SEPARATION OF FUNCTIONS

HC Deb 22 February 1982 vol 18 cc645-79

1. —(1) The Council shall by byelaw—
1. (a) prohibit a body corporate who is an underwriting agent from being the subsidiary of a body corporate who is a Lloyd's broker; provided that a body corporate who is an underwriting agent and a body corporate who is a Lloyd's broker may be the subsidiaries of the same holding company;
2. (b) prohibit a person from being a director of an underwriting agent or otherwise concerned in the management of an underwriting agent if he is either—
1. (i)actively engaged in the business of a Lloyd's broker, or
2. (ii)a director of a Lloyd's broker, where such underwriting agent and such Lloyd's broker are bodies corporate and are subsidiaries of the same holding company;
3. (c) prohibit any person who acts as an executive director of the holding company of both a body corporate who is a Lloyd's broker and a body corporate who is an underwriting agent from being a director of or in any way concerned in the management of such underwriting agent; provided that a person who acts as the chairman or finance director of such holding company may be a director of such underwriting agent and that a person who acts as the chairman of the underwriting agent may act as an executive director of such holding company;
4. >(d) require that an undertaking be given by each Lloyd's broker and by each director and partner of a Lloyd's broker that they, their directors, partners and employees will not seek to influence the management of an underwriting agent nor to induce an underwriting agent or any director, partner or employee of an underwriting agent to act in a way which such underwriting agent, director, partner or employee believe is not in the best interests of the underwriting members for whom he is acting:
5. (e) require that an undertaking be given by each underwriting agent and by each director and partner of an underwriting agent that they, their directors, partners and employees will not submit or permit himself to be induced to act in any way which such underwriting agent, director, partner or employee believe is not in the best interests of the underwriting members for whom he is acting; and
6. (f) prohibit any individual being a natural person from owning more than 20 per cent. of the voting rights of any underwriting agent which is controlled by or through any person who is, or also controls, a Lloyd's broker, and for the purposes of this prohibition the reference to an individual includes, in addition to that individual:—
1. (i) the spouse of that individual;
2. (ii) the minor children and step-children of that individual;
3. (iii) the trustees of any settlement in relation to which that individual is a settlor;
4. (iv) the trustees of any settlement of which that individual or that individual's spouse or minor children or step-children is or are beneficiaries;
5. (v) any body corporate which that individual or any of the persons specified in sub-paragraphs (i) to (iv) of this paragraph controls:
• Provided that in any particular case the Council may determine that this paragraph shall not apply so as to include the spouse of an individual where that spouse is or proposes to become, or works or proposes to work substantially full time for, a person who is, or who by this section is included as, a Lloyd's broker or a managing agent.
7. (2) The Council shall ensure that the provisions of subsection (1) above are complied with within such reasonable period, not exceeding five years after the passing of this Act, as they consider appropriate.
646
8. (3) If, at any time after the expiration of five years from the date when the provisions of subsection (1) above have been complied with, it becomes necessary in the national interest, the Secretary of State may, by order made by statutory instrument—
1. (a) bring into operation Schedule (Separation of Functions) of this Act;
2. (b) repeal byelaws made under this section; and
3. (c) repeal subsections (1) and (2) of this section; with effect from such date as he may determine.
9. (4) No order under this section shall have effect until approved by a resolution of each House of Parliament. '.—[Mr. Moate.]

Brought up, and read the First time.

7.2 pm

Mr. Roger Moate (Faversham)

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

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

With this it will be convenient to discuss the following amendments:

No. 6, in page 12, line 22, leave out Clauses 10 to 12.

No. 24, new schedule—Separation of Functions.

No. 18, in schedule 2, page 25, leave out lines 17 to 27.

Mr. Moate

I am not sure whether we are in For a parliamentary debate or a field day for the blood sports associations. I understand from yesterday's Sunday Expressthat my hon. Friend the Member for Gainsborough (Sir M. Kimball), who is described as the leader of the blood sports lobby in the Commons. intends to set "his pack of Tories" on me. No doubt when my hon. Friend arrives in the Chamber we shall have that field day for blood sports. Apparently his objective is to prevent me from stalling.

This is the first occasion that we have had the opportunity in the House of debating fully the problem of divestment. It is a major subject and one on which the House is entitled to spend some hours. However, am full of hope that at some stage my hon. Friend the Member for Harrow, Central (Mr. Grant), so convinced by my argument or possibly already convinced by the case, with which he is familiar, will say that the Committee of Lloyd's, the promoter of the Bill, has agreed with the proposition contained in my amendment so that the debate can be curtailed.

In any event, I do not think that the few hours available to us need disturb us unduly. The Government have been very helpful in tabling a motion to suspend the rule at 10 o'clock, which means that we have ample time at our disposal to discuss this very important subject.

I noted, as I am sure other hon. Members did, that at the installation of our new chaplain as rector of St. Margaret's the other day, he told us that in the past hon. Members had been treated to sermons lasting four hours. Circumstances have changed a little, but I do not think that a few hours' debate on the subject of divestment is unreasonable.

It has been said that the argument about divestment lasted some 13 days in Committee and that in some way the matter has been treated exhaustively and can be left there. In my view, that is to misrepresent the position. It cannot be disputed that for many days in Committee learned counsel and witnesses argued for and against the proposal before just four hon. Members. It can be said that it has been examined fairly thoroughly. However, at no time has the House expressed a view on the matter or thoroughly considered the arguments.

It is a major issue, and later I shall explain at some length, because it is of such fundamental importance, why I believe this proposal to be detrimental to Lloyd's of London, to all the interested parties and to our London insurance industry. I shall spell that out, because I believe the proposal in the Bill to be very extreme and one that I suggest the House of Commons should not include in private legislation.

I do not suggest that the divestment proposal exceeds what should properly be in private legislation. That would be to criticise the authorities of the House, and I do not intend to do that. However, when we are contemplating the forced sale of substantial assets in companies of all kinds, the House of Commons should think very carefully before taking a step which resulted in such an extreme action.

At this stage, I have to declare my interest in the matter. As the House knows, I am a director of a firm of Lloyd's brokers, a subsidiary company of Alexander Howden, one of the petitioners against this proposal. I declare my interest so that the House may be quite clear about it.

It is also fair to say generally about the declaration of interests that there are large numbers of members of Lloyd's present in this debate and that having a financial interest means in no way that people stand to gain or to lose by a proposition.

I understand that members of Lloyd's have been advised not to vote in any Division. But they can vote on procedural matters or they can decline to speak, which in some circumstances may help the Bill make progress, by an ironic twist. However, I think that there is a duty on members of Lloyd's and on brokers who have some, if only a little, knowledge of these matters to speak and to argue for the interests with which they may have some financial link.

In private legislation, which often involves special interests, it is incumbent on those who have some connection to discuss the subject. But it is not true to say that just because people oppose a proposition they stand to gain or lose financially. I emphasise that because I do not believe that the vast majority of the Bill's proponents or opponents are arguing from the standpoint of their pecuniary interests. In my view, they are arguing about the general interests of the institutions to which they belong.

Mr. Richard Needham (Chippenham)

Does my hon. Friend agree that, if an hon. Member who has such an interest talks and talks and talks, the effect is to destroy the Bill and is exactly the same as though he voted in the eventual Division?

Mr. Moate

My hon. Friend has made a significant point. Equally, if members of Lloyd's are allowed to vote on a procedural point, which they are, they too are just as effectively contributing, or not contributing, to the debate. That is simply another procedural method open to them. Under the rules of the House, which are sometimes rather odd, those with interests to declare are allowed to vote on points of procedure but not on merit, and that is odd.

I have already expressed, I suppose I should say, gratitude to the Government for allowing the suspension of the 10 o'clock rule. Therefore, in no way can I talk out the proposition. I intend, however, to put the case at some length. If my hon. Friend and his colleagues are sufficiently responsive to my hon. Friend the Member for Gainsborough, produce their 100 Members in the Lobbies and are whipped in like a pack of hounds, no doubt they will score procedurally. That is fair enough. This is what I intend to pursue, for it is the only opportunity that I and the House have to discuss a fundamentally important matter.

The House is in danger of making a great mistake. The hon. Member for Oldham, West (Mr. Meacher) chaired the Committee that examined the Bill. I suggest to my hon. Friends that the only reason that we are debating this proposition is that four hon. Members—not the House as a whole—diligently carrying out their duty in Committee, came to a different conclusion from that which the promoters originally came to and which the House of Commons came to on Second Reading. Are we now to take as gospel—the gospel according to Oldham—the amendment moved in Committee? That would be a novel proposition.

Viscount Cranborne (Dorset, South)

Would my hon. Friend care to speculate on the consequences of the opinion of one person on the hon. Member for Oldham, West (Mr. Meacher)? As I recall the eloquent speech of the hon. Member during our last debate on the Bill, he relied heavily on the evidence provided by Mr. Ian Posgate for the opinion that he formed about the desirability or otherwise of going for divestment. I am sure that my hon. Friend will correct me if I am wrong, but I am under the impression that that gentlemen has now revised his views about divestment and, instead of being in favour, he has now compromised with other people in the market at Lloyd's and would be happy with some lesser form than the one that he advocated to the Committee.

Mr. Moate

Many people have changed their position during the process of the legislation. There is nothing necessarily dishonourable about that. It is legitimate and normal, during the process of private legislation, for there to be negotiation and dealing. It is part of my complaint that the Committee of Lloyd's has not expressed a readiness to negotiate with opponents and critics. I shall elaborate on that later.

Sir John Biggs-Davison (Epping Forest)

As my hon. Friend has referred to the gospel according to Oldham, and in the temporary absence of the hon. Member for Oldham, West (Mr. Meacher) would he not recognise that in this testament there are also gospels according to Cromer and Fisher?

Mr. Moate

My hon Friend tempts me to curtail my remarks by leaping many paragraphs. I intend to deal with Cromer and Fisher and with the other members of the Committee. If my hon. Friend the Member for Epping Forest (Sir J. Biggs-Davison) will forgive my shorthand, it is partly because the hon. Member for Oldham, West unwisely—although this is rather a technical point—spelt out, as Chairman, his reasons for requiring divestment that there is a problem. There is a strong case when one is chairing a Private Bill Committee—a privilege that I have enjoyed in the past—for not spelling out reasons. If that happens, we should change the Private Bill procedure to that which obtains for public legislation so that the debate takes place in public and one can know the arguments for and against the final conclusion.

7.15 pm

I think that later the hon. Member for Oldham, West contradicted or changed those reasons in the House. He was misled in Committee and he is failing to respond—although I would like to think that he might change his views tonight—to my amendment. I believe that my amendments meet the Committee's points.

Mr. Michael Marshall (Arundel)

My hon. Friend seemed to imply that the message according to the hon. Member for Oldham, West (Mr. Meacher) was in some sense that of a lone voice. I was a member of the Committee and I challenge that rather unfair connotation. I accept the point that my hon. Friend makes about the semi-judicial nature of the sitting of the Committee. He will recognise that a compromise was reached. I would not wish to argue with the view put by the hon. Member for Oldham, West which reflects the compromise finally reached.

