Restrictions on Dividends

Orders of the Day — Counter-Inflation Bill – in the House of Commons at 12:00 am on 28 February 1973.

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Photo of Mr David Steel Mr David Steel , Roxburghshire, Selkirkshire and Peeblesshire 12:00, 28 February 1973

I beg to move Amendment No. 39, in page 6, line 34 after 'dividends', insert: 'other than dividends paid to employees of those companies under a profit sharing scheme'. I need not detain the House long in moving what is a straightforward and simple amendment. The clause gives the Treasury power to restrict the declaration or payment of ordinary dividends by a company. The simple point that I and my colleagues wish to make is that while accepting the general principle we should wish to exempt from that power the payment of dividends to employee shareholders.

It will not surprise the Treasury Bench that we take this opportunity yet again of raising the whole question of the lack of Government encouragement for profit-sharing. In this case we are not actually asking the Government to do something as we have frequently done before; we are merely asking them to refrain from doing something. It would be easy and simple for them to exempt profit-sharing schemes from the effect of the clause.

In our view profit-sharing is certainly no substitute for good wages or for works councils and genuine participation. But we believe that it is an incentive in an area of industrial relations and in the spreading of wealth where the Government could use their influence for the general good. It is some time since we had any figures but according to a Ministry survey in 1954 there were at that time only about 500 companies operating profit-sharing schemes. I should be interested to know whether the Government have had information since that date. I suspect that the number has not risen a great deal.

The fact is that of the major industrial nations we are perhaps the least generous and the least conscious of the advantages of profit-sharing schemes in industry. In America about 20 per cent. of the public companies quoted on the New York Stock Exchange operate general schemes. I do not say that they are specific schemes, but they are generally schemes which could be described as encouraging employee savings and investment. In West Germany there is an entirely different attitude, a more constructive attitude of co-operation and partnership in industrial relations. The law allows tax freedom on sums up to 312 deutschemarks per worker per annum in approved schemes. There is, therefore, a precedent in other industrialised nations among our competitors for direct Government financial incentive for profit-sharing schemes. All we are asking is that the Government should take this opportunity to give a minor encouragement to such schemes by exempting them from the dividend control set out in the Bill.

8.0 p.m.

If anyone had any doubts about the need for a constructive attitude towards profit-sharing schemes and the encouragement of industrial partnership, he probably had them removed if he noted yesterday's speech by the hon. Member for Tottenham (Mr. Atkinson), who said: the argument is between the control of wages on the one hand and the control of prices on the other. It depends to which side of the House hon. Members belong whether they support capital or labour … In my view it is a question of which side of the argument one supports whether one argues for price regulation or regulation of wages."—[OFFICIAL REPORT, 27th February 1973; Vol. 851, c. 1365–66.] There is no doubt that in the public mind the Government are identified with the policy of a fairly severe clampdown on increases in wages and the Opposition are identified with wanting a severe clampdown on prices. What I believe most people will accept as fair is a balanced view of the need to restrain both prices and incomes. That is what the Government say they are taking power to do in the present legislation. Their protestations of good will would be much more widely believed if they accepted a simple and straightforward amendment of the kind that I now move.

Photo of Mr Peter Rees Mr Peter Rees , Dover

Ever since I have applied my mind to the kind of problem that we now face I have been much in favour of worker participation, whether by a loose partnership, as in the John Lewis Partnership, by share option schemes, or by the straight issue of shares to workers. I am not certain that in the present state of our industrial democracy all workers fully appreciate what they are being offered. Many ICI shares find their way on to the market quite soon after Fridays.

But I am entirely in sympathy with the principle, for two reasons. First, I want to see work people associate themselves as closely as possible with the prosperity of the companies for which they work. Secondly—I hope that this does not sound too patronising—I want to see them exposed to the economic risks that the business community faces, to see them made more aware of the facts of economic life.

People too often claim a kind of equity participation, in that they want their wages to move up in line with the company's prosperity, but they also want a preferential position, because, whatever the company's fortunes may be, they expect their wages to be paid. I should prefer a closer correlation between the employee's fortunes and those of his company. I realise that if a company goes into liquidation the workers suffer as much as anyone, or more, but the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) will see the trend of my thinking.

