Skip to main content

Perpetuities and Accumulations Bill [Lords]

Volume 498: debated on Monday 2 November 2009

Bill, not amended in the Public Bill Committee, considered.

Third Reading

Queen’s consent signified.

I beg to move, That the Bill be now read the Third time.

It is a pleasure to be here to guide the Perpetuities and Accumulations Bill through its final stage in the House. It is a good example of the valuable expert work that the Law Commission has done to simplify the law, particularly in those areas that are difficult and truly lawyers’ law. I want to take this opportunity to thank the commission for all the hard work that it has done on this project.

Although our own procedures were unchanged, the Bill was the first candidate under a trial of a new procedure in the other place for appropriate Law Commission Bills. I think that that procedure will help further to support the Law Commission’s work in making the law modern and more effective. I want to take this opportunity to thank Members on both sides of the House for their support. The Bill has been though a thorough procedure in the other place. There were no amendments made in the Public Bill Committee, and I commend the Bill to the House.

First, I declare an interest as a barrister who, during my time at the Bar, did a certain amount of chancery law. I also remember being taught the law of perpetuities and accumulations both at university and at law school. It is obviously an extremely complicated subject and one that at first looked as though it lent itself to the new procedure that the Minister talked about—the fast-track procedure for non-controversial Bills. During its progress through the other place, however, the Bill attracted a great deal of interest and was subject to a great deal of very useful scrutiny. To say that it is a non-controversial Bill is probably a mistake, because it threw up a number of significant controversies.

I want to ask the Minister whether, with the paucity of business going through the House, the Bill could have been subject to the normal procedure. There has been a lack of Bills going through this House during this Session, and it would have been quite easy to have fitted in the Bill, which would have given everyone a chance to conduct more conventional scrutiny and, above all, more opportunities for different organisations to contact people about the Bill.

I regret the fact that the Law Commission has not briefed hon. Members on the Bill. I also want to flag up the fact that the explanatory notes are meant to explain the Bill, not tie up the reader in knots. It is a pity that the explanatory notes were not a little more user-friendly, and perhaps lessons can be learned from that. My submission is that the absence of a law degree would make the notes almost impossible to understand. However, we are where we are.

The Opposition wish the Bill well. It goes back a long way, to the 1993 report by the Law Commission and its consultation paper No. 130, which was published in that year. The Law Commission then brought out a report in 1998, “The rules against perpetuities and excessive accumulations”. We then had the Government consultation of 2002 and, in due course, this Bill, which has been a long time coming. Why did Ministers not get on with the Bill and push it through at an earlier stage? There have been occasions over the past few years when it could easily have been brought before the House in its normal, conventional format.

The Bill is important, because trusts are very important mechanisms. More than 200,000 taxpaying trusts are in existence. There are many other trusts, obviously including a large number of charitable trusts. It has been reported recently that there are roughly 500,000 millionaires in this country. Many of them will want to tie up their wealth and estates for the next generation, and having the opportunity to do so through trusts is a very important mechanism that should be available to people. However, it is also important that those trusts are as user-friendly as possible. Furthermore, at a time when capital is much more footloose in the context of a global economy, those trusts must be as flexible as possible, so they must change with the times. That is why the Bill is certainly a move in the right direction, and why it is absolutely right that the Government have considered perpetuities and accumulations.

On perpetuities, there was a long-standing common law rule that a testator could not tie up an estate in perpetuity. The so-called dead hand rule came in, and common law did very well in that respect. It laid down that it was possible to limit the extent to which the dead hand of a deceased settlor could control the devolution of their property into the future. In other words, the rule against perpetuities exists to prevent both those who are over-enthusiastic in their attempts to keep property in their families and the downright eccentric from trying to control for ever the property that was theirs during their lifetime.

The common law, which had been around for many years, was updated by the Perpetuities and Accumulations Act 1964, which introduced the wait-and-see mechanism, which was tied to the new 80-year rule. But, of course, there were problems, not least because the perpetuities rule was extended to commercial transactions and, in particular, to the creation of future easements, options, rights of pre-emption and other controls for the sale and disposition of land. The overwhelming conclusion was that those commercial transactions should be cut loose from the rule. So I congratulate the Minister and her team on introducing measures that take such transactions outside the perpetuities rule.

