INDUSTRIAL ASSURANCE BILL. [Lords].

HC Deb 26 March 1923 vol 162 cc167-207

Order for Second Reading read.

The SOLICITOR - GENERAL (Sir Thomas Inskip)

I beg to move, "That the Bill be now read a Second time."

9.0 P.M.

The Bill to which we are asking the House to give a Second Reading this evening is one of very great interest to a large number of people. Industrial assurance has attained really an amazing popularity, of which some hon. Members may be aware, but which, I admit, was a great surprise to myself. In 1921, it was calculated that a sum of no less than £37,000,000 was collected in premiums, which, as hon. Members are aware, are very small—at any rate, very small regarded as weekly or monthly instalments. It was calculated that between 60,000,000 and 70,000,000 separate policies were in existence, of which 7,000,000 were new policies in that particular year. Most hon. Members, perhaps, will know what industrial assurance is, but, perhaps, I may be allowed to give what is a rough definition that will serve. It is assurance of comparatively small sums—something like £10 or £12 upon somebody's life—in return for premiums which are collected in small instalments either weekly or, perhaps, monthly, the average amount of which has been calculated to be about 2½d. a week. The collection is made by agents, as they are called, although, I am afarid, the term is, from many points of view, a misnomer. It is made by agents who are said to number about 70,000 persons, and they are paid by a commission upon the amount of their collections week by week, or month by month, and particularly upon what is called the new business which they acquire. The person who takes out the policy is supposed— although, I am afraid, it is only supposed —to have in many cases insurable interest in the person upon whose life the policy is taken out, and, generally speaking, the money is required to pay for the funeral expenses of the life concerned. Two separate classes of organisation have been carrying on this kind of business. One class is that of the industrial assurance companies; of which the Prudential and the Refuge are very well known illustrations, who are incorporated under the Companies Acts, who have a share capital of limited liability, and, therefore, come under the jurisdiction of the Board of Trade. The other class of organisation is that of the collecting societies, who are registered under the Friendly Societies Act, and, therefore, are amenable to the jurisdiction of the Registrar of Friendly Societies. The Royal Liver and the Liverpool Victoria are two illustrations of that class. The proportion of the business done by those two classes of organisation is roughly one-fifth to four-fifths, four-fifths being done by the companies and one-fifth by the collecting societies. The business has grown to the present extent practically in the last 25 years. In 1896, when the Friendly Societies Act was passed, the business was comparatively small; to-day it is of the enormous extent which I have indicated.

Unhappily, side by side with a great deal of honest business, a number Of abuses have grown up, and it was found necessary, three years ago, to make some investigation into these abuses. I do not wish to detain hon. Members with any elaborate description of those abuses, or to dilate upon them more than is necessary for my present purpose, which is to explain the scope of this Bill; but, generally speaking, the criticism which was directed against the system was that the expenses were much too high in proportion to the benefits secured for the persons interested in the policies, and that the system, under which lapsed policies had no value—that is to say, no cash surrender value paid upon them, or no fully-paid policy given in lieu of them for the amounts subscribed—deprived the persons, who were almost invariably persons of very small means, of any benefit in return for the premiums which they paid. As hon. Members will realise, the smallness of the premiums has exercised a very seductive effect upon these people, and many are induced to take out policies which they have no reasonable prospect of continuing.

It will be seen that a very large sum has been lost annually by persons who can ill afford it. I will tell hon. Members what will be well known to any who are interested in this question, that something like 44 per cent. of the premiums paid by these poor people goes, or has gone in the past, in paying commissions to agents, or expenses of the societies, or dividends in the case of the companies; or, to put it in another way, only 6¾d. out of every is paid in premiums is returned to the persons subscribing. The rest goes in expenses, commissions, and dividends. These facts were elicited, if they were not already known, by the Departmental Committee over which Lord Parmoor presided. In the course of that investigation other abuses came into prominence, including the unsound financial condition of some of these concerns and the ephemeral character of others. That is to say, it was so easy in some eases for persons to organise a society, to establish what appeared to be a. good business, and then disappear, leaving nothing behind them in the possession of their victims but a very unsavoury memory.

In February, 1920, Lord Parmoor's Committee issued a unanimous Report. This Departmental Committee had on it representatives of every party in this House, as well as the assistance of persons skilled in the business. They reported that there was an urgent need for many reforms and increased control, and they advised that legislation should he introduced without delay. Unavoidable delay occurred, but in August, 1921, a Bill was introduced into another place, not with any real hope of securing a passage through both Houses, but in order that criticism might be directed to it with a view to improvement. This Bill which now comes before this House from another place is the result of that criticism and of further investigation. I am glad to be able to tell the House that all the matters to which the Parmoor Report called attention are dealt with in this Measure. I am sure that will be a satisfaction to hon. Members who are interested in the welfare of these people. The societies and companies concerned recognise that this Bill effects a very necessary and overdue reform in the businesses in which they are interested. I hope when hon. Members read the Bill, and follow the Debate, they will be of the same opinion, and will give a Second Reading to the Bill and so facilitate its further progress.

Perhaps I might first of all deal with some of the Clauses containing the most important reforms in what is a somewhat complicated Bill. I will do my best, and hon. Members perhaps will forgive any deficiency in view of the disability of a cold under which I labour. There are 45 Clauses in this Bill. Sixteen of these are are-enactment of, or comparatively unimportant alterations of, the existing law which is contained in the Collecting Societies and Industrial Assurance Companies Act, 1890. This Act will be wholly repealed by this Bill, if it becomes law, as well as Section 36 of the Assurance Companies Act, 1909. Sixteen Clauses of this Bill are substantially re-enactments or an adaptation of the existing law. The rest of the Bill contains the reforms to which I have referred. The first essential change is in the definition of the organisations which will come under the operation of the Bill. Hon. Members will find the definition in Clause 1 of the Bill. It will no longer be necessary, as hitherto, to consider whether the particular organisation or collecting society collects premiums at a greater distance than 10 miles from its principal place of business, or whether it assures sums below £20. In future hon. Members will see from Sub-section (2) of Clause 1 that For the purposes of this Act industrial insurance business means the business of effecting assurance upon human life, premiums in respect of which are received by means of collectors‥‥ There is a proviso immediately following that such business will not include assurances the premiums in respect of which are payable at intervals of two months or more, so that every form of the assurance of human life, with the proviso I have just quoted, and a few exceptions, which I need not specify, come under this Bill.

The second Clause effects the next substantial reform in bringing the companies under the control of one person, namely, the present Chief Registrar of Friendly Societies. It is not only a convenient, but, in order to make the Bill effective, a very necessary reform that a gentleman of great experience, and one who sympathises with the friendly societies, should have them under his watchful and experienced eye. He will in future have a different title, which is not quite so cumbrous, or at any rate is possibly more accurate; instead of being called the Chief Registrar of Friendly Societies he will be called the Industrial Assurance Commissioner. He will supervise the operations, not only of the collecting societies, but of the assurance companies. So much for the concerns which come under the Bill and so much for the officer who has the superintendence of their operations.

The next proposal to which I wish to call attention is one of very great importance. It deals with the conditions under which a collecting society may be formed. Hon. Members will find this proposal contained in Clause 7 of the Bill. At the present time it is possible for—I was going to say seven rogues, but I will say —one rogue and six dupes to form a society without depositing any money such as is required from an assurance company, and when they have collected a substantial amount in premiums to disappear. I think all hon. Members will agree that that is most unsatisfactory. Clause 7 says: (1) Every collecting society shall he under the like obligation to deposit and keep deposited the sum of £20.000 as an industrial assurance company, and Section 2 of the Assurance Companies Act, 1909, as applied by this Act to industrial assurance companies shall apply accordingly. They will thus be put on the same footing as the companies, and this will at any rate provide some guarantee of financial soundness, or suggest some hope of it. It follows as a necessary corollary of this proposal that the industrial business both of companies and societies shall be absolutely separate from what is called the ordinary business. Therefore the Bill requires as to both the collecting societies and the companies that they shall separate, where it is not already done in the past, their businesses or operations in the manner I have just stated, and further a company will he required where it has already made a deposit on account of its operations to make a further deposit in respect of the industrial assurance business so as to satisfy the provisions of the Bill. We have now the company formed and we have the official recognition; now I come to the process which is intended to deal with the evil which I put in the forefront of my statement, namely, the matter of expenses and dividends and the benefits to be secured to the policy holders.

