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I beg to move Amendment No. 17, in page 11, line 20, to leave out from "to" to end of line 29 and to insert:
the previous year or the average of the previous five years whichever is the higher".
The purpose of this Amendment is to give some form to the Government's Bill in its relation to dividend increases. As it stands the Government have perfect power to compare an increase in dividends for the current year with any previous year. We are saying in this Amendment that the increase, if there be any, in the current year shall be compared either with the previous year or with the average of the dividends over the five previous years, whichever is the higher. If the Government—[Interruption].
I cannot hear the force of my own argument, Mr. Speaker.
If the Clause were to stand as it is at the moment, it is as if the hon. Member for Ebbw Vale (Mr. Michael Foot) were to find himself comparing the level of wages in the past year with the level of wages which his constituents were earning in, say, 1948. At the moment the Government have power to nominate any base year they please in which to make a comparison of dividend increases. We on this side of the House, at any rate, are quite convinced that this power should not remain with the Government. It is purely arbitrary and quite indefensible.
The Government made no attempt whatever in Committee to produce any good evidence for this power. They attempted to say that the ways of company reports were mysterious and not always easily understood. When it was pointed out to them that so far from that being true, when a dividend was declared it had to be made public on the day of its declaration, they refused to take this as an argument. In fact, whenever dividends are declared, the Financial Times has the earnings worked out to the nearest decimal point, probably on the same day and certainly on the following day. A whole range of services is available to the Government, comparing earnings for one year with the previous 10 years. They are available at once. It is unnecessary to include any reference to dividend increases in this Bill. If such a reference is in the Bill, we must insist that it should be related to some reasonable base year, and this the Government are refusing to do.
I should like to mention one or two anomalies which will occur as a result of the definition which the Government have put in this Clause which we are trying to correct by our Amendment. According to the Government in Committee, the rights issue counts as a distribution. I cannot conceive how this can be so. A rights issue by definition must mean that a company is asking for money in return for which it will issue shares. What the company is trying to do is to rake the money in—not to give it away. Yet the Government say that this constitutes a distribution. We should like to know whether the dividends on the rights issues will be classed as dividends within the terms of this Clause. I would be grateful to have the attention of the hon. Lady the Parliamentary Secretary to the Ministry of Labour, and I hope that she will address herself to that point when she replies.
Then there is the other question of distribution, whether shares which are issued in exchange for the acquisition of companies also come within the definition of a distribution. If this is so, it will prevent many desirable mergers from occurring in this coming year. That is a point on which I should like to be enlightened.
Then there is the case of companies which have in the past, when they became public companies, issued a prospectus stating what they hoped to be able to achieve either in the forthcoming year or the year after that. This is precisely on a level with the position as far as wage earnings were concerned, which we discussed earlier this afternoon. If a wage contract is engaged in, a worker gives his labour for a certain price which he is led to believe is fixed for a certain period of time. So it is with a company which issues its shares on the market. It issues a prospectus and the shares of the company are bought on the basis of a regular and certain increase in dividends over a period of years. Now we are led to believe that it is this carrying out of the prospectus which is in jeopardy.
A company is not now allowed to carry out the terms of its original prospectus. Therefore, not only is the effect of the Government's actions in this respect very bad for capital raising, but it can easily bring into jeopardy the status of the company which is forced to remain on its prospectus guarantees. If the Government's intentions are carried out and rights issues are regarded as distribution, the Government must be aware of the effect that this will have on their ability to raise capital in the market. It will be a very considerable effect.
I urge the Government even at this late hour to think again about this and to accept our very reasonable Amendment, which tries to provide a base date by which they can make a valid comparison as between one year and another. We are, after all, concerned only with supplying dividend information to the First Secretary which he has at his finger tips if only he cares to pick up the Financial Times. If he will not do that, let him at least consider what the effect of the Clause will be. There is no doubt that it will result in very considerable diminution of the power of the Government to raise capital.
Today the Government said that they were appointing a shipping board to try to bring about amalgamations of the companies in the shipping industry. Will not these amalgamations rank as distribution?