The other problem was that the common law and the 1964 Act, working together, led to some confusion—hence the substantial support for abolishing the rule completely—but a fair compromise would be to restrict it to wills and trusts and to apply a 125-year period. Such a period is pretty well the longest life imaginable, plus the period of minority for the next generation. Some critics might say that that is too long, but it is worth pointing out that 9,000 centenarians now live in the United Kingdom—a ninetyfold increase since 1911. The number of centenarians has increased by 7 per cent. since 2005. At the current rate of expansion, the UK’s centenarian population will reach 40,000 by 2030. Indeed, in the UK, the over-90s are the fastest growing segment of the population.

It is interesting to note that Lord Hodgson explained in another place that he had spoken to a gerontologist who pointed out two rather stark facts: first, as of this moment, three quarters of the people in the world who have ever reached the age of 65 are alive and kicking today; and secondly, someone living today will live to the age of 200. I hope to goodness that it is no one in the House. Furthermore, given that fact, it is perhaps a reasonable compromise to set the rule at 125 years.

Turning very quickly to accumulations, the rule was originally based on the Accumulations Act 1800, which was a direct response to the Thellusson case, which I want to mention briefly. Peter Thellusson died in 1797 and left the staggering sum of £600,000, equivalent to more than £200 million today. His will made it clear that all the income had to be rolled up and accumulated for ever, or at least for the whole life of the last survivor of his descendants living at his death. This formula could have taken us up to the 1950s. By then, with accumulation and compound growth, the sum could have increased to £20 billion-odd.

It is interesting to note that my hon. and learned Friend the Member for Harborough (Mr. Garnier) tells me that he is a direct descendant of Peter Thellusson, and if the fund had been allowed to accumulate over all those years, he might well have been a beneficiary. In fact, the children and grandchildren of Peter Thellusson would not have been able to benefit from his will, because of the accumulation on which he insisted in his will, which is why the law was changed—in this case, retrospectively—so that there could not be accumulation in perpetuity.

That was a sensible piece of legislation and stood the test of time, but we have moved on to a global economy and towards the concept of total return on trusts, which means that the trustees look not only at income and capital growth, but at income and capital growth combined. That is why the pressure has grown over the years for the rule against accumulations to be abandoned. The right decision was made, because it was time to get rid of it.

There are two issues on which I want the Minister to comment, if she can. The first relates to powers of appointment, which were discussed in the other place. Numerous experts there favoured applying the new law on accumulations to the exercise of existing special powers of appointment in order to achieve greater flexibility in the management of trusts—a pragmatic approach. As I understand it—the Minister might be able to confirm this—following the amendments in the other place, there will be no retrospective element to the new rule on accumulations, so the powers of appointment will not be able to be exercised in terms of the new law and will have to be exercised on the basis of the existing law at the time.

The other point on accumulations relates to charities. The Government were right to put in place a clause that states that charities will not be able to accumulate for more than 21 years, but they will be able to accumulate for 21 years. For charities that are building up sums of money for a particular purpose, accumulating and rolling over the income makes a great deal of sense.

I have one technical point on commencement, which did not lend itself to an amendment. Clauses 15(1) and (2) cover commencement. They make the pre-Act law apply to any will executed before commencement day, even if it takes effect on or after the commencement day—that is, because a testator dies on or after commencement day. However, there is a rule in law that if a codicil is made to a will which makes some reference to the will, the will is republished, with the consequence that it is treated as made on the date of the codicil, unless that would defeat the testator’s intentions. How would case law apply to a will made before the Act comes into force but republished after it does so? That is not clear. Perhaps the Minister will touch on that point or write to me if that is easier.

As I have pointed out, trust law in this country is fairly complicated. Many have argued that we should have gone for a consolidating measure and brought the whole of trust law together. However, that would have taken a much bigger Bill and much more time. This is a small measure, but it is nevertheless welcome. It will make life easier for practitioners. There will be a problem while three parallel systems are running—the old common law, the 1964 Act and new Act, if the Bill becomes an Act, which I hope it will. That will produce some challenges, but the Bill will simplify matters and update trust law.

The Government were wise to bring forward the Bill, although I note that among the affected trusts are many that cover the great landed and ducal estates of this country. It is somewhat ironic that a new Labour Government, in their dying days, should make life easier for the great ducal estates in this country. I applaud the Government for that, because they have been pragmatic, but the fact should be noted. They have come a long way, and that is why we support this limited measure.

