§ 9.11 p.m.
§ Lord TERRINGTON rose to ask Her Majesty's Government whether they will reconsider their recent decision to disallow an increase in permitted charges by unit trust managements bearing in mind the likely adverse implications for small private investors in British industry. The 1567 noble Lord said: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. I think I ought to start by saying that I have a very small financial interest in this matter, as I am a member of a City partnership which manages its own "in-house" funds among its many investment activities. However, the main interest I should like to declare this evening is my membership of the Wider Share Ownership Council, and it is in that capacity that I put my Question to Her Majesty's Government.
§ My concern is of course for the small investor, whose traditional vehicle for investing in British industry is the unit trust movement; and I am not sure that the Government have fully reaslised the implications for him of their recent decision. As far as possible, I will avoid wearying the House with a mass of figures, but in order to present my case adequately I am afraid I must devote a certain amount of time to statistical evidence.
On 19th June last the Under-Secretary of State for Trade replied to a Question in another place from the honourable Member for Leek regarding unit trust management charges, and I should like to quote from column 14 of the Official Report:
The evidence in my possession does not confirm the allegations that have been made by the hon. Gentleman. The evidence which is currently available overwhelmingly suggests that reasonable pre-tax profits have been made between 1970 and 1976. I do not see that the decision that I have made is in any way unfair".
My Lords, it is these pre-tax profits that I should like to discuss in a little more detail, as I am concerned as to exactly what matters are being taken into account when arriving at the evidence currently available.
§ I am sure that noble Lords are aware that management charges by unit trusts are restricted by the Department of Trade under the Prevention of Fraud (Investment) Act 1958. However, they may not be aware that there are two types of charge, the initial or preliminary charge and the annual management fee. These are restricted both separately and in conjunction, by which I mean that when taken together they must not exceed 13¼ per cent. Over 20 years; and within this limit the preliminary charge is restricted to 5 per cent. Of the price of the unit, while the annual charge is 1568 restricted to ½ per cent. of the value of the fund. This management charge system recognises the two distinct functions of the trust manager: one, the marketing of units; and, two, the management and administration of unit-holders' funds. This distinction is important because no manager is under any obligation to sell units but every manager has the fiduciary duty to manage the funds entrusted to him and to discharge his other obligations under the trust deed whether units are being sold or not. In my view, therefore, once a management company's trust funds have attained a reasonable size, the company should be able to provide a good service to its investors and make a fair profit quite independent of marketing or trading activities. These two activities are totally unrelated to the manager's fiduciary obligations.
§ Turning for a moment to some statistics, I am reliably informed that the profits and losses made by some representative companies between 1970 and 1976 on the basis of comparing revenue from annual charges attributable to each period with the expenses of management and administration are as follows: a rise from 0.035 per cent. in 1970 to 0.109 per cent. in 1973 and, thereafter, a decline to a loss of 0.047 per cent. in 1975 and a loss of 0.062 per cent. in 1976. The reason for this downtrend is, of course, that certain inescapable expenses have risen much more than income; but, if my information on these figures is correct, I find it difficult to square them with the Under-Secretary's statement unless there are some other factors in the equation which I have missed. It may be, of course, that the Department of Trade takes the view that as long as unit trusts managements are making profits in whatever way and by whatever means there is no reason to modify their restrictions and this brings me back to the question of marketing and trading activities.
§ I have already suggested that these activities should be excluded from the calculation of a fair profit and I believe that this is a sufficiently important aspect of the matter to spend a few minutes considering it. These activities are very properly divided into two parts: (a) profits derived from issuing new units and reselling existing units—that is, units which managers buy as they are statutorily obliged to do—from sellers; and (b) profits 1569 attributable from holding such units before resale due to rises in the market over the period. Now, so far as holding profits are concerned, these really must be considered as irrelevant because they are not assured and, in many instances, have resulted in losses. Furthermore, they are in any case profits arising from the management's investment of their own money on which they took the risk and which could equally well have been invested elsewhere. In the case of profits from trading activities, I am informed that these fluctuated between 1.39 per cent. of turnover in 1972–73 and 0.76 per cent. in 1975, with an overall percentage for the seven years of only 0.96 per cent.
