believes that it is unreasonable.

    The intention behind amendment No. 379 is similar to the intention behind the Government amendments. However, the effect of amendment No. 379 is unclear. It seeks to extend protection for the directors authorising prohibited transactions and for connected persons by empowering them to apply to the court for relief. We have produced the same result by ensuring that such people will not be liable unless there is knowledge of the relevant circumstances which constitute the contravention. The amendment does not appear to extend protection to a director who is involved in the transaction either directly or through a connected person. It would be unjust to impose a liability on such a director if he has taken all practical steps to prevent such prohibited transactions from taking place. Our amendments are in accord with the intentions behind amendment No. 379, but our amendments are more effective and complete. I hope that my right hon. Friend will not press his amendment.

    Amendment agreed to.

    Amendments made:

    No. 290, in page 59, line 21, leave out 'or transaction'.

    No. 276, in page 59, line 22, leave out 'or a person nominated by it'.

    No. 291, in page 59, line 26, leave out 'or transaction' and insert:

    'or any transaction entered into in pursuance of such an arrangement'.

    No. 277, in page 59, line 29, leave out

    'or the person so nominated'.

    No. 245, in page 59, line 32, after 'any', insert 'other'.

    No. 278, in page 59, line 33, leave out:

    'and any person so nominated'.

    No. 287, in page 59, leave out line 36 and insert—

    . (4A) 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'.—[Mr. Eyre.]

    Clause 49

    Prohibition Of Loans, Etc, To Directors And Connected Persons

    Amendment made: No. 279, in page 60, line 6, after 'or', insert 'of'.—[ Mr. Parkinson.]

    Clause 50

    Exceptions From S 49

    Amendment proposed: No. 403, in page 60, line 43, at end add—

    '(1A) 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 56(6) below.'.—[Mr. Parkinson.]

    No. 75, in page 61, leave out lines 3 and 4.

    No. 76, in page 61, leave out lines 5 to 15.

    Government amendments Nos. 280, 281, 282 and 283.

    No. 78, in page 61, leave out lines 35 to 38.

    No. 79, in page 61, line 39, leave out 'subsection (3)( c)' and insert 'subsection (2)( b), (3)( c) and (3)( d)'.

    No. 80, in page 62, line 13, leave out subsection (5).

    No. 373, in page 62, line 14, leave out from 'only' to first 'the' in line 19 and insert 'if'.

    Government amendments Nos. 284, 243 and 260.

    No. 84, in page 62, leave out lines 33 and 34.

    No. 85, in page 62, line 35, leave out subsection (6).

    There seems to be an unholy alliance to cut out speeches from the Back Benches and to skip through the amendments so that nobody knows what they are about. I wish to address the House on amendment No. 373, which seeks to amend the setting out of exceptions to clause 49 in connection with prohibiting certain loans to directors. The exception made to clause 50(5) is that certain loans, if they satisfy the conditions in clause 50(5)(a) and (b), are permitted if they are of a certain amount.

    The part of the clause which I wish to amend is that which affects banks when lending to their own directors. Under the Bill they will find it extremely difficult to prove what is their normal commercial terms or course of business. It is unnecessary to put restrictions on such loans. The definition of the ordinary course of a company's business is a matter for subjective judgment which may not be shared by a bank and the Department. Great uncertainty will arise. The clause imposes an unnecessary restriction tion on that type of loan. Such a loan cannot mislead anybody if it is made by the banks to their directors. It sets aside an executive director of a bank as a second-class individual who cannot obtain a loan in the same way as anybody else.

    The Government's amendments to the clause are technical and have been tabled in response to helpful comments made in Committee from both sides and by various bodies, including the Law Society.

    The effect of amendment No. 373 would be to remove the requirement that a loan or quasi-loan made by a money-lending company to its director should be in the ordinary course of that company's business. The Government view is that the condition that such a transaction should be in the ordinary course of a company's business provides an extra safeguard which will prevent companies from contemplating the making of transactions which are not part of their normal business activities. That was the reason behind the inclusion of the words. We think that they serve a useful purpose. I hope that in the circumstances my right hon. Friend the Member for Crosby (Sir G. Page) will not press his amendment.

    Amendment agreed to.