It is a pity that we did not have the Law Commission briefing, and, in some ways, that a very complicated Bill was subject to the fast-track process. It has worked out all right, but the question is whether we should use it again for Bills that are controversial in terms of practitioners, if not politically. Perhaps we should think again about using the fast-track procedure for such Bills. If a Bill were introduced to reform an archaic statute, one very simple Bill, using that procedure, would make sense. Having put those reservations on the record, however, we support the Bill, thank the Minister and her team for bringing it forward and wish it well.

I was wondering whether the hon. Member for North-West Norfolk (Mr. Bellingham) was attempting to be the last person in this country’s history to be subject to the old perpetuity rule of lives in being plus 21 years. I must say that I found the explanatory notes to be perfectly clear, and that the Law Commission briefing is in the commission’s own reports, which on this subject are exemplary.

I, too, thank the Government, and the Law Commission, in particular, for bringing forward the Bill. It has been quite a long time in the making, and the commission members who are most responsible for it are no longer members. Owing to that, I shall mention one by name, Mr. Charles Harpum, who did an extraordinary amount of work on the Bill and has produced legislation that, in its mechanism, will last a long time. The hon. Member for North-West Norfolk mentioned the people who taught in this area of law, so I should add that I was taught by Mr. Harpum himself, in his first year as a lecturer, which now seems a very long time ago.

I support what the Minister said about the new procedure in the House of Lords. It seemed to work very well, and it helped us to expedite procedure in this House, too. I hope that this legislation, along with the new Act on Law Commission reports, will lead to a better way of moving the commission’s reports through this and the other House and into legislation. More controversial reports will need fuller discussion, but Bills such as the one before us, which are clear but technical improvements to the law, should go through as quickly as they possibly can.

I make only two comments on the Bill’s subject matter. First, on the length of the perpetuity period, the hon. Member for North-West Norfolk had one substantive point, which was that, with the advance of medical science, at some point people will live longer than 125 years. When we reach that point, however, we will not have to revise the whole structure of the law—only the number of years.

Secondly, on accumulations, I want to put on the record that throughout our discussions on the Bill, the Government have been very clear that the provisions on accumulations for charities are compatible with the total return approach. There was some worry in the sector about that, but the Government have been very clear, for which I thank them. I thank them also for the Bill, and I wish it Godspeed in passing into law.

I thank the hon. Members for North-West Norfolk (Mr. Bellingham) and for Cambridge (David Howarth) for their support for the Bill both on the Floor of the House and in Committee. In particular, I thank the hon. Member for Cambridge, who succinctly put to bed—I hope—some concerns that the hon. Member for North-West Norfolk had. Indeed, if we live more than 125 years—God preserve us—the period in the legislation will have to be changed. I was also pleased that the hon. Member for Cambridge confirmed again that charities have nothing to fear from what the Bill wants to do.

I want to respond to the hon. Member for North-West Norfolk on the issue of the procedure. The fact is that the Bill followed the usual procedure for Law Commission Bills in this House—it went to a Second Reading Committee under Standing Order No. 59. The new procedure in the other place will help to keep what we might refer to as “lawyers’ law” up to date and perhaps even more understandable than it normally is to most of us.

I was disappointed that the hon. Gentleman felt that the explanatory notes were too hard to understand. Officials work very hard to make them as clear and simple as possible, and we will continue to try to make them so, in the plainest possible English. He asked why it took so long to bring the Bill forward. As he will know, Governments of all colours have found it difficult to introduce Law Commission Bills, but today I would like to accentuate the positive in saying that I hope that more Bills will come forward in this fashion.

The hon. Member for North-West Norfolk asked particularly about retrospectivity and accumulations, and whether the new law will apply to existing trusts. That issue was debated in detail in the other place. The Bill will not apply new law on accumulations to existing trusts as a result of the amendments in the other place. I hope that that has reassured the hon. Gentleman on that matter. The hon. Gentleman also mentioned wills that were made before but that take effect after the Bill is enacted. The Bill will apply to a will if the will is both created and takes effect after the Bill is enacted. The law relating to republication will apply as it does at present, so the Bill does not change that. I hope that I have responded to all the hon. Gentleman’s concerns. If I have missed anything, I shall respond to him in writing.

The Bill, although technical, is important. It brings the law up to date, and I am pleased that we have been able to produce a Law Commission Bill under the new procedure. I am also grateful for the support that the Bill has received from across the House.

Question put and agreed to.

Bill accordingly read the Third time and passed, without amendment.