§ 3.36 p.m.
§ THE MINISTER OF STATE, DEPARTMENT OF HEALTH AND SOCIAL SECURITY (LORD ABERDARE)
My Lords, on behalf of my noble friend Lord Limerick, I beg to move that the House do now resolve itself into Committee on this Bill.
§ Moved, That the House do now resolve itself into Committee—(Lord Aberdare.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The EARL OF LISTOWEL in the Chair.]
§ Clause 1 agreed to.
§ Clause 2 [No authorisation for insurance company under control etc. of unfit persons]:
§ THE EARL OF SELKIRK moved Amendment No. 1:
Page 2, line 16, at end insert—
("Provided that as soon as may be after deciding not to issue such an authorisation by reason of the matters specified in this subsection the Secretary of State shall serve on the company and the controller or manager in question a notice in writing stating that he has so decided and the identity of the controller or manager in question and the grounds on which it appears to the Secretary of State that such controller or manager is not a fit and proper person to be associated with the company, and stating further that the company and the controller or manager in question may within
one month from the date of the service of the notice, make written representations to the Secretary of State, and, if they so request, oral representations to an officer of the Department of Trade and Industry appointed for the purpose by the Secretary of State, and when representations are made in accordance with this section the Secretary of State shall take them into consideration.")
§ The noble Earl said: I should declare that I am a director of a small insurance company, though I shall be speaking entirely for myself in the course of these remarks to-day. May I express the sincere hope that the Minister will turn up on an early occasion, but in the meantime I shall continue to deal with the Amendment. In the opinion of many noble Lords this Amendment raises a point of very real principle, and I suggest that in examining it we take into consideration Amendments Nos. 19, 30, 32 and, in particular, 47, which deals with certain procedural matters. The point which I am raising concerns the procedure required to establish that a man is not a fit and proper person to hold certain office. This matter was referred to—
§ LORD DIAMOND
I hesitate to interrupt the noble Earl, but perhaps in the circumstances he will welcome an intervention until the Government are able to provide somebody who is willing to listen to him. The noble Earl referred to a number of Amendments. I am not sure whether he intends that those Amendments should be formally taken together, because some of them are Amendments to which the noble Earl's name is not attached but to which my name or the Government's name is attached. I take it that what the noble Earl has in mind is to discuss matters which include problems raised by those other Amendments, without preventing debate on them when they are reached.
THE EARL OF SELKIRK
I welcome the noble Lord's intervention for two reasons. I agree entirely with him and I said that the other Amendments should be taken into consideration. I am not proposing at this moment to move more than the first Amendment, so as to enable a general discussion to take place on the points raised by the other four Amendments to which I have referred. Most of them contain points of detail, but do not necessarily deal directly with the point of principle. If the Government agree, perhaps we may proceed on that basis. 253 In this Amendment we are not in any way quarrelling with the powers for which the Government are asking; we are asking about the procedure by which those powers will be exercised. I would remind the Committee that this Bill started—and we are very glad about it—in this House; and it is important, therefore, that we should make up our minds what principles we are prepared to accept. We are here under no pressure from the other place. It is not that they have accepted the principle and, perhaps, that we have to run along with it. That does not apply here. First of all, let me remind your Lordships that this Bill has been welcomed on all hands. It has been welcomed by the industry and it has been welcomed by all sides of the House. No Amendment appears on the Marshalled List to any of the main, instrumental clauses. Clauses 12 to 20. No comments upon those clauses have appeared at all.
This Amendment and the principle I am discussing applies only to intervention concerning individual persons, and nothing else. This intervention can take place—and I think perhaps it is right to remind your Lordships of this—in the case of anyone who is a director of an insurance company, a chief executive, a manager, a chief accountant, I believe an actuary (because a company is accustomed to work under the advice of an actuary), anyone in an associate company and anyone holding a controlling interest either by himself or with associates. This power can be used, under Clause 2, by the Minister's refusing to authorise the company to begin business; under Clause 11(1)(e) the power can be exercised in relation to any of the powers in the Bill under Clauses 12 to 20; there is a special clause, Clause 22, dealing with managers; and Clause 32 deals with changes of controller or manager. In each of those cases the procedure which the Government are asking for here is that they should be permitted to identify the person and tell him he is not a fit and proper person for his office, but giving no grounds whatever for that assessment. He may make representations in writing or he may see an officer of the Department, but he has no appeal. He does not know what accusations are made against him; no reasons are given, and he loses his office.
254 This raises the sort of relationships between employer and employee which, in certain circumstances, can be quite intolerable. I submit that it breaks almost every rule of law; and, indeed, there is a passage in Magna Charta which runs very close to this point. That says:No one shall be beseiged or dispossessed of his property but by due course of law";and a man's skill of hand or mind is, of course, the most important property which he possesses. If I remember rightly, even the Doge of Venice used to let his victims hear the accusations against them. I think they were behind a screen so that they could not see the person, and I do not suppose it was of very much good to them. But in this case the man is not even to know the accusations which are brought against him.
I know that in the 1967 Act—I think it was in Section 61—there was a rather similar provision. I remember its being discussed in this House, and I confess that I have been anxious about its implications since that time. I have never liked what was arranged then. It was the noble Lord, Lord Brown, who moved the clause from the Front Bench, if I remember rightly. Lord Erroll of Hale was on the other side; and we had some discussion on it at that time. I have to say this to the Government: that if they really think it is necessary to break what I would call the principles of natural justice, jus gentium, then the burden of proof lies on them to show us that it is really necessary. Because rules of natural justice are not just gimmicks, like clauses in a Finance Act, or something of that kind. They are based on good reason and on fairness, and they avoid difficulty. They avoid, above all, vendettas, which can arise in certain circumstances. I submit that if we allow a principle of this sort to go through and it is misused, it will bring the whole of this Bill, when it is an Act, into contempt, and I believe that would be an extremely unfortunate thing to do.
I do not suggest for one moment that the Department would in any way misuse the powers as at present proposed, and I should have no fear, at least for the next few years, that this would happen. But here we are laying up precedent, and this is the real anxiety which I think most of us feel. If I may say so, it is worth remembering that when Hitler came to power all the instruments of government had already been created by his 255 predecessor, Bruening, for reasons which were entirely different from those for which Hitler used them. In the future, any Government could say, "In 1967 a respectable Labour Government made a rule like this; in 1973 a respectable Conservative Government also made a rule like this", and they could go on to extend this rule and allow the arbitrary discharge of personnel who were said not to be fit and proper persons from industry, from the professions, from the trade unions—in fact, from any organisation in the country. It could be extended bit by bit, further and further; and that, to my mind, is a matter of very real anxiety which I think many Members of this Committee feel.
