§ '(1) In so far as the profits of a registered friendly society or separately registered branch society from life or endowment business relate to contracts made after the date of coming into force of this Act, the reference in subsection (2) of section 332 of the Taxes Act (business exempt from income tax and corporation tax) shall have effect as if the words "for societies or branches with aggregate annual premium income of £120,000 or more, and £2,400 and £500 respectively for societies or branches with aggregate annual premium income below £120,000" were inserted after "£156", and as if in subsection (3) of the said section 332 the words "£2,400 and £500" were inserted after "£156".
§ (2) In section 64 of the Friendly Societies Act 1974 (as amended by section 39 above) in paragraph (a) for "£750" there shall be substituted "£2,400" and in paragraph (b) for "£156" there shall be substituted "£500".'.—[Dr. McDonald.]
§ Brought up and read the First time.
§ Dr. McDonald
I beg to move, That the clause be read a Second time.
The new clause seeks to increase the limits for tax-exempt business for small friendly societies from £750 to £2,400 for the sum assured and from £156 per annum to £500 per annum for annuities. This applies only to the small friendly societies — the pre-1966 societies. We understand why the Government want to deal in a different way with the post-1966 societies. It was necessary to change the limit in that case to prevent abuse.
The Government's treatment of the small friendly societies needs explanation. The Economic Secretary has spoken about this matter in Committee and in correspondence with the liaison committee of the friendly societies. It is clear that he still has not grasped the nature of these friendly societies. They are essentially local social 962 organisations transacting insurance on an amateur do-it-yourself basis. Even the existence of such an amateur approach to insurance obviously frightens the Economic Secretary, judging by what he said in Committee. In spite of the fact that these friendly societies operate on a voluntary basis, they have been doing so to the satisfaction of their members for a long time. They do not operate on a commercial scale and have no marketing organisation competing for business. They do not advertise — their names do not appear on television or in magazines and newspapers.
The friendly societies developed to provide working class people, especially in the pre-welfare state days, with a means of providing themselves with sickness, unemployment, death or widows' benefits and of paying for funerals and preventing people from having to face a pauper's grave. Yet their existence, even in the welfare state, is still necessary. Perhaps they have become more necessary during the past few years as the welfare state has been nibbled away by the Government. Their books are kept by a part-time secretary who is not an insurance expert and there are no funds to buy commmercial expertise. The additional book-keeping necessary if such societies were to enter the taxable sector and the complexities of tax computations for mutual assurance funds would be way beyond the knowledge and competence of most secretaries of the societies.
The Economic Secretary has admitted that the direct cost to the Revenue of tax exemption for existing small societies is probably not large. He might like to put a figure on that, but it is probably only a few thousand pounds in a financial year. Now that my hon. Friends and I are coming to the end of yet another Finance Bill, we are only too well aware of the way in which the odd £1 million or £5 million is given away in tax concessions and tax relief to those who do not need it. We are asking for a small concession to friendly societies, composed as they largely are of working-class people, on a self-help basis.
On the scale on which the societies operate, it is not possible to be economic in any commercial sense, because members are performing services for the societies voluntarily. If further evidence were needed that it is not practical for small societies to enter the taxable sector, between 1966 and 1975, and since 1984, that option has been open to them and the tax-exempt limits have become increasingly onerous in real terms, but no branch society and hardly any small centralised society has felt able to enter that area.
The Economic Secretary says constantly that if the friendly societies are to survive they should do that, but they are not in a position to do so. Their membership does not want them to do so. They prefer to operate in their own way and it is such a small sector that I think that the Economic Secretary should reconsider the views that he has expressed in the past and allow them to continue in existence. It is true that they may gradually fade away but there is no need for the Economic Secretary to hasten their demise.
The Opposition have selected a limit of £2,400. This, as the Economic Secretary knows, is the present limit for trade unions. The limit was the same for both societies and the unions until 1982. In real terms, the post-war limit of £500 would now be some £5,000, which makes the proposal that we have tabled a very modest one. Of course, we have in mind the limit of £2,000 which applied to those societies until Budget day in 1984. That limit was 963 introduced by the Government in 1980 when they doubled the limit from £1,000 to £2,000. Apart from anything else, I think that the friendly societies are confused about the treatment that they have received from the Government over the whole period of their office. At one stage the limit was raised and now it has been drastically reduced. It has been reduced to such an extent that it makes it virtually impossible for the societies to continue in the way in which they have for so many years.
§ Mr. Campbell-Savours
Might it be that some of the large insurance companies which contribute substantially to Conservative party funds have been putting pressure on the Government?
§ Dr. McDonald
I certainly think that that is a possibility. We should bear in mind the Government's behaviour towards insurance societies. To take another example of that, the proposed abolition of SERPS will put enormous amounts of business in the way of the life assurance companies. If they are putting pressure on the Government to eliminate the friendly societies, that is greedy. Some estimates put future business by 1990 arising from the phasing out of SERPS at £3 billion. If, with that bonanza to come — should the Government stay in office after the next general election — the insurance companies are still worried about the friendly societies, their greed is obviously beyond all bounds.
We propose a limit of £120,000 per annum for the total contribution income for societies that are allowed to operate higher limits. That is 50 times the sum assured limit. Societies with that level of total contribution income should have a full-time employed secretary who is familiar with taxation and properly trained. The friendly societies are asking that they should no longer have to depend on entirely voluntary assistance. They would like to be able to employ at least one full-time secretary as that would enable them to provide a better service for their members.
The new clause follows the approach of the EEC's life assurance directive, which will presumably become applicable in all member states at some time in future. The EEC like the Government and the rest of us, wants to ensure that commercial insurers, including friendly societies of any size, have adequate solvency margins. However, the EEC was more sensitive and sensible than the Government in introducing a directive. It did not want to put small friendly societies out of existence by requiring impossible margins. It has laid down a margin of £300,000. It would be a good thing if the Government were to consider such friendly societies in the same way as the EEC. As the Economic Secretary and other hon. Members know, it is not often that I have a good word to say for the EEC. On this occasion it seems to be justified to speak favourably of it.
It is odd that it should be the EEC that is more considerate than the Government when friendly societies have for more than 100 years been part of our working-class tradition. The Government are trampling over all of that.