§ Finally, I turn to what I believe are the most important set of figures which, I understand, have been agreed with the Department of Trade. These have been assembled from the records of 85 trusts representing over 50 per cent. of the industry and they show a sum of £4.66 per annum as being the cost of servicing a unit holder's account in 1976. Assuming that this sum is now, say, £5 (which is probably fair), it must be apparent that even on the maximum annual charge of ½ per cent., the minimum economic unit holding is, in fact, £1,000; even allowing for some degree of subsidy by the larger investor for the smaller, management companies cannot possibly maintain their minimum subscription at the £250 level or less—which has been fairly typical until now. Hence my concern for the small investor whose opportunities to invest directly in British industry has been steadily eroded over the years and to whom the unit trust movement has provided such an important outlet for part of his savings.
§ I do not think that I am being unduly alarmist in expressing my concern because, although, in fairness, I will admit that the average minimum subscription throughout the industry is still between £100 and £250, there is already evidence that this minimum is in the throes of being raised to £500. It is my belief that it will inevitably be raised still further with the object of eliminating the small and uneconomic unit holder altogether—unless of course the Government are prepared to make some concession over these charges in the fairly near future. Personally, and as a member of the Wider Share 1570 ownership Council, I view the prospect with sufficient dismay to draw attention to it this evening, and to ask the Government to reconsider their recent decision before the situation deteriorates further. I believe that a wide spread of share ownership is an important social matter in our mixed economy, as I emphasised during my noble friend Lord Baker's debate on enterprise two weeks ago. Just as on that occasion I appealed for encouragement through the tax system to bring the small investor directly into share ownership, so on this occasion I make my appeal for the indirect alternative. Having said this, I will conclude by making a positive suggestion which I believe would be acceptable to the unit trust movement and would at the same time tip the scales in favour of the small investor who is now faced with the prospect of substantial increases in minimum subscriptions.
§ My suggestion is that there should be no increase in the existing preliminary charge of 5 per cent., but that the limit on the annual charge should be raised from ½ per cent. to ¾ per cent., thus allowing the overall 20-year maximum to go up from 13¼ per cent. to 20 per cent. In addition, I suggest that the trustees' and the auditors' fees at present paid by the managers should be charged directly to the fund. I believe that these two suggestions are modest and reasonable, and in the best interests of the small investor. However, just in case any noble Lord takes the view that this is an excessive increase to ask for—despite a time-lag of 26 years—I should add that I am reliably informed that it is likely to take a considerable time to implement, mainly on account of the degree of competition between fund managers.
§ Before sitting down, perhaps I might just say this: although I have argued my case on behalf of the small investor, it is surely inequitable that the unit trust companies should uniquely be prevented from increasing revenue in the face of constantly rising costs because the scale of their charges is effectively frozen at a level set 26 years ago. I really do not think that the movement can be blamed after all this time if it now takes steps to eliminate the small and uneconomic investor; but it would be ironic indeed if a decision by the Department of Trade was to accelerate this process.1571
The Under-Secretary of State for Trade (at col. 14 of Hansard for 19th June), at the end of his reply in another place to the honourable member for Leek said:
Of course, I shall consider carefully the further representations that have been made ".
I hope that the noble Baroness in her reply will be able to take us a stage further.
§ 9.23 p.m.
§ Lord CULLEN of ASHBOURNE
My Lords, the House will be grateful to the noble Lord, Lord Terrington, for having raised this important subject this evening. The noble Lord has made an extremely strong case, and I trust the Government will find it as compelling as I do. Perhaps one of the most interesting observations that he made was that the unit trust charges have been frozen for 26 years. That was presumably possible for most of that time owing to the expansion that has taken place in the unit trust movement; but there is no doubt now that the rate of inflation of recent years has made it impossible to accommodate small investors if some rise in charges is not permitted.
Having spent many years as a stockbroker, I know full well how it has become progressively more difficult to be able to afford to give the service to which clients with small investments were accustomed. Noble Lords will be aware of the fact that it has proved necessary to impose minimum commissions on small bargains since the costs of administering small bargains are similar to those for large ones. The imposition of minimum commissions was imposed reluctantly. No firm wanted to increase commissions to a point where the effect was to lose part of their clientele, both from a social and an economic viewpoint. The son or daughter of an old client of the firm might become a large investor later in life, either as a result of his or her own successful efforts or from money inherited.
Let us take the case of a young person with £500 to invest. It would be unwise to invest it all in one ordinary share; yet to split the amount into, say, five different investments would be expensive, since the minimum commissions would operate harshly against him or her. The ideal way to obtain a satisfactory spread at reasonable cost has been to invest in units in a trust which itself invested in a 1572 wide variety of investments. There are a large number of quoted unit trusts from which to choose and many firms of stockbrokers have their own in-house choice. There is no doubt that for the small investor unit trusts have been a very popular investment medium over very many years.