It is proposed to remedy this evil by the operation of two separate Clauses, or groups of Clauses, in the Bill. The first step is to secure that these companies and societies are controlled—that is not too strong a word—by means of a valuation by a skilled actuary on sound principles, and in Clause 17 it is provided that, in the case either of a society or of a company, a proper valuation is to be made upon stated principles. The Commissioner will have the power to reject the valuation if it does not appear to have been made upon sound principles, and to require a new valuation to be made, subject always to an appeal to the High Court; and a condition has been imposed that, if the valuation discloses a deficiency, steps may be taken to bring the company or society to an end. At present some of the valuations are worse than worthless. The fact is that there is no power, either on the part of the Registrar or of the Court, to take any action unless the shareholders or policy-holders have initiated proceedings by petition. It has been said that this provision will work very harshly in the ease of some societies or companies which are perfectly sound, but have not been in the habit of having this strict valuation. In order to give time for these concerns to put their house in order, the Commissioner will have power to postpone this requirement for five years, if he is satisfied that substantial measures are being taken to improve the financial condition of the society or company. The ample powers of inspection which are giver to the Commissioner by Clause 16 will enable him the more effectually to exercise the control which is intended to become operative under Clause 17. The second step, or rather the second half of the method, by which it is intended to reduce the lavish extravagance of expenditure upon commissions and expenses, is by requiring much more sub- stantial benefits to be given to the policyholders. The proper benefits which are adequate to the premiums that they pay will, it is hoped, be secured to them by means of these proposals.

Mr. A. M. SAMUEL

May I ask the hon. and learned Gentleman a Question before he passes from Clause 17? He speaks of a valuation. Does he mean a valuation of the liabilities or a valuation of the assets; and, if a valuation of the assets, since they are often unquotable assets, may I ask how that is to be arrived at?

The SOLICITOR-GENERAL

My hon. Friend must not cross-examine me too closely as to the financial details of the valuation, because I am not going to profess a knowledge which I do not really possess. He asks me whether the valuation is a valuation of the assets or of the liabilities. I think he will remember that I used the expression "deficiency," and, obviously, in order to arrive at a deficiency both the assets and the liabilities must be valued. The other matters are more or less technical matters, which I am not competent to discuss, but if there is any question upon the actual provisions of the Bill I will try to explain it. I think hon. Members will probably agree with me that it is very necessary to secure that companies and societies shall not benefit by the issue of what are generally known as illegal policies. This is dealt, with in Clause 5 of the Bill, and it is made an offence to issue illegal policies. If, in future, a company does issue an illegal policy—that is to say, a policy to a person who has not an insurable interest in the life assured—the company will be required, not only to pay a fine under Clause 38 of the Bill, but also to return the premiums to the person who carried out the policy. It has been too much the, practice for agents to induce persons who may not have an insurable interest to take out policies, and then, when the time comes for the payment of the benefit for which the assurance purported to be effected, to repudiate the policy on the ground that it is illegal. If we can strengthen this Clause in any way, though think it is as strong as it can be made, we shall be glad to do so. What the Government desire is to make that class of policy impossible and unremunerative to the companies. The exploitation of poor persons by issuing illegal policies is by no means the whole of the story. I have already referred to lapsed policies, but hon. Members may not be aware of the extent of these lapsed policies, and I, therefore, take leave to read two or three sentences from paragraph 18 of Lord Parmoor's Report. In the case of one society, it was found that, during the 10 years from 1909 to 1918, there were, in round figures 9,300,000 policies issued, while of these 6,400,000 lapsed.

Mr. T. JOHNSTON

That was a company.

The SOLICITOR-GENERAL

That was a company. In 10 of the offices (including most of the largest) nearly 5,000,000 policies lapsed in 1913, and of these nearly 4,000,000 were effected as recently as 1912 or 1913. The Report says: Taking all the offices together, it is probable that lapses of policies in the year of issue or the year following reach an annual total of 5,000,000‥‥So long as heavy procuration fees are allowed, it will always pay the agents to devote themselves to the ceaseless pursuit of new business among this class of the community, regardless of the value of the policies to the assured or of the probability that they will be kept up. It is, perhaps, unnecessary for me to read these passages in order to assure hon. Members of the need for reform. It will now be provided, if this Bill becomes law, that what one or two companies give as a matter of grace shall become the right of the policy-holder, and that where a policy lapses by misfortune, poverty, or even neglect, the person assured shall be entitled to receive a fully-paid policy representing the actuarial value of his premiums, or, possibly, a cash surrender value, and although, again, time is given to the companies and societies to rearrange their finance so as to allow these increased benefits to be given, after five years these benefits will be compulsory. It is just conceivable that some hon. Members will think that five years is too long. [HON. MEMBERS: "Hear, hear!"] I appear rightly to have anticipated their views. The Government have not for a moment desired to extend the time within which the societies concerned should deprive policy-holders of the benefits to which they are entitled; but, while the anxiety of the Government has been to make the period as short as possible consistently with the ultimate benefit of the great body of policy-holders, if the companies or societies were required suddenly to do something which was really beyond their means, it would result, ultimately, in greater loss to the great body of persons concerned. I hope that by the combined operation of the provisions for securing increased benefits to the policy-holders, and for the most rigid and careful valuation of the assets and liabilities of the companies and societies, they will be compelled to give value for the money that they receive to the ultimate benefit of the class of persons insured with them.

The rest of the Bill I can deal with much more shortly. Perhaps hon. Members will allow me briefly to refer to the Clauses in which the particular proposals are contained. Clauses 20 and 21 contain provisions which will insure the fullest possible information being given to policy holders. The policy holders will be entitled to certain information, and will be insured as far as possible against defective information as to the rights they are entitled to enjoy and the means of securing those rights. Clauses 24 and 25, and other Clauses in the Bill, provide against any alteration of the position of the policy holders by transfers from one society to another and the substitution of other policies. I do not want to take up time by describing in detail any of these provisions, but they are intended to be as protective as possible, in requiring that these humble people, many of them not very skilled in letters, shall receive all the information it is possible to give them to put them on their guard. In Clause 26 there is a provision that the payment of benefit, when it becomes due, shall be paid in full, subject, of course, to insolvency, which would prevent the payment of claims in full. So far as possible, however, in future policy holders will get their benefits without any deductions for liability on other policies. Clause 33 forbids the employment of those who. I confess, were new to me—special canvassers. For the benefit of any hon. Member who is as unaware of their existence as I was, I would say that they appear to be persons with a glib tongue and full of alluring promises, which they will never be called upon to fulfil, because they are not part of the regular staff of the companies and societies concerned. They are independent gentlemen, who are called in by an agent who wishes to add to his book. When they have secured a great deal of good business, they disappear as swiftly as they came. If this Bill becomes law, it will be impossible for companies to employ these gentlemen to introduce business, but they will be open, no doubt, to seek employment at suitable by-elections.

That is the whole of this Bill, with two exceptions. Hon. Members will be, perhaps, surprised to find two Clauses which are a little outside its general scope. Clause 29 deals with what are called War Bond policies. This Clause, it is hoped, will be effective in securing the interests of persons who intended, during the War, to buy War Bonds by means of weekly or monthly premiums. It enables the Commissioner to make alterations or modifications in the conditions of these War Bond policies, so as to secure for the holders, as far as possible, all that they had hoped to obtain. During the War, when issue of National Loans were made, many persons, and particularly companies of this sort were exhorted to take up all the stock they could. Many of them made large subscriptions, and then, by making patriotic appeals to their customers, they induced certain people to take out War Bond policies to relieve the company. Many persons were under a misapprehension as to the terms of the policy they had taken out. No doubt there was substantial benefit awaiting those who took out the policies, but many were disappointed to find what the precise terms were. All this Clause does is to give power to the Commissioners to modify the conditions of these policies, and generally to review them, subject to appeal, so as to satisfy as far as possible the genuine expectations of the policy holders.

Clause 41 deals with bond investment business. This business is something like endowment policy business except that it is not secured on the life of any person. It has been found that the loan companies which carry on this class of business, and which used to be registered under the Friendly Societies Act, have, by bringing themselves under the operation of the Companies Act, and therefore under the Board of Trade, escaped the harassing attentions of the Chief Registrar of Friendly Societies. They found them- selves in a more serene atmosphere, and were able to avoid a very close inquiry into their operations. It is intended to restore them to the place where they ought to be, and to the watchful eye of the Chief Registrar of Friendly Societies. It is hoped that the Bill will have a crippling effect upon their operations. This is outside the scope of the Bill, but it seems convenient to include it in the Measure, and I hope no hon. Member will think it inconvenient that it should be so included, because it is necessary to carry it into law.