Mr. Moate

Again, my hon. Friend is tempting me to curtail my remarks, but he leads me to an important point, which I shall put to the House.

I remind the House that basically the divestment clauses are designed to require mandatory separation and the enforced sale of substantial underwriting interests or broking interests by the holding companies. The sale could involve—I have not seen a figure—hundreds of millions of pounds worth of assets. It is a major and extreme step that is being proposed in private legislation.

We are not dealing with something that was originally required by the promoters of the Bill, and it was not approved of in the original Wharncliffe meeting at the Albert Hall. When the House dealt with the Bill on Second Reading, mandatory sale was not required. That is an important factor. In Committee four hon. Members, including my hon. Friend the Member for Arundel (Mr. Marshall), went a stage further. All the evidence given by the Committee of Lloyd's on the first part of the Committee was basically in favour of what I am now proposing. That accords with what the promoters were asking for in the first place.

My hon. Friend the Member for Arundel said that there was unanimity in the Committee. I shall quote my hon. Friend, because I am sure that he said exactly what he meant, when he spoke on Second Reading: I joined the Committee for the stage which the hon. Gentleman is now discussing. Will he confirm that our view was that we should have liked to examine the self-regulation aspect, but that the problem at the parliamentary end prevented us from reaching a decision in favour of the petitioners? Perhaps a lesson can be drawn from that which we can examine in other circles."— [Official Report, 3 February 1982; Vol. 17, c. 383.]

The hon. Member for Oldham, West was good enough to approve. He said, "That is a fair comment." In other words, my hon. Friend was saying that we should have a right to examine the self-regulation aspect, but the problem at the parliamentary end prevented us from doing so.

If that means anything—and my hon. Friend seldom says anything that does not have a significant purpose—it means that it was felt that the halfway house, the management separation, was one of those options retained in the original legislation without the compulsory sale. We would have liked to examine self-regulation—which is something we heard often about in the Committee—but there was no guarantee, because of the substantial difficulties in parliamentary procedures if one tried to reinforce that.

The Chairman made a significant point. I emphasise that fact, because my amendments exactly meet the point. They run to five pages. I have not spelt them out at length. Essentially they place an obligation on Lloyd's to introduce byelaws to require management separation. he matter was considered carefully by the Committee, but it said that it was not enough; if the byelaws failed to work, there would be no guarantee that Parliament could or would take steps to enforce the separation. The amendments provide that within five years the management separation must be clearly laid down.

There is a trigger clause in the amendments if that fails. Simply by regulation operating in the national interest, the Secretary of State will have powers to introduce mandatory separation—to force the separation of broking and underwriting. That meets exactly the point made by my hon. Friend the Member for Arundel. If management separation failed and it was decided to bring in a new Act of Parliament, we all know the difficulties that we would encounter. We should have difficulty in finding lime for a straightforward Public Bill. Further, it would almost certainly be a hybrid Bill. The House finds it difficult to carry through such a Bill. It is a long and complex procedure. Any Government would throw up their hands in horror at the idea of bringing in hybrid legislation.

The regulation-making power is the fall-back. It is a reasonable proposition. We are putting to the House what the promoters originally wanted and what the House approved on Second Reading. But we are going a little further. We are providing a long stop. I believe that management separation will work, but if it does not, under the amendments the Secretary of State can introduce a regulation in the national interest requiring mandatory separation.

It may be said that there is no guarantee that such a course would be followed. But the power is there. Although it is most unlikely, if there was a flagrant scandal and if it was seen that management separation had not worked, the Secretary of State would have the necessary power. It would be arrogant for us to assume that in the face of a scandal the Secretary of State would not intervene.

Mr. Archie Hamilton (Epsom and Ewell)

How would it be judged whether it had worked?

Mr. Moate

Until the time of Fisher, divestment was not a sensitive issue. Although there have been one or two problems in Lloyd's with which the House is familiar, except in the case of one smallish firm, through the centuries in which Lloyd's has operated there is no evidence that there has ever been a problem, and there has always been a great overlap of interests between underwriters and brokers. But if it ever was a problem, it could be dealt with by the stronger committees. Everyone wants the Bill because it gives greater disciplinary and investigatory powers to the committee. With those powers, plus the rules provided in the amendments, we should not have the problems referred to.

If there was a problem, it would be of such magnitude that we should all know about it, as with Savonita or Sasse. There would be no problem about knowing that there was a duty on the Secretary of State to invoke the regulation-making power.

The hon. Member for Oldham, West and my hon. Friend the Member for Arundel are crucial to the matter. Without them we should not be discussing it. They changed the Bill that Lloyd's originally wanted. My criticism of Lloyd's is that it seems to pay more attention to the hon. Gentleman than to the House. I am sure that everyone treats him with great respect, but I do not regard the decisions of a Committee of four as sacred, much as I respect the Private Bill procedure.

I do not see why, because of the procedures of the House, we should be bullied—I use the word advisedly—into accepting legislation that the vast majority of people would not accept on its merits. I use the word "bullied" because of the time factor. I have had many letters on the subject, and many articles have been written. People say that we must get the legislation through; anyone who argues about divestment, immunities or the electorate is merely taking time and endangering the passage of the legislation. I do not mean that we are bullied by individual hon. Members but by the procedures of the House, so that we do not have the opportunity to debate arguments on their merits. We are told that if we hold up the legislation we shall lose the Bill, and none of us wants that.

Mr. Clinton Davis (Hackney, Central)

Is the hon. Gentleman not getting the matter out of context? First, the issue was raised in principle in the Fisher report. Secondly, it was debated in principle on Second Reading. Thirdly, throughout that time it has been subject to long debate within Lloyd's. Fourthly, it has been subject to intensive debate in the Committee.

Mr. Moate

The matter was rightly and normally debated before the Bill was put forward. Generally, we wish to see private legislation settled privately, with agreement between the parties before the matter comes to the House. That happened. After the Fisher report there was extensive discussion, and the Bill was produced. That was the first, valuable and important stage.

There was no vote on Second Reading. We did not count heads or take voices. One cannot say that that was a debate on divestment. One or two hon. Members might have expressed a view. The late Sir Graham Page made clear the Bill's purpose on divestment. It was something short of mandatory divestment. On Second Reading the House went forward in the belief that the Bill was in the form to which I am trying to return it.

The hon. Member for Hackney, Central (Mr. Davis) said that the Bill had been debated intensively or extensively in Committee. That is not what happens in Private Bill Committees. There is no debate. Learned counsel put the case, but one never hears debates between hon. Members of the Committee; they just give their view at the end.

7.30 pm

The hon. Gentleman made the point that there had been extensive debate outside. There has not been extensive debate outside. What there has been, over and over again, is the simple putting of the proposition that if we do not accept the findings of that Committee we shall lose the Bill. That is what I call bullying, or force majeure. Very few people to whom I have spoken outside actually want divestment. What they have been told loud and clear is that if they do not accept the findings of the Committee, they will endanger the passage of the Bill. I know that the hon. Gentleman believes in it. I have heard him say so. It is a fair point of view. However, I do not believe that there has been the sort of debate that the hon. Gentleman proclains there has been.

In order to meet the point made by the hon. Member for Oldham, West I return to the merits of my amendment. On the last day of the Select Committee hearing, one of the QCs who presented the case to the Committee, Mr. Mann, said: We share the anxiety of the promoters about identifying the moment in time when it is right to pull the legislative trigger. We also apprehend that the legislative form would have to be that of a public Bill promoted by the Department which would almost certainly be declared hybrid. It is our understanding that the Department are not conspicuously enthusiastic about promoting hybrid Bills. Those were almost the final remarks before the Chairman concluded.

How could we provide a legislative trigger? The House will already have grasped that in my amendment we have that legislative trigger. The hon. Member for Oldham, West said: It is because we believe there can be no certainty that the proposals will be carried through that we have rejected this route. That route was the carrying through of byelaws within a fixed period. The hon. Gentleman continued: We are fully aware that considerable consequences would follow from divestment, both for Lloyd's as a whole and for individuals and companies. Nevertheless, on balance our view is that in the public interest the original provision should form part of the Bill. He repeated the point that there could be no certainty that those proposals would be carried through and he emphasised the considerable consequences that would follow.

There will be considerable consequences and I will spell out some of them. I do not believe that the House, or many members of Lloyd's, have yet fully grasped the consequences that will follow if the enforced separation of relationships that have been built up—and that will contribute so much to the London insurance market and to that great institution as we know it today—is carried through.

The hon. Member for Oldham, West conceded that there would be grave consequences, but he could not be certain that the proposals would be fully carried through. However, the amendments that I have proposed give the opportunity to carry through those proposals with a guarantee. Why does the hon. Gentleman not say that it is a very acceptable proposition? Why has Lloyd's not done the same? Why has my hon. Friend the Member for Harrow, Central not said that this is a very sensible proposition?

Mr. Michael Meacher (Oldham, West)

I rise because it is not an acceptable proposition. The Secretary of State has always had the opportunity to introduce a Bill if he so chose to require the divestment as between underwriters and brokers. I accept that there is a hybridity point but the Secretary of State has always had that power. All that the hon. Gentleman is doing is laying on the line that there is such a power. Subsection (3) of new clause 1 says that the Secretary of State may, by order made by statutory instrument undertake what is required. There is no guarantee that he would. That was the point to which we were referred. The hon. Gentleman made no advance on that at all.

Mr. Moate

I thought that I had dealt with that specific point. Of course, there is no guarantee that a Secretary of State would invoke that, but why should he, if there is no need to do so? We are talking about an action in the national interest. I took the hon. Gentleman literally when he agreed with my hon. Friend the Member for Arundel on 3 February that it was a fair comment that we would like to examine the self-regulation aspect but that the problem at the parliamentary end prevented us from doing so.

When the hon. Gentleman said that it was a fair comment, I rather assumed that he wanted to examine self-regulation but had not the full-backed guarantee. We are not saying that a Secretary of State would inevitably introduce it; he would do so only if there were a need for it to be done. The hon. Gentleman might love legislation for its own sake, or compulsion for its own sake, but I hope that hon. Members would feel that it was necessary to invoke this measure—and it is an extreme measure—only if it were in the national interest to do so. I venture to suggest that had this amendment been put forward to the Committee, the hon. Gentleman might have found other hon. Members willing to support the proposition. I suggest that simply because of the manner in which he expressed himself when he made his concluding remarks to the Select Committee.

I think that the hon. Member for Oldham, West got it wrong—certainly judging by some of his questions in the Select Committee and by his remarks on 3 February. I should like to mention a few examples to show where he got it wrong. He made a great point in the Committee, through his questions, of the fact that the Lloyd's Committee was broker-dominated. That was part of his case for assuming that divestment would not be carried through in its fullest form, or that the Secretary of State would ever implement any further legislation. When the hon. Gentleman described the Lloyd's Committee as "broker-dominated", it betrayed a total misunderstanding of Lloyd's.