I am grateful to my hon. Friend. I would hope to receive elucidation from the Government as to whether the distribution of shares to acquire another company counts as distribution for this purpose. If it does it will slow up the process which the Government say is desirable.
There is no question that the economy may well be slowed up by this absurd Clause concerning dividend distribution. It is really only a question of informing the First Secretary what the information is. But let him take into account not just the level of dividend increases but the level of decreases. This is absolutely relevant to the level of increases which will, on the Government's own argument, find their way eventually into the pockets of shareholders. These things must be borne in mind in relation to the criteria on which the Government base their decision whether or not to refer matters to the Prices and Incomes Board.
I ask the Government again to provide some real reasons for the absurd inclusion of provision for allowing a base date to be chosen on some criterion of which the House has no knowledge. The Parliamentary Secretary must give some reasons and some criteria for it. That is the least we expect.
The House assumes that the Government want to achieve at least two things—justice and the appearance of justice. As the Bill stands, I do not think they achieve either.
My hon. Friend the Member for Horsham (Mr. Hordern) has presented the Amendment in studied and moderate terms. I do not see how the Government can possibly justify the present wording of this part of the Clause. On reading the reply the Government made in Committee one can only attribute to them a desire to be less than fair or an entire ignorance of the system of company law and accounting. Although I would be inclined to assume that there is a great deal of ignorance on the part of the Government, I cannot believe that their advisers are equally ignorant of some of the matters to which my hon. Friend has referred.
At present, the Government are entitled to do almost as they like in arriving at an assessment. The Amendment is reasonable. It would give the Government a fairly wide range in which to find their base year. I hope that the hon. Lady will accept the Amendment.
Hon. Members opposite have put a very fair case. Despite my brief sojourn on a newspaper for which they obviously have the greatest respect, I cannot claim to be, even in the smallest sense, the experts that they are on this matter. Perhaps I can assist them a little. It is important to make clear that what we are concerned with is a matter concerning notification of dividends. That is what the Clause is all about. Some of the more frightening consequences which the hon. Member for Horsham (Mr. Hordern) pointed to will not occur, because we are concerned simply with the one question of what has to be notified and what does not have to be notified.
I will tell the hon. Gentleman what is the thinking behind the original subsection. The hon. Gentleman will then see that some of his fears are perhaps misplaced, although I agree they are genuinely felt. The Government have phrased, it in this way because they are concerned with the following position. Generally speaking, an increase in dividends will have to be notified if it is an increase in dividends over the previous year. But there are certain companies for which the dividend position is one which fluctuates possibly very markedly over a period of years.
Under the Amendment, it would be possible in certain circumstances—I can give the hon. Gentleman instances if he wants me to, but since they are mathematical he will forgive me if I do not bother the House with them; I know that he will know them for himself—to have a situation in which the dividend in, say, year 6 was higher than the dividend in year 1, which might be the year in which the Bill was passed—1966. It might be also higher than that in the immediately preceding year—the fifth year, but it might be lower than the dividends paid in the five years taken together, had there been a string of fairly high dividends in years 2, 3 and 4.
In consequence, there would be no notification of the increase in dividend in year 6, although it was in fact higher than that paid in year 5 and higher than that in the normal base year in which the Bill was passed. This would give rise to the difficulty that people less highly sophisticated in matters of finance than the hon. Members for Horsham (Mr. Hordern) and Barry (Mr. Gower) would immediately get an impression of extreme unfairness: it would be an increase in dividend over and against the previous year and over and against what the Government would advance as the normal base year, and yet it would not be notified. It might be difficult to explain why this was so.
I can reassure the hon. Gentleman to this extent. It is not the Government's intention, as the hon. Gentleman feared—if one assumed the greatest possible malevolence on the part of the Government it would be reasonable to hold this fear—that one would take a base year in which it was possible to give the worst possible impression of the increase in dividend. That would be contrary to the Government's intention. It is the Government's intention to be able so to frame a demand for notification that, whereas in general the base year would be the year in which the Bill was passed or the year immediately prior to the one in which the dividend was increased—this was the one which the hon. Gentleman himself referred to as reasonable—there might be certain cases where, owing to sharp fluctuations, this was no longer sensible. There might also be certain cases where, because a company was steadily growing, or its yields were steadily growing, or, alternatively, its yields were steadily declining, it would be quite unfair to maintain the same base year and to regard that as being the base year as applied appropriately to that company.