I have tried to explain the main proposals of this Bill. Certainly, although we have endeavoured to make the Measure as perfect as possible, we by no means regard it as beyond criticism. There are many hon. Members on both sides of the House who have great experience in these matters. I can only say, on behalf of those who have had charge of the Bill, that if hon. Members will be good enough to call our attention to any defects, either in form or substance, in the Bill, we shall welcome their assistance. The one desire we have is to make this enormous business one which will encourage, instead of hampering, the instinct of this nation for thrift, and will secure, without doing any detriment to the companies or the societies, the just reward of the, persons who exercise thrift.

Mr. T. JOHNSTON

I am sure there will be a general disposition in every quarter of the House to welcome legislation designed to remedy the abuses of industrial assurance to which the Solicitor-General has just referred. Certainly, I think on this side of the House, we shall not divide against the Second Reading, if we can receive assurances from the Government that some, as we think, well-founded objections to certain Clauses in the Bill will be sympathetically considered by the Solicitor-General during the Committee stage. But there are some respects in which this Bill is most unsatisfactory. Indeed, there are some respects in which we consider it highly dangerous, and despite the opinion of Lord Parmoor, quoted by the hon. and learned Gentleman, that the Bill as it stands satisfied him that all the abuses to which the Parmoor Committee drew public opinion are met by it, there are still defects in industrial assurance which the Bill does not remedy. For example, the Parmoor Report says: The case for high dividends appears to the Committee to rest upon somewhat slender foundations, and they think that in general the policyholders should receive a substantially greater part of the profits than is accorded to them at the present time. They express the hope that this indication of their opinion may be of service to the companies with whom the decision rests. What a fine pious opinion, expressed probably with their tongues in their cheeks. The Report goes on: They are further of the opinion that the method of distributing the surplus among industrial policyholders should be reconsidered. No such reconsideration, so far as I can gather, is compelled by the terms of this Bill. Under it the Prudential, the Pearl, and the Refuge and the other great companies may still continue to exact from their policy holders the extraordinary profits that they have been exacting in past-years, which would doubtless excite the admiration of all exploiters in this country. Take the Prudential Assurance Company, for example. I understand their total paid-up capital is £6,000. Their nominal capital is to-day £1,000,000. The difference between the; £6,000 and the £1,000,000 was made up by bonus shares given out of profits. Last year they paid away in profits to their shareholders no less than £625,000, equal to 62i per cent, on the £1,000,000. More than that, it was free of tax. Therefore the dividend was in reality 80 per cent. If you take their dividend not on the £1,000,000, but upon the capital actually subscribed, the dividend last year, after the revelations of the Pavmoor Committee, was 13,000 per cent.

Mr. A. M. SAMUEL

Will the hon. Member explain that? I understand the capital of the Prudential Company is in £1 shares. If, as he says, on a million £1 shares £625,000 has been paid it is not 13,000, but 62½ per cent.

Mr. JOHNSTON

It is very simple. The nominal capital is £1,000,000, but the actual sum paid in was £6,000.

Mr. SAMUEL

The capital paid up is £1,000,000.

Mr. JOHNSTON

I think I said the difference between the £6,000 and the £1,000,000 is made up by bonus shares which were given out of previous profits. Between 1909 and 1918 the shareholders actually got £5,230,000 in profits. Let us take the Pearl, another well-known industrial insurance office. It does more, of course, than industrial business, and so also do the Prudential, the Refuge and the other companies. The Pearl's usual dividend is 50 per cent. on its nominal capital. Last year certainly it was 50 per cent. tax free, but the majority of the ordinary shares have only been half called up, so that in reality now the majority of the ordinary shareholders in the Pearl Insurance Company are receiving 100 per cent. dividend per annum. [An HON. MEMBER: "Someone is prosperous! "] Someone is prosperous, but at whose expense? I am sure the House will be delighted to hear the hon. Member afterwards attempt to justify 13,000 per cent. [An HON. MEMBER: "We are finding them out."] Yes, and that is what they are angry about. The Refuge Company, another great exploiting office, in 1918 paid 27½ per cent. tax free, in 1919 20 per cent. tax free, and in 1920 23 per cent. tax free. I have not the later figures. But in addition to these dividends certain directors—and the directors and their families, I understand, hold the bulk of the shares, and it is referred to in the Parmoor Report—take £62,920 in fees and £4,000 for other remuneration. In other words, they take annually £70,000 in addition to the profit on their shares. Then there are other offices, such as the London and Manchester, which paid in 1918 50 per cent., in 1919 50 per cent., and in 1920 35 per cent. Then I come to another aspect of industrial assurance as run by the companies. I have here a copy of a paper called the "Financial Nows" for Monday, 19th March, which devoted about two-thirds of a column to describing the financial position of the City Life Assurance Company.

Mr. SAMUEL

We are dealing with that in this Bill.

Mr. JOHNSTON

I cannot hear what the hon. Member says, and I do not think it would matter if I did. The "Financial News" says that the actuarial valuation as at 31st December, 1921—not 1922, remember—discloses the alarming fact that on the industrial branch alone, that is, the branch dealing with working-class policies for small sums, there is a deficiency of £544,687. The "Financial News" goes on to say: The disclosures in the ordinary branch, where there is a deficiency, bad as they are, pale into insignificance beside those in the industrial branch, and, unfortunately, so far as the latter are concerned the interests of poor people are at stake. It goes on to state that of weekly subscribers for pure endowment policies at the date of the valuation there were as many as 35,636 holders, the net liability in respect of the latter being £499,120. That is a year ago. The position is worse since then. Nothing in this Bill, as I understand it, prevents this company from going on for at least another five years before the Industrial Assurance Commissioner to be appointed under the Bill can step in and safeguard the position of the poor policy holders. That is how I read the Bill. One hon. Member, speaking a few nights ago, described the position of workmen's compensation assurance companies, showing that, with an income of £8,250,000, less than.£3,000,000 went in compensation, legal and medical expenses, £2,750,000 went in expenses of the companies and commissions, and two and a third millions every year went in profits to the shareholders.

Our chief objection to this Bill is that it does not really face the remedy. There is only one remedy, and that one remedy is public owner-ship of industrial assurance. Use your existing organisation outside to function for you, and own and control the business, and let all the profits which are earned go back wholly to the policy holders and not to the exploiting shareholders.

Mr. OWEN PARKER

Will the hon. Member tell us how many exploiting shareholders there are of the working class?

Mr. JOHNSTON

I would advise the hon. Member to spend a few pence in purchasing the Parmoor Committee's Report.

Mr. PARKER

I have already done that.

Mr. JOHNSTON

Then the hon. Member has not understood it. Having quoted the "Financial News" in regard to the City Life Assurance Company, I want to put a point to the Solicitor-General, and I hope he will be able to meet us in Committee. In this Bill he is giving the City Life Assurance Company directors and shareholders the right of appeal to the Law Courts before he winds them up. They have the right to go to the Law Courts before their business is taken from them. They have the right to give their side of the case, and the Industrial Assurance Commissioner has not the right to close their doors until he has Proved his case in open Court. When we come to the case of the friendly societies, what happens? Let them be ever so sound financially, let them have under their present valuation 35s. to the £, and they can have their doors closed by the mere fiat of the Industrial Assurance Commissioner, without their having any appeal to the Law Courts. It is expressly stated in this Bill that the friendly societies are not to have an appeal to the Law Courts. A more extraordinary provision I have never seen in any Bill before Parliament than this, that exploiting shareholders are to have the right of appeal to the Law Courts, but friendly societies, operated not for profit, but for the mutual advantages of their members, are to have no right of appeal to the Law Courts, and to have their doors closed when the Industrial Commissioner so decides.

I would direct the attention of the House to Clause 44, which says that the Industrial Assurance Commissioner may direct in what mariner the assets of the friendly societies are to be divided or appropriated. He can dissolve them: he can shut their doors, and he can hand over their business to the Prudential, the Refuge, the Pearl or any other company, without protest, without right of appeal on behalf of the friendly societies. That is an un-British provision. I do not think it is right that any one man should have any of these powers. What will it mean immediately if these powers are exercised? I have here the actuary's report upon a little friendly assurance society in my own Division, the Stirling-shire Friendly Assurance Society. This Society has been in existence for 62 years. The Chief Registrar of Friendly Societies regards it as a sound institution in every way. Its assets stand at 30s. in the £ after all these years, but it is possible, its assets being small, only £6,618, that it cannot raise the £20,000. It goes automatically out of existence. Who gets the business? The Prudential, the Pearl, or the Refuge. Under these circumstances, when these sort of things can go on, I declare that this Bill is a, company Measure.