As regards the solution, two proposals are made here, both of which I should like to see adopted. The first, which is made in this particular Amendment, is that the grounds should be stated why it is alleged that any man is unfit to fill the office which he holds or proposes to hold. The second, which arises under Amendment No. 47, is that there should be an appeal to a High Court judge in Chambers. Suppose the grounds stated are true: is any man going to appeal against them? He is taking a considerable risk in appealing against a criticism of his character which is in fact true. Suppose they are untrue. Then I think the Department of Trade and Industry would be very lucky indeed, and very happy that this should be brought out. Suppose, in the third case, they are half true. What then? Somebody has to make a very difficult decision—I make no bones about it—and there are very delicate matters which have to be decided.
It may be something to do with the man's private life. It may be that he is wanton in his behaviour in private life in, perhaps, 101 different ways. How far should this be considered relevant? I do not think that by keeping it secret you are making it any better. I can see no reason why a man should not be brought up to what is considered the required standard—and I do not mind how high or how penetrating the analysis is. I should say without hesitation that at certain stages of wanton private life a man is unfit to carry the responsibility of looking after the savings of widows. I would set a very high standard indeed, but I think the man should be told that. 256 The test, which I believe goes back to Roman times, should be whether a wise man would entrust his money to this particular person. It is a pretty good test to try, and I would try it on the widest possible lines.
I shall refer only shortly to the appeal procedure. Our Amendment gives consideration to the person to whom an appeal should be made, but I think it is of the utmost importance that somebody outside the Department should say that the grounds are reasonable. Here we have suggested a judge of the High Court. On this point I hope the noble and learned Lord, Lord Stow Hill, will speak at greater length. Here you have a man who is independent and a man of discernment, one to whom evidence can be given in complete confidentiality. I would also add that I am not sure that this would not be to some extent a certain protection to the Department, to ensure that they are not making a mistake of the very first order.
I think the Government are concerned about this question. The noble Earl, Lord Limerick, in winding up on Second Reading, referred to the Parliamentary Commissioner. I do not think that that suggestion will do, and I would say why. First, the only access to the Parliamentary Commissioner is through a Member of Parliament. If this is a fundamental right, you should not depend on the kindness or willingness of a Member of Parliament to co-operate. Secondly, there is no maladministration here at all. Parliament has given the Secretary of State power to come to a decision without telling anybody; there is no maladministration there. The only conceivable maladministration would arise were he not to consider the representations made by the accused person. This, but nothing else, might be a matter of maladministration. Moreover, the Parliamentary Commissioner is not there for the benefit of the public; he is there to help Members of Parliament. I do not think that, as at present established, the Parliamentary Commissioner will be of any use at all.
I have spoken generally, but I hope that the Government will look carefully at the arrangements which we have made. I do not think we want to make statutory something which we should not like to have in our own private lives. It would be most undesirable to give the hallmark 257 of statutory power to something that we should ourselves find disagreeable in our private lives. Then there is the question of precedent. We are setting something of a precedent here. I do not know how far this malign influence might go; it might spread wider and become intolerable. In these circumstances I beg to move.
§ 3.51 p.m.
§ LORD BROWN
One cannot but have sympathy with what the noble Earl has said because clearly the Bill as it stands involves a very serious breach of an important principle. Nevertheless, I hope the Government will not accept the Amendment. I can remember, some years ago, the noble and learned Lord, Lord Gardiner, when on the Woolsack, pointing out that principles were very important things but that it was doubtful whether there was any absolute principle. The question of whether to apply a principle to a particular use is always a question of the circumstances themselves. Lots of people fool themselves into believing that they will follow certain principles to the death; but in the course of their lives will come across situations where, in the interests of their families or in social interests or for the overall good of the largest number, the principles have to be broken. I think that this is one of those cases.
Relying on recollection, because I no longer have access to the papers, I believe that I am right in saying that it was the insurance industry themselves who came forward and made the point that if the person who was blackballed—I think that is what it amounts to—were to be put in a position where he could demand the grounds on which he had been blackballed and to go further and have the right of appeal, this would effectively dry up the sources of information through which the Government or a Department of Government could get rid of undesirable persons in the insurance industry. We all know of the serious tragedies that have taken place in this industry as a result of crooks operating in it. We must be aware that no Government Department could undertake to carry out a continuous audit of all insurance companies' operations and of the way in which individuals within them were discharging their responsibilities. Even the stringent provisions of the 1967 Companies Act—and 258 they were stringent—failed to prevent a series of tragedies which must have affected hundreds of thousands of people in this country who, having paid their insurance premiums found themselves without the necessary legal cover for running motor cars and so on. I believe that the exigencies of this situation, which are unusual in commercial terms, justify the wording of the Bill as it stands.
What are the unusual circumstances? I do not know whether there are any other industries which take the money first and then give you the service for which you have paid. This is so in the case of insurance premiums. That particular service might extend over one year or over many more years into the future. You therefore must rely on the good faith and continuance of that company in commercial practice to get your money's worth.
We know that this is, that it has been but I hope will not continue to be, one of the great happy hunting grounds of the crooks who want to make a lot of money quickly—crooks who, after collecting the premiums, bolt to another country. This has happened. The insurance industry know their own personnel from company to company and have a much shrewder idea than any Government Department of who is likely to behave in this manner. If they are to come forward with this extremely important information, they require protection. If the information has to be disclosed to the person involved and that person is to have a right of appeal, I think that would be informants will feel themselves put at such risk that the information will not be forthcoming. From recollection, I believe that the insurance industry themselves made that comment.
For this reason I think that a very important principle—and I sympathise with the noble Earl—has to be broken on this occasion in the interests of thousands, perhaps millions, of people who will otherwise suffer severely. If the noble Earl's Amendment were accepted, I think it might have the effect of protecting a small number of people who could conceivably be penalised by being forced to leave the insurance company in which they worked at the cost of penalising thousands and perhaps hundreds of thousands of people who might lose substantial sums of money 259 which they could not afford to lose. If one takes a balance between the discomfiture (possibly the injustice to) and the effects on the career of single individuals and the risk otherwise involved, then I think that this principle on this occasion must be broken.
§ 3.58 p.m.
§ LORD ALDINGTON
May I declare an interest? I think it is your Lordships' wish that those of us connected with insurance companies should try to contribute from our knowledge and experience to the discussion on this very important Bill. I happen to be chairman of one of the larger composite insurance companies. I am sorry I was not able to be present at the Second Reading debate, which came too soon after my return from a visit overseas on the business, among other things, of that company. Like those noble Lords who sought to contribute to the Second Reading debate, I shall be speaking as an individual and not as representing either the insurance industry or the company of which I am chairman.