I am not unsympathetic to the point the hon. Lady is putting, which is in some ways better than what was said earlier by the Government. She says that in the sixth year there would be a difficulty particularly as regards public opinion—and I recognise the validity of that argument—about an apparently sharp uprise in dividends in that year, although prior to that year the average increase was not so considerable. But surely, by her own argument these increases in the intermediate years would have been notified to the Board.
My reading of the Amendment is that it is the case of whichever is the higher. This means that if the five year average were higher this would apply rather than the previous year's percentage. Consequently, in the situation I have described, an impression of unfairness would remain.
I want to deal with two other points. The first concerns rights issues. They are included, but I refer the hon. Member for Horsham to the phrasing of the Clause, which would make it possible to rephrase notification where the scope of the company is basically changed with the rights issue. The same thing applies with regard to the point about a new issue. Again he will see the references to the scale of the business as well as to its nature. This, of course, could be taken care of in a situation in which an amalgamation took place.
We are talking about notifications. The aim of the Government is not only to be fair but to be seen to be fair. I think it is right that there should be power, where dividend increases are made, to submit a company to the Prices and Incomes Board, as in the case of price increases or increases in fees and charges. That is the Government's view and we are not likely to budge from it. In view of what I have said, I ask the hon. Member to withdraw the Amendment, which is directed against an intent the Government do not have.
I regret that I must disappoint the hon. Lady by requesting my right hon. and hon. Friends to divide for the Amendment. The gist of her argument was that if, by chance, the dividend of a company should be increased in the forthcoming year over the level of last year, the appearance of this would be unsatisfactory to the public as a whole because it may not understand the sophisticated reason behind it—that there may have been good reasons for difficulties in the current year which kept the dividend below the level of the previous five years and good reason why it should be restored to its former level in the forthcoming year just to restore the level.
If it is her argument that the Government will be unable to persuade the country as to the justice of this, that is no excuse whatever. She is saying that the public relations aspect is too difficult but that is no concern of ours. We could not possibly accept her argument. She did not refer to the effect on issues of shares for acquisition and a bigger and rising capacity. But these are points which will be well known to her. Nor did she mention one or two of the more technical matters which will undoubtedly occur—for example, in conversion of unsecured loan stocks into ordinary shares. Will dividend on these conversions count? Will they count as depreciation or not?
These anomalies will obviously occur, but generally speaking the point we made in Committee and again tonight is that we have had no assurance from the Government about what criteria there are to be in assessing the best year nor any assurance that they will take into account not just the level of dividend increases but the general level of dividends throughout the economy. In view of this, I hope my right hon. and hon. Friends will divide.
There are one or two points that the hon. Lady did not deal with. As one who did not serve on the Standing Committee and who comes relatively new to the Bill at this stage, it seems to me to be quite feasible for the Government to enforce notification by one criterion for one firm or industry and a totally different criterion for another firm or industry and to delay the decisions in regard to dividends of individual companies by whatever rules seem to them to be expedient at the time.
When those rules are made, they have to be considered by the Board. In seeking to affect the decisions of companies, admittedly there might be a voluntary period but, at least, the Minister can bring to bear a degree of discrimination as between one company and another. This would be highly dangerous. It might be part of the First Secretary's attempt to manage the economy, but it is something which it would be dangerous for this House to pass and to allow to go unchallenged.
Will the hon. Member answer a question which has puzzled me? Why does he think that the criteria will be different from one firm or industry to another? Having listened to the Parliamentary Secretary's speech, I was under the impression that the order would be framed in purely financial terms to take into account circumstances like rights issues and other kinds of changes in the financial structure of a company and not the exact nature of the company or the industry to which it belonged.