I wish to emphasise the Government's failure to understand what friendly societies are like by referring to one or two extracts from a letter from the Independent Order of Oddfellows Manchester Unity Friendly Society. 964 The letter was sent to the Chancellor of the Exchequer in February. I think that it sets out the ethos of the societies. Part of the letter reads:Successive governments have realised that well organised branches of Order Friendly Societies operate for the good of the community as a whole, combining a variety of provident operations with a sense of social duty which is unique. It adds to the country's social security structure a background of caring organisations, for the sick and dying, the widow the orphan and the distressed, which the social security constitution by its very nature finds it difficult to emulate".The letter continues:thrift is a virtue to be encouraged among what used to be called the artisan and working class in particular, and appreciating our apolitical work have understood that caring activities and encouragement of thrift in extremely difficult circumstances need practical financial encouragement which developed with certain tax privileges.Another paragraph reads:We find it difficult to understand why this government with its commitment to thrift and appeals to the nation to become a caring society should deal such a harsh blow to those who work voluntarily for the good of their fellow men in this field.Some of the words that I have quoted from this letter might well fall from the lips of the Prime Minister as she encourages thrift and voluntary self-help in our society. In particular, she would like those virtues to be encouraged among the artisan and working classes. Although the Prime Minister would like such virtues to be encouraged, she makes sure that in every possible way her Government do nothing to encourage those who attempt to practise them in the way that they have always been practised in the organisations and societies to which they and their predecessors have belonged for such a long period.
I compare this with the reply of the Economic Secretary to the secretary of the friendly societies liaison committee in a letter dated 29 May 1985. Given the way in which the Manchester Unity Friendly Society describes itself and given all that I have already said, although the Economic Secretary says that he understands the point of view of friendly societies, he simply has not got a clue. First, he kowtows in their direction and then he refers to the need to preserve tax neutrality. Tax neutrality and fiscal neutrality in investment matters are something of a joke. In his 1985 Budget the Chancellor of the Exchequer ran scared from taxing pensions and from taxing contributions paid by both the employer and the employee. He wanted to do that because he believes in fiscal neutrality, but he did not have the courage to do so. Therefore it is nonsense to defend the treatment of friendly societies in this way.
The Economic Secretary also said in his letter that the proposal would create a dividing line between societies. Yes, it would. The Opposition appreciate that point. We are anxious to ensure that a dividing line of that kind would not be open to abuse, but when the European Community's life directive eventually applies, the Government will have to do this. Therefore they ought to accept that implication now and allow the friendly societies to flourish.
Finally, the Economic Secretary says that, if the tax regime we are asking for came into existence, these small organisations would havean investment product to market to the general public which was unique in its tax advantages.There is no way in which friendly societies could market such a product. They are not in that kind of business. They are more or less democratically organised societies which act in a way that mutually benefits their members and provides them with insurance and various other benefits that are not covered by this measure. The societies are 965 small and limited in their scope. They do not provide the high salesmanship that is required to market the kind of attractive investment product which the Economic Secretary thinks exists; nor are they in a position to compete with the large and well-financed companies that already operate in this market.
Despite his sympathetic noises, the Economic Secretary shows time and again that he does not understand the nature of friendly societies. We are asking for no more than a small concession that would allow them to continue to look after their working-class membership in the way that they have looked after them for many years.
§ Mr. Ian Wrigglesworth (Stockton, South)
The hon. Member for Thurrock (Dr. McDonald) has most exhaustively presented the case for this new clause, and I rise briefly to support it. The hon. Lady has marshalled a powerful argument both for the organisations and for the proposals contained in it. They are excellent social and financial organisations that for decades have provided a tremendous service to communities in many parts of the country—certainly in the northern region which I know best. My parents were members of friendly societies, as, indeed, were all the members of our family. It would have been inconceivable for us not to have participated in the local friendly society, as many others still do.
The hon. Member for Thurrock said that she could foresee the day when friendly societies might die out. Because of the services provided by the welfare state, the demand for some of their services may no longer be so relevant, but many friendly societies still thrive and provide services for their members in a wholly correct and laudable way. Therefore, they deserve the support of the House. They are mutual organisations that provide just the kind of services that this House should be seen to support. Their social and financial motives are of the best possible kind. They supplement the work of the welfare state. Therefore, they deserve encouragement. They ought not to be treated like a City organisation, interested only in profit and looking after the interests of its shareholders. Those mutual organisations seek to serve a local community's ordinary individuals who are not well off. They deserve the support of the House, and I hope that they will receive it when the House divides.
§ Mr. Campbell-Savours
While keeping in order, during the course of the Committee proceedings on the question whether schedule 8 should stand part of the Bill, I raised the matter of friendly societies. I shall quote what the Economic Secretary said during the proceedings, because what he said has made it necessary to raise this matter tonight:the Government have no intention of applying a fiscal system to friendly societies which would force them out of business. That was not our intention last year, and it is not our intention now. It is early to judge the specific impact, but none of the evidence available to me suggests that the changes have had the impact that the hon. Member for Hodge Hill feared." — [Official Report, Standing Committee B, 4 June 1985; c. 316.]I have just spoken to Mr. Madders, who is the chairman of the friendly societies liaison committee. Half an hour ago he told me that friendly societies will die if the current tax regime persists. I appeal to the Economic Secretary to see sense. If a man who represents all these organisations tells us that the future of the friendly societies he represents is endangered by a measure that was introduced last year, the Economic Secretary has a public duty to respond and reconsider the position.
966 When I pressed him later in Committee about the damage that might be inflicted upon small friendly societies, the Economic Secretary said that the matter was hypothetical. It is not hypothetical. We are told that damage is being done and the Economic Secretary therefore has a duty to respond.
I am also informed that if our amendment, which proposes a higher limit and raises the total premium income ceiling to £120,000 for the exempt category, were to be carried, about 97.5 per cent. of friendly societies would be relieved. Most of the 4,000 friendly societies would then be designated as falling within the tax-exempt category. If that is the case, I should have thought that, administratively, it would be wiser for the Government to proceed on that basis. I hope that, when the Minister replies, we shall be told that he has carefully costed the new clause, because the House is entitled to know how little its implementation would cost the Exchequer.