I am not now going to make a Second Reading speech, but I should make it clear that the purpose of the Bill demands my full support as I think it commands the full support of practically every noble Lord. But the more I have read the Bill the more I have been troubled by the dilemma which was frequently mentioned on Second Reading and which is really the main subject of this Amendment. This is the dilemma that the Government (and I suppose the industry, too) face in knowing that because of the particular trust insurance companies have with funds paid in advance, they must so organise their affairs (or, if you like, have their affairs so organised for them) that there is maximum protection for the public; while, to use the words of my noble friend Lord Selkirk, not wishing to depart from or to contravene the principles of natural justice. Nor do I think we wish to upset the general basis upon which private industry and private commerce is conducted in this country.
This particular Amendment refers more to the dilemma between natural justice on the one hand and the need to protect on the other hand. There are a number of other Amendments and other points on clauses in the Bill which are more con 260 cerned with, perhaps, interference with management and boards by the Government and how far they should be governed. But on this point I am wholly behind the Amendment and the content of the speech of the noble Earl. I would go so far as to say, as a private individual, that if it seems that the terms of natural justice may threaten the absolute security that the Government seek under the Bill, we should prefer natural justice. I think that is why we sit in your Lordships' House. We are all aware that there have been discussions between the British Insurance Association and other bodies representing the industry on the one hand, and officials of the Department of Trade and Industry on the other. Those discussions have been aimed at securing the best workable arrangements which may be arrived at between the Government and the experts of the industry. But we have a duty that goes above that, the duty to see that natural justice is obeyed and, whatever the special needs and difficulties of the insurance industry may be, that we do not so alter and distort the relationship of Government and industry as to threaten the proper carrying on of insurance or create a precedent which would be very bad in the hands of any Government for this or any other industry.
It is in those terms that I shall be asking the Committee to consider a number of points that arise on other clauses in the Bill. But to return to this Amendment, what is wrong with an appeal procedure? The only thing that I can see is wrong is the point mentioned by the noble Lord, Lord Brown: that the preliminaries to the appeal procedure, the statement of case, and the appeal itself might "blow" the source of information. So what? I think it better that the source of information should be "blown" rather than that we should so contravene the principles of natural justice as to put the whole career and livelihood of a man in jeopardy—or indeed destroy it—without giving him or the people with whom he is working a chance of knowing what case the man has to answer. The noble Lord, Lord Brown, said that this was very much like blackballing a man, presumably from a club. But there is a distinction between the right to join a club of any kind and jeopardising a man's livelihood. Of course I agree that we wish to get rid of the crooks in the industry, but even a crook has to do 261 things in order to exercise his crookedness. This Bill is rightly drafted to give the Government more power to look at the facts about an insurance company, to look at the figures, so that they may have a better chance of knowing the truth about how the business of the company is handled. Through regulations which we have not yet seen, the Government are to be enabled to set out more strict criteria than has so far been the case.
I submit that we should not at this point he looking at the fitness of a particular individual without bearing in mind that there are a whole lot of other powers in the Bill to protect the policy holder. Of course I wish to see that those powers are properly used. It is as much in the interests of policy holders as of the industry generally that the industry should be conducted properly and that the Government should be enabled to supervise it properly. That is why, in general, I support the powers in the Bill. But it does not mean that because one supports those powers one has to go contrary to the principles of natural justice.
There is one other point relating to the Ombudsman. I agree that the Ombudsman is not a suitable appeal authority. The Act which set up the Ombudsman provided that the Government Department concerned could prescribe that he did not publish any information which the Department did not wish him to publish. All we should be left with, therefore, would be the unstated reasons of the Ombudsman supporting the unstated reasons of the Secretary of State—which does not seem to me to be right—without enabling a man who is accused to know of what he is accused. Therefore, I support the Amendment.
§ 4.5 p.m.
§ LORD CITRINE
Anybody who in one way or another has had anything to do with the removal of people from office without those people knowing why they have been removed must he in sympathy with the broad principles of this Amendment. I cannot rid myself of the thought that all kinds of reasons may be adduced as to why a person should be removed from office. That must happen thousands of times in industry generally when workers are sacked and no reason is assigned. While it is true that in recent 262 years some measure of redress has been given, that can still take place. It is the administration of this which puzzles me. The Amendment seeks to give a right of appeal. But a right of appeal to whom?—a right of appeal to the very man who has already declared that he sees grounds why a person is unfit. That, in substance, is wrong. If there is to be a right of appeal at all, it should be to some uncommitted authority; that is to say, to some body which can take an impartial view of the matter: certainly not an appeal to a person who has already committed himself and who, by the ordinary factors of life, will seek to substantiate the decision he has already made. That is the first weakness that I see in the Amendment.
The second weakness is the assignment of reasons. We know that with regard to a number of institutions, particularly the nationalised industries, there is a proviso that people may remain in office so long as they are fit to hold that office, and their fitness is determined by the Minister appointing them. I imagine that there must be dozens of cases where people in high office have done something that is indiscreet—kept the wrong sort of company from the point of view of their personal integrity, for example, or something of that kind—which could never be assigned in writing by a Minister. He would never be so foolish as to do so, because it would commit him to the need to furnish proof which probably never could be furnished. I see the difficulty of the Minister in this matter as well as that of the person declared unfit. I am also puzzled about how this would work from the point of view of the privacy of the appeal. Would it be possible to keep something of that kind completely private between the company or the individual concerned and the Minister? Would this sort of controversy, if I may so call it, about fitness be dealt with in that way? Or could it become a matter of public controversy? I can see all reasons as to how something of this kind would leak out. And if an appeal were made, I should not be in the least surprised to find in the public Press people taking sides in the case even while an appeal was pending, because I see no reference here to any question of contempt for anything said while an appeal was pending. So while I am in sympathy with this Amendment, I cannot see how it will work. I think in principle 263 it would have to be extended in its application to a considerable number of appointments that to-day are simply dependent for their permanency on the views of the Minister to whom the services are related. I am not trying to be controversial, but simply putting forward a genuine opinion. I honestly do not see how it will work.
§ VISCOUNT MASSEREENE AND FERRARD
I have nothing to do with insurance companies, apart from being a policy holder, but Clause 2(1) does rather smack of the Star Chamber. The noble Lord, Lord Brown, put forward the argument that if this Amendment were included in the Bill it would make people afraid to come forward with evidence about a proposed controller or manager. I am surprised to hear that. I realise that we may have gangsters in betting shops and night clubs, but I have never thought that we have them in insurance companies. But, as I say, I know little about insurance companies. But suppose you have gangsters in insurance companies. It could also work vice versa in that you might have somebody who was a gangster, whom the Secretary of State did not know was a gangster and who might inform the Secretary of State that somebody most suitable to be a controller or manager of an insurance company was not suitable. The Secretary of State might fall for this. I am not saying that he would, of course, because as a Secretary of State he is very much clued up.
