HC Deb 08 March 1853 vol 124 cc1320-32

in rising to move for a Select Committee upon this subject, said it was incumbent upon him to make a few observations in order to explain the general objects he had in view in making this Motion. It was impossible perhaps for the House to approach a subject which contained within itself principles of greater difficulty, or had led to more diversity of opinion. It was impossible to look at these associations in one view without regarding them as trade associations; and it might be said, with some amount of justice, that so long as the principle of public and open justice was relied on in this country, the interference of the Government, in any way, was likely to destroy the beneficial effects of that competition, to create a false reliance upon the Government, and to inflict injury upon the public at large. Upon the other hand, it might be as fairly contended with regard to associations of this description which asked for peculiar privileges, that it was the bounden duty of the House, in granting those privileges, to accompany them with such securities as should afford a proper guarantee that they would be used for the public advantage. Between these two conflicting opinions, on which, he admitted, much might be said on both sides, it was not his intention to decide; but he thought the House would agree, that if they were to interfere at all, they ought at least to see that their interference, while it impeded as little as possible the objects of private trade and competition, yet would honestly confer on the public the security which such interference on the part of the Government professed to give. With regard to these associations, he would particularly guard himself from being supposed to be the advocate either of one class or the other. He was well aware there was a contention between the two classes—the old proprietary offices, and the new offices, established generally on mutual principles. He particularly requested that the House would understand that he had no object whatever, and that the Government could have no object, in advancing the interests of one class in preference to the interests of the other. The only object was to see that the privileges given by Acts of Parliament were not so far abused that the public were placed in a condition of insecurity against which they ought to be protected by that House. Perhaps it was not generally understood to what an enormous magnitude these associations had grown, and what a vast amount of capital was now invested in the hands of those who managed them. In Scotland alone the liabilities of fifteen assurance offices amounted to 33,000,000l. The assets already paid up amounted to 6,000,000l. sterling; and the annual income exceeded 1,500,000l. Then, with respect to Great Britain, the House would probably be astonished to hear that the accumulated capital of the companies with whom it was now proposed to deal amounted to 150,000,000l. sterling, at the smallest estimate; and that the annual income derived from premiums paid by the best and most deserving class of society—a class who, from the provident habits which they exhibited, the self-denial they exercised, and the enormous amount of their annual savings, were, he thought, justly and properly entitled to all the protection which the House could give them—the income derived from this source in England and Scotland amounted to no less than 5,000,000l. sterling, a sum almost equal in amount to the whole revenue derived from the income tax. When the House, considered, therefore, the enormous magnitude of the interests involved in these associations—when they knew the unsatisfactory condition in which many of them were placed—when they reflected that hundreds of associations were springing into existence one day, and falling like an autumn leaf the next—he thought they would hardly be prepared to allow such a state of things to go on without endeavouring at least to apply a remedy, and take means to endeavour to place them on a more satisfactory basis. One of the earliest things to which the attention of the Government was called on their accession to office, was the abuses which existed in these institutions; and, having given it their best consideration, they felt it was impossible for the Executive of the country—responsible as they were in some degree for the working of these associations—inasmuch as they had been formed under the sanction of an Act of Parliament—they felt that Parliament was by implication responsible for any evil consequences that might result. It therefore was impossible for them to stand by with their eyes open, and, knowing that abuses existed, allow them to go on, without at least making some effort to call public attention to them, and by means of a Parliamentary inquiry to try and discover some mode by which associations of so much importance could be placed on a safer footing. Every individual in the House, as well as out of it, he was sure would agree with him as to the enormous benefit which these associations were capable of conferring on the people of this country. He knew of nothing in the history of modern inventions, or in the progress of modern ingenuity, which, in a social point of view, was of greater importance than the establishment of these offices, calculated, as they were, to win the people to provident habits, and to present an easy and facile mode of making a provision for those who came after them; and just in proportion as the House and the public felt, the importance of these institutions were they bound to take measures to place them on such a footing as should give a natural and fair security to the public, in order to induce people to use them to the greatest possible extent. But not only were these institutions to be regarded as a means of enabling individuals to make provision for the future, but there was another point of view in which they were of great importance, and that was that their large accumulated capital was capable of being used with great advantage in various ways in which the deposits and assets of other institutions could not be made available. He believed that, from the funds of insurance offices being of a nature which enabled them to be invested for a longer period than the funds of banking establishments could ordinarily be, the landed interest had derived the greatest possible facilities in the improvement of their land from the funds accumulated in the hands of these offices. As another example of the benefit derived from large funds being brought together in single hands, he might mention that the loans which had been raised on the security of Government for the improvement of the West Indies, and other parts of the British dominions, had been chiefly taken by insurance offices, and thus those funds which were accumulated for the benefit of private individuals became in the meantime useful instruments of public utility. It was, therefore, impossible, in taking that view of the matter, to overestimate the responsibility of the gentlemen who undertook the management of these institutions; and