I must express something that perhaps hon. Members do not associate with me, and that is an element of humility. [HoN. MEMBERS: "Oh".] Very few people in Lloyd's would claim to be omniscient about that great community. There are very few people who know it all, and I know very little. I have been involved as a Lloyd's broker for many years, but there are Lloyd's brokers and Lloyd's brokers. I do not know an enormous amount—[HON. MEMBERS: "Oh".]—about the Lloyd's community. I know probably rather more about the insurance company market outside.

One could have many opinions about the constitution or the make-up of the Committee of Lloyd's but most people in Lloyd's would say that it is generally recognised that the Committee of Lloyd's is made up of working underwriters, not of brokers. The very fact that many of those underwriters might well be directors now of holding companies that have been described as brokers does not suddenly turn them into brokers.

That is a very important point and it is fundamental to the thinking of the Select Committee. Indeed, the hon. Member for Oldham, West said it again on 3 February: If the broking fraternity controlled 10 or 11 of the 16 votes of working members on the council"— [Official Report, 3 February 1982; Vol. 17, c. 379.] —and so on.

But the hon. Gentleman was clearly and hopelessly wrong. Let us take, for example, Mr. Peter Green, the chairman of Lloyd's, who was one of the witnesses before the Select Committee. The committee and the council went to great length to try to establish that Mr. Peter Green was a broker. Indeed, he is a director of one of the great firms of Lloyd's brokers, a holding company, but no one would suggest that Mr. Peter Green was a broker and not an underwriter,

The name of Mr. Ian Postgate has been highly significant in all these proceedings. He has just been elected to the Committee of Lloyd's. He, too, is a director of one of our great firms of insurance brokers, but it is a holding company. No one in his right mind, apart from the hon. Member for Oldham, West, would describe Mr. Postgate as a broker and not as an underwriter.

It is ridiculous to believe that the Lloyd's Committee is broker-dominated. I do not believe that anyone working in Lloyd's would say that it had a broker-dominated committee. Much time was spent on that point by the House's Committee and it got it hopelessly wrong. There were many examples of where our Committee got things wrong. It also got the fundamentals wrong.

Time and again, the Committee came back to the question of the unacceptable conflict of interests. Lloyd's has been in existence for hundreds of years. It is probably only in the past 20 years that, the great insurance supermarkets have been created, with an obvious financial and structural link between brokers and underwriters, but the overlap between broking and underwriting is not new. There has been that conflict of interest—I prefer to call it a community of interest—throughout the history of Lloyd's. The hon. Member for Oldham, West laughs, which suggests that he has not understood what this is all about.

The great names who founded Lloyd's were great underwriters and great brokers as well. The father of the modern Lloyd's, Cuthbert Heath, whose name is remembered in a great broking house and in underwriting syndicates, became a member of Lloyd's in about 1830. Even then there were great brokers and underwriters It may be said that the work 'was on a different scale then. That is true, but the principle is the same. It was acceptable then for a person to wear two hats and there has been no fundamental change. Lloyd's has always had a community of interest because members are all "Lloyd's men". They do not live in a permanent state of conflict.

Mr. Archie Hamilton

Has not the situation changed by virtue of the fact that a number of brokers have been taking over managing agencies and taking ever greater control of the syndicates, while remaining brokers?

Mr. Moate

The situation has certainly changed dramatically in the past few decades and it has changed for the good as regards the interests of the country. My hon. Friend perpetuates an over-simplification and misunderstanding of the situation. We have large insurance brokers, derogatorily called mega-brokers, and basically they are large insurance holding companies covering a vast area of insurance activities. The fact that they have taken over managing agencies does not mean that brokers are dominating those agencies.

It is technically possible that, if some of the agencies had been more profitable than the brokers, the public quotation would have been described differently and they would have been called underwriting groups rather than broking groups, but we need holding companies of that size if we are to compete in the modern world. I have not yet begun to describe the damage that the proposal could do to Lloyd's and London in the long term.

7.45 pm

There is nothing detrimental in the situation that has developed and I do not see that the point made by my hon. Friend the Member for Epsom and Ewell (Mr. Hamilton) demonstrates any significant change in philosophy. There has been a structural change, but people have been Lloyd's underwriters and brokers throughout the ages.

Theoretically, a broker could be a name and broke his family business into a Lloyd's syndicate of which he was a member. It has always been like that and there is not much evidence that anything has gone seriously wrong.

The House, in its wisdom, imposes upon Lloyd's against its will—members of Lloyd's voted for it but only with a pistol to their heads and the demand "If you do not do this, you will lose your legislation"—a piece of naive, superficial and simplistic consumerism. We have suddenly decided that there is something called a conflict of interest. I suggest that the proposal is misconceived and based on false apprehensions.

Who is likely to suffer from a conflict of interest? Let us examine who are the clients of Lloyd's. There are the consumers whom we generally try to protect—the householder or the motor client; the man in the street. It is generally understood that Lloyd's is not one of the leading insurers of personal line business, but we wish to ensure that such customers are not likely to suffer.

It is also understood that the vast bulk of private line business is not handled in the traditional manner. Binding authorities are given out to brokers to handle householders' insurance. They were examined in detail by the Committee and the hon. Member for Oldham, West ignored the question of principle on that aspect. It is not suggested that there should be any change there. The householder will continue to get his insurance through Lloyd's under a binding authority given by an underwriter to a broker. The broker may get substantial profit commission and extra commissions and there is a theoretical conflict of interest, but no one seems to worry about that. I have heard no underwriter suggest that he will stop giving binding authorities. The consumer with whom the House is often properly concerned is not at risk in that respect.

Are we talking about the great industrial companies that insure through Lloyd's? Are we suggesting that they are unaware that if they place their insurance through one of our great broking houses the brokers may be involved with some of the syndicates with which the business is placed? We are entitled to assume some responsibility, wisdom and knowledge among the industrial customers.

The bulk of the business—and I suspect that it will be an increasing proportion in future—is reinsurance. Are we seriously suggesting that we have to take the proposed extreme step to protect knowledgeable reinsurers against the possibility of a broker placing business on advantageous terms with his own syndicate? Surely we are allowed to assume some sophistication among such clients? Who are we trying to protect?

We are involved in phoney consumerism, which has elevated the proposition of a conflict of interest into a poor piece of legislation. We have had insultingly little evidence. My hon. Friend the Member for Epping Forest referred to the Fisher working party. He is a diligent Member and I suspect that he has read the Fisher report. The remarkable thing about that report was that it produced no evidence of abuse in this area. It produced a conclusion and presumably examined some material, but it did not produce any evidence to show that there were problems caused by the supposed conflict of interest.

I do not find that satisfactory. I do not believe that the House should pass extreme legislation on the basis of such a conclusion. I invite hon. Members to read the report from end to end. They will find no examples quoted. Some members of the working party said that they had seen evidence of abuse. Those were the examples quoted during the Select Committee proceedings. The general feeling was that there was potential abuse. It is even worse to suggest that we should have extreme legislation carried through on the ground of potential abuse of a principle, which I suspect is not a principle at all but is something that has persisted and has helped to build up Lloyd's to what it is today. Fisher is totally inadequate in that respect.

My hon. Friend referred to the Cromer report, which came to the same conclusion. It was never really a public document; it became available only recently. Lloyd's had plenty of time to implement as much of Cromer as it wished or needed to do, and it did so effectively. However, the Cromer report did not include a mass of evidence to show why the divestment should be forced upon the companies.

Mr. Nicholas Lyell (Hemel Hempstead)

My hon. Friend will be familiar with paragraph 12.18 of the Fisher report, which deals with actual evidence. It states: we have been told of cases where it is either known, or strongly suspected, that abuses of the kind described in 12.12–13 have occured. Then it states that much of it would not stand up in a court of law and that witnesses are reluctant to name names.

The report goes on to state: the evidence is confirmed by the experience of the Lloyd's members of the Working Party who are sure that conflict of interest involved is not only potential but actual. Can my hon. Friend say that there is no evidence, bearing in mind what is printed in the report?

Mr. Moate

My hon. and learned Friend has confirmed what I said. We have the working party's conclusion and views. We do not have evidence. My hon. and learned Friend, who is a distinguished lawyer, would not be satisfied with that evidence. Even in the passages that he quoted, one has some doubt about the full and literal meaning of the words. The report says that much of it would not stand up in a court of law and that the facts are either known or strongly suspected. Presumably, even the facts that are known are not necessarily known but are strongly suspected. That is not evidence.

I return to my belief that somehow people have been overwhelmed by the simplistic notion that a conflict of interest is so bad that it must be eradicated as a possibility. If that is my hon. and learned Friend's case, it is not a very good one. It is not enough to carry through an extreme remedy.

Whether it be for reasons of morality or commerce, there is no one who does not believe in management separation of underwriting and broking. If one operates a holding company and one makes a simple commercial judgment, a requirement is that the broking and underwriting operations should stay at arm's length.

Mr. Lyell

That seems to be the weakness of my hon. Friend's case. If management separation is necessary, it must be necessary for a purpose. That brings one back to the evidence that was confirmed by the experience of the Lloyd's members of the working party. How does my hon. Friend explain the dilemma in his argument that if it is necessary to have a separation of functions, and yet that is not based on any evidence, it is unnecessary to have what he regards as the extreme remedy because that is also not based on evidence?

Mr. Moate

I do not see it as a dilemma. First, let me deal with the Lloyd's members of the working party. I do not wish to be disparaging about anyone, but I do not believe that what I would call the great international brokers were represented on the Fisher working party. I regard those brokers as being part of the key to the success of Lloyd's. Perhaps that is putting it too high, because the system is a great partnership. Without the international brokers, one does not get the true picture of Lloyd's. There was one broker, but he would regard himself essentially as a great domestic broker rather than a great international broker.

Although it is logical common sense and desirable that there is a separation of management functions, there is an equally good case for having an association between the two, as with the holding companies that have been built up in recent years, to create organisations that can compete in the modern world. I shall turn in a moment to the challenges that face Lloyd's in London today—challenges that can be met only if one has the sophisticated organisation that has been built up in recent years. There is much common sense and morality in trying to ensure separation. There is also an overwhelmingly powerful commercial case for trying to keep together the organisations that have grown up in the past few decades.

Mr. Needham

Paragraph 12.18 of the Fisher report states that the evidence is confirmed by the …Lloyd's members of the Working Party who are sure that the conflict of interest involved is not only potential but actual. Surely my hon. Friend would agree that that cannot leave any doubt in anyone's mind.

The report goes on to state: Nevertheless it is unrealistic to assume that the strength of this deterrent to abuse will remain unimpaired. The arrival of many Underwriters with little or no previous Lloyd's experience, and of Brokers owned by non-Lloyd's interests, in the UK or overseas, dilutes the tradition and tends to increase the danger of abuse. My hon. Friend cannot be allowed to get away with the suggestion that the evidence is doubtful and not good enough to stand up in court. The members of the Fisher working party were very clear.