I am sure that the Parliamentary Secretary will not misunderstand me when I say that it is not the slightest use our being offered assurances by a Government who will voluntarily limit themselves in the use of the powers conferred by this House. This is a totally unsatisfactory way for us to deal with the matter. This particular
|Division No. 167.]||AYES||[10.52 p.m.|
|Albu, Austen||Garrow, Alex||Ogden, Eric|
|Allaun, Frank (Salford, E.)||Gordon Walker, Rt. Hn. P. C.||O'Malley, Brian|
|Alldritt, Walter||Greenwood, Rt. Hn. Anthony||Orme, Stanley|
|Anderson, Donald||Gregory, Arnold||Oswald, Thomas|
|Armstrong, Ernest||Hamilton, William (Fife, W.)||Page, Derek (King's Lynn)|
|Ashley, Jack||Hannan, William||Park, Trevor|
|Atkins, Ronald (Preston, N.)||Harrison, Walter (Wakefield)||Pavitt, Laurence|
|Atkinson, Norman (Tottenham)||Hart, Mrs. Judith||Peart, Rt. Hn. Fred|
|Barnes, Michael||Haseldine, Norman||Pentland, Norman|
|Baxter, William||Heffer, Eric S.||Perry, George H. (Nottingham S.)|
|Benn, Rt. Hn. Anthony Wedgwood||Henig, Stanley||Prentice, Rt. Hn. R. E.|
|Bennett, James (G'gow, Bridgeton)||Herbison, Rt. Hn. Margaret||Price, Christopher (Perry Barr)|
|Bidwell, Sydney||Horner, John||Price, Thomas (Westhoughton)|
|Binns, John||Houghton, Rt. Hn. Douglas||Probert, Arthur|
|Bishop, E. S.||Howarth, Robert (Bolton, E.)||Randall, Harry|
|Blackburn, F.||Hughes, Emrys (Ayrshire, S.)||Redhead, Edward|
|Blenkinsop, Arthur||Hughes, Roy (Newport)||Rees, Merlyn|
|Boardman, H.||Hunter, Adam||Rhodes, Geoffrey|
|Booth, Albert||Hynd, John||Roberts, Gwilym (Bedfordshire, S.)|
|Boston, Terence||Jackson, Peter M. (High Peak)||Robinson, Rt. Hn. Kenneth, (St. P'c'as)|
|Bowden, Rt. Hn. Herbert||Janner, Sir Barnett||Rodgers, William (Stockton)|
|Boyden, James||Jeger, Mrs. Lena (H'b'n&St. P'cras, S.)||Ross, Rt. Hn. William|
|Braddock, Mrs. E. M.||Jenkins, Hugh (Putney)||Rowland, Christopher (Meriden)|
|Bray, Dr. Jeremy||Jenkins, Rt. Hn. Roy (Stechford)||Rowlands, E. (Cardiff, N.)|
|Brown, Rt. Hn. George (Belper)||Johnson, Carol (Lewisham, S.)||Ryan, John|
|Brown, Bob (N'c'tle-upon-Tyne. W)||Johnson, James (K'ston-on-Hull, W.)||Sheldon, Robert|
|Buchan, Norman||Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)||Shore, Peter (Stepney)|
|Butler, Mrs. Joyce (Wood Green)||Jones, J. Idwal (Wrexham)||Short, Mrs. Renée (W'hampton, N. E.)|
|Callaghan, Rt. Hn. James||Kelley, Richard||Silkin, Rt. Hn. John (Deptford)|
|Cant, R. B.||Kerr, Russell (Feitham)||Silkin, S. C. (Dulwich)|
|Carter-Jones, Lewis||Lawson, George||Silverman, Julius (Aston)|
|Coleman, Donald||Leadbitter, Ted||Silverman, Sydney (Nelson)|
|Conlan, Bernard||Ledger, Ron||Skeffington, Arthur|
|Crawshaw, Richard||Lee, Rt. Hn. Jennie (Cannock)||Slater, Joseph|