I am against the amendment, because it will work exactly against the principle I have stated, at least in one respect. I appreciate that the amount of the dividend must still depend on the availability of profits, but the hon. Gentleman is asking my hon. Friend the Chief Secretary to say that the workers in question must be put in a special category above that of any other shareholder and immunised from the prevailing economic situation. In other words, although the ordinary shareholders will have their dividends limited in the precise and rather onerous way that the pay code lays down, the workers, although they will have their wages limited must, so far as they have a direct shareholding or partnership interest in their employer, be exempt. That must be a bad principle. I do not say that it will encourage irresponsibility, but it will take the workers away from the climate to which everyone else is exposed.

Although I am entirely in favour of worker participation, in whatever form it is devised, the amendment does not advance the principles to which I adhere.

Photo of Major Sir Henry D'Avigdor-Goldsmid Major Sir Henry D'Avigdor-Goldsmid , Walsall South

I speak as one who has the responsibility for administering schemes of the kind with which the amendment deals. By their essence, the shares allotted to executives, in what are usually called incentive schemes, or to workers are limited to a proportion of the capital—about 5 per cent. in present conditions. Therefore, under the amendment practically every company would be in a position to make a vastly increased payment on its workers' shares as a form of remuneration to the workers, wholly divorcing it from the dividend which is the revenue going to the shareholders.

It is not an artificial difficulty that I am stating. As the chairman of a company I should find myself up against it if the amendment were made. My employees are not now entitled to the sort of increase that I should like them to have and that most well-conducted businesses would like to give. What could be easier than to given them an extra 10 per cent. on their shares? That would be entirely contrary to the spirit of the Bill, and would cause great problems.

I hope that the hon. Member for Rox-burgh, Selkirk and Peebles (Mr. David Steel), for whose abilities I have great regard, will not press the amendment.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Wanstead and Woodford

I hope that the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) will not regard it as a discourtesy if I do not reply at great length. Like my hon. Friends and the hon. Gentleman, I support the broad objectives of the kind of schemes the hon. Gentleman talked about. They have a part to play in creating a closer identity of interest between management and employees. Like the hon. Gentleman, I often feel disappointed that more companies do not think it worth while to try to help relations with employees by the introduction of such schemes.

I say that with a certain amount of chagrin, because I once worked for a company which had a profit-sharing arrangement. It did not involve a distribution of shares. A proportion of the profits was distributed to the employees. By the general wish of the employees, that payment was eventually converted into a straight addition to wages and salaries, and the scheme was brought to an end.

Such schemes have difficulties. They are not always understood. When there is a variation in the amount of profit and people have come to rely on receiving a certain amount, ill will can be created. But the schemes have a part to play, and I hope that they will be encouraged.

That is not to say that the amendment would necessarily be the right way in which to encourage profit-sharing schemes. I am sure that the hon. Gentleman realises that in hanging his argument on the amendment he is confining himself to that type of profit-sharing scheme which involves the distribution of shares to employees, a particular kind of scheme which is by no means the only kind that can exist.

The hon. Gentleman is asking that any such shares happening for the time being to be in the ownership of an employee to whom they have been distributed should be exempt from the dividend control. If the shares so issued were of the same class as shares available in the market or available to ordinary shareholders in the company, it would be of exceedingly doubtful propriety that the dividend should be restricted for one category of shareholder while not being similarly restricted for the category covered by the amendment.

Therefore, apart from the argument of principle that my hon. and learned Friend the Member for Dover (Mr. Peter Rees) and my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) advanced against the amendment, I doubt whether it would succeed in achieving its objective. It could work only if a special class of shares had been issued, so that they could be subject to a different identifiable regime from that applicable to the shares in the company as a whole.

Another and more general objection is that a pattern of dividend restraint such as we seek in phase 2, slightly less strict than has been applied during the standstill, is not an appropriate environment in which to seek to offer incentives to profit-sharing schemes.

The amendment would involve discrimination in favour of a particular type of scheme, but the policy is intended to be of pretty well universal application. The only exceptions—and I explored this matter with the hon. Member for Dudley (Dr. Gilbert) in Committee—are investment trust companies and close companies, which have to distribute because of the tax laws. To create an additional category of share because it happens to be in the form of a shareholding with employee benefits would be inappropriate. It is not that the policy discriminates against the profit-sharing schemes but that the amendment seeks to discriminate actively in their favour. In the general context of pay and price restraint which we are introducing, with comparable dividend restraint, that would hardly be regarded as consistent with the policy.