The SOLICITOR-GENERAL

This is a point of some importance, and I should not like it to go out as the hon. Member puts it. Practically the same appeal is given to a society as to a company.

Mr. JOHNSTON

indicated dissent.

The SOLICITOR-GENERAL

The hon. Member shakes his head. He will allow me to state that fact. Essentially the same right of appeal is given. I agree that the provision is not so clear to the layman's eyes as it ought to be, and I have no doubt that the provision can be made clear in the Bill, so that it is perfectly obvious to everybody that a society has the right of appeal.

Mr. JOHNSTON

May I direct the hon. and learned Gentleman's attention to Clause 16 (2), where it says: and in particular may in the case of a society award that the society be dissolved and its affairs wound up, and in the case of a company may present a petition to the Court for the winding-up of the company. Is not that a justification for everything I have said? Does the hon. and learned Gentleman dispute it?

The SOLICITOR-GENERAL

I do not want to argue the point again. I have stated what I conceive to be the position. If the hon. Member will refer to Clause 44 of the Bill, he will find there the interpretations. I cannot undertake to discuss the legal effect of every sentence in the Bill. I can only say, as the hon. Member asks me if I dispute it, that I do dispute it.

Mr. JOHNSTON

I can only take the English language. In Clause 16 there is a definite statement that the Industrial Assurance Commissioner may dissolve a friendly society, but in the case of a company he may only appeal to the Law Courts for a winding-up order. I have read out the words, and the House can judge for itself what the meaning is of those words. I quite agree that, in regard to a valuation dispute, the right hon. Gentleman specifically gives both friendly societies and companies an equal right of appeal to the Law Courts, but it is only on a question of valuation. On the other questions he does not give that right of appeal. [An HON. MEMBER: "Yes, he does!"] I say he does not. Here is another Clause—Clause 17 (3): If in the case of a collecting society or industrial assurance, company a valuation, whether made before or after the passing of this Act, discloses a deficiency, the Commissioner may, if after investigation he is satisfied that the society or company should cease to carry on industrial assurance business, award that the society be dissolved and its affairs wound up, or, in the case of a company, present a petition to the Court for the winding-up of the company. Hon. Members may know more about the law than I do, but it seems to me that that is perfectly plain English, and it is put in there for a specific purpose. If, however, the hon. and learned Gentleman will give us an assurance, as I understand he has given us an assurance, that in the Committee stage he will alter the language of the Bill to make it certain that the friendly societies get a right of appeal, then, if there is a necessity for altering the language of the Bill, he admits inferentially that the claim I have been making for the last five or 10 minutes is correct.

There is another point on which I hope the hon. and learned Gentleman will be willing to meet us. It is this question of the £20,000 down. Twenty thousand to the Prudential, to the Pearl, or to the Refuge is nothing. It means nothing to them, but £20,000 down, in regard to some of these reputable and old-established offices—the balance sheets of half a dozen of which I have here—means putting them out of business. There is the Druids, for example; there is the Shepherds: there is the Odd-fellows, and so on. They are all reputable offices.

10.0 P.M.

I quite agree with the purpose which the hon. and learned Gentleman has in view. He wants to stop bogus offices from arising. He wants to impose a penalty which will prevent an office in one room from operating round the houses of the working class and swindling them on industrial assurance, and quite rightly so; but I suggest that, if he could find a form of words whereby he would make the deposit pro rata to the assets, the penalty would still be as effective on the small offices. Take the office I have mentioned, with £6,000 of assets. Make the deposit something substantial, but do not ask them for £20,000, which you know they cannot meet, which you know will drive them out of business, and which you know will drag them into the lap of the big offices, whose finances are, perhaps, not so sound as those of the small offices you are destroying.

There is another Clause on which I trust the hon. and learned Gentleman will be prepared to meet us. Again, it is a matter probably merely of drafting. It is the Clause dealing with the special canvassers—a parasitic type of rogue. Clause 33 says: A collecting society or industrial assurance company shall not, nor shall any person employed by such a society or company, employ any person not being a person in the regular employment of the society or company. I submit that that phrase "regular employment," as it stands, means that spare-time employés would be barred. I submit that the right hon. Gentleman might find words which would prevent the immediate displacing of hundreds of thousands of men, mostly in small country villages, who are adding a little to their livelihood by week-end collections of premiums on behalf of an office.

If the hon. and learned Gentleman will give us to-night an assurance that, when the Bill is going through Committee, he will endeavour to amend it, really in the way of strengthening it, and not so that the rogue shall escape, but so that the honest offices, the people who have nothing to hide, the people against whom his own officers have no complaint to make, shall riot be penalised or destroyed, then I am certain that we, on these benches, will be able to give this Bill a Second Reading and whole-hearted support. But we cannot sit silent on these benches and see the co-operative societies of insurance—because that is what the mutual societies are in essence; many of them are badly conducted, some of them are foolishly conducted, but in essence they are the co-operative societies of insurance—we are not going to see them penalised and destroyed, and the great companies walk away with even a greater monopoly than what they have to-day.

Sir KINGSLEY WOOD

The House has listened with interest to the speech which the hon. Member opposite has just made. I venture to think that the real argument behind his speech was illustrated when he said that the real remedy for this state of affairs lies in public ownership. H e could not have chosen a more unfortunate illustration or suggestion, because many Members of this House will be aware that there is already a State industrial insurance scheme in existence, and it has been in existence since 1864. It is a good example of what the State can do, and if one compares it with what the industrial insurance institutions have done it gives a very striking example of a good many of those lessons which were pointed out in the Debate the other night. I asked the Postmaster-General to-day what was the extent of the business of the Post Office Life Insurance scheme which has been in existence since the year 1864, which has the State guarantee behind it, and the full force of the Post Offices of the country. This was the reply I received: The number of contracts in force on the 31st December, 1922, was 11,392. The amount of premiums received and the number of contracts effected during the year ended the 31st December, 1922, was £18,000 and 241, respectively. That is the result of years of working of a State socialist insurance scheme. I venture to say that those are ludicrous results, and that a careful examination of the Post Office life insurance scheme reveals some very interesting facts. In the first place, they show a constant decrease in the business itself. They show a constant depreciation in the value of the fund, and, what is more remarkable still, an increase in the expenses ratio. I was very interested to hear the Solicitor-General talk about the necessity of the valuation of these insurance institutions and the necessity of these valuations being made publicly known. It is a very surprising thing that in connection with the Post Office scheme no valuation of the funds is ever publicly made. When the Life Insurance Companies Act was passed some few years ago at the instance of the Government of the day, every insurance institution had to make public its valuation except the Post Office Life Insurance scheme. That is an extraordinry example of what is likely to happen when the State goes in for insurance business.

I was hoping in connection with a scheme of this kind that we should see at any rate an absence of unnecessary Regulations and questions. I have in my hand now the Proposal Form which, after some little, effort, one can obtain from all past offices in the country. It contains no less than 34 questions which must be answered before anyone can insure in the Post Office scheme, and it may interest the hon. Gentleman opposite the Leader of the Opposition (Mr. Ramsay MacDonald) to know that one of the questions everyone who desires to insure in the State scheme has to answer is number 13, a rather significant number, which asks: Have you been vaccinated? Question number 12, which the State puts to intending insurers, asks this question, which is also of interest, perhaps, to all Members of the House: What average amount of fermented or spirituous liquors do you take daily? I am very interested when an hon. Member opposite says that this is the sort of thing which is of much more benefit to the country than the insurance institutions that we are now discussing and to sec what the State does with reference to lapses of policies. It actually provides in this State scheme that if premiums are not paid within 15 days, the policy will lapse. Again, a very strong point has been made against the insurance institutions as to whether they give proper surrender of their policies. Again, I find in the State scheme that unless you have insured for two years you get no surrender at all, and if you have paid premiums over two years, the surrenders you get are such sums as the National Debt Commissioners may determine. When one turns to what the State scheme has done with reference to investments, I notice that the average rate of interest which they are paying to policy holders in the Post Office is 2½ per cent.

