HC Deb 16 February 1972 vol 831 cc419-28
The Prime Minister (Mr. Edward Heath)

With permission, Mr. Speaker, I wish to make a statement, and I ask the indulgence of the House for its length, which is justified by its importance.

My right hon. Friend the Home Secretary has formally presented to Parliament the report of the tribunal which was set up in April of last year to inquire into a number of issues in relation to the circumstances leading up to the cessation of trading by the Vehicle and General Insurance Company Limited. Copies of the report are now available at the Vote Office.

The issues were:—

Whether and if so by whom the contents of certain documents or other information in the possession of the Department of Trade and Industry relating to the affairs of the company or any of its subsidiaries were improperly disclosed or obtained between 4th and 18th November, 1970, and whether, should this be shown to be the case, any use was made of such information for the purpose of private advantage.

Whether there was negligence or misconduct by persons in the service of the Crown directly or indirectly responsible for the discharge, in relation to those companies, of functions under the Insurance Companies Acts, 1958–67.

Whether there is any evidence that the interests of policy holders or shareholders of those companies were adversely affected as a result of any impropriety, negligence or misconduct found to have occurred.

Thus, in addition to dealing with the leak of information, the tribunal had to inquire into administrative processes of a complex character extending over a number of years. Indeed, it went back as far as 1961, the year when Vehicle and General began to trade as a public company; and it traversed in detail the annual examination of the group's accounts and all other relevant matters throughout that period.

The Department freely disclosed all the relevant papers covering those 10 years, and witnesses were searchingly examined in public hearings lasting a total of 56 days.

The Government are grateful to Mr. Justice James and his two colleagues, Mr. Kerr and Mr. Templeman, for the time and care that they devoted to this arduous task. They had to sift a great mass of written and oral evidence on a highly technical subject, and they have produced a very thorough report.

The principal findings of the tribunal are as follows. First, there was misconduct by the photoprinter, Mrs. Norgan, who disclosed information contained in a minute and a brief, copies of which she had improperly removed from the Department. The tribunal notes that she has been discharged. It has found that neither she nor any other person made use of this information for private financial advantage.

Second, no other servant of the Crown was directly or indirectly involved in or responsible for this conduct on the part of Mrs. Norgan.

Third, as regards functions under the Insurance Companies Acts, 1958–67, there was no misconduct by persons in the service of the Crown.

Fourth, the Board of Trade did not exercise its powers under the Insurance Companies Act, 1958, because whenever it inspected the accounts of the company it reasonably came to the conclusion that there was no doubt about the company's present or past solvency. The Department cannot, therefore, be criticised for not taking action before 27th July, 1967, when the Companies Act, 1967, came into effect.

Fifth, the situation was changed significantly when the stronger powers under the 1967 Act became available. The tribunal takes the view that at all times after the Companies Act, 1967, came into force there existed grounds for action by the Department. It finds that action should have been taken, but was not taken until 24th February, 1971.

The tribunal then describes the construction that it thinks it appropriate to place on the word "negligence" when it is applied to persons in the service of the Crown discharging statutory functions on a discretionary basis. It concludes that negligence in this context means a departure from the required standard of competence judged in relation to the different tasks and grades of different individuals.

It says that in the present case there is very great difficulty in fixing the standard of competence, and it refers to the problems involved in the exercise of a discretionary power designed to prevent insolvency but liable in itself to bring insolvency in its train". In the light of its definition its sixth main finding is that there was negligence on the part of the under-secretary who was in charge of the Insurance and Companies Division from 1964 until the end of last year when he left the post after reaching the normal retiring age.

Two other senior members of the staff of the division are criticised in certain respects but are not found negligent. No criticism is made of any of the more junior members of the staff: indeed they are commended.

The tribunal adds that each and every civil servant who gave evidence before us must be acquitted of any charge of carelessness or idleness". Seventh, the tribunal considered whether there was any negligence by anyone more senior, including Ministers. It observes that no such allegation was made during the inquiry, and it finds that there was no negligence at these levels.

Eighth, the tribunal finds that the company did not suffer any loss, and shareholders and policyholders were not prejudiced, as a result of the leak, or of any action or failure to take action on the part of the Department or of any servant of the Crown. The tribunal attributes the collapse of the company to the failure of its management to exercise prudence and care in the conduct of its affairs until it was too late.

Finally, the tribunal is satisfied that the Department was at no time subjected to political pressure or persuasion in relation to its supervisory functions under the Insurance Companies Acts whether in relation to Vehicle and General or otherwise.

These are the tribunal's findings. At the end of its report it refers, in addition, to three general problems which seem to it to affect the supervision of motor insurance companies as a whole. The first relates to the need to strengthen the Department's power to get a truer picture of a company's financial state than is sometimes available from its audited accounts. The tribunal suggests that the Department should be empowered to require the accounts of an insurance company to be audited by specialist accountants nominated by the Department. My right hon. Friend the Secretary of State for Trade and Industry will be consulting the professional institutions concerned about this suggestion.