he confessed he should be glad if he could feel any degree of assurance that in every case the gentlemen who undertook to bring into existence companies having objects and ends so sacred, and operations so beneficial, felt the full weight of the responsibility which they thus incurred, and that they only did so for the advantage of those whose interests they professed to consult. But he was afraid that the investigation of the Committee he now proposed, would tend to show that in too many cases the establishment of these companies had been made a cover for frauds of a most gross and extensive description. He begged the House to bear in mind that the character of the institutions now referred to was different from that of the other joint-stock companies which existed under the Act of 1844. With regard to banks and other joint-stock companies, their liabilities and responsibilities to individuals were of a comparatively momentary description. If a person was dissatisfied with a bank, he could at once close his account and withdraw from it; or, if a bank failed, it would doubtless entail great loss; but the loss would only be temporary; and so even with regard to fire insurances. The yearly premiums paid for fire insurances had reference merely to the risk of fire within the year. At the end of the year the responsibility of the company ceased, unless the premium was renewed; and if any one had reason to doubt the solvency of the office in which he was insured he could remove to another; but with regard to a life office, the case was entirely different; for, while the premiums were paid from year to year, the responsibility of the company extended to an indefinite period, and a person could hardly be said to be in a condition to change his policy, whatever doubt or apprehension he might feel with regard to the company. Therefore he looked upon these institutions much more as a sacred trust for the future, than as the means of mercantile operations for the present. He looked upon them as a sacred trust, because present payment was to secure future benefit, and because individuals, actuated by the best feelings of human nature, were induced to make great sacrifices and to exercise great self-denial, in order to provide for those who followed them. He thought this was a reason, therefore, why these companies should be taken out of the strict category of commercial institutions; and, if the House was justified in interfering by Act of Parliament to regulate joint-stock companies in general, it was doubly justified in interfering with respect to institutions where the operations were so great and the effects so distant. Whatever difference of opinion might prevail with regard to the question of interference at all—and he knew that his hon. Friend the Member for Montrose (Mr. Hume) felt strongly on that point, and he (Mr. Wilson) confessed that he, for one, participated in his feeling—the House was not now in a position to judge whether they should interfere or not. They had already interfered so far as to induce the public to rely upon those institutions, and became, therefore, to a certain extent, re-responsible for their good management. Having gone so far, therefore, they were bound to go a step further, and sec that under the shade of their Parliamentary sanction gross frauds were not perpetrated on the public. The Act of Parliament which regulated those institutions was the 7 & 8 Vict., c. 110, which was passed in 1844 "for the registration, incorporation, and regulation of joint-stock companies." By that Act it was provided that those institutions should, in the first place, be regulated like other joint-stock companies, and, in the second place, it was provided that each company should be obliged to make a return to the registrar of joint-stock companies of its annual balance-sheet, in order to prove the financial condition of the company. He regretted extremely to say, however—and this was the reason why the Government had felt themselves bound to take the present step—that both these securities had been grossly violated and abused. He was bound to say that the registration had in many cases been effected more in name than in reality. The Act required that before the complete registration of a company took place, a deed should be produced, signed by a certain proportion of the partners, and setting forth the sum proposed to be raised, and other important particulars; but it was a notorious fact that the greatest possible frauds had been perpetrated in the process of registration. Two or three persons, and in some cases twenty or thirty persons—of whom, upon inquiry, no trace could be found—were got to put down their names for enormous sums as subscribers—the fact being that they had subscribed nothing whatever, and were men of no responsibility whatever. With respect to the working of the law, he would, with the permission of the House, read a short extract from the report of the assistant-registrar of joint-stock companies, which was so conclusive with respect to the evil operation of the Act—going so far as it had done to create a certain amount of reliance on the associations, and yet not going far enough to justify that reliance—that it would convince the House at once that the law could not remain in its present state:— This Act had not been long in operation when public attention was forcibly directed, by the discovery of a series of frauds, which, when contrasted with the station and resources of the individuals concerned in them, may be described as of unexampled magnitude, to the imperfection of a state of the law under which such frauds were possible. Some half-dozen of adventurers, any one of whom in his individual capacity would have found it difficult to obtain credit to the most limited extent, boldly announced to the world the formation of an imaginary assurance company with a capital of 1,000,000l. sterling: and, constituting themselves into a board of direction, and assuming all the outward characteristics of a wealthy and flourishing corporation, contrived, by holding out tempting inducements to the ignorant and unwary, and professing to conduct business on unusually liberal terms, to defraud the public in the course of about Jour years to the extent of upwards of 200,000l. There was nothing to which the public generally bad access from which it could be discovered that this was not a company properly constituted, and possessing the capital to which it laid claim. Only a searching investigation, such as few persons would think of undertaking, and which was not unattended with personal risk (for actions of damages were in this case brought against the first denouncers of the fraud, who might thus have been seriously injured, if not ruined, before they had succeeded in bringing it fully to light), could make it appear that there was nothing of a company but the name—no capital but the contributions of the dupes themselves. So it was, however; four men, personally without credit, character, or education—with no resources but boldness and cunning—succeeded in making the world believe