Mr. Moate

Fisher was right on that point, but I disagree with the Fisher conclusions. I do not call it evidence. If the Government are proposing extreme legislation, we are entitled to have more evidence than that.

On the basis of the Fisher report, the Lloyd's community came forward with a proposition to Parliament. It was not what is now in the Bill. On the basis of the report, Lloyd's felt it desirable to put forward legislation that fell short of mandatory divestment. There was some debate in the Select Committee about what Fisher recommended. Some strange nuances in his proposals were interpreted as suggesting that he did not go for mandatory divestment. However, I read every day of the report—it was hard work—and was left in some doubt about what Fisher had proposed. Nevertheless, on the basis of the report, Parliament was presented with a Bill that fell short of mandatory divestment. My hon. Friend might be arguing in support of my case as much as against it.

8 pm

Mr. Nicholas Baker (Dorset, North)

The Fisher working party received 437 written submissions and 72 people gave oral evidence. Fisher was not acting as a court of law in trying to decide whether someone was guilty or innocent of a crime. It was gathering evidence on the basis of which to make recommendations. That is different from making a judgment as a court of law. The working party was thorough and took a mass of evidence. On that basis, it came to clear and easily comprehensible conclusions.

Mr. Moate

I do not wish to fall out on points over which there is no dispute. I agree that it was a thorough report. There is an argument as to whether the working party heard from as many people as it should have done or made itself as available as it should have done. That is contained in the Select Committee proceedings. I doubt whether the real voice of the international broking organisation was heard.

We are called to act upon the basis of Fisher's conclusion. I should like more evidence. If we are proposing an extreme remedy—and we often have to take extreme remedies to deal with abuse—we usually know what the abuse is. On this occasion we have to take on trust that Fisher was given evidence of abuse. There is enough reference to potential abuse or opinion to make one doubt that. If the public had suffered abuse, we should have known about it. The Lloyd's community would have known and there would have been talk about it. I suggest that much evidence is hearsay evidence or worry about a potential conflict that does not exist.

In our daily life many conflicts of interest are acceptable. My hon. Friend the Member for Dorset, North (Mr. Baker) is a distinguished lawyer.

Mr. Needham

And a successful lawyer.

Mr. Moate

I assume that "successful" means distinguished. [HoN. MEMBERS: "Not necessarily".] The House is full of distinguished lawyers who are perhaps not as successful—

Mr. Nicholas Fairbairn (Kinross and West Perthshire)

I trust that the House will not think that if to be distinguished may also mean unsuccessful, successful does not mean undistinguished.

Mr. Moate

I am certain that all my hon. Friends are as successful as they should be.

The point that I was trying to make was that my hon. Friend the Member for Dorset, North and other lawyers are also officers of the court. On occasions they have a conflict of interest. I do not suppose that they find it difficult to honour both interests.

Mr. Nicholas Baker

On the contrary. My hon. Friend is perhaps not aware that, as a lawyer, one is prevented from acting for two parties where there is a conflict of interest. That is the point. If we apply the analogy of the legal profession to the insurance profession, we should not say that the conflict of interests is taken lightly. A lawyer is required, as an officer of the court, to adhere to certain principles. If he is required by a client to go against those principles, his duty is clear: he can no longer act for that client.

Mr. Moate

It was foolish of me even to venture into this delicate area. However, I still wonder whether I have a point. My hon. Friend the Member for Dorset, North has not demolished my argument entirely. He still has a duty to behave in a certain way to the court, and on some occasions that might not be in the best interests of his client. Perhaps I am wrong.

Mr. Fairbairn

No. My hon. Friend is right.

Mr. Moate

I am right. The Under-Secretary of State also has a conflict of interest. We live with that in our constitution. Unlike most legislatures, our Executive is in the legislature. The Under-Secretary is a Minister, a parliamentarian and a legislator. In the United States the separation of powers makes it clear that one cannot be both.

A more mundane but insurance example could involve burst pipes. I am sure that most hon. Members have experienced that in our recent bad winters. After a claim, the insurance brokers or company will appoint a firm of assessors. It will be appointed and paid for by the insurer. It is open to the claimant to appoint an independent assessor, but that is not often done and it is not essential. The assessor acts for the insurance company and uses his professional skill to negotiate a fair settlement. That is a conflict of interests, but we accept it readily because it works.

Conflicts of interest are not always bad. It depends upon context, professional standards, history and so on. The Select Committee neglected a conflict of interest which is to be allowed to persist. I refer to binding authorities. Is it not odd that the Committee was so worried about the conflict of interest between the broker and the underwriter that it did not even bother to pursue the question of binding authorities? A much greater conflict of interest exists there. The underwriter will hand over to the broker the power of the pen—the power to take on a large volume of business—and the broker will gain considerable advantage, as will the underwriter. When the client goes to the broker, the broker will have a vested interest in placing business under that cover facility rather than with another company. The system works well. I have never heard any complaints about it, nor should there be any. But there is a conflict of interest. Why did the Committee not pursue that?

A much bigger area worries me in relation to the logic, common sense and principles upon which we operate. I am worried about the Government's position. We are entitled to a full and frank explanation of the Government's position. The Government intend tonight to move the suspension of the 10 o'clock rule. I assume that the Government approve of the Bill as it stands. The control of underwriting interests by Lloyd's brokers extends not only to underwriting agencies. This matter was explored in great depth in Committee.

Mr. Kenneth Lewis (Rutland and Stamford)

Does my hon. Friend accept that the Government would have been remiss had they not sought to change the 10 o'clock rule? My hon. Friend is making a long speech and it is important that hon. Members who have an opposite view should be allowed to take part. If other hon. Members make the same length of speech, the debate will continue long after 10 o'clock.

Mr. Moate

I am not sure with what depth of sincerity I expressed it, but earlier I said that I was grateful to the Government for extending the debate beyond 10 o'clock. I was saying that the Government obviously approve of the proposition.

The House should know that the control of underwriting interests by broking houses—the insurance supermarkets—extends far beyond interests in Lloyd's syndicates. The House may agree that it is wrong for a broking house to own underwriting agencies, but what about the control of insurance companies and the great underwriting agencies—the non-Lloyd's underwriting agencies which represent large overseas insurance interests? Are we to do anything about that? I hope not. That works to the advantage of this country.

I was a member of the Committee on the Insurance Companies Act 1974. We went into the question of control of companies in great depth and detail. One of the principal reasons why I resent the proposition is my experience of that legislation. From the moment that I first read Fisher, regardless of any connection that I had with any broking house, I thought that it was wrong and begged the fundamental question why, if it is right now, did we not discuss it in 1974 when we debated the control of insurance companies?

Mr. John Fraser (Norwood)

I think that the hon. Gentleman will find that in recent insurance company legislation the relationship between a non-Lloyd ' s company and its agent was included.

Mr. Moate

It was dealt with, but not in the manner that we are discussing. There is nothing in legislation to prevent an insurance broker from owning an insurance company. The hon. Gentleman knows that.

One of the factors that prompted the 1974 Act was the collapse of the Vehicle and General Insurance Company. That was a specific example of the consumer suffering. We discussed in great depth and detail how we could ensure that such a collapse would not happen again. At that time, the BIA was advertising "Get the strength of British insurance around you". That was followed by the collapse of a BIA company.

We were extremely concerned. We spent hours debating who should and who should not control insurance companies. We gave great powers to the Secretary of State to prevent undesirable people from owning insurance companies. We laid down rules on how to prevent abuse and how to prevent people from getting round the rules by various relationships and hidden shareholdings. However, it was never suggested that brokers should not control insurance companies. It was never suggested that there was an undesirable conflict of interest, even though one of the problems had arisen because the Vehicle and General had owned a substantial firm of insurance brokers known as Andrew and Booth Ltd.

Parliament decided that we should have absolute disclosure. It decided that the ownership of a broker by an underwriter or vice versa should lead to disclosure of that fact and that that fact should be displayed clearly. That was our conclusion then. Why have we now decided suddenly that it is undesirable for brokers to control an insurance interest or insurance underwriting? Are brokers suddenly improper persons? Perhaps my hon. Friend the Under-Secretary of State will inform us of the Government's view. Are we to leave the issue undecided and open-ended?

The Under-Secretary of State for Trade (Mr. Reginald Eyre)

I cannot resist my hon. Friend's invitation. He asks why we should pass legislation to compel brokers to sell off their interests in insurance companies. That is an entirely different issue. It was brought out clearly in Committee that there is a fundamental difference between insurance companies and the managers of Lloyd's syndicates. The syndicate manager does not carry the underwriting risk on his own capital, but the names do. If the managing firm is owned by a broker, there is a clear conflict of duties for the managing agent. He has a duty to his names and a duty to his parent company. By contrast, if a broking firm owns an insurance company, that conflict does not arise as the broker himself provides the capital to bear the risk on the business.

Mr. Moate

There are moments when I have to confess not only humility but inadequacy. My hon. Friend has made the sort of statement that it is necessary to read and re-read to ascertain what it means, if it means anything. If we are talking about a conflict of interest, the principle is exactly the same. My hon. Friend knows that is so. If I were a Lloyd's underwriting agent, a managing agent, especially an independent, I should be relieved by my hon. Friend's approach. Perhaps I would not. Perhaps the very reverse would be the truth. I should be worried about Lloyd's brokers taking the business out of Lloyd's and putting it into the underwriting agents and companies outside which he says they can carry on controlling. That is a danger.

8.15 pm

The conflict is the same and the principle is the same. If a broker puts up the capital and owns an insurance company he will have an interest in supporting that company. Equally, much of the structure outside Lloyd's means that a broker may not necessarily own an insurance company but may be operating an agency on behalf of a group of overseas insurance companies. The capital consideration does not arise in that instance. I do not want my hon. Friend to act in that way and I do not think that anybody else does either, but he cannot have it both ways. He cannot say that there is a conflict of interest, which he regards as wrong, undesirable and necessary to legislate out of existence, and then say that he will do nothing about the vast additional world of brokers owning companies and outside interests. That is a grossly unsatisfactory area.

I shall emphasise again why I feel so strongly that we are doing the wrong thing. It is undesirable that a Private Bill of this sort should be used to do what in other circumstances my right hon. and hon. Friends would deplore—to enforce mandatory sales of assets upon public companies, private companies and the like. Even if the proposition has gone through the Wharncliffe procedures and has the support of many who are directly affected, many others will be affected who have not had a say.

There are about 40, 000 shareholders in the companies that will be affected. Are my right hon. and hon. Friends prepared to justify the use of private legislation to enforce the sale of shareholders' assets? If such a measure had been proposed in other circumstances as part of public legislation by a Labour Government, my right hon. and hon. Friends would have been up in arms against it. However, on this occasion they are prepared to sanction it. About 40, 000 shareholders and 70, 000 employees of the large organisations connected with Lloyd's will be affected. They, too, have not had a say. When private legislation begins to operate on such a great scale, Parliament should consider the procedures that allow such a proposal to pass through.