I think at this stage I should perhaps mention, as did the noble Lord, Lord Terrington, that there is strong competition between various unit trusts. That has always been so and it explains what has always seemed rather strange to mathematically-minded noble Lords. As the noble Lord, Lord Terrington, said, the preliminary charge is restricted to 5 per cent., the annual charge to ½ per cent., and the total to 13¼ per cent. over 20 years. It is clear that if the 5 per cent. is added to ½ per cent. over 20 years, which comes to 10 per cent., the total would be 15 per cent. and thus would exceed the 13¼ per cent. permitted.
Most unit trusts do charge the 5 per cent. preliminary charge and charge only ⅜ per cent. annually, or 7½ per cent. over 20 years; so they are actually charging only 12½ per cent. overall. Others, in competing for business, drop the preliminary charge and make a slightly higher annual charge. This competition is an important point to bear in mind when considering the proposals we have just heard from the noble Lord, Lord Terrington, to which I shall refer in a moment.
It certainly seems surprising that the Government have not seen fit to permit a modest increase in unit trust charges. As the noble Lord, Lord Terrington, has pointed out, the effect is that the investor with less than £500 to invest will be shut out. Soon—perhaps very soon—the minimum will be raised to £1,000 and in due course to a higher figure, unless the out-dated charges are unfrozen. How does that accord with the Government's oft-repeated desire for investment in industry—or do they not care about the small investor? His only avenue for investment at acceptable cost will be to put his money on deposit, to invest in Government securities and in National Savings Certificates, and so on. We all know the experience of those who have relied on those forms of investment in recent inflationary times.
1573 It will not surprise the noble Baroness, Lady Birk, that we who have for long believed in a property-owning democracy have no sympathy for this attitude of the Government. Perhaps it was caused by a well-intentioned wish to protect the small investor from suspected profiteering by unit trusts. Unfortunately, all that is happening is that the opportunity for buying units is being effectively denied to the investor. It is no easier for unit trusts to overcome inflation than for any other enterprise, either in the private or in the public sector; so why should they be specially treated so that they are unable to perform the very function for which they were created? It requires no great stretch of the imagination to visualise a scene where the resources of small investors will be forced into Government securities and then perhaps channelled into the National Enterprise Board for politically selected investment in industry. This, I need hardly say, we would deplore.
I come now to the modest changes which the noble Lord, Lord Terrington, has put forward, and in case any noble Lord may think he has been painting an unduly gloomy picture, I should like to refer to the recent announcement that the well-known City house of Charterhouse Japhet arc getting out of the unit trust business altogether because the price structure is not conducive to making a profit—not, my Lords, a large profit or even a reasonable profit, but a profit. I must reinforce what the noble Lord, Lord Terrington, has said. The point of permitting an increase in charges is not so that unit trusts will make a handsome profit; the competition which I mentioned earlier will see to that. It is to prevent the small man from being unable to buy units.
Finally, the views that have been expressed by the noble Lord, Lord Terrington, which I have tried to reinforce, are shared by responsible and well-informed City editors who are well aware of the social and economic advantages of participation between investors and industry. The profit-sharing schemes in the 1978 Finance Bill appear to reflect such a philosophy and are, hopefully, a pointer to a change of mind by the Government. So I shall say no more, and look forward to hearing, the views of other noble Lords who will take part in this debate, particularly those of the noble Baroness.
§ 9.31 p.m.
My Lords, may I apologise to the House in advance for having to repeat what the noble Lord, Lord Cullen of Ashbourne, and the noble Lord, Lord Terrington, have already said this evening, much more eloquently than I, but I feel that certain points need emphasising. I have been looking into the reasons put by the unit trust managements for the need to raise their charges, and in most cases the problems arise because of inflation. I have been reading the Unit Trust Year Book for 1977 and under the heading "How a Unit Trust Works" it says:Running a trust involves managers in expenses. Staff has to he employed to carry out buying and selling operations, to value the fund, to prepare and send out half-yearly reports to unit holders, and of course to provide the necessary investment judgment to ensure that the fund invests in the right shares at the right time".Other charges that have increased over the years have contributed to the dilemma of the Association. The rise in postal and telephone charges have also to he taken into account.