The noble Lord, Lord Citrine, said that he thought the appeal ought not to go to the Secretary of State. But we have various Acts where an appeal does go to the Secretary of State and not to an outside body. The Secretary of State is completely unbiased and above corruption. I fear that if an appeal went to an outside body there would be a great deal of publicity in the Press which might be harmful to the individual concerned. Surely it should not be leaked to the Press. I favour the Amendment because, as I have said, I think it rather smacks of the Star Chamber that a man can be dismissed and lose his livelihood and not have the opportunity to defend himself.
§ LORD CITRINE
So that I am not unintentionally misrepresented, I should like to point out that I never suggested 264 that an appeal should rest with an outside body.
VISCOUNT DE L'ISLE
I think I ought to begin by declaring an interest, as I was unable to be in your Lordships' House on Second Reading. I am the chairman of a composite insurance company. I do not claim to be an expert in insurance, but I have some knowledge of it over many years. I rise to support my noble friend's Amendment because I believe it goes to the heart of the Bill. Like my noble friend Lord Aldington, I believe that in its essence this is a necessary Bill. All of us who are in any way connected with the insurance industry are most anxious to see that it is conducted properly within the law and for the greatest possible security of the policy holders. Because it is a highly competitive industry, nationally and internationally, it is even more important that the rules which are made for its conduct by the law should be equitable, just, practicable and limit its operation to the area in which it is proper and in the public interest. I do not believe it is right for any Minister advised by a great Department of State to be able to say on his ipse dixit that a man engaged in an important industry is unfit unless the individual who is harmed by that bias can go to an external arbitrator to get his case heard. There are always doubts and difficulties. After all, if a man who feels himself to be injured does not want publicity, he can consent to what has been done.
There always has been, and I feel always will be, a struggle between the claims of the Administration for administrative order and perfection and what my noble friend has referred to as natural justice. Although I do not feel it is likely that the organisation in which I work, or that in which my noble friend Lord Aldington works, would be directly affected by this Bill, as a Member of your Lordships' House, in this matter I think I ought to be on the side of the individual. I should not like to see any man, who may or may not in the distant past have done something of which he is not proud, for ever blacklisted by the Department. It is no good pretending that Departments do not have lists of various kinds, try to cover it up as you will. They do. They have lists of people they want on Commissions; and I have no doubt, when 265 necessary, they will have lists of people who they never want to see acting.
I do not think that this power which is claimed to be taken under Clause 2 and the associated clauses is necessary for the proper conduct of the insurance industry. It is said that informers would not give information if their source had to be revealed. I admit that there is some difficulty in that; but I believe that if the hearing was in chambers, as my noble friend seeks, and only the judgment made public, the Department would have its sources of information just as surely as if there was no right of appeal.
We have come to the heart of the matter at the very beginning of the Committee stage. We shall be reverting to this matter on later clauses, but I, for one, am glad to have had the opportunity at the beginning of this Committee stage to say that I support my noble friend Lord Selkirk. I ask the Government to look at this again most carefully, because I am sure that the strong libertarian instinct on which we have been for so long reliant will arise in all parts of the Committee. I think that the Government should think carefully between now and the Report stage, and listen intently to the remarks that some of us will make on the later clauses.
§ 4.20 p.m.
§ LORD STOW HILL
I support entirely, if I may say so, the three noble Lords opposite me who have spoken in favour of this Amendment. May I say that I share the warmth of feeling which I think we have all noticed in the admirable introductory speech of the noble Earl, Lord Selkirk.
The actual Amendment we are dealing with simply relates to the grant of an authorisation by the Secretary of State under Section 61 of the Companies Act 1967. The noble Earl linked with it, I think perfectly rightly, a number of other Amendments which appear later in the Marshalled List and have almost exactly the same objective as is included in the Amendment which he was formally moving. Before going further, may I turn to my noble friend behind me, who indicated that he was in sympathy with the Amendment but had some doubts as to how it would operate. In the first place, he said that surely there should be an appeal and it should be an appeal not to 266 the Secretary of State (who, in the assumed circumstances, will already have been committed) but to some outside authority. If my noble friend could find time just to, look forward to page 9, Amendment No. 47, he will see that that Amendment provides exactly what he is seeking; the appeal goes to a judge of the Queen's Bench Division.
My noble friend then said that there may be a great deal of public comment if proceedings are taken under the terms set out in the Bill, if amended as proposed, and he went on to query whether this was desirable and whether the law of contempt would be applicable in this case. If the noble Lord would again be so good as to look at the Amendment, which provides for an appeal to a learned judge of the Queen's Bench Division, he will see that it is specifically provided that the learned judge, on the application of any of the parties, may conduct the hearing in Chambers—that is to say, the public not being present—though he must deliver his judgment in public. On the question of the law of contempt, quite clearly the law of contempt would apply to a proceeding of this sort. I hope, therefore, that my noble friend, sympathising as he does with the main purpose of the Amendment, will find his anxieties are fully met in Amendment No. 47 and that in those circumstances he will feel able wholeheartedly to support the proposal in this group of Amendments.
I should like, in particular, to follow in the steps of the noble Earl, Lord Selkirk—steps which were also followed by the noble Lord, Lord Aldington. They both referred to the principles of natural justice. As was said in the course of our Second Reading debate, there are after all committees of clubs and domestic tribunals of all sorts; and this kind of concept is not altogether new to our thinking. I remember some years ago appearing before the noble and learned Lord, Lord Denning, sitting as President of the Court of Appeal, when the question of this "domestic jurisdiction", as it is often called, was under examination by the court. The noble and learned Lord and his colleagues very politely but very firmly cut my clients and me down to size (which we all deserved) and delivered a memorable 267 judgment which has frequently been referred to. One sentence of it in particular has often been quoted since then, and if I may, I should like to read this to your Lordships. What the noble and learned Lord said was this:Although the jurisdiction of a domestic tribunal is founded on contract, express or implied, nevertheless the parties are not free to make any contract they like. There are important limitations imposed by public policy. The tribunal must, for instance, observe the principles of natural justice. They must give the man notice of the charge and a reasonable opportunity of meeting it.In the terms of the Bill as at present drafted, that is exactly what is not being done. An individual is to be stigmatised by a Secretary of State, behind closed doors and Oil the advice of members of his Department, as a swindler—that is what the words "not a fit and proper person" mean—and as a person who ought not to be entrusted with insurance monies and who ought not to associate with an insurance company. The Secretary of State is to give no reasons to him. The individual concerned will never know in what sense he has transgressed and why he should have earned the opprobrious description of "swindler". He can never find out, and there is nothing he can do about it except that he is given the right under Clauses 21 and 22 of the Bill, if he wishes to exercise it, to write to the Secretary of State saying that he does not think he is a swindler. He is also given the right to appear at the office of the Department and be interviewed by a civil servant, and to be able to tell the civil servant that he is not a swindler. If he asks the civil servant why it is thought that he may be a swindler, the answer is that he would not be given a reply because it is expressly stated in the Bill that he is not to know. I should have thought that was a flat transgression against anything that could remotely be regarded as natural justice.