When we first considered the Bill, it did not contain the proposals that we are now discussing, and in that form it was reasonable. Subsequently the hon. Member for Oldham, West and his Committee inserted them. As it was a considerable extension of the original proposals, the House described it as an additional provision.

The hon. Member for Oldham, West was praised by many of my hon. Friends, and he must have felt distinctly embarrassed. My hon. Friends said that he had been a marvellous Chairman. Everything that I read suggested that he had been an eloquent and good Chairman, in spite of coming to the wrong conclusions. I suggest that there is something fundamentally wrong with an additional provision that is demanded by the same Committee that judges the petitions against the provision. That is rather like a judge imposing a sentence and hearing the appeal against it.

I know that the hon. Member for Oldham, West is fair and open-minded, but after he and his Committee had insisted on the insertion of the additional provision there was not much chance that the petitioners would persuade him to change his mind. The hon. Gentlemam used a dubious phrase when he endorsed the comments of one of the counsel. He said that the petitioners would have to be doughty petitioners. That was an indication that they would have an uphill struggle. I do not think we can say that the new Committee—with the exception of my hon. Friend the Member for Arundel who joined it later—was truly independent and impartial. That is criticism not of the hon. Member for Oldham, West, but of our procedures. There should have been a new Committee.

Mr. Kenneth Lewis

It is important that ray hon. Friend should not be allowed to say something that could be misunderstood about the procedure for Private Bills. The Committee that considers a Private Bill is different from a normal Standing Committee. However, the Committee reports to the House. My hon. Friend has tabled many amendments that have been grouped together by the Chair. We are debating the amendments, and if he wins the vote the amendments will be carried. The Bill is being debated in public on the Floor of the House. Therefore, it is being treated no differently from any other Bill, except that my hon. Friend does not have the advantage—we do not either—of having the involvement of the Whips. The issue will be decided on a free vote. The entire House can vote on this issue if it wishes. It is important that that should be said.

Mr. Moate

I do not disagree. That is right. My hon. Friend has taken part in Private Bill discussions, as I have. Impartiality is vital. There is an additional provision—in other words, an extra power beyond the original powers suggested on Second Reading. When the Committee requires that additional provision, new members should look at it. I agree with my hon. Friend that we now have the opportunity to put the case.

One of the reasons why I am putting the case at length—as hon. Members appreciate, there is no procedural advantage because the 10 o'clock rule is to be suspended—is that I still hope that in later proceedings in the House the Committee of Lloyd's, the sponsors, and another place will say that what we are talking about makes sense and that we should allow the proposition that I have tabled to be carried. If it could be negotiated and carried, it would be better for Lloyd's, London and the whole insurance market.

My hon. Friend said that the Whips had not been brought in. He has obviously not read about my hon. Friend the Member for Gainsborough in the Sunday Express, who has got all the whips and the hounds out. I would say that that was a more effective whipping system, but that would be to disparage my hon. Friend the Member for Eye (Mr. Gummer), who is now sitting on the Government Front Bench. There will be heavy whipping tonight; my hon. Friend knows that.

I do not complain about the Committee, but I do not believe that the hon. Member for Oldham, West was an impartial Chairman, nor could he have been expected to be. He had already made it clear that he wanted the additional provision. If the House goes to the length of providing for petitioners when their interests are affected, it is incumbent on us to make sure that the Chairman of the Committee comes fresh to those proceedings. I hope that I am not being rude to the hon. Member for Oldham, West, for whom I have considerable respect, but it was the wrong approach.

Why is the matter so important? Why is it so bad to force divestment? Are we talking about damage done to a few private interests or about an abstract principle to which I take exception? It is more than that. I want to try to explain in my own words why I feel that the measure is damaging to the insurance business. It is hard to explain because the effect of such changes is incalculable in the real meaning of the word. One does not know what damage will be done until five, perhaps 15 or 20, years hence. The change is fundamentally wrong.

The growth of the great insurance organisations in recent years has helped to secure for Britain, against immense international competition, a unique and special role. If the organisations had not grown up in that way, we would all have lost. We do not know how things will change in the future, but I believe that our competitiveness, powers, flexibility and innovatory skills in the world market will be weakened, so we will lose.

To emphasise that, one has to demonstrate the nature of the competition against which we are fighting. Lloyd's is a remarkable organisation. Nevertheless, we must see it in context. The premium income of Lloyd's is about £2 billion. Some of the great reinsurance organisations in the world have been building up their premium income almost to the same level. Some of those organisations are getting a total premium income that is almost equivalent to that of Lloyd's. They are great competitors.

Throughout the world we see an immense growth of national insurance companies and professional reinsurance organisations. Our small home market is about 5 per cent. of the total world insurance market. We have a tiny home base on which to operate. It is only the international strength that we have built up—the international organisations with their flexibility, skill and expertise—that has allowed us to compete. It is nationalism throughout the world creating national insurance companies, and a natural desire to retain as much business as possible in those companies that offers us tremendous competition.

The great broking and insurance companies and conglomerates, seen through a window of sophistication, as was said in Committee, have been able to sell throughout the world and bring business to London. It is because those companies are conglomerates that they have been able to do so. When the national insurance companies were set up, they turned to the brokers to ask for their advice and guidance on the establishment of their organisations. Those brokers have obtained the reinsurance from those companies and brought it to London. The setting up of captive insurance companies throughout the world by the brokers has also helped to bring business to London.

If those links are cut and it is said that no broker shall be able to own an insurance company, will that not damage the capacity for bringing business to London? The new link between the broker and the underwriter—the whole package—has meant that London has been able to compete. It has worked successfully. If one severs that link on artificial lines for no obvious reason, in the long term a great deal of damage will be done.

What will be the incentive for a Lloyd's broking house to put its business into Lloyd's if one discourages it from having an interest in the underwriting syndicates? Is not that an inevitable deterrent and an encouragement to put business into other insurance centres which are not as restrictive? Great damage will be done.

I do not know whether this is a fact, but I believe that it is likely that the activities of the Lloyd's brokers around the world have brought in the names that have made Lloyd's what it is today. I am guessing because I do not have the figures to prove it. However, I think it would be right to say that many of the 5, 000 names of people who live abroad have been brought in by the great broking houses, through the broking houses' connections and clients abroad. They have had an incentive to build up syndicates and underwriting strength. Is that a bad or a good thing? If that link is severed, the companies will be discouraged. That would be bad for Lloyd's.

Many hon. Members connected with Lloyd's are in the House today. I wonder how many of them are connected with broking houses. Many other hon. Members have joined Lloyd's through the good offices of one of the larger broking houses. They have come to trust and to depend on that Lloyd's arrangement because of their trust in that broking house. If an hon. Member has been attracted into Lloyd's to become an underwriting name as a result of close association with one of the great broking houses such as Heath's or Willis Faber, his trust will have been built up in that organisation.

Ten thousand or more such people will now be told that the underwriting can no longer be handled by companies such as Willis Faber or Heath's. It must be separate, so it must be sold off. I do not think that many members of Lloyd's have expressed dissatisfaction with the arrangement, but they are to be told that it must change. The House has been told that it must be changed, but no major reason has been advanced for doing so. Is it right that such persons should be told that in future their affairs must no longer be handled within the same family of organisations but that they must be entirely separate? I believe that many people will be worried, disappointed and concerned when that starts to happen.

8.30 pm

That brings me to the crucial question of who will own the managing agencies in the future. It may be said that the Committee of Lloyd's would continue to exercise great control and authority over ownership changes, as I hope that it would. It is reasonable to suppose that it would be very careful about approving any institution which it believed might not operate properly within the Lloyd's community.

But how can one be sure that an institution which is acceptable today will remain so tomorrow? A Rolls-Royce type of organisation might take over an underwriting agency. Rolls-Royce went bankrupt. Many reputable institutions today might seem proper to take over and buy up agencies, but there is no guarantee that they will remain financially stable and solvent thereafter.

I suggest that it is far easier for the Committee of Lloyd's to control Lloyd's broking houses and to keep a close watching brief on the whole community because it is all Lloyd's than to control new institutions buying up profitable agencies. I am speculating, of course. Many agencies may be bought by the names themselves, but there will be nothing to prevent them from selling to other organisations later. I am not thinking so much of the foreign organisations which seem to put the fear of God into some people, because that in itself is not the point. Are my hon. Friends saying that they do not mind to whom the agencies are sold or that it will be equally easy to control outside financial institutions?

Mr. Needham

They might be brokers.

Mr. Moate

Yes, they might be brokers.

I personally see nothing fundamentally wrong or dangerous in international insurance organisations exercising control over such managing agencies. If we are talking about like-minded organisations and international groups becoming truly international and taking over British groups, that is part of the international way of life.

To me, there is far greater danger in agencies being taken over by entirely non-insurance interests. I do not recall this matter being dealt with at great length in the Select Committee, which seemed simply to assume that a conflict of interests was undesirable so the agencies must be sold off. A financial institution which today appears reasonable may buy effective control of the management of syndicates, but if, after a year or two, it gets into financial difficulties it will not exercise the same concern and control over the syndicates as would a publicly quoted Lloyd's broker whose very survival is at stake.

I suggest that we are embarking on a very dangerous course if we force the sale of these managing agencies without Parliament laying down who should control them. What rules will be laid down? I invite my hon. Friends or anyone else to tell me the answer. Are they just as happy that the managing agencies should be owned and operated by foreign companies or non-insurance companies as by publicly quoted insurance organisations in this country? That seems very foolish to me, but that is the proposition before us.

We are told that there is a great conflict of interest which is highly detrimental to the London market. Strangely enough, however, just as we are proposing to make this change, organisations in other countries are starting to emulate the procedures that we have followed. Does this not make my hon. Friends think that we may have got it wrong, that the promoters were right in introducing the Bill in the first place and the hon. Member for Oldham, West is wrong? If one looks across the Atlantic, one sees new organisations being established to compete with Lloyd's. So far as I know, three new insurance exchanges are being set up in Florida, New York and Chicago. Are they saying it is wrong for brokers and underwriters to have conflicts of interest? Not at all. At a time when we are proposing to force separation in this country, three insurance exchanges, some more advanced than others in their development in the United States, are allowing and, indeed, encouraging brokers to start syndicates. Does that not perhaps make us think that we are right and that the situation should not be changed?