When you compare the result of all that effort, when you think that you have the whole of the post offices of the country at the disposal of the scheme, all the postmasters and postmistresses, and yet end up with a trifling number of policies; and when you compare that with the result of the insurance institutions of the country I do say, at any rate, there is something to be said for them. I must say the speech of my hon. and learned Friend the Solicitor-General rather reminded me a little of a prosecuting counsel at the Old Bailey. After all, there is some good to be said for industrial insurance. I suppose it has come to the rescue, so far as funerals are concerned, of many millions of people in this country, and when I hear of criticisms by hon. Friends opposite about the big dividends that are paid, I can only add this very significant fact to the statements he has made, and it is a very extraordinary one, that the companies which pay the biggest dividend in connection with this business are the most stable companies and the most popular companies so far as policyholders in the companies are concerned I think that, so far from belittling the efforts of people who are successful in this particular connection, there is a good deal to be said from the point of view of the tax collectors in this country in favour of people who can make, at any rate, a very fair sum out of their business.

I only want to add this further word in favour of the Bill. I believe this Bill will add greatly to the stability of these institutions, and I hope the Solicitor-General will be able to confirm me in this, that most of the large offices already comply with the majority of the proposals that are contained in this Measure. So far as the statutory deposit of £20,000 which it is suggested should be made is concerned, that is a very excellent provision, but the hon. Gentleman opposite immediately places this House in a difficulty. He points to the failure, and the very regrettable failure, of an insurance company which has just taken place. One of the means of preventing these failures is to have a deposit of £20,000 made before the company commences business, but directly you begin to yield to suggestions that this society or that company should not make the deposit you are immediately in a difficulty, and I venture to think that so far as the smaller offices are concerned —because I desire to see them continue in existence and, if possible, prosper— the best suggestion would be to give power to the Chief Registrar of Friendly Societies, who, by the way, is a most excellent and able official of the Government, to give them time to get this deposit together. If possible, let them contribute so much every year towards it, but he ought to be satisfied that if that permission is given to them there is some reasonable prospect of the deposit being forthcoming.

The only other observation I want to make in connection with this Measure is in relation to the expenses Clause. It is quite true, as Lord Parmoor has said, that this Bill completely carries out the recommendations of his Committee. It is undoubtedly a matter of comment that the expenses of these institutions are in many respects very high, though it is only fair to say of the Prudential Assurance Company, as it has been adversely commented on to-night, that it is one of the companies with the lowest expense ratio. There is a large number of the smaller companies in which hon. Members of this House are interested which show a very heavy expense ratio indeed. This Clause is a very fair way of dealing with the matter. It attacks it at the right end. It is a very bad principle for this House to lay down that a certain insurance business or any other business should not be able to earn more than a particular rate of dividend. That would have a very bad effect indeed. I do think that the provision in this Bill which takes the matter by the right method is a very valuable one indeed.

The necessity for the passing of this Bill is, in my judgment, urgent. There is a large number of institutions with regard to which the provisions of the Bill ought immediately to be put into operation. If they are it will have a very beneficial effect on the policy holders. So far as the large companies are concerned, the majority have already these provisions in force. I do ask the House and hon. Gentlemen opposite to expedite the passage of this Bill, and in Committee we can consider the suggestion which can and no doubt ought to be made. I believe that this Bill deserves a Second Reading with a view to examining it carefully in Committee.

Mr. EMLYN-JONES

The Bill now engaging the attention of the House is so voluminous and complex that I am afraid general agreement upon its provisions may cause us to lose sight of the effect of some of the clauses. This is not the occasion on which to submit the Bill to anything in the nature of very close criticism. My prime object in rising is to call attention to two Clauses which, I think, will inflict a very grave injustice on a large number of people in this country and in this respect produce an effect which was surely never intended when this Bill was first promoted. I refer first to Clause 7, which purports to put the collecting societies on exactly the same basis as the industrial assurance companies. It makes provision for them to provide immediately, or within five years at the discretion of the Commissioner, a sum of £20,000 by way of a deposit. Obviously it is no use having a provision in your statutes permitting these collect- ing societies to be formed, if we are going to pass subsequent legislation of this sort which will in effect prevent these societies from coming into existence in the future. I think that this Bill is probably unique inasmuch as it attempts to rope in all existing societies. In the past all legislation of this sort has exempted the existing societies. For instance, under the Companies Assurance Act, 1909, Section 31, which related to fire insurance companies, provided: Such of the provisions of this Act as relate to deposits to be made under this Act shall not apply with respect the fire insurance business carried on by the company if the company has commenced to carry on that business within the United Kingdom before the passing of this Act. The same provision applied to accident insurance companies, bond investment companies and employers' liability insurance companies. As a matter of fact, when the Life Assurance Act of 1870 was passed, all the existing companies were exempt. We might to-night ask ourselves what would have been the effect if in 1870 the Life Assurance Act of that year had attempted to rope in all the existing societies. At that time the combined funds, of the Pearl, Refuge, Britannic, and the British Legal and London and Manchester companies did not amount to the sum necessary to put up the deposit. If the Act of 1870 therefore had made the provision which this Bill seeks to make, those companies would have been stifled out of existence on the coming into operation of that Act. This Bill attempts to put the collecting societies on the same basis as the industrial assurance companies. But there is really no analogy. The avowed object is undeniably that of giving security, and whereas it may be some security, though I do not think it will be very much, for the policy holder to know that a sum of £20,000 of someone else's money, some shareholders' money, is ear-marked for the purpose of providing some security, it certainly can be no security for the policy holder in an ordinary collecting friendly society to know that the money which he helps to provide is locked up with the Government instead of being invested by the trustees of that society.

The collecting societies differ again from the insurance societies inasmuch as they are mutual; they cannot possibly have any capital with which to start. In 1909, 40 years after the passing of the Act of 1870, the Prudential Company had to deposit £20,000, but I am sure that there is no one in this House who will suggest that the sum of £20,000 so deposited by the Prudential Company afforded any real security to the policy holders. If it is to be a security, surely the amount deposited should have some relation to the magnitude of the company's liabilities. This Bill, by stifling out of existence collecting societies, will inflict a very grievous blow on thrift and helf-help which attributes we want to encourage. There are some 35 collecting societies in existence in this country. The hon. Member for Sterling (Mr. T. Johnston) gave an instance of one in his locality. There are many others which, although they are perfectly sound in themselves and are doing a great work, would be wiped out of existence by this Bill, and the only result of the Bill would be that those people who try to provide for themselves by joining these societies will be forced into the hands of the big industrial companies, which are certainly doing very well now and need no encouragement from this House or from anyone else. As an indication of the likely effect I will read an advertisement which appeared quite recently in an insurance journal. It stated: There is every likelihood of a number of small collecting societies being forced out of existence by the drastic provisions of the new Bill, especially in the question of finding the £20,000 deposit and also complying with the strict valuation conditions. That is indicative of the eagle eye of the big insurance companies, which are evidently hoping that these friendly societies will no longer be allowed to exist, so that they may rope in the 150,000 men who have endeavoured for many years past to make provision for themselves through the operation of the friendly societies. There are some people who believe that the bigger the society the greater the benefit that they will derive from it. I am not a monopolist. All these companies were small at one stage of their career. We ought to endeavour to promote the fruitful principle of self-help, instead of trying to stifle it, out of existence. We are all anxious, as far as we possibly can, to avoid fraud, but I am not so sure that the provision of a deposit of £20,000 is going to have that effect. As a matter of fact, when the Act of 1870 was passed, the existing companies were then exempted, but of those life assurance companies which came into existence after the passing of the Act and had to make a deposit, we find notwithstanding the provision as to the deposit many of these companies inflicted serious loss upon their policy holders, such as the National Standard, the Popular Life, the British Natural Premium, the New Era and the Universal. All of these companies, with the exception of the Universal, came under the provisions of the 1870 Act and deposited £20,000 by way of security, but the provision of that sum of money did not prevent these companies from inflicting grievous loss upon the policy holders who were interested in them.