I am sure that all your Lordships in this Committee start from the common principle that rascals should be kept out of this industry, but in this great democracy of ours there are some prices which we think it is too expensive to pay. We are here dealing not with a crime but with conduct which can result in what is, in effect, a penalty being applied to an individual, which may be extremely serious 268 for him. Supposing he is a member of other companies. Are his colleagues in those companies going to view with equanimity his continued association with them, when the Secretary of State has said that he is a swindler? Is his position among his friends or associates to be enhanced when it is known that he is thought by the Secretary of State to be so undesirable in his behaviour and character that he should not be allowed to "associate" (that is the word used) with an insurance company? I should have thought such a conception in our country would be utterly outrageous. As I say, we are not dealing with crimes. But supposing we were? Supposing we were dealing with some conduct which was far more discreditable than dishonest financial behaviour? It would outrage each and every one of us if it were suggested in this Committee or anywhere else that the criminal should be dealt with in this way. On the contrary, we go out of our way, as we did the other day when we were discussing the Report of the Criminal Law Revision Committee, to see to it that the accused person is fairly dealt with; and the elementary requirement of fairness is that he should know what he is charged with. That is precisely what he is not allowed to know here.
My noble friend Lord Brown apparently views that situation with perfect equanimity. I can only say that I do not. If he is right, I do not see why we should bother with courts of justice at all. Why not say: "You are a thief: into prison, you!" Why bother with all the fuss of a trial? Why produce any evidence against a person if we are going to countenance such procedure as this?
The noble Earl and the noble Lord, Lord Aldington, both spoke about precedents and, if I may be so bold as to say so, I thought they were absolutely right. We start with the 1967 Act and its Sections 61 and 64—although Section 64 has now gone. Then there is Clause 2, which we are now discussing, and under that clause together with Section 61, the Secretary of State can withhold an authorisation from a company to start business if a controller or manager who is not a fit and proper person is associated with the company. He need say no more; the company simply does not get the authority, it cannot start.
269 Then one goes to Section 68 of the 1967 Act. I owe the noble Earl, Lord Limerick, an apology, for on Second Reading I made a mistake, and lie was right. He said that under that section the grounds upon which it was thought that somebody was not a fit and proper person had to be given. I mistakenly thought that they had not. I have looked at the section again and find that the noble Earl is right and I am wrong. I apologise for that. Under Section 68 of the 1967 Act very limited powers are given compared with the powers that are conferred by Clauses 12 to 20 of the present Bill. Certain restrictions can be imposed, but under Section 68 of the 1967 Act the grounds have to be given. If the Secretary of State says, "I propose to use these powers for restriction because an unfit person is associated", he has to say why that person is unfit. The noble Earl talks about precedent. Surely he is right. We start with that little transgression, we then go to Clauses 12 to 20; we widely enlarge it, we cancel the requirement in Section 68 that the reasons have to be given; with these enlarged powers no reasons have to be given.
This applies not only to Clauses 12 to 20, but to Clause 32 as well. Prohibition can be placed upon anybody from becoming a controller of an insurance company on the ground that he is not a fit and proper person. No reasons need be given. That is specifically so stated. That approach is so dangerous that it is not overstating the case to say that it runs fundamentally contrary to what we regard as something extremely important and almost sacred in our social system. If we are going to let Ministers say "X is a crook, keep him out", with no explanation, no reason given and no appeal, we might as well say straight away that we are a totalitarian State and not have any more fuss with courts, trials, questions of onus of proof, and all the rest of it. Why waste time over them if that is the precedent we are going to accept? We accept it now in the insurance industry. It has grossly swollen in scope between 1967 and 1973—that is only six years. What other forms of industry is it going to spread to? I do not want to use pejorative terms, but when one reads the paper one sometimes sees extremely unfavourable references to other branches of industry. As another 270 six years go by are we then going to find this principle extended to them, and beyond them to others? Is it going to be a recognised feature of our legislation that Ministers sitting behind closed doors can say, "X must get out, Y must get out, Z must not be associated", and not give a word of explanation?
I hope I speak not with excessive heat; but this outrages what I have always regarded as principles which we hold so valuable in this great democracy which (and one can say this without arrogance) teaches the rest of the world a great deal that it does not know, and has done so over the centuries. If we are going to throw this principle lock, stock and barrel out of the window for this purpose we will have done a very sorry day's work.
§ 4.34 p.m.
§ THE EARL OF ONSLOW
I should like to speak briefly, first declaring an interest, in that I work for a Lloyds insurance broking company. The noble Lord, Lord Aldington, and the noble Viscount, Lord De L'Isle, have spoken first as Members of your Lordships' House, and, secondly, as chairmen of great companies. I am a much humbler hewer of wood and drawer of water in my broking house. This concern, which was put with far greater eloquence than I could by the noble and learned Lord, Lord Stow Hill, is felt from the top of the insurance company world right down to the telephone girls. This particular point is worrying people very much indeed. It would be a very bad day if this sort of Star Chamber ukase should be allowed to enter into English law.
§ LORD CACCIA
I, too, having spoken in the Second Reading debate, should again declare an interest. I am on the board of an insurance company. As on that occasion, I do not speak in that capacity at all now. This debate has brought out as clearly as was done on Second Reading the dilemma with which the Government are now faced. Which is the greater good or the greater evil? Is the greater good to protect the policy holder in every single possible respect, including this one? Or is it to protect the policy holder by the other provisions of the Bill, to which the noble Lord, Lord Aldington, referred, and which is, in my judgment, the proper place to do it, and, at the same time, protect natural justice? 271 I would join with them and say unequivocally that I am in favour of this Amendment, or something of this kind.
I thought the arguments put forward by the noble Lord, Lord Brown, sharpened the case. The more he talked the more I was convinced that this Amendment was right. What were the arguments that he used? He said that this provision came forward with a wide consensus of the insurance industry. That may be so, because, very rightly, the technical representatives of that industry are proud of their industry. They do not want accidents to occur in the future as have happened in the past, and they want to see the policy holder properly protected. These are all honourable motives. But I do not think it is for them so much as for us here to consider the wider consequences of this particular provision. The noble Lord, Lord Brown, then went on to a kind of numbers game. He said that it was a question of a few people against a great many. I have never been impressed by the numbers game when one is speaking about matters of principle, and the rights of people. On the contrary, on the numbers game this argument is on behalf of the British people as a whole. The whole burden and essence of the argument is not to deny them a right to know the grounds on which they are accused, and to have some independent tribunal or body to whom they could appeal if they felt that justice had not been done.