for four years that they represented a company composed of some hundreds of partners, and that they bad the command of a capital of 1,000,000l. Stirling, simply because, there being no ready means of putting the truth of such representations to the test, the public had got very much into the habit of taking them for granted, or at all events, of relying upon very slight presumptions in their favour. He begged to say, in passing, that the sanction of the Act of Parliament had had very much to do with creating that confidence. A consideration of the class of persons who suffered by this fraud, and who would be most likely to suffer by any similar fraud in time to come, being chiefly persons of very moderate incomes, who had been lured by the prospect of an advantageous investment of their savings, and to whom, therefore, the bursting of the bubble disclosed the fact of their ruin, had much effect in stimulating the Legislature to devise some means by which the perpetration of similar frauds might be prevented for the time to come. A Select Committee of the House of Commons was appointed in 1841 to inquire into the state of the law respecting joint-stock companies, with a view- to the greater security of the public, and continued its investigations through the years 1841, 1843, and 1844. The Committee began by ascertaining the means by which the fraud just referred to bad been committed, then passed from it to other cases of proved or suspected fraud of recent occurrence, so as to bring, as nearly as possible, into one point of view the whole capacity for being turned to fraudulent purposes inherent in the system of joint-stock companies; then, extending their inquiries generally to the regulations under which, as a question of public policy, such companies ought to be placed with a view to I the security of the shareholders as well as of the public, they finally agreed upon a report, upon the recommendations contained in which was founded the Act now in force for the regulation of joint-stock companies, which was proposed to the House of Commons by the President of the Board of Trade, and received the Royal Assent; on the 5th of September, 1844. It was under the Joint Stock Companies Act that these evils and abuses had taken place, and he was afraid that the investigations of the Committee would disclose in too many cases similar frauds. Another security provided by the Act for the solvency of these companies—the production, namely, of an annual balance sheet, had been as much evaded as the other regulations laid down by Parliament. In many cases the returns which had been laid before the House, professing to show the annual balance sheets, had been of such a character that he believed no Member of that House, and no actuary out of it, could there from accurately tell the condition of any one of the companies. It might he quite true that there was nothing absolutely false on the face of any one of the accounts; but you might put an account in money in so many different forms so as to create delusion, and prevent any one from forming a clear and accurate idea of its contents. There was one very striking fact which he begged to mention to the House, and it was this: that in the case of twenty-five offices who had submitted their accounts, it appeared upon their own showing that, while the sums received as premiums for the last year amounted to 462,032l., the costs of management, according to their own showing, reached 375,300l., leaving only a balance of 86,732l. out of an income of nearly half a million. He thought the House would agree with him that, in the face of striking facts of this kind, it would be criminal in the highest degree for the Executive of this country to stand idly by with folded arms and not take some step with a view to applying a remedy. At the same time, he was anxious to avoid creating any unecessary alarm in the pub-lie mind with respect to the condition of these associations. For himself, he had not the slightest doubt that the great bulk of what were known as respectable offices were not only solvent, but in a highly sound and prosperous condition; and he wished the House distinctly to understand that the cases of gross abuse to which he had referred formed the exception, and not the rule. It was well known that those offices which submitted in an intelligible form their accounts to their shareholders were, from the improved tenure of life which had prevailed during the last fifty years, and the advantages afforded by their tables, among the most profitable of commercial undertakings. He begged to say, also, that it was not the wish of the Government to interfere unnecessarily either with existing or future offices. All they wanted was to make certain that whatever securities Parliament might have taken, or professed to have taken, for the security of the public in the Acts under which these institutions were established, should be fairly carried out, and that they should not be converted into mere shams and delusions, under the sanction of which the grossest frauds would be perpetrated. He was anxious, while this inquiry was pending, that the public should not relax in their habits of prudence; but he wished also that they should learn to distinguish between the principles which governed good and safe offices, and those on which bad and unsafe offices were founded. All the Government wanted was that the securities taken should be securities of an absolute and living character, and not mere shams and delusions. It had been proposed with great reason that the assurance companies should be subjected, like other joint-stock companies, to a test of solvency, by requiring them to pay up a portion of their capital before they were allowed to be registered. This was a point which would be matter of consideration for the Committee. He was sorry to say that so numerous had been the institutions of a mushroom description which had sprung up of late, and so palpable were the frauds which they practised to entrap the unwary, that they deserved to be characterised as swindling establishments. He would call the attention of the House to the multiplicity of these institutions. Since the Joint Stock Companies Act passed, 335 new assurance offices were projected, of which 149 were actually founded; and of these, 90 had ceased to carry on business; so that out of 335 projected, there were only 59 in existence. In the last year—for every year appeared to make matters worse—there were 72 new companies projected: only eighteen of these were founded, and twelve of them had ceased to exist, leaving only 6 out of 72 which had been projected. For the reasons which he had stated, he thought that the House would feel satisfied that this state of things could not go on without inquiry, and he trusted that measures would be taken, by which the existing Act might be carried out, and such other provisions introduced as Parliament in its wisdom might think necessary. He would, therefore, beg to move, "That a Select Committee be appointed to take into consideration the subject of Assurance Associations."