We are told this is an agreed Bill. It is only agreed to by the very large insurance companies. So far as I know, the friendly collecting societies have not been consulted and certainly these Clauses seem to have been agreed upon for the extermination of those collecting societies. I ask the House to take that point seriously into consideration. The Lord Chancellor, in another place on 20th February, acknowledged this injustice, and as a result, I believe, paragraph (c) (1) of Clause 7 was inserted in the Bill, under which the Registrar may postpone the demanding of the £20,000 security for five years. This is too much power to put into the hands of one individual, and I wish to know if the Registrar is to be the sole judge, and if there is to be no appeal from his decision. Let us assume for a moment that a friendly collecting society is in a position to put up the £20,000. I believe there are a few in existence who may be able to comply with this provision of the Bill. They may have assets of some £25,000 or £30,000, but the putting up of the £20,000 security is not going to help the policyholders because it is merely going to tie up that amount of money. If the society has a large number of policyholders engaged in hazardous occupations, and by some misfortune sustains serious loss as the result of an explosion or a great accident in the works where a number of policyholders are employed, is it going to benefit the policyholders to find that £20,000, which might in other circumstances be utilised to meet the liabilities of the society, is locked up almost indefinitely with the State? No case has been made out for the extinction of the friendly collecting societies, and if the Government cannot see these way to waive these provisions so far as friendly societies which may be formed in the future are concerned, I submit that in accordance with all precedent those now engaged in the business, and who have been carrying on their good work satisfactorily, should be exempt from the operations of Clause 7 of the Bill.

There is one other matter to which I direct the attention of the House. Clause 23 deals with lapsed policies. I tried to follow the reasoning of the Solicitor-General but I can see no justification why the coming into operation of the provision which legalises giving the surrender value of a policy or giving a free policy should be deferred for five years. In this respect the friendly collecting societies which the Bill seeks to exterminate, have given a very good lesson to the big insurance companies, because in all their rules they make provision for the surrender value or for a free policy. It seems to me Sub-section (5) of Clause 23 should be left out and that from the coming into operation of the Bill, all those who are unfortunate enough to be unable to continue the payment of their premiums should have attached to their policy a surrender value with immediate effect, instead of having to wait for a period of five years before it becomes a legal enactment. I submit these few matters to the consideration of the House in the hope that something may be done, in the Committee stage, to remove one or two of the obvious injustices to which I have endeavoured to call attention.

Mr. A. M. SAMUEL

I desire to help this Bill through, because I think that it will go some way to protect poor, weak, defenceless people from being robbed. There is one thing needed about a Bill of this character, and that is that it should not be too drastic, for this reason. Thrift societies, industrial assurance societies, have done a great deal of good in this country. They have helped people to save who would not otherwise have saved, and they have helped great bodies of money to be got together which have been of much use to the country in time of war, because they have been used for the purposes of defence, but they have had another effect, of which we must not lose sight. Large volumes of money have been directed into assurance cisterns from which companies and collecting societies have been able to lend funds to municipalities on the security of the rates, which have helped—and I have had some experience of that sort of work myself—the municipalities at cheap rates of interest to drain, light, pave and improve the dwellings of the working people in various localities. For those reasons, I say that a Bill of this kind must not be too drastic, for fear of frightening people from investing their money in small and, for a time insolvent, and although it may seem a paradox to say it, even fraudulent collecting societies.

The Bill will not hurt the great companies and societies—they have nothing to fear—and it will give those which are not quite solvent five years in which to put their house in order. I would even enlarge that space of time, for the purpose of giving those societies which are not quite solvent every opportunity, every occasion, to put their house in order, because I think it would be a great disaster if the working people had their faith shaken in industrial assurance of arty solvent kind. I listened to the hon. Member for West Stirling (Mr. Johnston) when he was talking about the illdeeds of various societies, but we on this side do not pay much attention to the lines on which he was proceeding. We have heard him before, with regard to the Sudan Plantations, when he tried to make our flesh creep some months ago. When he made use of the argument of the Prudential Insurance Company paying 1,300 per cent. I joined issue. I took occasion to look that up before I came to the House, and I find their capital is £1,000,000, fully paid up, and they paid £625,000 dividend and bonus last year. There is no getting away from the fact that that is 621 per Pent., and not. 1,300 per cent. If the hon. Member for West Stirling can do a multiplication sum, he can prove for himself that what I say is true, and that his assertion is utterly baseless. Although I am not insured myself in the Prudential Company, I would like to state, having looked into their accounts, that if I were to insure my life again I should probably go to that company, because I find that it is one of the best managed and one of the cheapest companies to go to. Indeed, I should be quite content that the in- heritance of my children should come out of the Prudential Company. Although they pay very large dividends, at least four-fifths of all the profits made by the company are divided as bonus between the policy-holders and the staff, and one-fifth goes to the shareholders in the form of bonus. In consequence the bigger the profits made by such a company, whether the Prudential Company or the X Y Z Company, the better it is for the policyholders and the better it is for the staff. That is the answer to the hon. Member for West Stirling.

Mr. BROAD

May I ask whether that refers to the industrial branch, or the ordinary branch

Mr. SAMUEL

It refers to the total amount of money distributed by the Prudential directors in the form of benefits to the shareholders. They distributed last year £625,000, of which £400,000 or £500,000 was a fixed dividend. The bonus added for the benefit of the shareholders was in the proportion of one-fifth to the shareholders and four-fifths to the policy holders and staff. The consequence was that policy holders and staff got four times more bonus than the shareholders. What do you deduce from that, Why four-fifths of the profits go as bonus to people—assured or staff—other than the shareholders? I was very glad that the hon. Member for West Woolwich (Sir Kingsley Wood) took up the point about the remedy proposed by the hon. Member for West Stirling, namely, public ownership. I wish my hon. Friend the Member for West Woolwich had gone much further, and said then, as he could well have said, that one reason why the public do not go to the Post Office and take out assurances and annuities is that the benefits offered by the Government are too dear. The great companies can give the public better advantage for less money. That is the answer to that. I would like to direct, attention to one or two Clauses of this Bill. I shall support the Bill. It is a good Bill. I think it may do good, and might do better. With regard to Clause 7, I think it ought to be amended, and I would like to draw the attention of the Solicitor-General to this point. How can he justify asking a small and honest collecting company, which is perfectly' solvent, which has assets balancing liabilities of somewhere about £6,000 or £7,000, to put down £20,000 as a deposit? It is an unreasonable request. So long as you have in existence a solvent company, even it be small, why drive it out of existence? There is no justification for that. Therefore, I would make this suggestion, that in the case of an existing solvent company, the deposit should be not more than either the assets or the liabilities. That is to say, where the company has £6,000 or £7,000 of liabilities, and £6,000 or £7,000 of assets, let that company be asked, if it be in existence, to deposit no more than £6,000 or £7,000 interest-bearing securities, the interest on which, of course, will accrue for the benefit of the company. I say nothing about future companies, but, so far as the past is concerned, I think it would be unwise, and, what is more, very unfair to drive those little and solvent people out.

As to Clause 14, relating to balance sheets and audit, the hon. Member for West Stirling made some play about the City Life Assurance Company. I do not think this Bill will stop scandals of that kind. No Act of Parliament will prevent some thief from picking my pocket of my watch when I walk outside this House. You cannot stop fraud by Act of Parliament. If you have a fraudulent director or fraudulent manager, and he is bent on robbing those who have entrusted their money to him, you will not be able to stop him doing that by Act of Parliament. I am all with the hon. Member that such a scandal ought not to occur again, and if this Bill will stop it recurring so much the better. But I do agree with the hon. Member with regard to the amount of fees paid to the company of which I have not caught the name, If the Board of Directors of a company, however wealthy the company is, however prosperous, and however honest, takes £62,500 in the form of fees, I say that that sum should be disclosed in the balance sheet. It will then give those interested in the company, whether policyholders or shareholders, an opportunity of protesting.

Before this Debate came on, my hon. Friend the Member for Ilford (Mr. Wise) and myself handed in an Amendment to Clause 14. I have not the words in my mind at the moment, but it goes a long way to meet the point raised and is an innovation in the conduct of business undertakings, but we have thought fit to put in this further protection for working people. The balance sheet should, under Clause 14, show how much is paid in the way of direction and management remuneration, fees, and commissions for carrying on the company. In future in such a state of affairs as that disclosed by the hon. Member opposite, where £62,500 is involved, there would be an opportunity of those interested, either as policy holders or shareholders, putting their foot down and helping to stop such extravagant payments. I hope hon. Members on the Labour benches will help us in seeing that these disbursements are made disclosable under Clause 14.