The Government may raise a number of objections to what is proposed. They may say, for example, that they would oppose the new clause on the basis that it would create two categories of friendly societies. As my hon. Friend the Member for Thurrock (Dr. McDonald) pointed out, the EEC life directive—which is to be implemented by regulations under the European Communities Act 1973 in the near future — already does that, recognising that small societies cannot meet the requirements of commercial insurers, and not wanting to force them out of existence. If it is good enough for our European partners, in the form of an EEC directive, to have a two-tier system, it should be good enough for our domestic Parliament to introduce a similar two-tier system by another means.
The Government may say that distinctions between two categories would be difficult for the Revenue and the registry to supervise. The registry has a long experience, for example, of insisting on the genuine independence of societies, even against the wishes of the management committees of the societies concerned. If a society were using the higher limit, that would be a reason to insist on genuine independence.
The Government may say that branch societies are not entirely independent of their order. To be registered as a branch society, the branch must have a separate fund under its own control, as well as contribute to a fund under the control of the central body. In practice, the order operates as a policyholder's protection arrangement for the members of its branch societies, arranging for their business to be looked after if the branch gets into difficulty. As with any registered society, if a branch society is not genuinely functioning independently, its separate existence can be terminated. Surely, within that arrangement, the position is fully safeguarded.
The Government may say that the proposal would not arrest the decline of small societies. Both the numbers of registered societies and the average membership of traditional societies were declining before their limit was reduced from £2,000 to £750 last year, and that will probably continue if the proposal is accepted. However, the objection is that, without the proposal, all small societies must in time be forced out of existence. They cannot cope with the complexities of taxable business, nor is there any other type of business operation open to them.
The Government may say that the proposal would act as a deterrent to mergers. Active small societies have no 967 wish to merge. Societies interested in accepting transfers of engagements — and offering some advantage in transferring — will be operating on a commercial scale and be transacting taxable business.
The Government may say that a lack of experience on the part of secretaries of small societies, in that they cannot handle sums assured as large as £2,400, should be taken into account. Until last year, they were handling the £2,000 limit without difficulty. That is half the figure in real terms that they were allowed to handle in the past. Indeed, the greater financial danger comes from operating within the £750 ceiling and taking on long-term contracts unlikely to have sufficient margin to meet administrative expenses. The Minister has brought that about by changing the limits, in that he has made it almost administratively impossible for them to manage their funds effectively. In doing that, he is driving them out of business.
The Government may suggest that they cannot give advice to the public up to the standard required for investor protection. But they are not competing commercially with alternative forms of investment. The investor protection proposals have not resulted from the activities of the small traditional friendly societies. If it is not intended to close them down, the proposals must be shaped in an appropriate way to allow their survival. The same consideration applies to tax legislation and the application of doctrines such as fiscal neutrality.
The Government may say that the proposal would give small societies a tax advantage. But insurance funds are taxed on investment income less management expenses. Societies operating independently on the small scale allowed by the proposal could have management expenses less than investment income only if administrative and other services were performed free of charge by members. There is no commercial tax advantage in the proposal.
The Government may say that raising the aggregate personal limit to £2,400 would allow larger societies operating at the £750 tax exempt level to hunt in packs for business. That did not happen when the limits were £2,000 and £500 respectively. It could be overcome by restricting membership for tax-exempt business to one society only.
In every respect, the Government do not have a case on this issue. My hon. Friend the Member for Thurrock put a complex case that requires a simple solution, and that is for the Minister to agree to reconsider the position. He may not be able to accept the new clause. Nevertheless, he could—as it were, in a throwaway reply, using a phrase that he might deliberately let slip—indicate that, in the coming 12 months, the Government, recognising that there is concern in this sector, will receive further representations and, at the time of the Budget debate next year, ensure that a statement is made reflecting the position that pertains among friendly societies. In the event that it can be proven that their position has deteriorated, the Minister should introduce an amendment to restore the original position and ensure the survival of this important group of organisations.
§ Mr. Randall
As I listened to the remarks of my hon. Friends the Members for Thurrock (Dr. McDonald) and for Workington (Mr. Campbell-Savours), I had the feeling that we were presiding over the death of the small friendly societies. Let us remember that we are referring to societies that have existed in Britain for over a century. 968 They have had a special role to play in the nation, particularly in rural areas and especially for the less well-off members of society.
By the new clause, we are endeavouring to persuade the Government to give the small friendly societies the tax relief that is necessary to enable them to continue. My hon. Friend the Member for Workington referred to Mr. Madders, the spokesman for the friendly societies, saying that, if the existing tax regime continued, the societies could wither away. That would be sad.
The small friendly societies are remarkable organisations in that they operate on a sort of amateur basis. The local postman in the village might do the book-keeping. Deposits are collected and saved and the expenses incurred are trivial. Their income is far greater than their expenses. They do not have large administrative costs, not even full-time secretaries. In other words, we are not referring to the type of organisation that is looking for tax loopholes, the sort of body that was established after the situation in 1966. These organisations will be getting into a business liable for tax. In order to deal with matters that inevitably arise when one is in the taxable sector, they would need to establish appropriate skills and manpower. Looking at the tradition of the organisations, the competence, knowledge and skills do not exist because that is not in the nature of the friendly societies we have known for so many years. Establishing administrative systems and procedures and bringing in computers would all be part and parcel of the complexity of business that would ensue if the friendly societies were to enter the taxable sector. It is all very worrying. The signs are that if friendly societies move into the taxable field it will eventually lead to their death.
The new clause proposes to lift the limit on the tax-exempt business to £2,400 and to raise annuities from £156 to £500 per annum, which would be a small cost to the Treasury. Perhaps the Economic Secretary would tell us what that amounts to. I am not sure, but I understand that the amount is very small. Undoubtedly the margins of the business are such that the move into the taxable field is just not possible. Resources, assets and manpower do not exist to enable such a change to take place. The Government will destroy what are essentially very small businesses. I always thought that the Government were the party of the small business. Clearly they are not. They have been destroying small businesses through their economic policy and they can be thought of as a Government who advocate the centralisation of dereliction, the big battalion, the big heel stamping the little man and his little business. Those are not just vague and empty words. They can be substantiated.
People in the rural communities are being confronted, much against their will, with the city slickers. They are being pushed together with these organisations, the post-1966 societies, in an unacceptable way. I am sure that hon. Members do not wish to see any abuse, which we are all against. We understand that any anti-avoidance measures, which often have to be taken from time to time, must be supported because it is in everyone's interest to have regimes which prevent that kind of abuse. Nevertheless, small centralised companies with tight margins cannot afford to move into taxable businesses. Small friendly societies are going to find it almost impossible to continue.