|Crossman, Rt. Hn. Richard||Lever, L. M. (Ardwick)||Small, William|
|Cullen, Mrs. Alice||Lewis, Ron (Carlisle)||Snow, Julian|
|Davies, G. Elfed (Rhondda, E.)||Lomas, Kenneth||Spriggs, Leslie|
|Davies, Harold (Leek)||Loughlin, Charles||Steele, Thomas (Dunbartonshire, W.)|
|de Freitas, Sir Geoffrey||Luard, Evan||Summerskill, Hn. Dr. Shirley|
|Delargy, Hugh||Lyon, Alexander W. (York)||Taverne, Dick|
|Dell, Edmund||Lyons, Edward (Bradford, E.)||Thomas, Georke (Cardiff, W.)|
|Dewar, Donald||Mabon, Dr. J. Dickson||Thomas, Iorwerth (Rhondda, W.)|
|Diamond, Rt. Hn. John||McBride, Neil||Thornton, Ernest|
|Dickens, James||MeCann, John||Tinn, James|
|Dobson, Ray||MacColl, James||Tomney, Frank|
|Doig, Peter||Macdonald, A. H.||Urwin, T. W.|
|Donnelly, Desmond||McKay, Mrs. Margaret||Varley, Eric G.|
|Driberg, Tom||Mackie, John||Walker, Harold (Doncaster)|
|Dunnett, Jack||Mackintosh, John P.||Watkins, David (Consett)|
|Dunwoody, Mrs. Gwyneth (Exeter)||Maclennan, Robert||Watkins, Tudor (Brecon & Radnor)|
|Dunwoody, Dr. John (F'th & C'b'e)||McMillan, Tom (Glasgow, C.)||Weitzman, David|
|Edelman, Maurice||Wellbeloved, James|
|Edwards, Robert (Bilston)||McNamara, J. Kevin||Whitaker, Ben|
|Edwards, William (Merioneth)||Mallalieu, J. P. W. (Huddersfield, E.)||White, Mrs. Eirene|
|Ellis, John||Manuel, Archie||Willey, Rt. Hn. Frederick|
|English, Michael||Mapp, Charles||Williams, Clifford (Abertillery)|
|Ennals, David||Marquand, David||Williams, Mrs. Shirley (Hitchin)|
|Ensor, David||Mayhew, Christopher||Willis, George (Edinburgh, E.)|
|Evans, Ioan L. (Birm'h'm, Yardley)||Mendelson, J. J.||Wilson, Rt. Hn. Harold (Huyton)|
|Faulds, Andrew||Mikardo, Ian||Wilson, William (Coventry, S.)|
|Fletcher, Raymond (Ilkeston)||Millan, Bruce||Woodburn, Rt. Hn. A.|
|Fletcher, Ted (Darlington)||Molloy, William||Woof, Robert|
|Floud, Bernard||Morgan, Elystan (Cardiganshire)||Wyatt, Woodrow|
|Foot, Michael (Ebbw Vale)||Morris, Alfred (Wythenshawe)||Yates, Victor|
|Ford, Ben||Morris, John (Aberavon)|
|Fraser, John (Norwood)||Moyle, Roland|
|Fraser, Rt. Hn. Tom (Hamilton)||Mulley, Rt. Hn. Frederick||TELLERS FOR THE AYES:|
|Freeson, Reginald||Newens, Stan||Mr. Harry Gourlay and|
|Galpern, Sir Myer||Norwood, Christopher||Mr. Alan Fitch.|
|Gardner, A. J.||Oakes, Gordon|
|Alison, Michael (Barktton Ash)||Gurden, Harold||Nott, John|
|Allason, James (Hemel Hempstead)||Hall, John (Wycombe)||Onslow, Cranley|
|Balniel, Lord||Hamilton, Michael (Salisbury)||Orr-Ewing, Sir Ian|
|Batsford, Brian||Harrison, Col. Sir Harwood (Eye)||Page, Graham (Crosby)|
|Berry, Hn. Anthony||Hawkins, Paul||Pardoe, John|
|Bessell, Peter||Heseltine, Michael||Pearson, Sir Frank (Clitheroe)|
|Biffen, John||Higgins, Terence L.||Peel, John|