said, he begged to express the satisfaction which he had felt at hearing the statement of the hon. Gentleman, and he trusted that the supervision of the Legislature would be extended to benefit societies as well as assurance associations. The poorer classes of society, he begged to assure the Government, required protection, even more than the middle classes, from the schemes of designing adventurers. He had had bitter experience in the part of the country in which he resided, of the utter demoralisation which had been occasioned by the failure of benefit societies. Within a circuit of something like ten miles, comprising a population of nearly 30,000 inhabitants, the habits of prudence and thrift which had been created among the labouring population had been seriously endangered, because the present law had failed to insure to them the provision which they believed they had made for sickness and old age. The same principle operated in the case of burial societies, and all other societies of the kind; and he hoped the attention of Government would be seriously directed to this important subject.


said, that Parliament had already interfered in the regulation of joint-stock companies, and had done harm by its interference; consequently, it must undo what had been done, or it must go further. Having paid a great deal of attention to this subject, he had become acquainted with a good many of the abuses which were going on under the present system; and he must say, that the country was greatly indebted to the hon. Member for Westbury (Mr. J. Wilson) for bringing this matter under the attention of the House. It was impossible that the vigilance of the House and of the public could be aroused upon a subject of greater importance. The Act of 1844 had greatly aggravated the evils which it was designed to check. There were undoubtedly great difficulties surrounding the subject; but it would be the business of the Committee to inquire into the whole question, and see what remedy could be applied. It was clear, at any rate, that if matters were allowed to go on as they were doing, the public would be involved in most serious losses. As there was to be an inquiry, he would not prejudge the case, but wait for the Report of the Committee. In the meantime, however, he hoped that the able and clear statement which the hon. Gentleman had made, to the accuracy of which he could himself bear testimony, would go forth to the public, and arrest the evil which was in progress.


said, he should willingly express his gratification that the Government had taken up this most important subject. He was certain the determination of the Government would give great satisfaction generally to the institutions which were solvent, and would only be unsatisfactory to those which had certainly attempted frauds upon the public. He thought it was most important, as these institutions had been in a measure sanctioned by Parliament, that Parliament should endeavour to guard the ignorant and unwary against a system which, if it was allowed to go on, would be attended with most injurious results.


said, he would be the last person in the world to advocate legislation upon questions which might be left to the discretion, prudence, and care of individuals themselves. He had, however, had a good deal of experience in matters of this kind, and he considered that this was one of those subjects with regard to which the public did require to be protected by legislation. He did not deny that legislation had very materially increased the evils of this system, by giving to those who wished to establish such institutions opportunities of covering over the inherent weakness of societies by apparent legislative sanction. It was, he thought, of essential importance that these societies should be placed upon such a foundation, and under such supervision, as to afford some guarantee that their business was conducted upon safe principles. He might just allude to one view of the subject which he thought not unimportant. The old established societies had a very large business in consequence of the credit they derived from the publication of their accounts, which showed the large amount of funds in their hands, and also from the persons of known eminence and respectability who were connected with them. Persons consequently paid to these offices a much larger premium than it was really necessary to pay in order to secure all the advantages of life assurance, because they were afraid to venture their money in societies which had been more recently established. Now, he thought it most desirable, if possible, that there should be such legislation on this subject as, while it afforded some guarantee for the character of the societies, should allow a fair and effective competition.


