HC Deb 17 July 1973 vol 860 cc366-75

'The documents to which subsection (1) of section 4 of the Act of 1958 applies (annual accounts and balance sheets) shall include a statement showing the remuneration of each of the directors of the insurance company during the year and, where any of the remuneration has been paid outside the United Kingdom, the place or places where such remuneration has been paid'.—[Dr. Gilbert.]

Brought up, and read the First time.

Dr. Gilbert

I beg to move, That the clause be read a Second time.

Although the clause is directed ostensibly to Section 4(1) of the 1958 Act, if one looks at that Act one sees that Section 4 does not have a subsection (1). One has to look at the 1967 Act to see that the new Section 4 of the 1958 Act has a subsection (1).

Having said that and got some of the undergrowth out of the way, perhaps I should mention that at first sight the clause may appear to be something of an echo of the debate that we had last week on the Report stage of the Finance Bill, on what was then new Clause 2, which was moved by my right hon. Friend the Member for Leeds, East (Mr. Healey), but I hope to show that this clause is different from that one both in context and in purpose.

It might help to clarify things if I remind the House that on that occasion my right hon. Friend moved to add to Section 200 of the Taxes Management Act a requirement that a company's annual returns should include all expenses incurred in the United Kingdom, its colonies, Commonwealth or non-Commonwealth countries. The debate that then ensued concerned itself mainly with the technicalities of the operation of taxing overseas earnings of United Kingdom residents on a remittance basis rather than on an aggregate income basis, and it dealt also with opportunities for large-scale tax avoidance open to certain fortunate individuals.

The new Clause then moved was not directed to trying to bring all overseas income into the United Kingdom tax net. That would have been out of order at that stage. It was an information-seeking clause, and it related to returns under Section 15 of the Taxes Management Act 1970, which in turn deals with payments to directors and other employees. Section 200 of the Taxes Management Act, in turn, related to the apportionment of those expenses between the different aspects of the reporting companies' business.

However, the new clause that was being debated last week related to returns intended for the eyes of Her Majesty's inspectors of taxes only, and my right hon. Friend's new clause was similarly directed.

This new clause is, however, in that respect quite different. It requires information about the remuneration of all directors to be disclosed and where any of the remuneration has been paid outside the United Kingdom, the place or places where such remuneration has been paid. Already, under Sections 6 and 8 of the 1967 Act, remuneration to directors and employees of the generality of companies, whether or not they are transacting insurance business, is required to be disclosed by slices of remuneration and the numbers of individuals being entitled to remuneration within each income bracket of £2,500, without there being any requirement that the names of the directors who receive the individual remuneration should also be disclosed.

The new clause goes further, in two ways, than the disclosure requirements of the Companies Act 1967. First, it seeks to have disclosed to the shareholders the amount paid to each director, and the name of each director. We think that disclosure of this sort should be required for all companies. We hope that the proposals on company law reform which the Government have promised will embrace requirements of this sort. However, tonight we are concerned only with insurance companies.

The second point of difference is that our new clause requires disclosure of the place where the directors' remuneration is paid when it is outside this country. The 1967 Act, for the generality of companies, quite explicitly hides from public view even the limited amounts of information it requires to be disclosed for most directors, where the directors discharge their duties as such wholly or mainly outside the United Kingdom. That exclusion operates with regard to disclosure of employees' emoluments also under Section 8 of the 1967 Act. That is the broad situation today in regard to the generality of companies, whether or not they are engaged in the insurance business.

The climate of opinion has changed greatly since the 1958 and 1967 Acts were put on the statute book. Few people would now argue that emoluments to directors of companies operating in the United Kingdom, where those emoluments are paid abroad, should be treated more tenderly, at least concerning disclosure, than emoluments paid to directors in this country. I suspect that the reverse is probably now the case and that most people would feel that disclosure was even more important in cases where emoluments were paid abroad.

I emphasise that the new clause is not just a fall-out from the Lonrho affair. It is not directed just towards remuneration paid in, for example, the Cayman Islands in particular, or any tax haven in general. We should remember that the Bill is not concerned with the generality of companies. It was not even drafted with the generality of insurance companies in mind. It was drafted to deal with crooks—not just the irresponsible or the inept among directors, but the downright wicked, as was virtually agreed in Committee by Ministers.

If it were not the case that the Bill was drafted largely to deal with crooks, Opposition Members would never have agreed to—nor, I suspect and hope, would the Government have asked for—the unprecedented powers contained in Clause 21. Those powers startled both sides of the Committee—even the hon. Gentleman who rose to ask for them. I admit that in retrospect I am still uncertain whether we should have accepted them, but we did.