|Birch, Rt. Hn. Nigel||Hill, J. E. B.||Percival, Ian|
|Blaker, Peter||Hobson, Rt. Hn. Sir John||Pike, Miss Mervyn|
|Body, Richard||Hogg, Rt. Hn. Quintin||Pink, R. Bonner|
|Boyd-Carpenter, Rt. Hn. John||Hooson, Emlyn||Price, David (Eastleigh)|
|Boyle, Rt. Hn. Sir Edward||Hordern, Peter||Prior, J. M. L.|
|Brewis, John||Hornby, Richard||Pym, Francis|
|Brinton, Sir Tatton||Howell, David (Guildford)||Ramsden, Rt. Hn. James|
|Bromley-Davenport. Lt. Col. Sir Walter||Hunt, John||Rawlinson, Rt. Hn. Sir Peter|
|Brown, Sir Edward (Bath)||Hutchison, Michael Clark||Rodgers, Sir John (Sevenoaks)|
|Bruce-Gardyne, J.||Jenkin, Patrick (Woodford)||Rossi, Hugh (Hornsey)|
|Buck, Antony (Colchester)||Johnston, Russell (Inverness)||Royle, Anthony|
|Bullus, Sir Eric||Jones, Arthur (Northants, S.)||Russell, Sir Ronald|
|Carlisle, Mark||Jopling, Michael||Sharples, Richard|
|Clegg, Walter||Joseph, Rt. Hn. Sir Keith||Shaw, Michael (Sc'b'gh & Whitby)|
|Crouch, David||Kaberry, Sir Donald||Sinclair, Sir George|
|Crowder, F. P.||King, Evelyn (Dorset, S.)||Stodart, Anthony|
|Currie, G. B. H.||Kirk, Peter||Summers, Sir Spencer|
|Dance, James||Kitson, Timothy||Tapsell, Peter|
|Davidson, James (Aberdeenshire, W.)||Knight, Mrs. Jill||Thorpe, Jeremy|
|d'Avigdor-Goldsmid, Sir Henry||Lancaster, Col. C. G.||Tilney, John|
|Dean, Paul (Somerset, N.)||Legge-Bourke, Sir Harry||Turton, Rt. Hn. R. H.|
|Deedes, Rt. Hn. W. F. (Ashford)||Lewis, Kenneth (Rutland)||van Straubenzee, W. R.|
|Doughty, Charles||Longden, Gilbert||Vaughan-Morgan, Rt. Hn. Sir John|
|Eden, Sir John||Loveys, W. H.||Vickers, Dame Joan|
|Farr, John||Lubbock, Eric||Wainwright, Richard (Colne Valley)|
|Fisher, Nigel||Mackenzie, Alasdair (Ross&Crom'ty)||Walker, Peter (Worcester)|
|Fletcher-Cooke, Charles||Maclean, Sir Fitzroy||Wall, Patrick|
|Forrescue, Tim||Macleod, Rt. Hn. Iain||Ward, Dame Irene|
|Fraser, Rt. Hn. Hugh (St'fford & Stone)||Macmillan, Maurice (Farnham)||Weatherill, Bernard|
|Gibson-Watt, David||Maddan, Martin||Webster, David|
|Giles, Rear-Adm. Morgan||Marten Neil||Wells, John (Maidstone)|
|Gilmour, Sir John (Fife, E.)||Maxwell-Hyslop, R. J.||Whitelaw, William|
|Glover, Sir Douglas||Maydon, Lt.-Cmdr. S. L. C.||Wilson, Geoffrey (Truro)|
|Glyn, Sir Richard||Miscampbell, Norman||Winstanley, Dr. M. P.|
|Goodhart, Philip||Mitchell, David (Basingstoke)||Wood, Rt. Hn. Richard|
|Goodhew, Victor||More, Jasper||Worsley, Marcus|
|Gower, Raymond||Morgan, W. G. (Denbigh)||Younger, Hn. George|
|Grant, Anthony||Munro-Lucas-Tooth, Sir Hugh|
|Gresham Cooke, R.||Murton, Oscar||TELLERS FOR THE NOES:|
|Griffiths, Eldon (Bury St. Edmunds)||Neave, Airey||Mr. R. W. Elliott and|
|Grimond, Rt. Hn. J.||Noble, Rt. Hn. Michael||Mr. Reginald Eyre.|