The hon. Member for Workington made the very valid point that even the EEC directive on life assurance recognises that small friendly societies cannot compete with commercial institutions. From reports which I have 969 read, I note that Brussels recognised that the solvency margins would be too tight for small friendly societies. If we do not win the vote tonight I hope the Economic Secretary will give this matter careful consideration, because if we continue with existing tax arrangements on these institutions we can expect to see them wither away. That would he bad for Britain. It would be bad for the people of the rural areas. It would be a tradition of our country that was lost once and for all. The Opposition do not contemplate this lightly.
§ Dr. John Marek (Wrexham)
Some weeks ago the New Statesman carried a photograph of the Financial Secretary, underneath which was the caption "The Minister for the Rich", or it might have been "The Minister for the Idle Rich" — I forget which. It remains to be seen whether the Economic Secretary will appear in a future edition of the New Statesman with the caption, "The Minister against the Working Person who Wishes to be Thrifty." This is the crux of the issue. Because this issue does not concern the idle rich and millions of pounds—as share options do—the Government are not interested.
This is also an issue of mutuality. The hon. Member for Stockton, South (Mr. Wrigglesworth) asked whether there is a place for a mutual society in today's life. I believe there is. It is a concept that ought to be cherished and developed. It rises above mere capitalism and profit-making. The Government may not put it at the top of their list, but I hope that they would at least say it is a worthy concept, although one which might not make this country into a first-class industrial nation. If people wish to be guided by that concept, it is noble and should be encouraged. Unfortunately, that is not so.
Trustee savings banks are to be completely altered. Although something needed to be done, trustee savings banks are now to have shareholders and to operate in the same way as any other bank. Money is going to be siphoned away from the system. They used to be similar to credit unions, but no longer. People who invest in trustee savings banks will demand a return on their money.
The Government have decided to change the building societies and to encourage them possibly not to be mutual societies. The Economic Secretary shakes his head. I am pleased that he does. At the back of my mind there is a nagging feeling that one of the building societies is going to be encouraged to act like a bank. It might take the plunge, and have the freedom to have shareholders and perhaps to raise capital. If that happens, the concept of mutuality will go out of the window, and that will be a great pity.
§ Mr. Campbell-Savours
The Government will not be here long enough for that.
§ Dr. Marek
That may be.
My hon. Friend the Member for Thurrock (Dr. McDonald) put the case very succinctly, as did others of my hon. Friends. These societies will fade away unless something is done. It will not be a great affair of state if a small concession is given by the Government and the Bill is changed, but it will make a significant difference to quite an important section within society. It is not a financially important section, but it is important in other ways for our society.
I have not received any briefs or letters this year, although I received a number during the passage of last 970 year's Finance Act through the House. My hon. Friend the Member for Workington (Mr. Campbell-Savours) may be right in saying that the Minister will have some technical drafting reason why he cannot accept the new clause. In that case, I echo what my hon. Friend said, and hope that the Minister will examine the position carefully. I am sure that the friendly societies will open their books to him. If I am wrong, I apologise for wasting the time of the House. I shall not speak again next year during the passage of the Finance Bill. If I am right, the friendly societies will be prepared to open their books to the Minister and show him the difficulties that they face. There is no secret about those difficulties.
I hope that the Minister will say that he will take this matter seriously. There is genuine concern about the continuation of the friendly societies. I hope that the Minister will be prepared to redress the balance in next year's Finance Bill. That would be an eminently reasonable and sensible commitment to make. I shall not prolong the debate, as I should like to hear what the Minister has to say.
§ Mr. Ian Stewart
Although this has been a relatively short debate, it has been interesting. A number of hon. Members have discussed the position and recalled the debates that we had last year. Before I deal with the general points that have been made by Labour Members, I shall deal with one or two specific points. I was asked what the cost of the exemption for friendly societies would be. This is very difficult to quantify, but it may be up to £5 million — that is a highly provisional figure. I was then asked about the implications of this new clause. For reasons that I shall explain when I deal with the new clause, that is unquantifiable, but it could be a high figure.
The hon. Member for Thurrock (Dr. McDonald) referred to the EC life directive. It proposes to exempt mutual associations with a contribution of income of 500,000 ecu, or about £280,000, from its provisions. However, it is not related to tax exemptions. This is a purely administrative matter. The administrative provisions are separated from the tax and we should consider tax matters on their own merits.
The hon. Member for Thurrock also talked about the proposed abolition of SERPS and said that that would put business in the hands of life offices. The hon. Member for Workington (Mr. Campbell-Savours) made the rather offensive suggestion that the Government's decisions on friendly societies were taken as a result of pressure from the insurance companies. I repudiate that suggestion absolutely. My right hon. Friend the Secretary of State for Social Services, in making his proposals for the widening of the range of pension providers, specifically mentioned the possibility of including friendly societies.
I agree largely with the comments made by Labour Members about the value of the contribution made by friendly societies to the community. They perform a useful social purpose and I appreciate, as the hon. Member for Wrexham (Dr. Marek) said, that bodies of this kind have a mutual constitution that is not only feasible but suitable and which has undoubted advantages.
I have been accused by Labour Members of simply not understanding the nature of friendly societies. I could counter that by saying that the Opposition have simply not bothered to understand the tax implications of last year's 971 measures or of what they are now suggesting. As we should look at the question in a rather dispassionate fashion, I shall desist from that line.
The Government have done a number of things in the past 12 months that are helpful to friendly societies—for example, certain provisions of the Friendly Societies Act 1984. Clause 40 of the Finance Bill also envisages a number of other helpful provisions such as the backdating of policies to three months, which will now be allowed to friendly societies. This puts them on a par with the rest of the insurance industry. The Government are undoubtedly, and can perhaps be seen to be, favourable to the friendly societies, but the societies have been in decline. The figures are quite alarming. In 1950 there were about 55 orders with over 13,000 branches. Today, there are fewer than half that number of orders and about a quarter the number of branches. Over about the same period, the number of individual friendly societies has declined to 400 or below from about four times as many.
That decline has nothing to do with the tax treatment of the friendly societies' life business. It has, unfortunately, been the fact that they have been facing more competition, not just commercial competition from the industrial life offices and other competing institutions in life assurance, but competition from the development of the state retirement pensions scheme and welfare provision generally.