As has already been stated tonight, the management charge rate is restricted by the Department of Trade under the Prevention of Fraud (Investments) Act 1958 and, despite the increasing rise in inflation and higher costs, their charges are effectively frozen at a level that was set 20 years ago. The Unit Trust Association gives details of the charges that unit managers can make. First, there is an initial charge when units are purchased, which is limited to a maximum of 5 per cent. of the value of the units purchased; some charges are between 3½ and 5 per cent. Secondly, there is a yearly charge which must be fixed so that, when taken together, the initial charge and the other charges do not exceed 13½ per cent. over a period of 20 years. This means a maximum yearly charge of ½ per cent. The Association is pressing for the limit on the annual charge to be increased to ¾ per cent., resulting in the total charges over a 20-year period being 20 per cent.
The noble Lord, Lord Terrington, has forcefully mentioned the profits from 1970 to 1976, so I shall not repeat them. Because of increased costs over the years, the unit trust managers fear that the investment level of between £100 and £250 will have to be increased to a minimum of 1575 £500, and will eventually rise to £1,000. As unit trusts are designed for the smalller investor to place his money into ordinary shares, the situation is now arising where the people for whom the scheme was designed will become affected.
I have read with interest the Question that was asked on this matter in another place on 19th June. The Under-Secretary of State for Trade could not agree that profits for the years 1970 to 1976 were inadequate. Will the noble Baroness shed some light on this in her Answer? I was pleased to hear that Mr. Clinton Davis would consider again the representations that have been made, so I assume that the door has not been closed and that a further decision may be made. Will the noble Baroness also tell us whether a decision has been made on this point?
§ 9.35 p.m.
§ Lord TRYON
My Lords, I, too, must thank the noble Lord, Lord Terrington, for asking this Question tonight. His recent dollar premium crusade is fresh in all our minds. It was very successful. I think that we owe the Government some thanks for that. I hope that his present crusade on this subject may also bear some fruit.
I think that the noble Lord, Lord Terrington, has very thoroughly covered the question of the small investor, but I should like to develop this debate a little further. I am a strong believer in the cause of wider share ownership; it is something which should be encouraged in any country that believes in having a successful mixed economy. Before I go too far, however, I have to declare an interest. I have been involved all my life in investment management. Several noble Lords have asked me this evening what is explosive about this; recently, I seem to have spoken to your Lordships only about firearms! However, I am also involved in investment management. I am the director of a major merchant bank, and I am fairly directly involved in the day-to-day management of the investment of some £60 million or £70 million in unit trusts. Before noble Lords think that this makes me a major figure in the unit trust industry, let me assure them that this is not so. The unit trusts with which I am concerned are not marketed 1576 to the general public. They are what are generally known as in-house funds. They tend to carry no initial charges and the management charges are well below the present permissible maxima. I hope, therefore, that your Lordships will see no special pleading in anything that I have to say.
The noble Lord, Lord Terrington, asked the Government to reconsider increasing the annual management charges rather than the initial charges. This plea I most strongly support. To increase the initial charges would encourage the extravagant promotion of funds and would benefit newspaper advertising departments more than anybody else. It would also tend to encourage the promotion of unit trusts at times when the stock markets were rather high. We have seen this in the past. It seems to be the time when unit trusts are easier to sell to the general public, and this is not something which should be encouraged.
If the Government relent and are prepared to reconsider, I, too, strongly believe that competitive pressures—and this is a very competitive industry—will prevent any rapid rise in charges to any new permitted maximum level. I believe that in the area of general funds—which is to say funds offering a general spread of investment in United Kingdom industry—the higher charges would be unlikely to stick. The competitive position would ensure that there were always plenty of unit trusts prepared to operate at not far above present levels. Where the higher permitted charges might stick—and this is where I slightly widen the debate beyond the small investor—is in the area of specialised funds and overseas funds.
Let us take, for example, a unit trust set up to give to people an opportunity to invest in the Japanese electronics industry. The cost of running such a scheme would clearly be very substantially greater than for a fund trying to invest in a broad range of United Kingdom equities. To run such a fund successfully, the managers would have to send people to Japan. They would have to spend a great deal on communications. In those instances, unit trusts also have an important part to play, in that if anybody wished to invest in the Japanese electronics industry—to use my example—I think that he would find it extremely hard to do so as a private 1577 individual. Professional management of some kind would be needed.
Overseas investment does not always receive general acclamation from all sides, but following the abolition of the dollar premium surrender, for which I have already expressed thanks, I believe that the Government may well now smile on it rather more than at times we thought they did before. The old maxim "if you can't beat 'em, join 'em" can be quite profitable.