Clause 21 probably gives the Secretary of State more wide-ranging discretionary powers than he has in any other context, enabling him to require a company to take such action as appears to him to be appropriate for the purpose of protecting policy holders or potential policy holders … against the risk that the company might be unable to meet its liabilities. Clearly, a Bill that can cheerfully digest such Draconian provisions as that would not even suffer a minor hiccough at being asked to swallow a clause of the type that I am now moving.

Again, it is important to recall the emphasis that was placed, in our discussions in Committee, on the problems of non-resident controllers of companies directing insurance business in the United Kingdom, and also on the problems of non-resident companies themselves, as distinct from those companies that were resident but had non-resident controllers, even on what might be called nonresident advertisements for non-resident companies. All these matters were debated at considerable length in Committee, as hon. Members who served on the Committee will recall; and as other hon. Members who are sufficiently interested will have read the report of the Committee proceedings I shall not weary the House by reading those proceedings.

In Committee a clear concern was expressed that individuals—particularly non-resident individuals—might milk insurance companies in this respect. That is what the Bill is about. All that the clause attempts to do is to operate as an early warning system to give an inkling of what is going on to shareholders and policy holders who seek to inform themselves about the financial affairs of the company in which they have taken out a policy.

I hope that it is unnecessary to re-emphasise that the clause attaches itself solely to the Bill and not to the generality of company law, however much some of us might like to see an extension in the future. The clause, taken in the context of the situation that produced the Bill and the circumstances which the Bill seeks to prevent from recurring, is a relatively minor improvement, and I commend it to the House.

Sir G. Howe

The hon. Member for Dudley (Dr. Gilbert) reminded the House of the extent to which existing legislation requires disclosure of information about the remuneration of directors in general and pointed out that the information that must be given in relation to insurance company directors is the same as that required for the directors of other companies. It is laid down by the 1967 Act and has to be given in respect of directors falling into succeeding salary bands of £2,500.

The hon. Gentleman did not mention the additional fact that the Insurance Companies (Accounts and Forms) Regulations 1968 make specific provisions for it. Nor did he mention the additional provisions requiring information to be given for senior employees earning more than £10,000.

The House well appreciates that these rules apply in relation to insurance companies in exactly the same way as they do in relation to other companies.

I appreciate the considerable public interest that there is in the extent to which there should be disclosure of remuneration of directors in general, quite apart from directors of insurance companies.

In this Bill our primary concern in the case of an insurance company is to ensure its continuing solvency. The generality of information on directors' remuneration is made available under the ordinary rule, and it is right that excessive remuneration of directors that looked as though it could threaten solvency should be a cause for inquiry and action in relation to solvency. But any generality of that kind would emerge from the general reporting provisions, and as long as no such generality revealed itself in that way, whether money was being paid to directors in this country or outside it, no problem would arise.

8.45 p.m.

The point I think the hon. Member has in mind in the context of insurance is that the disclosure requirements about directors' remuneration under the 1967 Act relate only to remuneration paid in respect of employment within the country. The answer to that in general terms would be found in the extent to which we could require the assets of an insurance company to be held within this country through the procedure of an annual survey in relation to the adequacy of assets held here, and unsatisfactory situations in respect of that could be dealt with under Clauses 14, 15 and 16.

The remaining point of the hon. Member's argument is hat there might be value in an early warning system in relation to directors' remuneration proceeding outside this country outside the 1967 Act. That is something which can be looked at, but I should not have thought it would require an amendment to the Bill in this way at this stage. He referred to the taxation question, but I do not think he wished to go back over that territory because he had the opportunity, which was denied me, of dealing with it at length last week.

The hon. Member also referred to the extent to which we are considering the possibility of general changes in the disclosure requirements under company law. He would not expect me to advance into that territory tonight except to say that the extent of disclosure requirements is one of the matters which must be looked at as part of any examination of company law.

Mr. A. P. Costain (Folkestone and Hythe)

Am I correct in saying that a company has to show brackets in which the directors' remuneration falls, yet the clause specifies that the directors shall be named? What benefit would a policy holder or shareholder have by knowing what each individual director received? Surely what worries the policy holder and the shareholder is the total amount paid to directors.

Sir G. Howe

My hon. Friend has returned to a point that I had already touched upon. As the hon. Member for Dudley mentioned, and I acknowledge, the existing provisions require disclosure in bands by reference to groups of directors according to their salary level. The proposal in the clause would involve identification of individual directors, which would certainly represent the introduction of a new principle, and, for the reasons I have already explained, this would not produce additional information. It would not be of use in relation to the extent to which payments to directors might be threatening solvency. Before accepting a provision of this kind, dealing as it does with individual directors, we should need to think very carefully.

So, for that reason and for the reason that there is no general requirement for a change of this kind, I cannot invite the House to accept the clause. I am not now talking in the more general context of what reforms might be necessary in company law as a whole.