Many of the members of friendly societies are now getting older and towards retirement, if they have not already reached it. The problem of numbers has arisen because of the high wastage through death and retirement of the active members of the friendly societies, which has been at a greater rate than the recruitment of new members. It is difficult to say with limited statistics for a short period, but such information as I have is that over the past year or so there have been some slightly more encouraging signs about the level of recruitment. It has not reached a level that would replace the wastage, which would have to involve a considerable increase in recruitment, but the figures are not entirely without encouraging signs.
Friendly societies have recognised that there are major problems in their present role. The national conference of friendly societies wisely established a committee to consider their future and reappraise their role. The important thing to consider when dealing with their actual business is its nature. To judge from what Labour Members have said both on this occasion and during the passage of last year's Finance Act through the House, one would have thought that the business was heavily concentrated in life assurance of a kind that would be caught by the change in the tax-exempt limits that we introduced last year. That is not the case. Smaller societies are diverse, but generally speaking their business is not mainly of that kind.
The amendment could, in theory, benefit about 360 out of 400 of the centralised societies, and they have contribution incomes ranging up to £120,000, which is the figure in the amendment. Many of these societies are very little affected, if at all, by the 1984 Budget measures and therefore would not gain very much, if anything at all, from the proposed amendments. It is estimated that about half the benefits paid out by such societies are for sickness payments, benevolent grants and so on, the funds for 972 which are in any event tax exempt. Much of their life or endowment business is well below even the new limits which have been introduced. Much of it is for funeral provision. The figures are well below the £750 limit in last year's Budget.
Most societies do not seem to have been engaged in selling policies of the size which would have been affected by the change in the limit. For example, the 250 smallest societies have assets of about £80,000 in all. In a random sample of 25 of those societies—that is, 10 per cent.—which the registry carried out for me, not one of them had rules providing for death benefits of more than £500. Therefore, they are within the figure we set last year. On that basis, I find it very difficult to accept the points put forward by hon. Members this year and last year.
The hon. Member for Kingston upon Hull, West (Mr. Randall) said that, if the amendment was not passed, it would be impossible for small friendly societies to continue. The hon. Member for Workington (Mr. Campbell-Savours) said that, if this amendment was not taken, all small societies might be forced out of business.
§ Mr. Campbell-Savours
It is not so much what we are saying: it is what we are told by the organisations themselves. They have written to us, they have sent representatives to speak to us, and we are referring what they say to the Minister. Surely they know their business. Is the Minister suggesting they are misleading us in saying that current legislation is likely to wipe them out? If he is not saying that, what is he saying? They are saying their future is in peril. If they believe that, the Minister must address himself to what they believe. It is their business, and they know it better than the Minister.
§ Mr. Stewart
With respect, if that is exactly what they have been saying to the hon. Gentleman, they are being misleading, because that is not the information available to the registry; it is not what they have put to me. I am in touch with representatives of the friendly societies liaison committee and the friendly society movement. The figures we introduced last year were not plucked out of thin air.
§ Mr. Campbell-Savours
Whom have you met?
§ Mr. Stewart
I have met Mr. Madders; and, if Mr. Madders can demonstrate that the limits which were introduced in the Budget last year will have an effect other than that which we believe they will have, it is open to him to produce some indication of how that will be, but he has not done so. He has made assertions of the kind which the hon. Gentleman has made.
§ Dr. McDonald
In view of the remarks the Minister has made, will he undertake to meet Mr. Madders with me so that we can discuss these matters with Mr. Madders?
§ Mr. Stewart
I am quite willing to meet Mr. Madders and quite willing to talk to the hon. Lady independently. I am always ready to meet members of representative bodies.
§ Mr. Campbell-Savours
The Minister is frightened.
§ Mr. Stewart
I am not frightened of anybody. In discussions between representative bodies and Ministers, it is better if they are allowed to meet and discuss these things between themselves. If the Opposition—
§ Dr. McDonald
§ Mr. Stewart
I will not give way until I finish what I am about to say. If the hon. Lady and the Opposition have any material information to put forward, I hope they will do so, but they have had an opportunity in this debate and have totally failed. If they are meant to be representing the interests of the friendly societies, they ought to have done their homework. They ought to have found out about these societies, they ought to know the sort of information which I have been giving to the House, and they ought to be able to explain how the societies would be suffering. Now I will give way to the hon. Lady.
§ Dr. McDonald
Is the hon. Gentleman saying that he will not receive a deputation consisting of myself, Mr. Madders and others who are interested and involved in the friendly societies? That is extraordinary.
§ Mr. Stewart
It is not at all extraordinary. Mr. Madders is perfectly able to have access to me and to the registry, and I am perfectly ready to discuss these matters with him. The point I made seems to have offended the hon. Lady. Although she asked so charmingly for me to give way, I wish she would apply herself to the actual question which I put, which is that the application—
§ Dr. McDonald
Will the hon. Gentleman give way?
§ Mr. Stewart
No, not for the moment. If the hon. Lady is not prepared to let me answer the debate, it seems to suggest that she has no arguments to put forward.
Taxable limits do not have the dramatic effect that Labour Members claim. If they did, no doubt Labour Members and Mr. Madders would be explaining to me and to the Chief Registrar that that was the consequence of the changes. However, that has not been the case.
§ Dr. McDonald
The hon. Gentleman has been making extraordinary assertions about the sort of deputations that he will or will not receive. Is he really telling us that he will not receive an official Opposition spokesman plus whom ever that spokesman wishes to bring along? If so, that is extraordinary.
§ Mr. Stewart
I am perfectly ready to see Mr. Madders and other representatives of the friendly societies liaison committee, as I am ready to see representatives of the building societies or other bodies for which I have ministerial responsibility. I am also perfectly ready to see the hon. Member for Thurrock if she and her colleagues want to come and see me. However, I am not obliged to see representatives of the bodies for which I am responsible and Opposition spokesmen at the same time. If the hon. Lady wants to come and see me, I shall be happy to see her.
Unlike the hon. Member for Thurrock, I have an objective interest in the friendly societies. I want to see them prosper and flourish. I hope that they will be able to determine the reasons for the considerable decline and I am always interested to consider the financial, technical and tax aspects of their business because they are valuable bodies in our society.