Only this morning I was looking at the situation of a friend who in 1969 invested £2,500 in a unit trust designed entirely for investment in Japan. His holding today is worth about £16,000, something that sadly would have been very hard to achieve as a result of any investment in the United Kingdom stock market other than a few very fortunate situations. He is a very lucky man, but the country is quite lucky, too. Some time in the not too distant future he will sell that holding, the money will come back here to the general benefit of the United Kingdom, and indeed the Exchequer will get several thousands pounds in capital gains tax straight away that it might not otherwise have got. Overseas investment requires encouragement. The unit trusts have a part to play there; it is very expensive and this is an area where I think the higher charges (if they are allowed) will allow some expansion.
I have strayed some way from the exact wording of the Question, and I hope the noble Lord, Lord Terrington, will forgive me, and I hope indeed that the whole House will forgive me. But I join in hoping that the noble Baroness will give us some encouragement that the recent decision on charges will be reconsidered.
§ 9.42 p.m.
§ Lord DAVIES of LEEK
My Lords, from this side of the House I should like to say that the origin of the unit trust system itself was more or less to encourage the small investor to invest—not to gamble but to invest—under the mangement of people who had the experience to put these small amounts of money to the best available investment for the investor, and originally when we looked 1578 at it we looked only at England. Since then we have joined the Common Market and it is quite obvious that this system is going to develop. We have had the concrete example from an expert speaking from the Cross-Benches of unit trusts going into Japan. I will not take any esoteric investment such as the electronic industry in Japan, but I am thinking of Third World countries that are producing agricultural and other products that are needed to feed Britain. I am thinking of the Common Market as we know it now exists, whatever attitude one might take to it. There is no doubt that as the Common Market develops so will the opportunity for the extension of the unit trust system develop within the Common Market.
When Mr. Clinton Davis answered in the other place there was, if I may use a colloquial phrase, a "spot of hope" about the answer. I think this is a worthy objective, and in these days of inflation it is common sense that if we are expanding into the Common Market it will need clerical assistance, it will need the ability to speak a couple of languages, neither of which can now be obtained at the old-fashioned prices. Consequently, there is a legitimate case for some improvement in the returns. I do not think I need delay the House for more than the one minute I intended to speak. I think I have made for my noble friend a case worthy of being looked at to see whether some type of favourable answer can be given to the House tonight.
§ 9.45 p.m.
§ Baroness BIRK
My Lords, I am grateful to the noble Lord, Lord Terrington, for raising this question. It is a great pity we could not discuss unit trusts in the daylight and in daytime but that is not his fault; transport took precedence. It has been a useful discussion, and I am sure that my right honourable friend the Secretary of State for Trade will take note of the various points that have been raised. May I preface my remarks by making it clear that the Government are well aware of unit trust managers' concern about the effect on their profitability of the present restrictions on charges and are carefully considering the further representations that have been made. The Government must also, however, have regard to 1579 the interests of unit holders on whose behalf the controls on charges were instituted.
To set the background to the present situation, as the noble Lord, Lord Terrington, pointed out, the Department of Trade has discretionary power under the Prevention of Fraud (Investments) Act 1958 to authorise unit trust schemes. In the early 1950s, thinking that some managers were setting too high a price on their services, the Department made use of its powers to introduce controls on the initial charges and the annual charges they levied. In total these charges were not to exceed 13¼ per cent. over 20 years, and that remains the rule today. It is for this reason that my noble friend Lord Davies of Leek mentioned the interests of the small investors; it was in order to protect the small investors that these decisions were made.
From time to time since then unit trust managers have made representations about these restrictions. Throughout the exchanges which took place from 1971 to 1976 the question of costs and profits remained at the forefront of the Department of Trade's interest, and discussions over the last two years with the Association have focused particularly on this. It was agreed that if the industry was to substantiate its case a wide sample of management companies' accounts would need to be produced by the Association. On the basis of the survey covering the period 1970–76, produced in the second half of last year, the Association contended that it had a case for claiming an increase in charges that would permit managers to levy a total of 20 per cent. over 20 years—that is, a 50 per cent. increase on the 13¼ per cent. over 20 years at present allowed. I think it was the noble Lord, Lord Tryon, who said that competition would ensure the protection of investors. It may be true, but if this is so I find it a little strange that the UTA and their supporters are adamant that only an increase of 50 per cent. will suffice. In addition the Association revived an earlier request that trustees' and auditors' fees should no longer be borne by managers but should be charged against unit trust funds.