The tribunal then raises a number of questions about the future relationship between the Department and the British Insurance Association. My right hon. Friend recently held a meeting with the association. A wide range of issues was discussed, including some of those now mentioned by the tribunal. The association, while declining to become involved in the supervision of individual companies, offered the maximum help on policy problems and on technical issues of a general nature. A programme of further meetings at official level has been arranged. My right hon. Friend is also arranging for similar consultations with other interested bodies.

Finally, the tribunal raises certain points about the staffing of the Department. These are now being examined. Already during 1971 the staff concerned with insurance matters has been increased by a total of 20, including six posts at senior levels, and a new internal training programme has been established.

I also wish to report to the House that a thorough review of security measures in the Insurance and Companies Division has been carried out. The review covered access to the building in which the division is housed, the transmission and circulation of documents and the use of photocopying machines. My right hon. Friend has implemented all the recommendations made. The House will appreciate that it would not be in the public interest to describe these improved security measures in detail.

I do not propose to add any further comments on the report today. It is long and necessarily intricate and requires time for study. In particular, the officials concerned and their staff associations need to have an adequate opportunity to consider it, and to make observations to my right hon. Friend the Secretary of State for Trade and Industry. When this has been done, should any further statement be necessary, it will, of course, be made to the House.

Mr. Harold Wilson

I should like to thank the right hon. Gentleman for his statement and for going into great detail in a summary of the report and of details of departmental action taken on staff and security measures. I think the fact that he himself has intervened in this matter shows the great degree of importance which he attaches to it. It is unusual, if not unprecedented, for a Prime Minister to report to the House on a tribunal. We welcome the close attention he is paying to this matter.

I feel that when the House has had a chance to study the report and to study the statement by the right hon. Gentleman, hon. Members in all parts of the House will feel that my hon. Friend the Member for Birmingham, Northfield (Mr. Carter) was right in his persistence about this issue. It is not easy for a back bencher to press such a matter on the Government. That the tribunal was necessary, as was urged by my hon. Friend, is manifestly underlined by the fact that the Government felt it right to appoint the tribunal and by the report given by the right hon. Gentleman.

The House will, I think, want to study the report in detail. It is clear that it involves a very great degree of detail surveyed by the tribunal, not only specific allegations about a security leak, about failure to report to the Permanent Secretaries and Ministers higher up, but the whole basis on which our insurance legislation is conducted and operated. I think that precedent under the 1921 Act tribunal cases is that there is a debate in Government time, and when the House has made its study of the report hon. Members may want a debate. I would suggest that there should be discussions through the usual channels to decide the form of that debate and its timing.

The Prime Minister

I thank the right hon. Gentleman for his remarks. My right hon. Friend the Leader of the House is perfectly prepared to discuss through the usual channels a suitable occasion if the House wishes the matter to be debated.

Mr. Carter

Does the Prime Minister not accept that the statement he has just made is a complete rejection of any question of Ministerial responsibility? In advance of any debate on this subject, will he confirm that the question of Ministerial responsibility is still open, and that after the debate the question of compensation by the Government for all those who suffered as a result of the collapse of Vehicle and General will be looked at closely and quickly?

The Prime Minister

The hon. Gentleman will find that this particular question is dealt with in detail in paragraph 350 of the report. What I have tried to do is to give the House, because I thought it important, and because of the interest shown in this matter by the House, the conclusions to which the tribunal has come. It has taken the view that there was a level of responsibility on each of those concerned with the operation of the Acts, and it indicated its conclusions as to where the responsibilities lay. On the question of responsibility for the failure of the company, at the end of paragraph 350 the tribunal says that the Department cannot be held liable for losses attributable to the deficiencies of the company.

Mr. Jay

Did I understand the Prime Minister to say that no action could reasonably have been taken until new powers were obtained under the Companies Act, 1967?

The Prime Minister

Yes, that is the conclusion of the tribunal that under the Act of 1958 and up to 1967 it was reasonable that the Department should not intervene, but after 1967, with the new powers, then there was justification for intervention.

Mr. Darling

One can understand that the tribunal was probably a right court of inquiry in regard to the leak, but as the inquiry has commented on the operations of the Department itself, would the right hon. Gentleman look very carefully into the question whether this kind of tribunal is suitable in these conditions'? We have a situation in which anyone following the Press reports of the tribunal would have come to the conclusion that two officials who, I gather, are criticised in the report are put into the dock as though they were on a criminal charge and are cross-examined by lawyers as though in a police court, and, so far as I can see, they were given no reasonable chance of putting forward a defence. In these circumstances, and in view of the fact, which any member of the Standing Committee on the Bill in 1967 will know, that we pressed for an increase in the staff of the Department, an increase which was not then achieved, would the Prime Minister not agree that it is terribly unfair to pick out two officials of the Department and criticise them publicly in this manner?