The new clause would not be appropriate. If the benefit of tax exemption were passed on to policyholders, by giving more favourable terms, that would be contrary to reasonable and fair competition with the industrial life offices and others in the market place. If the benefit were not passed on, it would be used to subsidise either higher 974 management costs or the societies' other business. Neither seems to be a proper use for tax exemption on life assurance.
A more practical and, although technical, important reason why the new clause is not appropriate is that it would be wide open to abuse and exploitation. When a friendly society reached the limit of £120,000, it would only have to establish a new society alongside it—with the same management and the same officers — and double the amount of business could be done. When the new limit was reached, the process could be multiplied.
As the new clause would apply to all friendly societies, the scope for exploitation would be considerable. I do not expect that many of the traditional friendly societies would exploit the provision, but that is not the point. Because the more recently founded commercial societies are more adept at exploiting commercial opportunities, they would be able to do so and it would not be necessary to find pre-1966 or traditional societies for that purpose. However, those societies could also exploit the provision. On grounds of principle and practical implications, I suggest that the House should reject the new clause.
The friendly societies have set up a committee to consider their future and we ought to continue to keep their affairs under general review. A period of stability after the many recent changes would probably be in the interests of the friendly societies.
The new clause would be open to widespread exploitation and it would not have a dramatic effect on the smaller societies about which Opposition Members have expressed so much concern.
§ Dr. McDonald
We have heard extraordinary statements from the Economic Secretary about the future of friendly societies and the Government's treatment of them. He declared that friendly societies were declining for all sorts of reasons, some of which I am prepared to accept and that the change that the Government instituted in the tax regime had had no effect on them, and had done nothing to hasten their decline, and he suggested that Mr. Madders was giving misleading information to me and my right hon. and hon. Friends.
The letter from the Independent Order of Odd Fellows Manchester Unity Friendly Society, to which I have already referred, does not coincide with the Minister's view. It states:We find it difficult to understand why this government with its commitments to thrift and appeals to the nation to become a caring society should deal such a harsh blow to those who work voluntarily for the good of their fellow men in this field … We can only view the suggestion emanating from the Treasury that Branches and small Societies … should switch to taxable business as an admission that the new limit is unreasonable and unworkable in the necessity for Branches and small Societies to remain solvent.That is the view of a major order, not merely Mr. Madders. It sent the letter to the Chancellor of the Exchequer and was, presumably, willing to defend its remarks.
When the Economic Secretary replied to my hon. Friend the Member for Workington (Mr. Campbell-Savours) in Committee, he said:It is not our job to put friendly societies out of business … I was about to say that the Government have no intention of applying a fiscal system to friendly societies which would force them out of business. That was not our intention last year, and it is not our intention now." — [Official Report, Standing Committee B, 4 June 1985; c. 316.]To justify the Government's position, the Economic Secretary must say that the societies are declining and, 975 therefore, no longer matter, and that the previous tax changes are not in any way a cause of that decline. That simply does not stand up. It is astonishing that he cannot bring himself to discuss his reply with Mr. Madders, representatives of the friendly societies, some of my colleagues and me.
The Economic Secretary suggests that if the new clause is accepted the change in the tax regime would give friendly societies an unfair advantage in competition with life assurance companies, but it will not. He continues to fail to understand the nature of the organisations. They are small, democratic and run by their membership, and the possible abuse that he suggested will not occur in traditional friendly societies. If he believes that abuse will occur, why did the Government change the limit in 1980 and then put the regime in reverse in 1984?
The Government cannot support all their actions towards friendly societies. Either they were happy to double the limit to £2,000, as in 1980, or the Minister believes what he says, in which case it flies in the face of the way in which the friendly societies have operated for a long time. Friendly societies are more or less under the control of their members, and they would not set up a parallel organisation as he suggested.
The Economic Secretary said how sorry he was that distasteful remarks had been made about insurance companies. The tenor of his reply suggests—well, let us face it, insurance companies give money to the Conservative party. We are not sure how many or how much. Perhaps the hon. Gentleman would like to intervene and tell us. His imposition of harsh limits on friendly societies has hastened their decline.
§ Mr. Campbell-Savours
My hon. Friend asked about contributions. She will remember that the Labour party research department did some work on this for 1983. I had a list yesterday which showed that at least seven major assurance companies had given money to the Tory party—we are talking in terms of hundreds of thousands of pounds. Vast amounts of money are involved and they must have some bearing on how the Government think on these matters.
§ Dr. McDonald
I am grateful to my hon. Friend for that useful and relevant information. It makes us think that insurance companies will get their reward when the state earnings-related pension scheme is abolished.
The Economic Secretary to the Treasury rightly said that friendly societies undertake business other than insurance and that many do not engage in that type of business at all. The number of societies that want to engage in such business and the number of people who want to take out policies through friendly societies are such a tiny part of the insurance market that I do not understand the Government's attitude. By accepting new clause 2, the Government would allow that section of the market to continue. They would also allow people to continue to exercise their freedom of choice and to insure themselves through friendly societies, as did their forebears.
The Economic Secretary knows that friendly societies are beginning to decline, and he is hastening their demise, but he has not produced one sensible justification for that. 976 He has merely shown that he does not understand these mutual self-help organisations and the part that they have played in working-class life. They will not engage in commercial business or the abuses that he outlined. They simply do not operate like that. The post-1966 societies found a loophole, but they did not share anything of the ethos and customs of the traditional societies. The Economic Secretary should have grasped that by now. His failure to do so and his insistence that this little part of the market should be squeezed out of existence more rapidly will strengthen my right hon. and hon. Friends' resolve to vote for the new clause.