Dr. Gilbert

I found the Minister's reply disappointing. Admittedly he did me the courtesy of going through my speech point by point and devoting to it more attention than I thought he was giving when I made it. I congratulate him on that. Like him, I did not have an opportunity of dealing with tax matters last week, although I should have liked to do so, particularly on this point. However, he was right in saying that I was not referring to those matters.

The main purpose of the Bill is not merely to treat insurance companies as a special case but to regard them as particularly vulnerable to raids from unscrupulous individuals and to see that special precautions are taken for dealing with overseas individuals operating in this industry. I am glad that the right hon. and learned Gentleman concedes the principle of further disclosure for the generality of companies, even though he is not prepared to say how far and in which precise direction he intends to go later.

This is an ideal opportunity to deal with a generally unsatisfactory situation in an area where it is eminently necessary that there should not be an unsatisfactory situation. Policy holders and potential policy holders, to whom Clause 21 refers, should be given the maximum amount of

information about the way in which their companies are run and the types of people running them, long before there is any suggestion that there might be insolvency. They can then decide whether they want to take out a policy with a company of which any director—say, the managing director—receives the bulk of his remuneration abroad. They might then want to ask many questions about how much time that director gives, in this country, to the affairs of the company.

These are all eminently reasonable grounds for the House to accept the clause. It is not a major matter, but it would introduce a valuable little reform, and I am most disappointed with the Minister's answer. Therefore, I shall advise my right hon. and hon. Friends to divide in favour of the clause.

Question put, That the clause be read a Second time:—

The House divided: Ayes 113, Noes 133.