The Prime Minister

When the recommendation was made to the House to set up the tribunal we took careful account of the fact that there were these two main issues involved, and at the time we came to the conclusion that it was not possible to separate the issues. The House accepted the recommendation of the Government and appointed the tribunal with these terms of reference. I well recognise that tribunals under the 1921 Act have been criticised over a considerable period. That is why the Salmon Commission was set up in 1966. That Commission reported giving guide lines on how tribunals should operate. The tribunal has operated entirely under the guide lines set by the Salmon Commission. It was because of the criticisms which the right hon. Gentleman has mentioned that I said specifically at the end of my statement that there should be adequate opportunity for the officials concerned and their staff associations to consider the report and to make representations to my right hon. Friend the Secretary of State for Trade and Industry.

Mr. Joel Barnett

I welcome the report, and particularly the recognition by the tribunal that just looking at a balance sheet is hardly adequate protection for motorists. Will the Prime Minister bear in mind that many motorists, and others, imagine that because an insurance company is a member of the British Insurance Association, that in itself is a satisfactory guarantee? It clearly is not. Are the Government looking into this aspect to ensure that motorists and others are safeguarded in future?

The Prime Minister

This point was taken by the tribunal and that is why it made the recommendation that there should be discussions about the relationship between the Department of Trade and Industry and the British Insurance Association. I stated that there have already been discussions on these matters, but the B.I.A. has declined any responsibility for the supervision of companies. I also said that further discussions are now going on between the B.I.A. and officials of the D.T.I.

Mr. Pardoe

Does not the Prime Minister agree that, although the tribunal has made it clear that there was no direct Ministerial responsibility, nevertheless 30 years ago a report of this sort would undoubtedly have led to the resignation of the Minister? Is this the burial of the doctrine of Ministerial responsibility? I make no personal attack on anyone, and I am not criticising anyone, but if it is the end of the doctrine of Ministerial responsibility, does it not underline the need for greater control over the Executive both by Parliament and the courts? Will the Prime Minister say what was the cost of the tribunal to the taxpayer?

The Prime Minister

I do not accept what the hon. Gentleman says about the doctrine of Ministerial responsibility, but I accept that this has always been a controversial and debatable matter. The tribunal points out that if there were Ministerial responsibility it could have existed from July, 1967, onwards in respect of all Ministers who were involved. The tribunal also came to the conclusion that there was not Ministerial negligence in this sense of "responsibility".

After very long and thorough examination of all the details of this case the tribunal has tried to evaluate where responsibility lies for dealing with matters of this kind in the Government service and then fairly to apportion its criticism. As I have said, it is important that those officials who are mentioned, and their staff associations, should have every opportunity now to make representations. I will let the hon. Gentleman know about the cost of the tribunal.

Mr. Benn

I am grateful to the Prime Minister for confirming that, although the Government have implemented the practical recommendations of the tribunal, they have not yet accepted the findings of the tribunal and will not do so until these further representations can be made. Will the Prime Minister say whether the share dealings of 18th November which led to the collapse of the company were investigated, and whether there is a clear finding on that? In view of the findings, is the Director of Public Prosecutions to have any further matters referred to him?

Will the Prime Minister explain how, when there is a finding of negligence, however defined by the tribunal, the tribunal is able to say that no liability falls upon the Government, since some policy holders took out policies between the leak and the collapse of the company who certainly would not have done so in other circumstances? In view of the importance of preserving commercial confidence in the Government service, I urge as early a debate as practicable on the report.

The Prime Minister

My right hon. Friend the Leader of the House will take account of the points mentioned by the right hon. Gentleman. I agree with him about the importance of confidence in these matters in the Government service. I thought it right to make a full statement today to show what we have already done to protect that confidence.

The tribunal came to the clear finding, after full investigation, that neither Mrs. Norgan nor any other person made use of the information for private financial advantage. The other part of the right hon. Gentleman's question is dealt with in paragraph 350 of the report, where the tribunal says: The real cause of the loss was the mismanagement of the Company's affairs and the weaknesses of its financial structure. The exercise by the Department of its powers would have resulted in the exposure of the defects of the Company referred to in this Report … that is after 1967— …the Department cannot be held liable for the loss attributable to these defects. That is the finding of the tribunal, and it is a very clear conclusion.

Sir H. d'Avigdor-Goldsmid

Does not the Prime Minister agree that the report highlights the responsibility of the auditors to the company, who clearly have a responsibility not only to the directors and the shareholders but also to the policy holders? This surely is a matter on which legislation is necessary, so that more satisfactory information can be provided in these difficult cases?

The Prime Minister

My right hon. Friend the Secretary of State for Trade and Industry will take this point into account when he has had his discussions with the professions concerned on the best way of reporting to the Department of Trade and Industry about the affairs of insurance companies. It is fair to say from the point of view of the Government service that the report of the tribunal has also highlighted what it describes as— the exercise of a discretionary power designed to prevent insolvency but liable in itself to bring insolvency in its train. All who have been concerned with the Government service and particularly with the Board of Trade will recognise the problems which arise from this fact.