Some of the most impressive evidence presented to the Select Committee came from Mr. Corroon, a distinguished American broker, who stated basically that the United States was dealing with the matter in a different way. He remarked: In the US for example where insurance traditionally has been highly regulated, the view is contrary to Parliament's proposal regarding divestment. In essence, the infant, embryonic New York exchange is based on the Lloyd's system and if imitation is the highest form of flattery that is a classic example of this. In talking about the establishment of the New York insurance exchange, he added: Brokers in particular, and it was the large ones that made the greatest contribution, and when I am talking about the large ones I am talking about Frank B. Hall, Marsh McLennan and Alexander and Alexander…we have put up substantial amounts of money necessary for the passage of the enabling legislation to bring the New York exchange into being Many of the brokers also put up money for the establishment of syndicates operating on the New York Stock Exchange. Mr. Corroon refers over and over again to the United States insurance links between brokers and companies. On page 56 he says that brokers are permitted to own or have an ownership in the managing agencies of the syndicates". There are some limits. There is a limit, I think, on the New York exchange. I am not sure how it operates. The principle exists. The United States is setting up an imitation Lloyd's with exactly the same community of interest that we say is wrong here. It seems to me that we are cutting our own throats for the sake of a naive proposition put forward by the Committee.

I am basically arguing what the promoters were arguing in the Committee in the first place. The proposition that I put should therefore be acceptable. Yet, for some reason, it does not seem to be accepted. I should like to quote evidence in support of what I say. I quote from days 1 and 2 of the Committee when Mr. Peter Green, chairman of Lloyd's, was giving evidence. My point basically is. that the amendments that I am putting forward provide by law powers for management separation with fall-back mandatory powers if things go wrong. This is basically what Lloyd's wanted in the first place. Mr. Green, it seems to me, gave some superb answers that demonstrate my argument. He says: This is not an easy issue. We are quite certain that it must be right for a future council with its knowledge of and responsibility for the market to make the necessary decisions when they hive heard all the arguments not only concerning divestment but also concerning the various other ways of achieving independence of operation. They will have to reach a decision which is in the best interests of Lloyd's and its policy holders. He was talking about self-regulation. I thought that is what the Bill was supposed to provide. Is not that what my hon. Friends have been preaching, yet on this occasion they are talking about enforcing mandatory separation?

Mr. Richard Body (Holland with Boston)

My hon. Friend has quoted the views powerfully expressed by Mr. Green, who is still chairman of Lloyd's. It seems that he was arguing in favour of what my hon. Friend is now proposing. When Mr. Green spoke as he did, does my hon. Friend know whether he was speaking for other members of the community of Lloyd's? What about their views? Is it true that the Committee of Lloyd's as a whole was at that time in favour of the proposals that my hon. Friend is now putting forward?

Mr. Moate

I am sure that on that occasion the chairman of Lloyd's was speaking for the whole Committee. I am not aware of any dissenting view having been expressed at that time. I presume that he was speaking on behalf of the Committee of Lloyd's, the promoters and for all those who voted to support the Bill at the Albert Hall meeting, in accordance with the Wharncliffe procedures.

Basically, what the chairman of Lloyd's said was very much in accord with what the community of Lloyd's has agreed. It is only because of what the four members of the Select Committee decided that we are now faced with a different situation. I presume that Mr. Peter Green was saying what he felt to be right. I am sure that he has not changed his views. All that has changed is that the Select Committee insisted on an amendment, and in its wisdom Lloyd's has said "We must go along with that amendment or lose the Bill". It is fundamentally wrong that we should be faced with that position. I believe that based on the merits of the case, the vast majority of Lloyd's members and all the others affected—the shareholders, the employees, the managers and so on—would not go for mandatory divestment. It may be that some will—there are some who would stand to gain—but the vast majority will not.

Lloyd's was never really given the argument against divestment. It was told "You have divestment or you lose the Bill". That may be true, and that is our dilemma, but what an indictment of our parliamentary procedures that we cannot debate the merits of this matter in a sensible way—[Interruption.] It is all very well for the hon. Member for Norwood (Mr. Fraser) to smirk, but he knows that I have no other way of drawing this to the attention of the House.

Mr. John Fraser

When it comes to a choice between the private eccentricity of the hon. Gentleman and the public interest, we know from experience what holds sway with the hon. Gentleman. All I would like is perhaps some other contributions to the debate.

Mr. Moate

The hon. Gentleman knows that we have all night. Therefore, there is plenty of time for other contributions. When the hon. Gentleman speaks in that way, and refers to past conflicts that he and I have had, I am content and pleased that I have been on the opposite side. Much of the legislaton introduced by the hon. Gentleman in his various governmental roles seems to have done plenty of damage to our institutions. I shall return to the question of private eccentricity, because that raises many other points that I shall develop.

Mr. Body

I am grateful to my hon. Friend for again giving way. Charges of eccentricity have been levelled. It seems extraordinarily eccentric of Lloyd's to change course by 180 degrees. Has there been any explanation from Mr. Green or the Committee of Lloyd's as to why they now propose something that seems to be opposite to what they were proposing before? Is there any explanation why they seem to have treated the House with a lack of courtesy?

Mr. Moate

That is perhaps unfair to the chairman and Committee of Lloyd's. They have an overwhelming belief that they must get the legislation through. Broadly speaking, that is the view of the vast majority.

8.45 pm

There is an overwhelming feeling, certainly after this long debate and since the Fisher report, that not to proceed with legislation would be damaging to Lloyd's. There is much to be said for such a view. I am not necessarily saying that there might not be other ways of dealing with this aspect. Had there not been a Fisher report and if the Committee had come forward simply with proposals that gave more disciplinary powers to the Select Committee, I suspect that we would all have been better off. Neverthless, having got this far, it is seen by most concerned as an overwhelming necessity to pass this legislation. I respect that view.

That basically explains why the Lloyd's Committee feels it has no choice but to recommend to its members, as it did, that divestment goes through. Otherwise, it would have lost the Bill and it feared that the hon. Member for Oldham, West and his colleagues in Committee would have said "If you do not give us divestment, we will refuse to find for the Bill", and that would have been the end of the matter.

Being honest, I would rather the Committee had had the courage of its convictions and said "No, we basically had a market understanding on divestment." There was much negotiation on how to proceed. The Committee should not have gone back and asked for approval for a change of direction because one must stand up to Parliament sometimes. That is what it is all about. It did not on this occasion; it was its judgment and remains so. The Committee did not change its views but its tactics. It is legitimate for a committee to do that.

However, on the Floor of the House—an hon. Gentleman said that we have an opportunity to debate it now—we are entitled to consider the merits, supported by the arguments advanced by the chairman of Lloyd's and other witnesses during those Committee proceedings.

Many of the remarks made by the chairman of Lloyd's were significant and I only wish that the Committee had listened to him and taken on board his remarks. They made a great deal of sense and I shall quote some examples that are worth registering today.

On page 48 of the report it was asked: As a matter of interest, have any of those syndicates which are either owned or controlled by or partially owned by brokers been in any sort of trouble? The answer was: No, I think it is fair to say that they have not been. It may be that because of their association with a large firm of brokers they can draw on a broader spectrum of expertise than they might do if they were by themselves. There is a splendid testimony to the link between broker and underwriter. It did not impress the hon. Member for Oldham, West, but I believe that that was a significant statement.

The chairman of Lloyd's then referred to the 1974 Act. He was asked: What is the position under the general law relating to other insurance interests outside Lloyd's? He replied: To the best of my knowledge and belief there is nothing in the general law that says anything about a relationship between insurance brokers and insurance companies, underwriting agencies for overseas companies, of which there are many in London. He was then asked: I think the matter is not covered, is it, in the Insurance Companies Act of 1974? He replied "No". The proceedings continued: Are there examples of ownership by brokers of insurance companies? He replied: There are many examples I could give you where brokers own either the whole of the capital of an insurance company or are very substantial shareholders in insurance companies, or they own insurance underwriting agencies which underwrite on behalf of insurance companies. Again, the broad link between brokers and a whole range of other insurance interests is emphasised. Many examples are given by Mr. Green on his arguments against mandatory divestment. He expressed concern about controlling future owners and that was an important point which even the right hon. Member for Manchester, Ardwick (Mr. Kaufman) should take on board. The chairman of Lloyd's was asked: You might have, for example, agencies owned by—I do not know—chains of supermarkets, almost anything, I think? He replied "Investment trusts situated overseas." The next question was: So it is not just a question of excluding one particular element, namely brokers, but you have to consider who else must be excluded? He replied: Yes, and some of the owners might be far more difficult to control than a Lloyd's broker or somebody who is within the Lloyd's community. That is immensely significant. It would be much harder to control an organisation outside the Lloyd's community. But does not that matter to anyone? Are we just to sweep through the proposed legislation and ignore the chairman of Lloyd's?

The Lloyd's chairman was pressed about whether the committee would carry through these byelaws if it was asked to achieve management separation, and again he stressed his determination. He said: So far as it is in my power to influence the council I would hope that we would be able to achieve effective rules, byelaws, regulations for the separation of control and management possibly within 12 months of the first meeting of the council and certainly within 18 months. He expressed clear determination to do it.

All these desirable objectives to achieve separation where it does not exist—and in most cases it exists today—would have been attained by the determination of the council, particularly one backed up with the new powers that the House proposes to give it in the Bill.

Later the chairman of Lloyd's said: If I could come back to what we said earlier, there is nothing to my knowledge in the general law that says underwriting and broking should be separated. I think it would be a mistake, with respect to the hon. Members here, that Lloyd's should be singled out, just Lloyd's for this one particular thing. If it is believed that Lloyd's can regulate this properly in other spheres I honestly think we can regulate ourselves properly in this particular issue, particularly as it is the one which is so close to the heart and the whole wellbeing of Lloyd's. That is a very important series of statements. It may have no effect on the hon. Member for Norwood but I think that it is significant, yet the House is prepared to sweep all this aside and enforce divestment against the wishes of the Lloyd's community.

I quote what is really an important tribute emphasising what I said earlier about the significance of the link between brokers and underwriters. The chairman of Lloyd's said: That the Lloyd's market developed on the scale that it has and enjoys the world-wide reputation that it unquestionably does enjoy is due in very large part to the energy and ingenuity of Lloyd's brokers and to a not inconsiderable degree the foreign brokers that Lloyd's brokers have cultivated through the years. There can be little question that the Lloyd's underwriting syndicate and the Lloyd's broker are essentially complementary to each other in forming the Lloyd's market as a whole. There again is another emphasis by someone promoting the Bill—and now would be against what I am saying but who cannot change his views because we have them in black and white—that mandatory divestment is not what he wanted, not what the Committee wanted, not what the promoters wanted and not what the House wanted on Second Reading. It is just what the hon. Member for Oldham, West forced down the throat of the Lloyd's community. In the long run, I think that it will be dangerous because, if all these achievements have been made because of these links between the broking houses and underwriters, in future those opportunities may not exist.

I offer the House another quotation: It has been the versatility of the broker in seeking means of satisfying the needs of his customers balanced against the judgment of the underwriter, that has contributed so much to the reputation of Lloyd's as the market where the customers' needs are met. This balance of judgment is not likely to remain unimpaired unless it is genuinely impartial. We would reiterate our belief that the success of the market will always depend on the skill, professionalism and impartiality of the underwriter. Mr. Green replied that that was unequivocal material. He added: It could equally be applied to brokers' ownership of insurance companies. Again and again the chairman of Lloyd's made very important statements about the need to maintain these links and the belief that Lloyd's could introduce those byelaws to carry through that management separation without die need for mandatory divestment and the need to force the sale of assets that this Bill proposes.