Turning to the grounds on which the Secretary of State might make a determination in accordance with the Bill, the noble and learned Lord, Lord Stow Hill, assumed that it would be because he was a swindler. That is not laid down in the Bill. Supposing he is known to have beaten his wife. Is it then appropriate that he should be in a position of power and control in an insurance company or not? I suppose that question could be argue done way or another. If there is absolutely nothing laid down for the Secretary of State it becomes high, wide and handsome: it may be for swindling, but there is nothing to prevent it on a variety of unspecified grounds.
On the question of informers, the noble Lord, Lord Brown, said that informers 272 would not like to inform. If the Amendment which enables a judge to hear the case in Chambers is accepted this point would be largely met. I personally do not care for the kind of information provided by people who do not have the guts and courage to stand up and be counted. It is not the information on which the Secretary of State ought to rely if he is going to deny somebody a job for life. Therefore I support this Amendment, and I hope that the noble Earl, Lord Limerick, when he comes to consider the various representations which have been made, will give extremely careful thought to whether this Amendment or something on these lines is not preferable in the general interest. And not only in the general interest. What we are trying to do is have an insurance Bill which will promote the health and vigour of the insurance industry in this country. It has a contribution to make, not only internally in this country for social reasons but as a vigorous industry with export power and potential. This has been shown in the past, and we want to give the industry every chance to thrive in the future—particularly when we are going into Europe. There we have to try to see that the kind of rules we think appropriate for the protection of the policyholder do not debar the initiative and thrust and drive of an industry, which has in many respects led the world.
I declared an interest on the Second Reading. I heard some sort of rumour that the officials of the insurance industry and officials of my noble friend Lord Limerick had put their heads together and come to the conclusion that reference to the Ombudsman would be sufficient in these matters. I think my noble friend Lord Selkirk has demolished that one. I humbly suggest to my noble friend Lord Limerick that he should throw away his brief; not make any speech that he has prepared or has been prepared for him, and merely say that he is going back to his Department, he is going to consider these arguments to see whether they can produce anything better than the appeal to the Queen's Bench Division. Because I assure him that I do not believe that if he stands firm he will win a Division on this particular issue.
§ 4.41 p.m.
§ THE PARLIAMENTARY UNDERSECRETARY OF STATE, DEPARTMENT OF TRADE AND INDUSTRY (THE EARL OF LIMERICK)
I should start with an apology to the Committee, and particularly to my noble friend Lord Selkirk. Your Lordships' fleetness of foot on bacon curing was such that I was not in my seat for a few moments at the beginning of his remarks. I have left ringing in my ears an invitation from my noble friend Lord Hawke to tear up my brief and say merely that I will think again. Bearing in mind the great weight of opinion from those most experienced in this industry and in the law, and coming from all sides of the Committee, I should be indeed foolish as well as discourteous if I did not say—and I would say, at the outset—that my mind on this matter is not closed; I will think again, and in thinking again I shall clearly be influenced by the words that have been uttered this afternoon. Having followed my noble friend Lord Hawke that far, I do not think it would be right for me to leave it at that, because there is a very substantial case to be made along the lines of that developed by the noble Lord, Lord Brown, and it would be quite wrong for me to leave it without a statement of our position and the difficulty we find ourselves in.
It is a very great difficulty. There are powerful and persuasive arguments which we have heard this afternoon from advocates of liberality speaking in the cause of natural justice, and I find that the mantle of apparent illiberality is one that sits most uneasily on me. But I am convinced—and I should like to develop this theme, although it may take a little time, if I may have the patience of the Committee—that the arguments on the other side are just as persuasive, and that ultimately they are most powerful. I say this because the primary function of our supervisory structure and the powers which make it effective have all been for the protection of policy holders. Let us not forget that fairly recently one million policy holders of the Vehicle & General Company at best lost a few months' premium, and at worse had unpaid claims for one motor car, for two motor cars—who can say?—and for damage to third party property.
274 This is a substantial affair. There is an evident conflict, and we should be wrong not to face it squarely, between the requirements of natural justice to the individual, on the one hand, and the greater protection of a large number of policy holders who rely on us, the supervisory machinery, the Department of Trade and Industry, as their only protection from the rogue who is in charge of their savings and their indemnities, or from the incompetent—and I shall be returning to that point. So we have another proposition which I suggest to the Committee is a very powerful proposition: that there are areas, and this I believe is one of them, where the potential smaller injustice to the individual—and we cannot rule out the possibility of such an injustice—is outweighed, and is substantially outweighed, by the potential greater injustice to a large number of people who are relying on the protection given to them by their insurance policies.
I perhaps should refer briefly to one or two points which were made by earlier speakers, and I will revert later to the point made by my noble friend Lord Selkirk on the Parliamentary Commissioner. I was very glad to have the support of the noble Lord, Lord Brown. He and I have suffered in a common cause, and he spoke in a way which struck a chord with me. I will not quote to him his own words—it would be quite unfair—from the debates of 1966 and 1967, although those words would be helpful to me; he has made his own case this afternoon. My noble friend Lord Aldington then brought us to one of the points which is the crux of the matter, the confidentiality of information. I would, if I may, quote just a few words which were used in this House in the debate in January, 1967, by the noble and learned Lord, Lord Gardiner. He said—and this quotation is not long:The difficulty lies in the fact that the Amendments require the Board"—that was the Board of Trade—to identify the person considered unfit and state their reasons for refusing the authorisation. Obviously, this would mean that the Board could not act on confidential information, since they could not disclose it in stating their reasons to the applicant. The Board might thus be obliged to authorise companies to undertake insurance business, even though they suspected that the business would be conducted dishonestly or recklessly. To reveal 275 to the person considered unfit the confidential information on which the decision was based—quite apart from being a breach of confidence—could rarely be done without risking charges of defamation, either against the Board or against the source of the information, and would obviously prejudice the future supply of confidential information."—[OFFICIAL REPORT, 24/1/67; col. 476.]Those were strong words, and I do not think much has changed in five years.