    Amendments made: No. 280, in page 61, line 10, leave out 'to' and insert 'in respect of'.

    No. 281, in page 61, line 11, leave out 'entered into than' and insert:

    'made than that or those which'.

    No. 282, in page 61, line 12, leave out 'for', and insert

    'to or in respect of'.

    No. 283, in page 61, line 13, leave out from 'person' to end of line 15 and insert

    'but unconnected with the company'.

    No. 284, in page 62, leave out lines 27 and 28 and insert

    but unconnected with the company;'

    No. 243, in page 62, line 30, leave out from 'not' to 'to' in line 31 and insert 'a recognised bank'.

    No. 260, in page 62, leave out lines 33 and 34 and insert—

    '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.'.—[Mr. Newton.]

    Clause 51

    Relevant Amounts

    I beg to move amendment No. 341, in page 64, line 6, clause 51, leave out from 'which' to end of line 7 and insert

    'that value has been reduced'.

    Amendment agreed to.

    Clause 52

    Civil Remedies For Breach Of S 49

    Amendments made:

    No. 274, in page 64, line 17, at beginning insert 'actual'

    No. 267, in page 64, line 17, leave out

    'who is not a party to the arrangement or transaction'

    and insert

    'other than the person for whom the transaction or arrangement was made'.

    No. 288, in page 64, line 21, after 'subsection', insert

    'but subject to subsection (3) below'.

    No. 246, in page 64, line 31, after 'any', insert 'other'.

    No. 289, in page 64, leave out line 34 and insert—

    '(3) Where an arrangement or transacton is entered into by a company and a person connected with a director of the company or its holding company in contravention of section 49, 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 he'.—[Mr. Newton.]

    Clause 53

    Criminal Penalties For Breach Of S 49

    I beg to move amendment No. 256, in page 64, line 38, leave out 'wilfully'.

    With this it will be convenient to take Government amendments Nos. 257, 258, 259, 294, 295 and 296.

    This group of amendments gives effect to our review of the wording of clause 53, which imposes criminal sanctions on directors, companies and others in respect of transactions prohibited under clause 49. We undertook to carry out this review following the helpful points made by my right hon. Friend the Member for Crosby (Sir G. Page) on the drafting of the clause. It is in response to his representations that these changes are being made.

    Amendment agreed to.

    Amendments made:

    No. 257, in page 64, line 40, leave out 'in contravention of' and insert

    'knowing or having reasonable cause to believe that the company was thereby contravening'

    No. 258, in page 65, line 1, leave out 'knowingly'.

    No. 259, in page 65, line 2, leave out 'in contravention of' and insert

    'knowing or having reasonable cause to believe that the company was thereby contravening '

    No. 294, in page 65, line 4, leave out 'person' and insert 'relevant company'.

    No. 295, in page 65, line 5, leave out 'he' and insert 'it'.

    No. 296, in page 65, line 6, leave out 'he' and insert 'it'.—[ Mr. Newton.]

    Clause 54

    Substantial Contracts, Etc, With Directors And Others To Be Disclosed In Accounts

    8.15 pm

    I beg to move amendment No. 252. in page 66, line 10, leave out '(b)'.

    The amendment extends the scope of clause 54(3) to all cases where a holding company does not produce group accounts. It is a technical amendment that corrects an oversight in the drafting of the clause.

    Amendment agreed to.

    I beg to move amendment No. 298, in page 66, line 16, leave out 'arrangement or agreement' and insert 'or arrangement'.

    With this it will be convenient to take Government amendments Nos. 299, 300, and 301.

    This is a group of drafting amendments that will clear up anomalies and inconsistencies in the clause as it stands, regarding the use of the words "arrangement" and "agreement" in subsections (4) and (6). The terms used in those subsections, as amended, will be consistent with the use of the terms in subsections (1) and (2).

    Amendment agreed to.

    Amendments made:

    No. 299, in page 66, line 22, leave out 'arrangement or agreement' and insert 'or arrangement'.

    No. 300, in page 66, line 36, leave out 'and arrangements' and insert ', arrangements and agreements'.

    No. 301, in page 66, line 37, leave out first 'or'.