The Lloyd's chairman made some other statements that I thought were of some significance. About the conflict, an article from The Times was put to him: Mr. Green, himself both a long-standing underwriter and director of a broking group, once made his view clear with the remark: 'You do not have to commit incest just because your mother is the only other person in the house."' He replied: Yes I have often lived with my mother for long periods rind to the best of my knowledge I have never committed incest with her. He went on: I suppose the cynic might add, 'unless there is a tax advantage in doing so'. I suspect that not carrying out those activities could be more appropriately described as self-regulation, which is what we are trying to promote in the Bill.

The very fact that there are a variety of interests represented in one large organisation does not mean to say that that conflict of interests operates detrimentally to anybody. I emphasise again that there is an overwhelming commercial interest to ensure that it does not do so. There are exceptions to that general rule. There have to be. I am not saying that everybody in the world is an angel and that there have not been examples of things going wrong.

It has been suggested, and I am not sufficiently familiar with the history to know whether it is right or not, that where problems have existed it is usually because there was a small organisation with one or two individuals having control of all or a large portion of the shareholding. They would tend to manipulate the situation without the sort of control exercised by the large boards of large firms.

It is for that reason that in the new clause I have put forward the proposition that there should be a 20 per cent. limit on the shareholding. The amendment would prohibit any individual… from owning more than 20 percent. of the voting rights of any underwriting agent. If that is a danger then the opportunity exists to ensure that that type of problem can be eliminated. That is covering yet another contingency.

Having put forward an amendment of this kind, which meets the views of the promoter, gives a long-stop to the hon. Member for Oldham, West and provides other safeguards, are we not doing the right thing? Would it not have been better if the promoters had come to us and said that they would negotiate, as was the case with subsequent amendments? As often as not, it is the practice of the House with private legislation, when time is of the essence because not much is available, to start to negotiate.

I have been greatly disappointed that the promoters have not been prepared to talk to their critics and see whether some compromise could not have been reached and agreed upon. I suppose that they have not done so because they fear that the hon. Member for Oldham, West would vote against it. But that is what the House is about. Had the promoters come back and said that they now agreed to the sort of amendment that I have put forward, we would have had a vote tonight and the hon. Member for Oldham, West would have been defeated. The hon. Member for Gainsborough, with his whips, hounds and packs would have been whipping in the troops on my side, not on the other side. The Committee of Lloyd's could have done that and it would have been a more satisfactory situation.

Later, we shall come to the arguments on immunities and it is possible that there too we could have achieved a compromise. That could have happened and it should have happened. It would have saved further proceedings tonight, on Third Reading and in the other place, and the legislation would have been passed. That is the way private legislation should be handled, and the way that it is usually handled—by negotiation and agreement. Had the Government not agreed to suspend the ten o'clock rule tonight, that is what would have happened by now. We would have been talking and coining to agreement between us on the matter.

I strongly feel that we are entitled to some answers from my hon. Friend the Member for Harrow, Central on these points. We have not yet had a proper debate on divestment and the prospects of having one are rather slim. That is simply because all that we have left is procedure, which is not the way to proceed.

The hon. Member for Norwood described my position as being one of individual eccentricity, or words to that effect. The hon. Gentleman is totally wrong. He usually is. Although there have been overwhelming votes in support of the present situation, I believe that Lloyd's members, under names, have voted only because they had the stark choice: if they did not vote, they would not get the legislation, and the legislation is needed. In talking to various members of the Lloyd's community I find hardly anyone who wants divestment. I am approached by underwriters. I fully expect to be upbraided or criticised, but they say that they are against the proposal too. Given a free choice, I believe that the vast majority would not have mandatory divestment. They know that in the long term it could do incalculable damage.

9 pm

Mr. Body

Some time ago, at the time of the Albert Hall meeting, the vote was overwhelmingly in favour of divestment. Lloyd's as a whole believed that it was the right policy. Since then there has been a movement away from it. The more that it is considered, the greater is the opposition to divestment.

Mr. Moate

I was not privileged to attend the original Albert Hall meeting. I am not a member of Lloyd's, but I understand that there was approval of the Bill put to the House on Second Reading. The meeting was not in favour of mandatory divestment. Basically, it gave the option to the Committee to carry through by byelaw a series of rules on management separation. As a result of sensible and proper market discussions prior to the Albert Hall meeting, there was a slight change but, nevertheless, the members of Lloyd's were basically in favour of something less than mandatory divestment at the meeting. Since then we have had the Committee proposal, which required mandatory divestment. The new and pervading atmosphere—

Mr. John Wells (Maidstone)

On a point of order, Mr. Deputy Speaker. My hon. Friend has been addressing the House for precisely two hours, with assistance from other hon. Members.

I declare an interest. I am a name at Lloyd's, as are my four children. My hon. Friend is abusing the privileges of the House in the length of his speech. I draw your attention, Mr. Deputy Speaker, to the fact that the group of which my hon. Friend is an employee or an associate is in a particularly vulnerable position if divestment were not accepted. In reinsurance premiums received, the in and out position for the Alexander Howden group was over 67 per cent. Those figures were presented to the Committee presided over by the hon. Member for Oldham, West.

Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. I understand that the hon. Member for Faversham (Mr. Moate) declared his interest before making his speech. The question of the length of speeches is not for me.

Mr. Moate

I have great respect for my hon. Friend. I wish that I had as great a financial interest in the matter as he or his children. Mine is nil. I am a director of a firm of insurance brokers. My hon. Friend and I have shared battle before. I hope that he knows full well that I am ready to take an independent line, depending on my feelings in a situation, regardless of my personal interest. Frankly, had I disagreed with the Alexander Howden petition, I would have expressed my disagreement. I have disagreed with that company on many occasions on previous insurance legislation and I would do so again. I hope that my hon. Friend will at least allow me that.

My hon. Friend is wrong to pick out the particular figures that presumably have been fed to him in order to raise a point of order. They were dealt with extensively by the Select Committee, and they totally misrepresent the situation. Anybody in the Lloyd's community would tear figures like that apart. Every broking firm is totally different. Some are reinsurance brokers, taking out more than they are putting in. The whole thing is much too complex to be dealt with in that way.

I wish that my hon. Friend had been here earlier to hear me say, with great sincerity, that there is disagreement among members of Lloyd's and people in the Lloyd's community about how to proceed. Personal interest does not come into it at all. Not even the chairmen and directors of companies, who are resisting the proposals today, have the long-term interests—

Mr. Deputy Speaker

Order. The hon. Gentleman had better return to the new clause.

Mr. Moate

Certainly, Mr. Deputy Speaker. Perhaps I may emphasise that financial interest does not necessarily mean financial gain. It is right that we should declare our interests. Everybody is ultimately concerned with the well-being of Lloyd's and the prosperity of the London insurance market. That is what the amendments are designed to achieve.

My hon. Friend the Member for Maidstone (Mr. Wells) is leaving. I thought that he would make a speech. I had intended to bow to his wish that I should sit down in a few moments, so that he might make his speech. I shall conclude in a few moments. One has to use procedure on these occasions in many ways. It is the only way that is open in certain circumstances. The House understands the facts of life in these situations.

I do not believe that I am making points in which I alone believe. A vast number of people agree with what I am saying. Those views will start to come forward in the weeks and months ahead as this legislation proceeds. It will not finish tonight. It still has a long way to go. In that time, I hope that new counsel will prevail and that the amendments will be considered objectively and perhaps accepted in another place if we do not accept them tonight.

A leading underwriter, and an ex-member of the Lloyd's committee, Mr. Kiln, wrote a letter, to which reference was made when we considered the matter earlier. He said: Divestment: This will be divisive and place Lloyd's at a commercial disadvantage and drive good underwriters out of our market. I have always been in favour of voluntary divestment. I divested myself in 1962 and I have never regretted doing so. Compulsory divestment is not necessary and it will lead us into endless difficulties in practice. It may make us less competitive and once started may lead us into deeper waters. Who is to own agencies? Should brokers be members? Should brokers hold binding cover powers? Why exclude a financial conglomerate from owning a Lloyd's agency and a broker? That is one very distinguished underwriter who is against divestment.

I have notes that have been signed by a large number of underwriting agents. I do not need to quote the names. Many have already given evidence. They underwrite for thousands and thousands of people who place trust in them. Those people are saying that divestment, as proposed in the Bill, is wrong.

Many of the letters suggest that the Bill should be amended in the following three respects. There should be mandatory separation of broking and managing agencies' operations, with compulsory divestment by subordinate legislation only if this fails to work.

That is exactly what I have proposed in the amendments. All those people are part of the Lloyd's community. The views of the Lloyd's community are not, I submit, those expressed in the mass vote that has been taken in response to the demands of the Committee that was chaired by the hon. Member for Oldham, West

I believe passionately that what is proposed in the Bill will do massive damage, in the long term, to Lloyd's interests—not just to the Lloyd's brokers but to the Lloyd's syndicates and the agencies generally. When radical steps of this kind are taken, we never quite know what damage ensues, but I believe that damage will be done. Above all, I believe that what we are now doing is against the wishes of the vast majority of Lloyd's members. If we can now have time—as we can in the coming weeks and months—to try to ascertain once against what their views are, so that the matter can be considered afresh in another place, I believe that we shall come to a better conclusion. I believe that basically it will be the conclusion that was put forward by the chairman of Lloyd's and defended in the Committee—and the proposal that was supported by this House on Second Reading.

The amendments will, I believe, put the Bill into a better shape. It will be better for Lloyd's. If we cannot achieve it tonight—as a realist, I know that there is little chance of its being carried tonight—at least in the later stages it will, I believe, be accepted by Parliament.

Mr. Michael Meacher (Oldham, West)

The hon. Member for Faversham (Mr. Moate) has spoken at exceptional length and has, no doubt, created sonic parliamentary records in so doing. I listened to the proceedings on the five days of the first part of the Committee hearings, most of which was taken up with the question of divestment. I listened for a further six or seven days in the second half of the Committee hearings. I thought that I was hearing it all over again today, with the hon. Gentleman regurgitating the evidence—or, at least, one side of it—very much as I had heard it before.

I have a high regard for any hon. Member who, place d in a position such as the hon. Gentleman is in, is fighting a valiant rearguard action. I think that the hon. Gentleman realises that that is what he is doing. I have a high regard for his determination and perseverance, and his desire to place on the record what he clearly feels so passionately, even though I shall try to indicate—I hope to be as brief as he was long—that he has misunderstood a number of the arguments.

The hon. Gentleman referred to the Committee that I was honoured to chair, and suggested that, in its second round of hearings it was less than independent. I hope he will accept that the Committee, during six or seven days, considered the matter in great thoroughness. There was a detailed presentation by leading counsel and a constant flow of questions from members of the Committee. I pay tribute to my colleagues on the Committee. I hope that the hon. Gentleman will accept that it is not fair to suggest that the Committee hearings were not as independent, fair-minded, open and impartial as he would have liked them to be. I hope that he will accept that, far from the Committee forcing mandatory divestment down the throats of people who do not want it, it is for Parliament—not that Committee—to decide the issue. It will be decided by Parliament in the due and proper way this evening.