I think your Lordships must agree in a general way that the slower any system of this kind is in operation, and the greater the opportunities for self-defence, the less effective must that system be. This of course is not of itself—and I should be the last to say so—an argument for denial of appeal, but I can tell the Committee that the fact that in cases of change of control we have hitherto had to give particulars, and could act only after the change had taken place, has been a definite inhibition on our use of the powers. And against the background of events of recent years I personally believe it is the duty of a supervisory authority to weight the scales firmly in favour of protecting the policy holder; and I say that only in this particular area of insurance. I am drawing no parallels elsewhere in business or commerce. I believe that the industry as a whole shares this view and I have little doubt that that view is shared by the general public, who, I must repeat, rely on us as their only protection in this field.
At the same time, I suggest that the proposals in this Bill do not go so far as to violate claims of natural justice. I have heard it said that the effect of the proposals will be to deprive an individual of his livelihood; but that seems to me to be something of an exaggeration. We are not hounding a man out of a profession; we are saying to him—and Clause 2 deals with authorisations—"There are reasons why, in our judgment, we should not like you to be in charge of the savings of other people, and we think it would be more appropriate that you should find your livelihood elsewhere." We are saying this in a way that invites no publicity whatsoever. I appreciate that there could be leaks, but so far as I have been able to discover the leaks have not come from our side.
We are not seeking to interfere with those who hold junior positions, or indeed 276 middle management positions. We look to the boards of the companies concerned to take whatever steps are necessary to employ the right sort of person in these positions. We are concerned only with those who occupy key positions in a vital industry which affects the wellbeing of the vast majority of the people in this country. I cannot persuade myself that it is wrong for a supervisory authority charged with this very special duty to take whatever steps it reasonably needs to satisfy itself that the people in such key positions are, as we say, "fit and proper." The public expects no less of us and the public most assuredly will blame the supervisors in the event of trouble.
Moreover, I would argue that it is wrong to say that the system as we envisage it provides no safeguards against injustice. Here I should like to distinguish, as I think I reasonably can, four cases which we may be considering. The first is that of the out and out rogue with a record to establish his roguery. With this there is no great problem, because whatever the mechanism of appeal, however the matter was decided, any reasonable person would come to the same conclusion. Next we have the borderline case—the borderline rogue or somebody who is obviously an undesirable person although he may not have a record in this industry. Here I think the guiding principle must be that if there is a difficult discretion to be exercised it must be exercised in favour of the protection of people who rely on us for this protection.
We then get into the really difficult area. My third case is where the evidence is rather flimsy and the matter is of dubious relevance to the management of an insurance company, such as the fact that a man is erratic in his private life—he is known to spend his holidays gambling overseas. That would be the sort of thing I have in mind. But the case I find most difficult of all is that where there is an accumulation of small points of evidence which of themselves could he set up in front of a judge in chambers or any other appeal tribunal and could be knocked down one after the other until there was nothing left. But at the end of the day one would have knocked down evidence, the cumulative weight of which was such that if any of you were asked, "Would you trust this man with your savings?", you 277 would say, "No, I most certainly would not". This represents a case of great difficulty for us.
Then there is the case of the wholly innocent man, which has preoccupied us a great deal. Here, granting that in theory there can be a problem, I do not believe that in practice it is likely to present a problem. It is of course possible that wrong information could be fed to us which could be malicious, and on the basis of this it is possible that a wrong judgment will be come to in the case of a man against whom there is no reason why he should not be in charge of an insurance company. Of course if this was where the matter ended, I agree that it would be quite intolerable. But would it really end there? If the individual is really innocent and he has been disqualified arbitrarily on grounds which have not been revealed to him but he has no reason to suppose that they are substantial, what is he to do? He suspects, if not malice, at least prejudice. He will obviously go to the official in charge of the matter and start to argue; then I have little doubt that he will soon come to me, or to one of my ministerial colleagues. If I have not already seen the case, as I normally would, or my colleagues would—and we make a practice of looking into these cases most carefully—we would do so at that stage and would want to know exactly the grounds on which this decision had been arrived at. It is a very important decision. I accept that the individual might still be dissatisfied. He might feel that we were relying on information which was inaccurate. So he has other ways of raising the matter in public.
§ LORD DIAMOND
If I may interrupt the noble Earl for a moment, to whom was he referring when he said "we"? I should like to be quite clear whether he was referring to Ministers when he said "we" would want to be satisfied.
§ THE EARL OF LIMERICK
I was referring to Ministers. Then there is the question, to which I now return, of the Parliamentary Commissioner for Administration. I have looked into this and I find myself unable to accept that this Act does not provide protection. One can argue about the length of time involved and one can argue about whether 278 it is the right protection, but I believe that there is protection here. If we look at Clause 5 of the Parliamentary Commissioner Act 1967 it says:… the Commissioner may investigate any action taken by or on behalf of a government department or other authority to which this Act applies, being action taken in the exercise of administrative functions …The relevance of the words "Government Department" is made clear in Section 4(4) which says:Any reference in this Act to a government department or other authority to which this Act applies includes a reference to the Ministers …My interpretation of that is that if a case was complained of and it was investigated by the Parliamentary Commissioner, then there are many grounds on which a maladministration could be found. For instance, it could be a case of wrong identity; it could be a case—and this is perhaps the most likely—of failure reasonably to verify information which is given; it could be a case of an improper motive. One could go on. Looking at it in the negative, which is perhaps more important, my understanding is that the only matter on which the Parliamentary Commissioner would be unable to arrive at a finding in a case where he was in doubt about the evidence before him would be on the actual exercise of judgment in the last analysis by the Secretary of State on the information before him. This is in theory perhaps still inadequate, but I suggest that in practice it goes a long way towards meeting our doubts about the truly innocent man.
On the question of appeals, I submit that there are very substantial and adequate safeguards in this area. We have to have regard to the principle that justice is not only done but is seen to be done, in so far as that principle can be carried into this very difficult area. I must say here to the Committee that any alternatives which we have looked at—and we have looked at a large number—involving appeals to any form of tribunal, or the giving to the individual of the precise reasons why we have not found him to be fit and proper, would involve a substantial weakening in our protective apparatus.
What is at stake is not only the wellbeing of so many of our citizens who look to us for protection in this important 279 matter; it is also the reputation of one of our most important industries, and attention has rightly been drawn to the great importance of maintaining the reputation of the industry in its dealings both here and in the overseas markets, which are so important. So I believe we are right to require exceptionally high standards of morality as well as of professional competence from those who seek to occupy the commanding heights—and this is what we are speaking about—in this industry and to take the necessary steps to see that this requirement is met.