Clause 17 contains a technical point to which I should like to call attention. I interrupted the Solicitor-General when he was making his speech. What is going to be the effect of the following words: (f) The Commissioner, if satisfied on any valuation that any of the foregoing provisions of this section have not been complied with, or that the industrial assurance fund as stated in the valuation balance sheet is greater than the value of the assets available for the liabilities of that fund,… I refer especially to the last few words. The provision is all very well so far as the valuation of liability is concerned. You value the liabilities of the assurance and collecting societies under the mortality tables, and by means of the usual knowledge possessed by assurance companies. But how are you going to value assets? Take, for instance, the assets which may come under such headings as local loans, war loans, and other classes which are quoted every day on the market; those you can get accurate account about, so far as their value is concerned, but suppose, in addition to these assets, we have reversions of life interests, say, dependent upon certain contingencies, which I cannot explain as it would take too long, but which are not governed by these tables? Or an investment of the sort which I have in mind, may turn out to be very valuable, say, land for development, a patent, a holding in a mine or factory. How are you going to value these assets? I agree with my right hon. Friend the Member for the City of London (Sir F. Banbury) that these are speculative and undesirable assets. There is nothing to prevent companies or societies holding such as assets. How are you to value them? I think this Clause will be entirely valueless unless the Solicitor-General provides that the valuation of unquoted assets is going to be carried out more exactly than this Clause provides. I intend to give this Bill what little help I can. I agree with it in principle. Those for whom the Labour Members have made a special appeal it may go a long way to protect; that is to say, the weak, the innocent and the poor. That is what we want to do. But there are certain Clauses whose weakness I have pointed out to the House—Clauses 7, 14 and 17—which need Amendment, that I trust they will get in Committee.

Mr. A. V. ALEXANDER

In the first place, we are grateful to the Solicitor-General for the very clear explanation he has given of the Bill, especially in view of his temporary physical disability. I want to refer to a few of the remarks of the hon. Gentleman who has just resumed his seat. He referred to the fact that the larger were the companies engaged in industrial insurance, and the bigger their financial operations, the more likely they were to be of real stability, and, therefore, of benefit to the community. He went on to say that they had been of very great assistance to the country in a time of stress, and that they were also of continuous assistance in financing municipalities and various public bodies. I think the point made by the hon. Member for West Stirling-shire (Mr. Johnston), with regard to public ownership, is very important in that connection. The hon. Member for West Stirlingshire feels, as I am sure a large number of Members on this side feel, that it is a very great mistake, which ought to be remedied, for one large corporation to be able to accumulate funds from the weekly subscriptions of the working classes of this country, and then, by the possession of large actuarial funds of that kind, to be in a position practically to dictate financial policy to the Government or the municipalities.

Mr. SAMUEL

Does the hon. Member think that I had that in mind? I had not. What I meant was that assurance concerns having obtained this money from the poor, they can offer to lend it to such municipalities or the Government at rates which it may or may not please the borrowers to pay. They are not bound to borrow the money; but at a proper rate of interest they can and do use it to improve the housing conditions or the drainage of many municipalities in the country.

Mr. ALEXANDER

I am not disputing that there may have been a benefit in many cases, but it may be a menace for private corporations, out of subscriptions obtained from large masses of the working classes, to build up a financial position which would enable them to dictate financial policy. [HON. MEMBERS: "No, no!"] I want to put this point to hon. Members, who have a wider knowledge of finance than I have. There are again and again occasions when the Government and municipalities cannot proceed unless they get immediate and cheap loans, and, being practically in the hands of a small group of financiers, they have to go, sometimes almost cap in hand, to the large insurance companies for finance. There is another point to which I want to refer. I am very glad to note that the hon. Member for Farnham is going to press forward an amendment that there shall be shown in the balance-sheets of industrial insurance concerns the fees paid to directors.

Mr. SAMUEL

We have put an Amendment down.

Mr. ALEXANDER

I am very glad to hear it, and I am sure that hon. Members on this side will support it. The hon. Member, as he gets a wider knowledge of the Members who sit on these benches, will find that the one thing we say to our people is, "You are entitled to know the facts." There was one matter upon which he touched which is of some importance. He said that in order that the shareholders might know where their money is going—

Mr. SAMUEL

And the policy-holders as well.

Mr. ALEXANDER

Yes, he said that, but in the particular instance which has moved the hon. Member to some indignation, that of the Refuge Insurance Company, we were told by the hon. Member for West Stirlingshire that there were only seven directors participating in this payment of £62,000, and that they and their families were holding the major block of shares in the company as well. That can also be confirmed from Lord Parmoor's Report. The people, therefore, who ought to be protected in a company like that are not the shareholders, but the policy-holders. With regard to the point which the hon. Member made as to valuation, I think that we owe a debt of gratitude to the two very experienced and able civil servants who sat on Lord Parmoor's Committee, and for the drafting of the particular Clause in the Bill concerning valuation. I believe that that Clause is stronger, or, at any rate, of more utility, than the one which was included in Lord Onslow's Measure introduced last year, and I am persuaded, from my knowledge of the working of the Department which will have charge of the carrying out of this Clause, that the hon. Member need have no fear that there will not be a sufficient, check upon the companies and societies with regard to their mode of valuation of assets as well as of liabilities.

I wanted to say a word with regard to the speech of the hon. Member for West Woolwich (Sir K. Wood). He made a rather extraordinary attack upon the Post Office system of industrial insurance. I hold no brief for the Post Office system of industrial insurance but I think it is only fair to suggest to the House that it was not, at any rate, a Government which was generally favourable to collective ownership or public ownership of essential things for the life of the people, which was responsible for the drafting of the regulations for the setting up of the Department or its efficient running. It is quite clear from the Report of the Lord Parmoor Committee, that they, at any rate, did not consider the possibility of the working of Post Office insurance, They recommended that there should be a careful inquiry and overhaul of the whole system of Post Office insurance, to make it of greater utility to the community generally. The hon. Gentleman's criticism that, he had great difficulty in obtaining a proposal form from the Post Office is, as many of us know only too well, quite justified. We want a Post Office system of insurance, or any system of insurance which is collectively and publicly owned for the benefit of the people, using all the up-to-date methods, and all the able organisation of existing companies which the hon. Gentleman so ably represents.

Sir K. WOOD

Do not the co-operative societies desire profits?

Mr. ALEXANDER

I will take up that challenge. Co-operative societies are not run for the division of profit at any rate per cent. upon the shares held by shareholders. They are run on a, collective basis for the benefit of all their members —the usual basis. In that respect, therefore, they are collective ownership. The hon. Member for West Stirlingshire (Mr. Johnston) said quite clearly—and that was why, I think, the hon. Member's reference to the Post Office was unjustifiable—that he wanted public ownership, public control, and to use all the existing organisations for that purpose. The real point comes in there, if the hon. Member will think about it. He is right up against paying 62½ per cent, on the capital, which he argues, is fully paid up.

Mr. A. M. SAMUEL

Notwithstanding the 62½ per cent. that they paid, the Prudential can give the public a better service for less money than the Post Office or the co-operative society can give.

Mr. ALEXANDER

That is because, in the meantime, they have built up such an enormous business that they are able to introduce what might well be produced under public ownership—the block system. That is a very great saving indeed. When the hon. Member says that not only are the expenses less and the benefits to the policy-holders greater, some of us will immediately join issue with him. Certainly the benefits paid on policies by some of these large companies are no better, and sometimes not as good, as the benefits paid by smaller collecting societies, which are worked on a mutual basis. The one thing we are up against, and must be up against, as what amounts to an exploitation of the industrial workers of this country, who are only able to afford a, few pence per week in order to meet some of the greatest crises in the industrial world. When the bad time comes to these people and they are on the rocks, all the money goes to swell the profits—not altogether of the policyholders and the shareowners in working-class life. The profits even reach 62½ per cent. a year, in a very small shareholding in a large company.

Those hon. Friends of mine here who believe in the co-operative or public ownership system. [HON. MEMBERS: " Which? "] Either. Those who are true co-operators are leading up to a co-operative commonwealth, and we are not ashamed of the fact. We have as a practical measure laid down this cardinal principle, which all those who are dealing in businesses which affect the life, health, wealth of the people might do well to copy. It is that limitation of interest upon share capital is made, and in all the share capital used in co-operative work and business such as this the limitation is 5 per cent., and when we read of companies which have been operating for years in industrial assurance with what was originally only a small cash capital and pay almost unlimited interest upon share capital today, we might well point out with some force the suggestion made in the Parmoor Committee Report, that they might reconsider the question of a division of their surplus.