The hon. Gentleman, in the course of a speech lasting over two hours, used a blunderbuss which he sprayed on all and sundry. He raised so many arguments that it is difficult to know where to start in replying to them.

9.15 pm

I pay the hon. Member for Faversham the compliment of saying that I am glad that he tabled his detailed new clause and the consequential amendments. They provide an opportunity for the House to re-examine the alternatives to divestment that were proposed at the end of the latest series of Committee sittings on the Bill. As the hon. Gentleman said, the Committee seriously considered the option that forms the basis of the new clause, but it was obliged to reject it, mainly because there could be no certainty about its implementation.

The hon. Member has sought to put a certain interpretation on my remarks at the end of the Committee hearings and to join them with what I said in my exchange with the hon. Member for Arundel (Mr. Marshall). I am telling him the situation as I understood it. The Committee examined the matter in detail but, although we agreed that there were merits—as well as considerable demerits which I shall refer to later—in the proposal, there was no guarantee about its implementation. That was the critical issue. A power would have been given to the Secretary of State, but there was no guarantee that he would use it.

Mr. Moate

I do not seek to prolong the hon. Gentleman's speech, but will he accept that at no time, certainly in the public sessions, did the Committee have before it the amendments and the schedule that I propose under which the Secretary of State would have regulation-making power?

Mr. Meacher

That is true. The hon. Gentleman closely followed paragraph 12.30 of the Fisher report in drawing up his new clause and joined on to it the subsection (3) to which I drew attention. That was not in the original proposal, but that does not clinch his case.

Every intervention that the hon. Gentleman makes reinforces my belief that he regards his amendments as an ingenious attempt to get round the Committee's reservations. That attempt fails for several reasons. The Committee's rejection of the alternative hinges on the impossibility of guaranteeing that it would be implemented, so that the whole question of its effectiveness for the purposes required never arose, but there were also a number of other doubts which I shall outline.

The Committee's concern was not whether there would be an opportunity for the Secretary of State to intervene after five years or whether there might be difficulties over hybridity. We were concerned about whether there could be any certainty that the Secretary of State would intervene. That was the crucial point.

The Committee decided, correctly I am sure, that there could be no such certainty. Therefore, contrary to what the hon. Member for Faversham said on several occasions, there could not be the sort of long-stop provision that he wants and which he believes, mistakenly in my view, that his new clause provides. The new clause merely says that the Secretary of State may, by order made by statutory instrument— (a) bring into operation Schedule (Separation of Functions) of this Act.". The crucial word is "may".

The issue facing us is how Parliament can be certain that the Secretary of State will intervene. This is not a new issue. It was set out in the Cromer report. The hon. Gentleman suggested that the conflict of interest issue is not serious, but the Cromer report said nearly 12 years ago: There is a conflict of interest which cannot be ignored. The case put to the Committee is that for 12 years the conflict which, in Cromer's view, cannot be ignored has been ignored by Lloyd's. That is why we believe the divestment argument is clinched.

Even leaving that aside, I am bound to say that the only problem was a procedural technicality. In my view, there are several other serious difficulties about the alternative proposal that the hon. Gentleman sketched out. The first is that it appears to make no special provision for the small agencies, where many of the recent abuses originated. A significant fact brought to light in Committee was that in no fewer than 43 small companies an individual had a majority shareholding in a holding company controlling both brokers and underwriters. The hon. Gentleman has not covered the need for divestment in such a case. From that case, the Moran, Oakeley Vaughan and other abuses have developed. I do not remember whether the hon. Gentleman said that there were no abuses or only one abuse in such cases. He is incorrect. There have been a few very serious abuses.

Nothing in the new clause would require that, in the one-person controlled agency, there should be divestment of the majority of the voting or trustee shares held by such a dominant shareholder. That is a fatal omission.

Mr. Moate

I mention the question of 20 per cent. control at subsection (1)(f) of the new clause. That would deal with the problem that the hon. Gentleman has described. When I referred to the fact that there were no problems, I was quoting from the evidence of the chairman of Lloyd's. Perhaps I took it out of context. If so, I apologise. Of course one is aware of the circumstances to which the hon. Gentleman referred, which is why this provision was inserted in the new clause.

Mr. Meacher

I did not read subsection (1)(f) as referring to holding companies. I believed that it referred to broker control and not to individual control in both broking and underwriting agencies. If it refers to my point, I accept that it is a requirement that must be met. Secondly, there is the major consideration that the proposal in paragraph 12.30 of Fisher—which is the basis of the new clause—did not satisfy the majority of the Fisher working party, which included Mr. Frizzell, who is a Lloyd's broker.

The hon. Gentleman played fast and loose with the issue of conflict of interest, which is at the heart of the debate, by suggesting that there are other conflicts of interest, so why should we worry about this one especially? Of course, he is right and perhaps in some areas we must go further, but two wrongs do not make a right. Just because there are other conflicts of interest, one cannot ignore this fundamental conflict.

Paragraph 12.32 of Fisher states the point clearly and forcefully:

The majority of us do not feel that the solution outlined above"— that is the hon. Gentleman's proposal—

is adequate to deal with the seriousness of the problem. A fundamental principle is at stake here, namely, the principle that an agent should not put himself into a position where he may have conflicting duties. That is not where there will be abuse but where he may have conflicting duties.

The paragraph goes on to say: The interests of the Assured (for whom the Broker acts) and the interests of the Names (for whom the Agent and Underwriter act) are separate and distinct, and are sometimes in conflict. It is unacceptable that Brokers should, through common share ownership, have the power to control the Agency company, which has a legal duty towards the Names. Conversely, Assureds are at risk that the Broker will not be wholehearted in looking after their interests if he has a financial stake in an Agency which manages Underwriting Syndicates and draws a profit commission from the Syndicates. These risks, which are in any case likely to be aggravated with the concentration of business in the hands of the big brokers."— we were told that the eight largest brokers controlled about 59 per cent. of the premiums in the total market; that is a high concentration of ownership— are now sufficiently well known to constitute a real threat to the good name of Lloyd's and could significantly prejudice the willingness of third parties to place business at Lloyd's or of potential Members of Lloyd's to become Names in the future. Each time an actual abuse comes to light this damage is redoubled. The majority of us"— the overwhelming majority— believe that no proposal short of complete divorce is sufficiently watertight to reassure the public and the Names, and give active Underwriters the greater independence and standing which the health of the market requires". Those are powerful words. Even if they are not decisive—and one is entitled to take a different view—given the nature of the Committee which sat for 15 months with a distinguished membership, the judgment is weighty and cannot easily be cast aside.

Thirdly, there is the problem of an incestuous relationship even if the new clause is implemented. That is an important fact which the hon. Member for Faversham may have neglected. Alexander Howden, the hon. Gentleman's company, is perhaps the biggest broker in the United Kingdom. It was a petitioner against divestment in the second part of the Committee's proceedings. It asserted in its defence that the company already had full separation of management functions between broking and underwriting. Yet it emerged under cross-examination that, of the total reinsurance orders handled by the Posgate underwriting syndicate within Alexander Howden, no less than 58 per cent. was received by the Alexander Howden broking syndicate and that, of that, no less than 42 per cent. of the business which Alexander Howden brokers were instructed to place went to in-house companies.

I stress that that applies in the case of the petitioner against divestment. It applies in the case of a company in which the separation of management functions was already supposed to have taken place. I do not believe that such a situation is compatible with the absolute guarantee of arm's length transactions that is needed. That revelation in itself goes a long way to demonstrate why nothing short of full divestment will secure that guarantee.

The fourth problem is that of policing the separation of functions if the new clause is carried when management is still operating in a single company. The problem is whether evidence of misdemeanours, which we all wish to expose, would come out if the new clause applied. In paragraph 12.34 Fisher states: Alternatives, involving 'penalties for abuse', run foul of the criticism that they not only fail to cure the evil but have, as a deterrent, the near-fatal defect that they rely upon people (chiefly members of the Lloyd's Community) being willing to give evidence before a Disciplinary Committee of the alleged shortcomings of their colleagues That is important in view of what is proposed in the new clause.

Evidence was, indeed, adduced that large United Kingdom broking companies which insisted that they were properly and virtuously operating the separation of functions within their companies had—at least in one case—required the transfer of shares in blank by the directors of the underwriting agency to the ho(ding company. Whether in such a situation underwriters owned by a broker-controlled agency would willingly complain if they risked the sack must be extremely doubtful.

For all those reasons—I could advance many more—and not only because of the lack of ultimate guarantee of implementation, the Committee rejected the route proffered by the new clause. I believe that that decision was right, and I hope that it will be upheld.

9.30 pm

Mr. Anthony Grant (Harrow, Central)

I, too, shall be brief. My hon. Friend the Member for Faversham (Mr. Moate) advanced his arguments at length. Even if we do not agree with him, we can admire his energy and fortitude.

I can be brief because the hon. Member for Oldham, West (Mr. Meacher), who was Chairman of the Committee, has effectively given all the answers. He drew attention especially, as I wish to do, to paragraphs 12.32 and 12.34 of the Fisher report, which set out the position clearly. On Second Reading the late Sir Graham Page made Lloyd's view quite clear. He said: Lloyd's is determined to estabish the independence of broking and underwriting." —[Official Report, 24 Marc h 1981; Vol. 1, c. 865.] Lloyd's original proposal was to enable a future council to make the future decision. It was not the proposal that my hon. Friend the Member for Faversham has put forward in the new clause. As the hon. Member for Oldham, West explained, the Bill went before his Committee, where it was opposed by petitioners. After a five-day hearing, the Committee recommended that there should be a complete divestment of brokers and underwriters. That recommendation went before a specially convened meeting of Lloyd's members, who must be presumed to know exactly what they are doing. They had before them only one issue, and it was their own business and profession that was involved. At that meeting, by 13, 511 votes to 1, 013 they decided in favour of the proposal. That vote was accepted by the Committee, and Lloyd's produced the additional provisions that are now clauses 10 to 12.

The proposal has been debated in detail. Immense consideration has been given to it both inside and outside the House. Lloyd's has behaved completely responsibly on this issue. The public expect a new, modern constitution for Lloyd's to ensure no conflict of interest, and there will be seen to be no conflict of interest between brokers and underwriters.

Mr. Fairbairn

rose—

Mr. Grant

I shall not give way at this stage. The overwhelming view is that the proposals in clauses 10 to 12 are satisfactory, but my hon. Friend the Member for Faversham, with his customary ingenuity, for which I praise him, has sought to revive the old arguments that have already been rejected.

Mr. Fairbairn

rose—

Mr. Grant

I must advise the House to reject those arguments again.

Question put and negatived.