    No. 302, in page 66, line 42, after 'directors', insert

    'or a director of its holding company'.—[Mr. Parkinson.]

    Clause 56

    Particulars Of Amounts Outstanding To Be Included In Accounts

    I beg to move amendment No. 292, in page 69, line 7, at end add—

    '(2A) 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.'.

    With this it will be convenient to discuss amendment (a) to the principal amendment, proposed in line 1, leave out 'subsection (2)' and insert 'subsections (2) and (3)'.

    This amendment exempts recognised banks from the need to publish in their accounts the aggregate figures of loans and so on, to officers other than directors. I commend this amendment to the House.

    Amendment (a), in the name of my right hon. Friend the Member for Crosby (Sir G. Page), would have the effect of releasing recognised banks from the obligation to publish aggregate figures of loans to directors and connected persons. I hope that my right hon. Friend will appreciate, for the reasons that we discussed at some length in Committee, that the Government cannot accept this amendment.

    Amendment agreed to.

    I beg to move amendment No. 271, in page 69, line 29, at end add—

    '(4A) 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 (3) above shall have effect in relation to the company and that finacial year as if the word "group" were omitted.'.
    This amendment performs the same function for clause 56 as amendment No. 252, which we have already discussed, does for clause 54.

    Amendment agreed to.

    Clause 57

    Further Provisions Relating To Recognised Banks

    Amendment made:

    No. 293, in page 70, line 12, at end add—

    '(2A) 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.
    (2B) A report under subsection (2A) 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.'.—[Mr. Parkinson.]

    Clause 58

    Transactions, Etc, Excluded From Ss 54 And 57

    I beg to move amendment No. 248 in, page 71, line 28, leave out from beginning to 'and' and insert 'person'. This is a purely technical amendment which enables the de minimis provisions in clause 58 (4) to operate effectively.

    Amendment agreed to.

    Amendment made:

    No. 342, in page 71, line 30, leave out from 'which' to 'has' in line 31 and insert

    'the value of those transactions, arrangements and agreements'.—[Mr. Parkinson.]

    Clause 59

    Disclosure By Directors Of Interests In Contracts, Etc

    I beg to move amendment No. 249, in page 71, line 36, leave out from 'to' to 'made' in line 37 and insert

    'any transaction or arrangement (whether or not constituting a contract)'.
    The amendment has the effect of extending the disclosure requirement in section 199 of the 1948 Act so as to require directors to disclose their interests in all types of transactions and arrangements.

    Amendment agreed to.

    Clause 60

    Power To Increase Financial Limits Under Part Iv

    I beg to move amendment No. 93, in page 72, line 5, leave out from 'shall' to end of line 6 and insert

    'require the approval of both Houses of 'Parliament'
    The Minister said, on 4 December:
    "I think that, having regard to the weight and substance and importance of this matter, it was right to proceed by way of negative resolution."—[Official Report, Standing Committee A, 4 December 1979; c. 533]
    I take the point. If it were a matter of such
    "weight and substance and importance"
    one would have thought that the affirmative resolution procedure would be the more accurate to pursue. I do not follow the Minister's logic, and therefore, in following his suggestion, we have tabled the amendment. We feel that this is a matter of substance and importance which should therefore require the approval of both Houses of Parliament.

    The purpose of clause 60 is to give the Secretary of State power to raise any of the financial limits mentioned in clauses 48 to 50. The effect of an order made under this clause would therefore be to relax restrictions, and as such would be a proper subject for a negative resolution, whatever I or anyone else may have said in Standing Committee. Affirmative resolutions are considered necessary where more stringent rules are imposed, and we see no reason to depart from standard parliamentary practice in this case. It is for that reason that we resist the amendment.

    With great respect, I say that my hon. Friend the Minister has just endeavoured to lay down a new rule of convention, that if a statute is being relaxed the affirmative resolution procedure is unnecessary. I have never heard that argument before. It is nowhere in the book, if I may so put it. It is not a rule. There is no convention or rule of this House as to what shall be subject to the negative resolution procedure and what shall fall under the affirmative resolution procedure. Certain items are normally subject to the affirmative resolution procedure while others go under the negative resolution procedure. It is, however, a matter of judgment in each case.