While I appreciate the hon. Gentleman's motives in moving the amendment and endorse a great deal of what he said about the value of these schemes for promoting and encouraging better employee-employer relations, I must advise the House that the method of implementation which he is seeking to urge on the Government is not one that I can endorse.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

The Chief Secretary has said that the principle enshrined in the amendment is one which he hopes will be encouraged further. Of course, it will not be encouraged unless a Government encourage it. Liberals have been moving amendments to all sorts of Bills on profit-sharing over the years and Governments have never encouraged the principle.

There are a whole host of reasons for wanting profit sharing, but I do not suggest that profit sharing is the most important part of forming a new industrial partnership between capital and labour. There may be all sorts of reasons for wanting a profit-sharing scheme, but it is not with that that I am concerned. I do not want to go into the distribution of wealth, which is mentioned at some length in the Labour Party's paper which was issued today.

In answer to the hon. Gentleman, and in answer to the points raised by his hon. Friends about the incomes policy element, the Green Paper twice makes reference to profit-sharing schemes. Paragraph 103 states that The following count against the pay limit and against the individual limit of £250". part(ii)says: any element in personal increments which relates to factors not personal to the individual concerned, such as the cost of living increases or company profits (other than under a profit sharing scheme as it existed before 6th November 1972). Paragraph 111 says: Payments under the terms of profit-sharing schemes as they stood before 6th November 1972 will not count against the pay limit. Any other payments or benefits under such schemes must be counted against the pay limit. In other words, profit-sharing schemes entered into after 6th November will not be allowed to be set off against the pay limit.

The Financial Secretary and his hon. Friends have indicated that the amendment drives a hole or a coach and horses through the prices and incomes policy. As the hon. Gentleman knows, I am a supporter of the prices and incomes policy and I do not want to drive a hole through it. However, there is no reason why we should not use the policy to encourage profit sharing. I accept that there may be opportunities, as the hon. Gentleman has said, to create a gap or a leak in the policy. However, I happen to believe that there are benefits in future for our economy as a whole, and not just for individual workers, which are worth that price.

8.15 p.m.

I accept immediately that profits are not the ideal measure of efficiency and performance, but they are no worse than any other measure. They are no worse than most productivity agreements and no worse than piece work. I draw the hon. Gentleman's attention to a most interesting pamphlet by Professor Hayek, "The Outlook for the 1970s—Open or Repressed Inflation?", which was published not so long ago. In the pamphlet Professor Hayek says: … that determination of wages by collective bargaining which is the ultimate cause of the inflationary trend". He goes on to deal with the problem by advocating profit-sharing schemes as an integral part of any sensible, rational and effective prices and incomes policy. He said that to persuade the unions to accept an alternative method of wage determination, while offering the workers as a result a better chance of material advance and, at the same time, restoring the flexibility of the relative wages of a particular group.

Professor Hayek says that the only solution which he can see to the problem is to offer remuneration not in the form of a fixed wage but as a participation in the profits of the enterprise by which the people are employed. He saw it as an essential part of a prices and incomes policy. He was by no means the only person to do so. I do not wish to go through a long list, but I quote the words of Mr. Aubery Jones in the January issue of the Lloyds Bank Review. He went through various ways of getting a relationship between incomes and output. He said: It would be injudicious of a Government not to recognise that workers, in struggling for earnings, see themselves as struggling for them at the expense of profits. … A possible reconciliation might be found in a scheme whereby companies lodged part of their retained earnings, in the name of their employees, in a capital fund managed, with the help of investment exerts, by the TUC. That is one form of profit sharing which would be a part of a prices and incomes policy. That is why I do not see it as either/or—either allowing profit sharing to go through or a prices and incomes policy. I believe that we can have both. An exchange took place in Committee when the hon. Member for Salford, West (Mr. Orme) referred to the sophisticated claim put forward by the Ford workers. I interrupted and said that I thought the case they were making was that Ford had had a splendid year and made a lot of profits and that the workers should have some of them. He referred to the idea which I put forward as nineteenth century laissez-faire. I do not believe that profit sharing is something for the nineteenth century. I believe that it is something for the latter half of the twentieth century. We should use every effort we can to encourage profit sharing not just as a means of distribution of wealth, which I favour, which I hope the Government favour and which I am sure the Opposition favour, but as an essential part of an effective prices and incomes policy.

Having said that, and realising the views of the Treasury, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.