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Lord Eatwell: My Lords, I am grateful to the Minister for introducing these orders to your Lordships' House. I was intrigued that he argued that there needed to be change because of the impact of high levels of inflation on those trusts which have a relatively low ratio of investment in equity. I wondered whether he was sending us a signal about the Government's expectations about the inflationary impact of their policies.

It is also worth emphasising the point made by the Minister; namely, that the regulations will apply to small trusts, although there may be many of them, which do not define investment regulations within their own deed of trust. It is understandable that the Government should lay down a basic investment rule for those trusts which do not define the possible bounds of their investments. But if the Government believe that those ratios are appropriate, why are they not applied to all trusts? I appreciate that trustees must be approved. But if there is a rule of thumb which the Government feel is appropriate for trusts without an investment strategy embodied in their deed of trust, why does that not apply more widely?

That raises a wider and even more important issue concerning the position of trusts which invest predominantly in the shares of one company. The Baring Foundation, for example, was just such a trust. Is it appropriate that trusts should be allowed to follow that form of investment strategy which has nothing to do with the defined objectives of the trust and everything to do with the control of the company whose shares are held? It is essentially an anti-competitive strategy, blocking the possibility of proper competitive scrutiny of the management and operation of the firm by blocking potential takeover. It may reasonably be supposed that it was exactly that block to competition and to scrutiny which contributed to management complacency, and management failure at Barings, and to the consequential losses to the Barings bondholders.

Will the Minister tell the House whether he regards the investments strategies which concentrate on the shares of just one company as appropriate? Are they not highly risky? Are they not, as I explained, anti-competitive? Should not the investment strategy of all trusts be suitably diverse and suitably balanced?

Lord Mackay of Ardbrecknish: My Lords, the noble Lord raises a much wider point, which we would be unable to deal with in the kind of secondary legislation that is before us today. The original Act gives the Government only fairly limited powers to make changes.

The noble Lord made the quite correct point that most of the trusts affected by what we are doing today will be fairly small trusts. Most trusts have in their trust deed

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their own rules for the balance of investments. What we do today will only affect those trusts where that formula is not on their deeds.

The more general point raised by the noble Lord, who reminded us of the position of Barings and the Barings trust, where all the money was invested in the same company, takes the discussion a good deal wider. I note his points about anti-competitiveness and so on, but perhaps I may say to him that we are about to issue a consultative document and we intend to have a fairly lengthy consultation period. Indeed, it will be lengthier than we might perhaps have liked because the Summer Recess will intervene. That will make it a fairly long consultation period and everyone will have ample opportunity to give their views.

We are looking at more radical reform and perhaps the noble Lord, when he sees the consultation document, might like to respond to it along the lines of his worries. But these are complex issues and I should prefer to ask your Lordships to wait to see the detailed case set out in the consultation document that we intend to issue at the beginning of May.

The basic principle of trust law in England and Wales--that trustees must take the same care as an ordinary, prudent man would take, if he were minded to make an investment for the benefit of other people for whom he felt morally obliged to provide--forms the

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basis on which, we believe, trusts ought to work. We plan to build on that. If the noble Lord is content, perhaps I can invite him to await the consultation document and then he can respond and make the points that he made to me as part and parcel of the consideration that we will then give to what we do in this field in the future.

On Question, Motion agreed to.

Charities (Trustee Investments Act 1961) Order 1996

1.50 p.m.

Lord Mackay of Ardbrecknish: I beg to move.

Moved, That the draft order laid before the House on 21st March be approved [15th Report from the Joint Committee].--(Lord Mackay of Ardbrecknish.)

On Question, Motion agreed to.

Rating (Caravans and Boats) Bill

Returned from the Commons with the amendments agreed to.

        House adjourned at ten minutes before two o'clock.

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