    In this case, the Secretary of State might be altering by statutory instrument certain limits set by the Bill. From the point of view of changing the law, it does not matter whether he is increasing or decreasing those limits. In certain cases, if he is increasing them he is not relaxing the law for those on the other side of the picture. He may be relaxing the law with regard to a director who wants a loan, but that means that he is not relaxing it for the shareholders. Therefore, there is no reason for saying that orders which increase the amounts in the Bill in this respect are relaxing the law. That does not follow.

    Even if that were a rule or convention, which it certainly is not, if my hon. Friend had risen and said that the Government did not want to waste the time of the House or Standing Committees by bringing these matters forward each time on an affirmative resolution, he would have had a good case. This is merely a matter of judgment for a Minister who has to conduct the Bill as to what is done in this respect.

    If the affirmative resolution procedure is used, that need not lead to a waste of time in the House or in Standing Committee. If no one wishes to object, the matter can go through on the nod. But the value of using the affirmative resolution procedure is that the Government must bring the issue before the House. We all know how difficult it is to get a prayer debated on the Floor of the House. We all know of cases where a statute has provided for the negative resolution procedure, where prayers have been put on the Order Paper to initiate the procedure, but where the prayers have never been debated.

    Arrangements have to be made through the usual channels, but those channels do not always flow freely. They are frequently blocked, and prayers are not heard. This is, therefore, one of those cases where the Secretary of State intends at some time to alter some vitally important figures in the Bill, and that should be covered by the affirmative resolution procedure.

    I am most grateful to my right hon. Friend the Member for Crosby (Sir G. Page) for his guidance on these matters. I noted that he said that there were no rules as to the use of the respective procedures, and I am sure that that will be noted by the hon. Member for Hackney, Central (Mr. Davis), just as it will be noted by me. I bow to my right hon. Friend's experience in these matters. The nuances which relate to this part of parliamentary procedure are not commonly understood. I appear to have given perhaps the wrong reason for the right amendment. In the light of what my right hon. Friend said, I shall, of course, carefully examine the wording of the amendment.

    I do not think that it is open to the Minister to examine it now. He must either accept or reject the amendment, because, as I understand it, this amendment could not be dealt with in another place in relation to the next stages of the Bill. I could adopt the arguments of the right hon. Member for Crosby (Sir G. Page), but I do no more than adopt the arguments of the Minister who, when addressing his mind to this matter in Committee, referred to it as one of

    "weight and substance and importance"
    If it is of such
    "weight and substance and importance".—
    and I am sure that the Minister would not demur from that opinion now—that it is appropriate that we should deal with the issue by way of the affirmative resolution procedure.

    I think that the Minister might have been addressing himself to having no procedure available for the scrutiny of these matters by the House. That, of course, would have been intolerable.

    In this matter the Minister would be wise to give way and to confer upon the House a duty that it ought to perform on occasions such as this, not by causing the Government to undergo a particularly arduous operation, but merely to affirm this matter, as will be the duty of another place. I hope that the Minister will go some way—I suggest that it is the only way—towards meeting his right hon. Friend and myself by accepting the amendment.

    If I may have leave to speak again, I wish to press the matter upon my hon. Friend the Under-Secretary of State. He put his argument hesitatingly, and I believe that in his heart he was agreeing with my argument. It is not a political matter. There is nothing political about it. If it were otherwise, I should not have joined with the hon. Member for Hackney, Central (Mr. Davis)—

    in pressing it on my hon. Friend. There is no harm in accepting the amendment. It would recognise the duty of the House to consider important changes which may be made by the Secretary of State by statutory instrument under this clause.

    I have listened carefully to what has been said by my right hon. Friend the Member for Crosby (Sir G. Page) and to the proposition advanced by the hon. Member for Hackney, Central (Mr. Davis), but I regret that, for a practical reason, I cannot accept the amendment.

    My right hon. Friend said that it was a matter of judgment by the Minister responsible for a clause of this kind. It is likely that the financial limits mentioned will have to be revised, and I think it right in these circumstances for the matter to be dealt with on the basis set out in the Bill. Although I pay great attention, of course, to the points made by my right hon. Friend, I think that it would be right to resist the amendment.