§ Question put, That the clause be read a Second time:—
§ The House divided: Ayes 167, Noes 238.978
|Division No. 266]||[9.17 pm|
|Abse, Leo||Faulds, Andrew|
|Alton, David||Field, Frank (Birkenhead)|
|Ashdown, Paddy||Fields, T. (L'pool Broad Gn)|
|Ashton, Joe||Fisher, Mark|
|Atkinson, N. (Tottenham)||Flannery, Martin|
|Bagier, Gordon A. T.||Forrester, John|
|Barnett, Guy||Foster, Derek|
|Barron, Kevin||Fraser, J. (Norwood)|
|Beckett, Mrs Margaret||Freeson, Rt Hon Reginald|
|Beith, A. J.||Garrett, W. E.|
|Benn, Tony||George, Bruce|
|Bennett, A. (Dent'n & Red'sh)||Gilbert, Rt Hon Dr John|
|Bermingham, Gerald||Godman, Dr Norman|
|Bidwell, Sydney||Golding, John|
|Blair, Anthony||Gourlay, Harry|
|Boothroyd, Miss Betty||Hamilton, James (M'well N)|
|Boyes, Roland||Hancock, Mr. Michael|
|Bray, Dr Jeremy||Hardy, Peter|
|Brown, Gordon (D'f'mline E)||Harman, Ms Harriet|
|Brown, Hugh D. (Provan)||Harrison, Rt Hon Walter|
|Brown, N. (N'c'tle-u-Tyne E)||Hart, Rt Hon Dame Judith|
|Brown, R. (N'c'tle-u-Tyne N)||Heffer, Eric S.|
|Bruce, Malcolm||Hogg, N. (C'nauld & Kilsyth)|
|Buchan, Norman||Holland, Stuart (Vauxhall)|
|Caborn, Richard||Home Robertson, John|
|Callaghan, Jim (Heyw'd & M)||Howells, Geraint|
|Campbell-Savours, Dale||Hughes, Dr. Mark (Durham)|
|Carlile, Alexander (Montg'y)||Hughes, Robert (Aberdeen N)|
|Carter-Jones, Lewis||Hughes, Roy (Newport East)|
|Clark, Dr David (S Shields)||Hughes, Sean (Knowsley S)|
|Clarke, Thomas||John, Brynmor|
|Clay, Robert||Jones, Barry (Alyn & Deeside)|
|Cocks, Rt Hon M. (Bristol S.)||Kennedy, Charles|
|Cohen, Harry||Kilroy-Silk, Robert|
|Coleman, Donald||Kirkwood, Archy|
|Concannon, Rt Hon J. D.||Lambie, David|
|Cook, Frank (Stockton North)||Leighton, Ronald|
|Cook, Robin F. (Livingston)||Lewis, Ron (Carlisle)|
|Corbett, Robin||Lewis, Terence (Worsley)|
|Cowans, Harry||Litherland, Robert|
|Cox, Thomas (Tooting)||Livsey, Richard|
|Craigen, J. M.||Lloyd, Tony (Stretford)|
|Cunliffe, Lawrence||Lofthouse, Geoffrey|
|Davies, Rt Hon Denzil (L'lli)||McCartney, Hugh|
|Davis, Terry (B'ham, H'ge H'l)||McDonald, Dr Oonagh|
|Deakins, Eric||McKelvey, William|
|Dewar, Donald||MacKenzie, Rt Hon Gregor|
|Dixon, Donald||McNamara, Kevin|
|Dobson, Frank||McTaggart, Robert|
|Dormand, Jack||McWilliam, John|
|Dubs, Alfred||Marek, Dr John|
|Dunwoody, Hon Mrs G.||Marshall, David (Shettleston)|
|Eadie, Alex||Martin, Michael|
|Eastham, Ken||Mason, Rt Hon Roy|
|Edwards, Bob (W'h'mpt'n SE)||Maxton, John|
|Ellis, Raymond||Meacher, Michael|
|Evans, John (St. Helens N)||Meadowcroft, Michael|
|Ewing, Harry||Michie, William|
|Fatchett, Derek||Millan, Rt Hon Bruce|
|Miller, Dr M. S, (E Kilbride)||Sheerman, Barry|
|Mitchell, Austin (G't Grimsby)||Sheldon, Rt Hon R.|
|Morris, Rt Hon J. (Aberavon)||Short, Ms Clare (Ladywood)|
|Oakes, Rt Hon Gordon||Short, Mrs R. (W'hampt'n NE)|
|O'Brien, William||Silkin, Rt Hon J.|
|O'Neill, Martin||Skinner, Dennis|
|Park, George||Snape, Peter|
|Parry, Robert||Stott, Roger|
|Patchett, Terry||Strang, Gavin|
|Pavitt, Laurie||Straw, Jack|
|Pendry, Tom||Thompson, J. (Wansbeck)|
|Penhaligon, David||Thorne, Stan (Preston)|
|Pike, Peter||Tinn, James|
|Powell, Raymond (Ogmore)||Torney, Tom|
|Prescott, John||Wainwright, R.|
|Randall, Stuart||Wareing, Robert|
|Redmond, M.||Weetch, Ken|
|Richardson, Ms Jo||White, James|
|Roberts, Allan (Bootle)||Wilson, Gordon|
|Roberts, Ernest (Hackney N)||Winnick, David|
|Robertson, George||Wrigglesworth, Ian|
|Robinson, G. (Coventry NW)||Young, David (Bolton SE)|
|Rooker, J. W.||Tellers for the Ayes:|
|Rowlands, Ted||Mr. Frank Haynes and|
|Ryman, John||Mr. Allan McKay.|
|Aitken, Jonathan||Colvin, Michael|
|Alexander, Richard||Coombs, Simon|
|Amess, David||Cope, John|
|Ancram, Michael||Cormack, Patrick|
|Ashby, David||Corrie, John|
|Aspinwall, Jack||Couchman, James|
|Atkins, Robert (South Ribble)||Cranborne, Viscount|
|Baker, Rt Hon K. (Mole Vall'y)||Currie, Mrs Edwina|
|Baker, Nicholas (N Dorset)||Dickens, Geoffrey|
|Baldry, Tony||Dorrell, Stephen|
|Banks, Robert (Harrogate)||Douglas-Hamilton, Lord J.|
|Batiste, Spencer||Dover, Den|
|Bellingham, Henry||du Cann, Rt Hon Sir Edward|
|Bendall, Vivian||Dunn, Robert|
|Bennett, Rt Hon Sir Frederic||Eggar, Tim|
|Bevan, David Gilroy||Emery, Sir Peter|
|Biff en, Rt Hon John||Evennett, David|
|Biggs-Davison, Sir John||Fairbairn, Nicholas|