The Association's case was subject to careful examination by the Department of Trade, and I must say the assistance of the 1580 Association should be fully acknowledged here; they gave every assistance they could. In March 1978 my right honourable friend came to the view that, on the basis of the evidence supplied—and considering the activities of unit trust management overall—reasonable profits had been achieved, taking the review period as a whole. Central to this conclusion was the premise that profit arising from all forms of activity should be taken into account. He did not accept—and I imagine this is now common knowledge—the Unit Trust Association's argument that the annual charge alone should bring the managers adequate profits and that the profits which arise from the marketing of units should not be considered. He was also concerned about the magnitude—but not, I must hasten to say, the legality—of the discounts which many managers give to institutional purchasers of units, some of them associated life assurance companies. Substantial commissions are also apparently being given to those selling units as agents.
Given these views of the Secretary of State, he was not, at that stage, able to accept that a case existed to change the scale of managers' charges; nor did he agree that trustees' and auditors' fees should be charged against unit trust funds. However, the Association was invited to make further representations if it wished; it took up the offer and it is those representations which are currently being considered by the Department of Trade. Therefore, I should emphasise—and emphasise most strongly—that the door has by no means been finally closed; there are very complex issues here and a fresh look is being taken at the whole question without any preconceived views on the outcome.
It must be acknowledged that the present system of charging has proved to have one unforeseen defect: comparatively lean years will result for the managers in periods when steeply-rising inflation coincides with a slump in the value of securities held—the value, that is, on which the percentage charges on unit holders are based. The Department will be looking, among other things, into the method of assessing charges, bearing particularly in mind the need to recover costs. The possible impact on small investors of an increase in minimum unit 1581 holdings will also be taken into account. The aim is to ensure that the legitimate interests of both managers and unit holders are preserved by a system which aids the managers in bad years, but takes adequate account of good years. In fact, it is very difficult to get exactly the right balance here.
In his opening remarks the noble Lord, Lord Terrington, stated that managers have no obligation to sell units. It is very difficult to conceive a trust scheme operating effectively or in unit holders' best interests, if there is no marketing of its units. Indeed, the Department requires an assurance of active marketing intentions before authorising new unit trusts. So, this is part of the arrangements which have been made.
The noble Lord, Lord Terrington, also suggested, as, I think, did the noble Lord, Lord Cullen of Ashbourne, that charges have been effectively frozen for 26 years. I do not think that that is strictly accurate. The charges are levied on a percentage basis and the size of the funds under management and the level of the stock market prices have risen greatly in this time. Therefore, they have risen together.
The noble Lord, Lord Cullen of Ashbourne, commented that Charterhouse Japhet is getting out of unit trust management. I took him to be making the point that it is no longer a very profitable business to be in and therefore people are moving out of it. In fact, it is selling to another firm which presumably expects to be able to make a profit out of it, otherwise I do not think that it would have wanted to buy it. The Department of Trade has other applicants who wish to enter into unit trust management, and therefore we assume they have taken a hard look at the economics of the situation. The noble Lord did not exactly frighten me to death, but I do not think that he need be quite so worried or paint quite so horrendous a picture as he did of the future, with a general takeover and grabbing of unit trust holdings, which was the impression that I gained. I do not think that that is likely to happen.
The noble Lord, Lord Tryon, spoke about overseas funds and gave the example of Japan. My noble friend Lord Davies of Leek referred to the EEC. Overseas operations have flourished in recent years 1582 and it is not evident to the Government that the cost of setting up funds in Japan or North America has deterred their establishment. So far as the Common Market is concerned, we are actively participating in discussions there to harmonise unit trust regulations.
We expect the United Kingdom unit trust industry to be well-placed to compete when selling across frontiers becomes a practical proposition. This is, of course, when restrictions on capital movements are relaxed. It is impossible to divide one entirely from the other. I do not think that the noble Lord, Lord Terrington, or other noble Lords expected me to be able to give any definitive answer—certainly one that would have pleased them tonight. As I have said already, I hope I have made it clear that the door is not shut and that representations are being considered.
In conclusion, I should like to pay a tribute to the unit trust industry which has served investors and the nation well over the 40 years or more of its existence. The fact that it has in a way changed its character from dealing mainly with the small investment holders, the small unit holders, to the far larger institutions is part of the way in which so many aspects of our financial and economic structure have changed. The industry has played and still plays an important part in the national economy, but I recognise that it cannot, of course, live on altruism alone. The services of managers and of trustees must be adequately rewarded. Her Majesty's Government accept that, even though there may still be room for discussion as to what constitutes adequacy at any given time. This, of course, applies to so many things that it really is not saying anything new.