    Amendment negatived.

    Clause 61

    Shadow Directors

    Amendment proposed: No. 251, in page 72, line 12, leave out 'subsection (2)' and insert 'subsections (2) and (5)'.—[ Mr. Eyre.]

    8.30 pm

    No. 380, in page 72, line 14, after 'act', insert

    'or a person otherwise able to control the policy of the company'.

    No. 381, in line 14, after 'act', insert

    'or a person otherwise able materially to influence the policy of the company'.

    No. 95, in line 16, leave out 'are accustomed so to', and Government amendment No. 303.

    I shall speak to our amendments Nos. 380 and 381. In our view, the words in the subsection are imprecise and require elucidation. The object which the Government seek to achieve here is not in dispute between us. Our concern is to achieve the necessary precision. The words of the subsection are as follows:

    "Subject to subsection (2) 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 "—
    and so on.

    The phrase "accustomed to act" assumes that the directors will be to some extent subservient to the activities of an individual on more than one occasion. If a person causes considerable damage by reason of a single act and he is someone who, in effect, controls or materially influences the policy of the company, that piece of conduct on his part may cause just as much damage as would a series of actions on his part.

    In our view, it would be far better if the Minister were to adopt the words which we suggest, which, in my judgment are in no way redundant to the objectives which he seeks. I hope that he will not rule out our proposal because it may not accord with his briefing. It is a sensible proposal. I do not consider that the words "accustomed to act" are sufficient. The precision needed here is not available in the subsection, and I hope that the Minister will give a positive response to our suggestion.

    Opposition amendments Nos. 380 and 381 appear to add something to the definition of "shadow director", but I believe that their intention is already comprised by the clause as drafted. I understand the emphasis which the hon. Member for Hackney, Central (Mr. Davis) puts upon the phrase, but when we speak of a director being "accustomed to act" on the directions or instructions of another person, we are referring to someone who, although not one of the duly appointed directors, exerts a permanent influence over the board. I do not think that the amendments add to that concept.

    The use of the word "otherwise" in amendments Nos. 380 and 381 may refer to the apparent limitation represented by the use of "directions or instructions" as the instruments of control by a shadow director. But I am advised that the sense of "directions and instructions" is wide enough to enable a court to look at the facts in each particular case. I appreciate the time and trouble to which the hon. Gentleman has gone in tabling these amendments and in presenting the arguments to the House. But on the grounds of the advice that I have received, I must advise the House to reject the two amendments as well as amendment No. 95.

    With the leave of the House, Mr. Deputy Speaker. I do not think that that offers any reasonable explanation for the rejection of these proposals.

    The Parliamentary Private Secretary may think that it does, but he agrees with absolutely every word and breath of his Minister. He is the most loyal PPS that I have ever seen, but then, he ought to have been a Minister.

    What the Minister has not said, and I do not think that he can say it, is that the words that we are suggesting in amendments Nos. 380 and 381 would in any way injure the purpose which he is seeking to serve. At most he is saying that they are redundant or otiose, and that is not a submission that I am able to accept. I think that there is something inadequate about using the term "accustomed to act" simpliciter. That seems to suggest that there must be a series of acts undertaken before a director would be deemed a shadow director within the meaning of the subsection. I do not think that that is a satisfactory state of affairs, and that is what amendments Nos. 380 and 381 seek to cure.

    I am most anxious to accept the reasoning of the hon. Gentleman, because I appreciate the thought and effort that he has put into the amendments. However, a good deal of effort has also gone in to the detailed consideration of the amendments which he has tabled. We do not consider that a single act of control—and the hon. Gentleman spoke of this—should qualify a person as a shadow director. What we are after is a person who persistently influences the company. Almost anyone could be responsible for advising on one act, but that should not count as control.

    Amendment agreed to.

    Amendment made: No. 303, in page 72, line 43, at end insert—

    '(5) A body corporate shall not be treated as the director of any of its subsidiary companies by reason only of subsection (1) above.'—[Mr. Le Marchant]

    Clause 62

    Connected Persons

    I beg to move amendment No. 261, in page 73, line 11 at end add

    '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,'
    This amendment extends the circle of connected persons for the purpose of this part of the Bill to partners of directors or directors' connected persons. I think that this is a logical and sensible extension, given that companies with which directors are associated are also deemed to be connected persons of such directors. I therefore commend it to the House.

