20 SEPTEMBER 1963, Page 29

Labour and the Stock Exchange

By NICHOLAS DAVENPORT DOUGLAS JAY has been telling the Stock Exchange that a Labour Government will need it. In an article in the Stock Exchange Journal he has said that Labour wants to build a society in which both private enterprise and public enterprise flourish and that if private enterprise is to be encouraged 'we need a Stock Exchange in which savings can be invested and capital mobilised under proper conditions of pub- licity and probity.' All this should go without saying. The growth of any nation running a mixed economy depends on saving a proportion of its current income and converting that saving into spending on capital account. The Stock Ex- change carries out the conversion. It brings the savers into touch with the capital spenders. The savers would not be willing to convert their savings into the securities of the capital spenders unless they were certain that they could con- vert those securities back again into cash at any moment. The Stock Exchange, by providing a free and open market, gives them the assurance of liquidity they require. That is its economic raison detre, and liquidity may assume more importance under Labour.

It is not without significance that the last Labour Government throughout its term of office made no criticism of the working of the Stock Exchange as an institution, although some of its Ministers used to make rude remarks about stockbrokers. It certainly had no occasion, for it made full use of its machinery to float off its nationalisation loans, which were close on £3,750 million. The next Labour Government will not want to make so much use of the Stock Exchange as its predecessors did. It will not be nationalising new industries—only steel—and it will be borrowing more, I hope, on short term to save interest charges. Gone are the days when borrowing short was considered dangerous or Inflationary. Previously a Tory Government would feel that it had to cover by taxation the extra capital expenditure it was incurring below the line. For nine depressing years before Mr. Maudling unbalanced his Budget Chancellors were exacting forced savings by way of over- all revenue surpluses at an average rate of over £300 million a year. Small wonder the economy stopped growing in 1962-63. This financial year Mr. Maudling is rightly relying on voluntary savings to cover his net expenditure below the line of £597 million—his total borrowing re- quirement is £687 million—and to the extent that this is not covered by small savings, etc., it will be met by an increase in Treasury bills. So the way will be prepared for a Labour Chancellor to borrow short and more cheaply--the Treasury bill rate is presently 3.7 per cent—to meet, say, a larger expenditure on public housing. Borrowing short to lend long on houses Would be fully justi- fied for a central government. I cannot see the next Labour Government coming to the Stock Exchange to float a long- or medium-term loan at a high rate of interest--like Mr. Maudling's last Exchequer 5 per cent 1976-78 at 96—to meet its capital programme. It will be drawing tip a national investment plan and matching it to its estimate of the total national savings.

In an indirect way the next Labour Govern- ment might make good use of the machinery of

the Stock Exchange. Douglas Jay was greatly concerned to see a wider distribution of income and property—he will surely see it in incomes if he will look at the latest government survey of personal incomes for 1959-60—and he qhoted the old statistic that 1 per cent of the population owns 40 per cent of the property. At present only about three million out of thirty-five mil- lion adults own any equity shares and he sug- gested that a wider share ownership might be secured if the Post Office Savings Bank were to run a public unit trust of its own for invest- ment in equity shares. Now this was an idea 1 put out in these columns a year before Douglas Jay thought of it and I am delighted to know that he is such a keen supporter. He is correct in saying that as there is a POSB counter in every town and village this would tap a big new source of savings, would spread equity owner- ship more widely and would direct a new flow of funds through the Stock Exchange where the managers of the public unit trust, would nor- mally buy their equity share portfolio. Anyone with £100 in the Post Office Savings Bank would be allowed to switch into the 5s. units of the State unit trust and the units would be realisable on demand—as with other unit trusts—at the market prices of the underlying securities. The POSB, of course, would advertise the names of the companies it is investing in and would con- duct its operations in accordance with the rules of unit trusts. Incidentally, this would be carry- ing out one of the policies which the Labour Party has advocated—State participation in the growth equities of private enterprise. I see no reason why such a scheme should not be carried out by the next Labour Government, and if the POSB were to charge a smaller management fee than the usual it would win a wide public sup- port. Already the unit trust movement has caught the public fancy and is already attracting public savings at the rate of £50 million a ■ car.

Here I would like to throw out a suggestion to Douglas Jay and his colleagues. The next Labour Government will be renationalising iron

and steel. Why should it not tap the public demand for unit trusts by issuing a State steel unit trust? The ownership of the equity capital of the individual steel companies would be vested in the State, but their earnings would be pooled and the unit trust would be entitled to its pro- portionate share in whatever dividend the steel board decided to distribute. The steel industry is at the moment picking up and operating at 84 per cent of capacity. If the recovery ran on into a Labour victory at the polls, a State steel unit would have a big speculative appeal for the small investor seeking income.

Over the rest of Douglas Jay's article I would draw a veil, for he is obviously hankering after a tax on accumulated wealth as well as a tax on capital gains. The Stock Exchange, he s:t s. would have been wiser to accept and welcome the stamp duty on equity share purchases as 'one contribution which it could make to the achieve- ment of greater social justice.' Does he really think that the Stock Exchange needs to make guilt offering? it is an institution doing the essen- tial job of converting savings into investment and the cheaper it can make buying and selling the more efficient becomes its capital market. If Douglas Jay would read his leader's speech on the Budget debate he would find that the abo- lition of the stamp duties on the transfer of securities will be on certain conditions— Labour policy.