said, he never had any confidence in the Act of 1844; and if people did not take care of themselves, what could Acts of Parliament do for them? To his mind, nothing could be more satisfactory than the statement of his hon. Friend (Mr. J. Wilson) that out of 335 insurance companies projected since that Act, only fifty-nine now remained. The same erroneous principle had been applied to banking companies, and the day was not far distant when the country would appreciate at its true value that course of legislation. His hon. Friend saw that Parliament had done wrong, and he thought he was quite right to "try back." As to balance sheets, they were of no use. If he were disposed to be a rogue, he would make out as fair a balance sheet as any man could show-in the Kingdom. The question upon a balance sheet was, whether the account presented was a true account. He did not know anything that was more material to the welfare of the community than a well-established assurance office; but, after all, every man must look after his own affairs, for they could not be safely left to any one else.


said, he thought it was a disadvantage to interfere by legislation with existing commercial institutions, whose security and stability were the pub-lie confidence and credit, by inviting Parliamentary inquiry, on the ground that many of these institutions were not deserving of the confidence which they enjoyed. He considered, therefore, that the proposed inquiry would be attended with imminent peril. He did not think any amendment of the existing law could secure an advantage which no legislation could insure, namely, that personal care and caution on the part of individuals should be rendered unnecessary. The annual balance sheets of assurance companies did not give the slightest indication of the stability of such institutions, for they were mere statements of the receipts and expenditure; whereas a balance sheet, in the proper sense of the term, to convey any information as to the stability of a society, should show the value of all the assets and of all the liabilities. He thought the House should certainly not require that assurance societies should go to the expense of preparing such statements oftener, say, than once in five years. He would put it to the House, however, whether the public did not take take of themselves in this matter? There were fifteen assurance offices in Scotland, with a capital of 33,000,000l., and an annual income of 1,500,0000l., and he considered that they were all witnesses against the course proposed by the hon. Member for Westbury (Mr. J. Wilson), for the fact that they had the public confidence, and had enjoyed it so long, was a proof that that they deserved that confidence. In Great Britain, without Ireland, there were assurance companies with a capital of 150,000,000l., and an income of nearly 5,000,000l. annually. These, also, were witnesses against the hon. Gentleman, because the fact of their existence, and of the confidence placed in them by the public, was a proof that that confidence was deserved. The hon. Member for Westbury had said that 355 assurance societies had been projected, of which only fifty-nine were now in existence. Was not that a proof that the public took care of themselves? Nearly 300 of these societies had fallen to the ground, simply because they did not deserve and secure the confidence of the public.


said, he quite agreed that we ought not to legislate to attain only problematical advantages. He would offer his personal thanks to the hon. Gentleman (Mr. J. Wilson) for having brought this subject forward. He was entirely unconnected with any assurance office; but in the course of the inquiries before the Committee relating to benefit societies, several gentlemen, who were actuaries or managers of some of the most respectable and long-established assurance offices, were examined, and he believed, from their statements, it was their wish and desire that some such investigation as that now pro- posed should be made. If they looked to the number of new offices since 1845, and how widely their sphere of operation through society was extended, they would see that scarcely a family in the country was without interest in them, and therefore it must be borne in mind that the principle of assurance was taking deep root, and that was one reason why there would be a great extension of offices. It was considered by actuaries that the interest was now of such magnitude—involving 350,000,000l. of capital—as to require separate legislation. He trusted that Government would no longer allow the public to be deluded by an Act of Parliament which did not in any way extract a true picture from assurance companies of what was their actual condition. He was aware that this was a somewhat critical matter to deal with. He knew that if they attempted to do anything which would be an interference with the fair exercise of individual operation on the part of any one of these societies, they ran great risk of giving something like a guarantee on the part of Parliament for the security of those who invested money in such institutions. He only wished, however, to express the great satisfaction he felt that the Government had taken up this important question, and his hope that the inquiries of the Committee would result in a Report which would afford grounds for beneficial legislation.

Motion agreed to.

The House adjourned at Ten o'clock.