    Amendment agreed to.

    Clause 63

    Interpretation Of Part Iv

    With this it will be convenient to discuss Government amendment No. 402.

    These are both practical amendments. They provide a redefinition of quasi-loans for the purposes of part IV.

    Amendment agreed to.

    I beg to move amendment No. 98, in page 74, line 22, at end insert

    'relevant company, for the purposes of section 49(1)(b), shall mean any company'.

    With this it will be convenient to discuss amendment No. 99, in page 74, leave out lines 23 to 28.

    The basic aim of the amendment is to extend the definition of "relevant company" from a public company, for the purposes of this part of the Bill, to a private company. I hope that the Minister will explain shortly why he feels that the extension is inappropriate.

    Amendment No. 99 is consequential to amendments Nos. 71 to 74. As those amendments were not accepted, I hope that I may safely assume that Labour Members will not wish to press these amendments.

    The effect of amendment No. 98 is to extend to all companies the prohibitions concerning quasi-loans to directors and loans and quasi-loans to directors and connected persons. As drafted, the prohibitions apply only to public companies and to companies within groups containing a public company.

    I remember that I explained the Government's reason for rejecting this unnecessary extension of the prohibition when the issue was discussed in Committee. I see no reason for developing the argument, except to remind the hon. Gentleman that it was felt that the restrictions which were of importance in large organisations should not be imposed upon smaller companies, which are often controlled by families and by those much more intimately concerned in the control and day-to-day administration. Therefore, there is less reason for the rules to apply to smaller companies. That is why we have limited them to larger companies.

    There are many substantial private companies that are larger than some public companies. If there is no definition that can be ascribed to size, we are confronted with a difficult problem. However, this is not the time to press the issue. The Government are reviewing this very area, as I was when I was the Under-Secretary of State for Trade. It will be useful when the Government are able to publish their proposals with some definition. That will resolve a difficult problem.

    Amendment negatived.

    I beg to move amendment No. 262, in page 74, line 24, leave out 'a public' and insert 'not a private'.

    With this it will be convenient to take Government amendments Nos. 263 to 266.

    The meaning of the expression "relevant company" in clause 63 is at present linked to the new definitions of "public" and "old public" companies in part I of the Bill. These definitions do not become operational until the clay appointed by the Secretary of State for their coming into effect. We do not wish the implementation of the provisions of part IV to be delayed to another part of the Bill whose entry into force will necessarily have to await some passage of time as it is dependent, for example, on the preparation of statutory forms. We have therefore revised this part of clause 63 so that part IV may be implemented independently of part I.

    Amendment agreed to.

    Amendments made: No. 263, in page 74, line 26, leave out 'a public' and insert 'not a private'.

    No. 264, in page 74, line 27, leave out 'a public' and insert 'not a private'.

    No. 265, in page 74, line 28, leave out 'a public' and insert 'not a private'.

    No. 266, in page 74, leave out lines 30 to 32.

    No. 402, in page 74, line 32, at end add—

    '(1A) 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.'.—[Mr. Eyre.]
  • 8.45 pm

    With this we may take Government amendment No. 304, and the following amendments:

    No. 100, in page 74, line 35, leave out from 'goods' to end of line 36 and insert

    'under a hire purchase agreement or conditional sale agreement or sells any land under a conditional agreement'.

    No. 101, in page 74, line 37, leave out 'any land or'.

    No. 102, in page 74, line 38, at end insert:

    'or leases any land in return for periodical payments'.

    Amendments Nos. 339 and 304 are technical. The definition of the beneficiary of a credit transaction is misplaced in subsection (2) as drafted. The reference to credit transaction in subsection (5) is tautologous. The two Government amendments put the drafting straight. I commend them to the House.

    The Minister has made the point that we sought to make in Committee. He has met our amendments and we are perfectly satisfied.

    Amendment agreed to.

    Amendments made: No. 244, in page 75, line 6, leave out 'agrees' and insert 'is liable'.