Divisions No. 205.] AYES [8.53 p.m.
Archer, Peter (Rowley Regis) Garrett, W. E. Moyle, Roland
Armstrong, Ernest Gilbert, Dr. John Murray, Ronald King
Barnett, Joel (Heywood and Royton) Ginsburg, David (Dewsbury) Oakes, Gordon
Beaney, Alan Gourlay, Harry O'Malley, Brian
Benn, Rt. Hn. Anthony Wedgwood Grant, George (Morpeth) Orbach, Maurice
Bennett, James(Glasgow, Bridgeton) Grimond, Rt. Hn. J. Orme, Stanley
Bishop, E. S. Hardy, Peter Oswald, Thomas
Blenkinsop, Arthur Hart, Rt. Hn. Judith Palmer, Arthur
Boardman, H. (Leigh) Hatton, F. Peart, Rt. Hn. Fred
Booth, Albert Heffer, Eric S. Pendry, Tom
Bottomley, Rt. Hn. Arthur Houghton, Rt. Hn. Douglas Probert, Arthur
Broughton, Sir Alfred Hughes, Robert (Aberdeen, N.) Radice, Giles
Carter, Ray (Birmingh'm, Northfield) Hughes, Roy (Newport) Rees, Merlyn (Leeds, S.)
Carter-Jones, Lewis (Eccles) Janner, Greville Roberts, Albert (Normanton)
Clark, David (Colne Valley) Jenkins, Rt. Hn. Roy (Stechford) Robers, Rt.Hn.Goronwy(Caernarvon)
Cohen, Stanley John, Brynmore Roderick, Caerwyn E.(Brc'n&R'dnor)
Coleman, Donald Johnson, James (K'ston-on-Hull, W.) Roper, John
Concannon, J. D. Jones, Barry (Flint, E.) Short, Mrs. Renée (W'hampton,N.E.)
Conlan, Bernard Jones, Dan (Burnley) Sillars, James
Crosland, Rt. Hn. Anthony Kaufman, Gerald Silverman, Julius
Cunningham, Dr. J. A. (Whitehaven) Kerr, Russell Skinner, Dennis
Dalyell, Tam Lamble, David Smith, Cyril (Rochdale)
Davidson Arthur Lamond, James Spearing, Nigel
Davies G. Elfed (Rhondda E.) Lawson, George Spriggs, Leslie
Davis, Terry (Bromsgrove)
de Freitas, Rt. Hn. Sir Geoffrey Lewis, Ron (Carlisle) Steel, David
Dempsey, James Lomas, Kenneth Stott, Roger (Westhoughton)
Doig, Peter Mabon, Dr. J. Dickson Strang, Gavin
Dormand, J. D. McBride, Neil Summerskill, Hn. Dr. Shirley
Duffy, A. E. P. McElhone, Frank Tope, Graham
Dunn, James A. McGuire, Michael Torney, Tom
Dunnett, Jack Marks, Kenneth Urwin, T. W.
Evans, Fred Marshall, Dr. Edmund Wainwright, Edwin
Ewing, Harry Mason, Rt. Hn. Roy Walden, Brian (B'm'ham, All Saints)
Faulds, Andrew Mendelson, John Wells, William (Walsall, N.)
Fernyhough, Rt. Hn. E. Millan, Bruce
Fitch, Alan (Wigan) Miller, Dr. M. S. TELLERS FOR THE AYES:
Fletcher, Ted (Darlington) Mitchell, R. C. (S'hampton, Itchen) Mr. John Golding and
Forrester, John Morris, Charles R. (Openshaw) Mr. Dick Douglas.
Galpern, Sir Myer Morris, Rt. Hn. John (Aberavon)
Adley, Robert Hamilton, Michael (Salisbury) Oppenheim, Mrs. Sally
Archer, Jeffrey (Louth) Hannam, John (Exeter) Osborn, John
Astor, John Harrison, Col. Sir Harwood (Eye) Owen, Idris (Stockport, N.)
Baker, Kenneth (St. Maryiebone) Haselhurst, Alan Page, Rt. Hn. Graham (Crosby)
Benyon, W. Hastings, Stephen Peel, John
Biffen, John Hill, John E. B. (Norfolk, S.) Powell, Rt. Hn. J. Enoch
Blaker, Peter Hill, James (Southampton, Test) Price, David (Eastleigh)
Body, Richard Holt, Miss Mary Prior, Rt. Hn. J. M. L.
Boscawen, Hn. Robert Hornsby-Smith, Rt.Hn.Dame Patricia Pym, Rt. Hn. Francis
Bossom, Sir Clive Howe, Hn. Sir Geoffrey (Reigate) Ramsden, Rt. Hn. James
Bowden, Andrew Howell, David (Guildford) Redmond, Robert
Bray, Ronald Howell, Ralph (Norfolk, N.) Reed, Laurance (Bolton, E.)
Brewis, John Hunt, John Roberts, Wyn (Conway)
Brown, Sir Edward (Bath) Hutchison, Michael Clark Rost, Peter
Bryan, Sir Paul Jennings, J. C. (Burton) Scott-Hopkins, James
Buchanan-Smith, Alick (Angus,N&M) Jopling, Michael Shaw, Michael (Sc'b'gh & Whitby)
Butier, Adam (Bosworth) Kaberry, Sir Donald Speed, Keith
Chapman, Sydney Kellett-Bowman, Mrs. Elaine Spence, John
Churchill, W. S. Kimball, Marcus Sproat, lain
Clegg, Walter King, Evelyn (Dorset, S.) Stainton, Keith
Cooke, Robert King, Tom (Bridgwater) Stanbrook, Ivor
Coombs, Derek Kinsey, J. R. Stewart-Smith, Geoffrey (Belper)
Cordle, John Kirk, Peter Stodart, Anthony (Edinburgh, W.)
Costain, A. P. Knox, David Stuttaford, Dr. Tom
Critchley, Julian Langford-Holt, Sir John Sutcliffe, John
Crouch, David Longden, Sir Gilbert Taylor, Edward M.(G'gow,Cathcart)
Crowder, F. P. Luce, R. N. Tebbit, Norman
d'Avigdor-Goldsmid,Maj.-Gen,Jack MacArthur, Ian Thomas, John Stradling (Monmouth)
Dean, Paul McCrindle, R. A. Thompson, Sir Richard (Croydon, S.)
Dodds-Parker, Douglas McLaren, Martin Tilney, John
Edwards, Nicholas (Pembroke) Maclean, Sir Fitzroy Turton, Rt. Hn. Sir Robin
Elliot, Capt. Walter (Carshalton) Mather, Carol Waddington, David
Eyre, Reginald Mawby, Ray Walder, David (Clitheroe)
Fell, Anthony Meyer, Sir Anthony Wells, John (Maidstone)
Fenner, Mrs. Peggy Miscampbeli, Norman White, Roger (Gravesend)
Fidler, Michael Moate, Roger Wiggin, Jerry
Fisher, Nigel (Surbiton) Molyneaux, James Winterton, Nicholas
Fowler, Norman Monks, Mrs. Connie Wolrige-Gordon, Patrick
Fox, Marcus Montgomery, Fergus Woodhouse, Hn. Christopher
Fry, Peter Morgan, Geraint (Denbigh) Woodnutt, Mark
Gower, Raymond Morgan-Giles, Rear-Adm. Younger, Hn. George
Grant, Anthony (Harrow, C.) Mudd, David
Gray, Hamish Murton, Oscar TELLERS FOR THE NOES:
Green, Alan Nabarro, Sir Gerald Mr. Tim Fortescue and
Grieve, Percy Neave, Airey Mr. Paul Hawkins.
Griffiths, Eldon (Bury St. Edmunds) Normanton, Tom

Question accordingly negatived.

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