|Blaker, Rt Hon Sir Peter||Fallon, Michael|
|Body, Richard||Farr, Sir John|
|Bonsor, Sir Nicholas||Favell, Anthony|
|Boscawen, Hon Robert||Finsberg, Sir Geoffrey|
|Bottomley, Peter||Fletcher, Alexander|
|Bottomley, Mrs Virginia||Forman, Nigel|
|Bowden, A. (Brighton K'to'n)||Forsyth, Michael (Stirling)|
|Bowden, Gerald (Dulwich)||Forth, Eric|
|Boyson, Dr Rhodes||Fraser, Peter (Angus East)|
|Brandon-Bravo, Martin||Gale, Roger|
|Bright, Graham||Garel-Jones, Tristan|
|Brinton, Tim||Gilmour, Rt Hon Sir Ian|
|Brown, M. (Brigg & Cl'thpes)||Goodhart, Sir Philip|
|Browne, John||Gorst, John|
|Bruinvels, Peter||Gower, Sir Raymond|
|Bryan, Sir Paul||Grant, Sir Anthony|
|Burt, Alistair||Gregory, Conal|
|Butcher, John||Griffiths, Sir Eldon|
|Butler, Hon Adam||Grist, Ian|
|Butterfill, John||Grylls, Michael|
|Carlisle, John (N Luton)||Gummer, John Selwyn|
|Carlisle, Kenneth (Lincoln)||Hamilton, Hon A. (Epsom)|
|Carlisle, Rt Hon M. (W'ton S)||Hamilton, Neil (Tatton)|
|Carttiss, Michael||Hampson, Dr Keith|
|Cash, William||Hargreaves, Kenneth|
|Chalker, Mrs Lynda||Harris, David|
|Chapman, Sydney||Hayhoe, Rt Hon Barney|
|Churchill, W. S.||Heathcoat-Amory, David|
|Clark, Dr Michael (Rochford)||Heddle, John|
|Clark, Sir W. (Croydon S)||Henderson, Barry|
|Clarke, Rt Hon K. (Rushcliffe)||Higgins, Rt Hon Terence L|
|Clegg, Sir Walter||Hill, James|
|Cockeram, Eric||Hind, Kenneth|
|Hirst, Michael||Raison, Rt Hon Timothy|
|Howard, Michael||Rees, Rt Hon Peter (Dover)|
|Howell, Rt Hon D. (G'ldford)||Rhodes James, Robert|
|Jenkin, Rt Hon Patrick||Rhys Williams, Sir Brandon|
|King, Roger (B'ham N'field)||Ridley, Rt Hon Nicholas|
|Knight, Greg (Derby N)||Ridsdale, Sir Julian|
|Knowles, Michael||Rifkind, Malcolm|
|Lang, Ian||Robinson, Mark (N'port W)|
|Lawler, Geoffrey||Roe, Mrs Marion|
|Lawson, Rt Hon Nigel||Rost, Peter|
|Lee, John (Pendle)||Rumbold, Mrs Angela|
|Lewis, Sir Kenneth (Stamf'd)||Ryder, Richard|
|Lightbown, David||Sackville, Hon Thomas|
|Lilley, Peter||Sainsbury, Hon Timothy|
|Lloyd, Ian (Havant)||Sayeed, Jonathan|
|Lord, Michael||Shaw, Giles (Pudsey)|
|Luce, Richard||Shaw, Sir Michael (Scarb')|
|Lyell, Nicholas||Shelton, William (Streatham)|
|McCrindle, Robert||Shepherd, Colin (Hereford)|
|McCurley, Mrs Anna||Shepherd, Richard (Aldridge)|
|Macfarlane, Neil||Shersby, Michael|
|MacKay, Andrew (Berkshire)||Silvester, Fred|
|MacKay, John (Argyll & Bute)||Sims, Roger|
|McNair-Wilson, P. (New F'st)||Skeet, T. H. H.|
|McQuarrie, Albert||Smith, Tim (Beaconsfield)|
|Madel, David||Speed, Keith|
|Major, John||Speller, Tony|
|Malins, Humfrey||Spencer, Derek|
|Malone, Gerald||Spicer, Jim (W Dorset)|
|Maples, John||Squire, Robin|
|Marland, Paul||Stanbrook, Ivor|
|Marlow, Antony||Stanley, John|
|Marshall, Michael (Arundel)||Steen, Anthony|
|Mather, Carol||Stern, Michael|
|Maude, Hon Francis||Stevens, Lewis (Nuneaton)|
|Mawhinney, Dr Brian||Stevens, Martin (Fulham)|
|Maxwell-Hyslop, Robin||Stewart, Allan (Eastwood)|
|Mellor, David||Stewart, Andrew (Sherwood)|
|Merchant, Piers||Stewart, Ian (N Hertf'dshire)|
|Miller, Hal (B'grove)||Stokes, John|
|Mills, Iain (Meriden)||Stradling Thomas, J.|
|Mills, Sir Peter (West Devon)||Tapsell, Sir Peter|
|Miscampbell, Norman||Taylor, John (Solihull)|
|Mitchell, David (NW Hants)||Taylor, Teddy (S'end E)|
|Moate, Roger||Temple-Morris, Peter|
|Montgomery, Sir Fergus||Thompson, Donald (Calder V)|
|Moore, John||Thompson, Patrick (N'ich N)|
|Morris, M. (N'hampton, S)||Thorne, Neil (Ilford S)|
|Moynihan, Hon C.||Thurnham, Peter|
|Mudd, David||Townend, John (Bridlington)|
|Murphy, Christopher||Tracey, Richard|
|Neale, Gerrard||Trotter, Neville|
|Needham, Richard||van Straubenzee, Sir W.|
|Nelson, Anthony||Vaughan, Sir Gerard|
|Newton, Tony||Walker, Bill (T'side N)|
|Nicholls, Patrick||Waller, Gary|
|Osborn, Sir John||Ward, John|
|Ottaway, Richard||Wardle, C. (Bexhill)|
|Page, Sir John (Harrow W)||Watson, John|
|Page, Richard (Herts SW)||Watts, John|
|Parris, Matthew||Wells, Sir John (Maidstone)|
|Patten, Christopher (Bath)||Wheeler, John|
|Pattie, Geoffrey||Whitfield, John|
|Pawsey, James||Wolfson, Mark|
|Pollock, Alexander||Wood, Timothy|
|Portillo, Michael||Yeo, Tim|
|Powell, William (Corby)|
|Powley, John||Tellers for the Noes:|
|Prentice, Rt Hon Reg||Mr. Tony Durant and|
|Price, Sir David||Mr. Michael Neubert.|
§ Question accordingly negatived.