    No. 304, in page 75, line 35, leave out 'it is made for him' and insert:

    'he is the person to whom goods or services are supplied, or land is sold or otherwise disposed of, under the transaction; '.—[Mr. Eyre.]

    Clause 65

    Prohibition On Stock Exchange Deals By Insiders, Etc

    I beg to move amendment No. 106, in page 78, leave out line 18 and insert:

    'in those securities, knowing or having reasonable cause to believe that that person would deal in them on a recognised stock exchange'.

    With this we may take Government amendments Nos. 107, 108 and 110.

    These amendments are necessary to correct a technical defect in clause 65, making it an offence where an individual is prohibited from dealing on a recognised stock exchange to counsel or procure such dealing.

    We are not convinced that this is a technical amendment. We are not very happy about the addition. I hope that the Minister will give a clearer explanation. We recognise the difficulty and technicality of such legislation. How important is the further provision in the subsection that the insider knows or believes that the person to whom the information is passed is likely to deal? What will be the effect of the addition? We are not convinced that it is necessary.

    Presumably the Government's argument is that there is insufficient mens rea and that that adds to the guilty mind. However, sufficient mens rea has already been established. The individual insider, according to clause 65, has to know that he is prohibited. He has to know that he is in possession of unpublished price sensitive information.

    We commend a possible alternative to the Government. If the Government argue that there is an insufficient test of mens rea in the present wording, why not create a rebuttable presumption, that by communicating the information to an outsider evidence has been given of the intention that the outsider should act on that information?

    The other consideration is that by the addition of this phrase to the subsection the Government are putting an additional fence in front of the prosecution in the steeplechase that they have created. It adds to our fears that the legislation will be ineffective in leading to convictions, whatever may be the deterrent effect of the new insider provisions.

    The insider could say "I gave him the information but it was up to him whether he acted on it. How was I to know?" That would be a clear defence and a further large hole in the net. It makes one wonder whether the fisherman is serious about catching the fish.

    The accountancy profession has told us that the new penal clauses in respect of insider dealing will slow down disciplinary proceedings within professions. If it is unlikely that a conviction will succeed the insider may be better off, particularly bearing in mind the rule of the DPP not to sanction prosecutions unless there is a SO per cent. chance of success. Against our views, the Government have not assisted the prosecution over detection with a cadre of inspectors on whom it can rely for pursuing offenders.

    We fear that not only will prosecutions not succeed but, in view of the obstacle course created, they may not even be sanctioned. We are not happy about the erection of a further hurdle to the prospects of a successful prosecution.

    The hon. Member for Swansea, East (Mr. Anderson) makes a serious point. In my brief introduction I said that the amendments correct technical defects to clause 65, which makes it an offence, where an individual is prohibited from dealing on a recognised stock exchange, to counsel or procure such dealings. By virtue of clause 67, it is similarly an offence to counsel or procure off-market dealing, where the individual is prohibited from such dealing. However, as drafted, there might be no offence if the individual counselled or procured another person to deal either on a recognised stock exchange or off-market or without indicating where the dealing was to be done.

    These amendments remove that problem by making it an offence to counsel or procure dealing where the individual knows or has reasonable cause to believe that the dealing would be done on a recognised stock exchange, in the case of clauses 65 and 66, or off-market, in the case of clause 67. Therefore, where the procurer knew that the dealing would be either on a recognised stock exchange or through an off-market dealer, but did not know or care which would be used, he will not escape the provisions of the clauses as he might do as they are presently drafted.

    Far from not seeking to tighten up that particular law, the amendments are a further earnest of the Government's intent to make sure that the law is as watertight as possible.

    My hon. Friend the Member for Swansea, East (Mr. Anderson) does not dissent from the Minister's explanation. However, we are presented with a highly complex set of proposals in the Bill, which will shortly be enacted. I should like to take this opportunity—and I hope that I will not be ruled out of order—to suggest that it might be helpful if the Government, having regard to the substantial changes taking effect in the Bill, will publish a White Paper or some guidance on the purpose of the various provisions. I hope that the Minister will consider the possibility of making available some form of explanatory document relating to the Bill shortly after its enactment. Perhaps it might be possible to do this before the Bill is considered in another place. However, I concede that this might not be possible.