In that connection may I offer a criticism of the Bill with regard to the division of surpluses. In Lord Onslow's Measure there was a Sub-section dealing with the limitation of expenses. That has been taken out of the Bill, and some of us are sorry it has gone. Others do not agree. It laid it down that after expenses had been limited you could use a certain part of the rest of the surplus for expenses, but at least half should be given to the policy holders. We think it a very great pity that in the amended Bill there is not some definite provisions with regard to the division of the surplus as between the shareholders and the policy holders. We believe the Bill has many faults. We hope to deal with some of them in Committee. We are glad to have the assurance of the Solicitor-General that we shall be able to make some of these points in Committee and that he will give them careful consideration. But we submit that the Bill is long overdue. The Parmoor Committee Report was issued more than three years ago. It is only now that we are considering in this House, though a Bill was introduced in another place last year, a really practical means for putting into operation the recommendations of the Committee. [Interruption.] All the more hard to understand why, after three years' notice practically had been given by Lord Parmoor's Committee of the need for societies to put their houses in order with regard to payment of surrender values, of free paid-up policies, it should require another five years to put their house in order. That is particularly to be noted, because the areas most affected are the very areas in which there has been a tremendous amount of unemployment and if there is going to be a still further staving off of the time when policies shall have some cash or surrender value, or alternatively the actuarial value of free paid-up policies, there must be considerable hardship to those workers who have insured during the last three or four years and who must now allow their policies to lapse because of the strain of unemployment. But whilst we have these criticisms to offer—we agree largely with the criticisms of the hon. Member for West Stirling—we are glad that there is a very great step forward in this Bill towards controlling industrial insurance and we hope to do what we can to amend it in Committee.

11.0 P.M.

Mr. CAUTLEY

As the only surviving Member of the last House who was a Member of the Committee, I should like to say one or two words about what the Committee did. In the first place, we took steps to make ourselves acquainted with the views of every magistrate in the country, and every county court judge, and we also heard every witness who was willing to give evidence before us. One or two made it their business to hunt up cases of fraud. It is due to everybody engaged in this very large business to say that, apart from gross cases of fraud in the initiation of collecting societies, there was remarkably little evidence before the Committee of any system of fraud or anything of that sort in the dealings between the agents and the policyholders, or between the companies and societies and the policyholders. We did, however, find that under the existing law there was nothing to prevent two, three or four people joining together, forming a society under the Collecting Society Act, and starting the business of collecting these moneys by weekly sums of 1d., 2d. or 3d. As the House knows, the claims do not fall due until long after the collection, and the men at the head of affairs voted themselves large salaries and ultimately when the claims began to come in all the money had been taken out by the people directing the society, and the poor policy holders were left to whistle for their money. That was one of the first abuses that has to be corrected, and one way of doing that is to make a large sum necessary as a deposit for the security of the people concerned. It has come to me as a surprise to hear that this is going to hit the small collecting societies. It is now three years since we sat on the Committee, but my recollection is that the collecting societies include only those societies which collect premiums beyond a distance of 10 miles from the office. If anything can be done to meet the case of the collecting societies which have been mentioned in the Debate, I should like to see it.

With regard to the suggestions of fraud, they have been very few. One of the elements, I remember, that lead to the suggestion of fraud in cases that came before the bench and the County Court Judge was where the proposal forms had been filled up by the agent instead of the person who was being insured. We have suggested steps to remove that, and in this Bill there is a provision that the agent shall not fill the form himself. The real trouble of all this business is that it costs an enormous amount, to collect these weekly contributions. When it is recollected that out of every 1s. contributed by the assured 5¼d. goes in expenses, the House will easily see that it is a very costly system of insurance. The same thing happens in retail trades. If you buy your goods in ½d. or 1d. packets, whether they are biscuits or anything else, you pay infinitely more than you do if you buy in large quantities. More particularly is this the case if you have the goods wrapped in paper and delivered at your own houses. The essence and foundation of this business is the canvassing of the working people of this country who are mainly concerned in industrial assurance, and as a rule it is the worker's family who are insured rather than the worker himself. He will not take the slightest trouble for himself, and the same remark applies to the woman of the house. and they will only insure when the insurance agent induces them to take out a policy and to pay these weekly contributions, He will not walk across to the Post Office where similar policies are issued at half the cost.

The main cause of the cost lies in the fees and commissions paid to the agents for running round to the various houses each week and collecting these pennies and twopences. If that is the popular want, there is no reason why that popular want should not be supplied. What we on the Committee felt was that all we could do was to take such steps as we could to see that the business was honestly transacted, and to ensure as largo a proportion going to the assured as possible. A. limitation of profits is no good whatever to my mind, because we found that, neither in the amounts offered, nor in the particular contributions, was there any advantage between the collecting society and the company. On the contrary, they all ran very much on the same lines.

When we are told that a company pays large dividends to its shareholders, one may just as well say that the large collecting societies pay their money away in expenses, instead of to shareholders in the way of profits. They give no more to the policy-holder than do the companies. We were told that when a collecting society got into the hands of the agents, and were managed by the agents, the result was a great deal more waste and extravagance in its management than there was in a company's management. What were we to do? The Committee came to this conclusion—that if we could ensure the safety of the insurance funds, if we could take care that the first charge on all the money collected was the insurance funds, and that a stringent valuation should be made, there would be very much less money left out of contributions either to be wasted amongst the agents, where the agents managed the company, or in going in dividends to the shareholders, where the companies were carrying on the business. The House will find, on looking through this Bill, that it does carry out that principle above all others—that we ensure the safety of the contributions to that extent, that the policy-holders are made as secure as it possible to make them, under the care of this estimable gentleman the Commissioner.

That is all I have to say, except one thing. I have no interest in either com- pany or collecting society of any sort or kind, but I think it ought to be brought to the attention of the House that the Prudential Company have particularly set the lead in reducing these expenses. They have started this new system, which is called the block system, of preventing the overlapping of agencies in a great measure, and they are doing everything they legitimately can to lessen the expense, and lessen this 5½d. It is not correct to say that they have not given bonuses. Their bonuses have increased and been given during the last two years, and are increasing. In answer to a question put by one hon. Member who very much hit the mark in suggesting that these bonuses have not been given to those insured in the industrial assurance branch, I would say the the Prudential have renewed the practice discontinued during the War, and have extended these bonuses to the industrial branch, and to this extent are carrying out the Committee's suggestion. I am satisfied that this Bill, in the words of Lord Parmoor, does carry out all the recommendations contained in our Report, and we do think it a practical, workmanlike, business proposition. I understand it has been accepted by the companies and collecting societies, not because they particularly liked it, but as an attempt to ensure this business being carried out more economically and more safely, and that the Bill is on the whole an approved Bill.

The SOLICITOR-GENERAL

May I ask the House to give me the Second Reading of this Bill? It has been the subject of a long and informative debate, the many points raised will receive my consideration, and I will undertake that either Amendments will be put down to deal with the more substantial suggestions or that Members' proposals will receive full consideration with a view to securing and strengthening legitimate business and preventing illegitimate business. I should be grateful to hon. Members if they would give me the Second Reading.

Mr. T. THOMSON

[HON. MEMBERS: "Divide! "] There is just one question I should like to ask. We shall not all be on the Committee upstairs, and the point refers to War Bond policies which have lapsed. The right hon. Gentleman men- tioned Clause 29 which refers to War Bond policies existing at, the passing of this Bill. The question to which I wish to direct attention is the existence of a large number of War Bond policies which have already lapsed, and I would like to know what provision the Government intend to make for these policy holders who in the excitement of the War, from patriotic motives, and when the tanks went round, invested a large part of their savings in what were described—I have a circular here—as National War Bonds but which they find to be an ordinary industrial policy which is not worth the paper on which it is written. There are, I understand, large numbers of people who invested their money in that way—[HON. MEMBERS: "Divide! "] I am astonished that Members of the Labour party are anxious to shut down—[HON. MEMBERS: "Ask your question!"] I am anxious to know, seeing that there is no provision in the Bill, what the Government proposes to do for these policy holders of the War Bond policies that have lapsed. I am not talking of something I do not know. I have seen the policies and books themselves described as National War Bonds, premiums have been paid—and in one case £14, and in another £20—notice of cancellation has been sent to the insured person, and the whole of the money spent wiped out. There is no possibility, so far as I can tell from the Bill as it now stands, of their getting any redress whatever. In answer to a question the other day, the Board of Trade said that last year alone in one company there were 31,000 policies of this kind that lapsed. 31,000 is not a small number, and that refers to one company alone. How many more there are it is impossible to say. Where you have the savings of the workers and the poorest of the poor at stake, I do not think it is out of place and one is not wasting the time of the House in asking what provision will be made by the Government for those whose money has been thrown away in this way.