On the main issue, the Amendments would, in principle, take decisions on fitness out of the hands of the Department, which would be bound to authorise a company, with controllers or managers the Department considered unfit, if they could not persuade the court of their unfitness. If one thinks about it, that is a very strange position. We reach a decision and then, hypothetically, under some appeals procedure which is established that decision is objected to and on appeal our decision is reversed. We then have no alternative it appears but to declare fit and proper a person who, in our judgment, is unfit and improper. We have to authorise him and continue to administer the rules in relation to his company. Suppose we have one of these very difficult cases where the evidence we depend upon is cumulative evidence, and suppose this is a man who is accustomed to drink and he says when the appeal comes up, "Yes, I have indeed been accustomed to drink but I am going to give that up". Suppose he does not give it up and drinks even more. In a year's time we should be faced with the necessity again to declare him unfit, if drinking was interfering with his competence in carrying out his functions. Suppose he appealed again. We should then be held, no doubt, to be hounding that man so that he was unable to live down his past, and so on. I know that these are practical difficulties and that the House is addressing itself to a principle, but one cannot remove one's consideration of the principle from the consideration of these vitally important practical matters.
§ LORD CACCIA
Would the Minister forgive me for asking him a question 280 about what would happen in practice. Suppose it was to be as he said. In those circumstances he concludes that the man would have to be reinstated. But under the Bill there are all sorts of other provisions which enable the Department to inspect the company that such a person was in. I should have thought that the hounding would be more likely to be of the company than of the man. Therefore his other colleagues on the board—assuming he was a member of the board or a member of senior management—would have seriously to say to themselves, "In the circumstances, is it prudent or not for us to continue the employment of this man as a director or as a controller?" In practice, I should have thought that that was the kind of thing which would be likely to happen. But I just ask.
§ THE EARL OF LIMERICK
That is quite possible, and one would hope that if there was such substantial doubt about a man's fitness his colleagues would share that doubt and would take whatever steps they regarded as necessary to guard the interests of the company and of the policy holders of the company. But one cannot get away from the fundamental difficulty that if our judgment is reversed on appeal we are required to declare fit and to administer rules in relation to a company which is being run, at least partially, by the man whom we consider to be unfit, by an area where our doubts are such that we should not have been prepared to authorise him ourselves. I make the point; it is a practical point.
It may be argued that a person rightly viewed by the Department as unfit would not risk exposing his record by an appeal to the court, to a tribunal or to a judge. That may well be true where there is a conclusive record of fraud or an otherwise relevant conviction. But we are expected to protect policy holders by playing safe in this respect. We must have regard to a record which is unsavoury without any positive evidence of a clear breach of the law. It must be assumed that anybody hearing an appeal would have regard, and would possibly have regard only, to positive and incontrovertible evidence supported from independent sources.
On the question of those sources, which I believe is very important, I am not clear whether it is envisaged that the judge would have power to command 281 witnesses to appear. If he did, the effect of that would be simply to deny to us very many of the sources on whom we depend for our information. Once it becomes known that anyone giving information to us may have to appear before a judge and state it again, I believe that we shall simply lose our sources. If there is no power to compel attendance, I believe that people who are prepared to give us information on this basis of confidentiality will simply not appear if asked to do so. Either way we are faced potentially with the decision on appeal being arrived at on the same grounds as essentially we arrived at our own decision but without access, very probably, to the original sources of that information. I cannot see that the substitution of the judgment of a judge, however eminent, in a case concerning commercial fitness and propriety would be superior to that of the Secretary of State whose job it is to administer the Act.
I have taken a long time over this issue, but it is an important point and the strength of feeling in this House has been made very clear to me. The decisions arrived at in such a case where we are called upon to pronounce upon fitness and propriety are of a quasi-judicial nature, and were a separate body to be set up to review them it would be increasingly expected to act like a court. We should also have to face the possibility of perhaps substantial delays in arriving at a clear-cut decision as to whether a man was fit or not fit. I know that the Amendment put down at a later stage by the noble and learned Lord, Lord Stow Hill, has sought to meet that point, but I think that however careful we are we are essentially faced with the same problems. In the end it is a political judgment: which do we regard as the most important? Do we regard it as more important that there should be a possibility, subject to the opportunities for appeal in the case of an innocent man, to which I have referred, of injustice to an individual, or that there should be the possibility—and we would say in the case of some people whose records are known to us, the probability—that if such a man gets in control of insurance funds (the feature of which, as was made clear, is that the price is paid before the services are rendered: we are dealing with the life savings of individuals in many cases) those individuals will be 282 left without the cover for which they have paid and possibly, in the extreme case, deprived of the savings of the greater part of a lifetime.
It is an extremely uncomfortable dilemma. If there were a way out of it that would leave intact our essential supervisory power we would take it. But it would have to leave intact three essential features of the system: first of all, protection for the confidentiality of information; secondly, a burden of proof, which in practice was not impossibly large; and thirdly, a rapidity of decision to enable us to take quick action when quick action is needed. When a man is in the position of being a controller of such a company, he may do things from day to day—I am not talking about the great companies of the City where there is an organisation which is very well able to take care of this matter; I am talking about the smaller companies which are the creations sometimes of one man or only two men.
§ THE EARL, OF ONSLOW
Is it really in order for the Minister to say that the burden of proof is not impossibly large? That is a terrifying statement to hear from the Government Front Bench. That is the sort of thing you would get from the N.K.V.D. or any of those particular forces. I sincerely hope with that statement that the House will divide and we can show the Minister what we think.
§ THE EARL OF LIMERICK
I think my noble friend is perhaps being a little extreme in his judgment. If the House would prefer, I should gladly substitute the word "impracticable". Nevertheless, we have a serious point in front of us here: that is, whether the burden of proof is such that it is going to prohibit the Department from exercising a reasonable judgment about the fitness of people whose activities they will have to supervise the moment that those people are declared to be fit. And, finally, the rapidity of decision is also undoubtedly a very important point. We have seen no way, in what has been said so far, to meet these essential requirements. I appreciate how far the noble and learned Lord, Lord Stow Hill, has gone to try to meet this point. As I said, we are prepared to think again and discuss this matter, but in saying that it would not be right for me to give any undertaking that we shall change our minds.
§ 5.10 p.m.
§ LORD DIAMOND
The noble Earl has obviously had a very difficult time considering this issue. It would be stupid to suggest that any Member of your Lordships' House or any member of the Government was not seized of the difficulty of this issue and had not given it careful thought. Moreover, when I had the privilege of opening the debate on Second Reading from this side I said:We would seek to protect the individual against injustice through the possibly arbitrary decisions of a Secretary of State."— [OFFICIAL REPORT, 8/11/73; col. 1167.]Therefore, the noble Earl and his advisers have been aware for some time of the kind of issues that were going to be raised. I am sure the whole Committee is grateful to the noble Earl for having disclosed so fully his thinking and his Government's thinking on this issue. I will, of course, read in Hansard very carefully indeed what he has said.
I am bound to say, however, that my first reaction is that I am most grateful to him for having disclosed his thinking, because it has made it absolutely clear to me that he has not got anywhere near the heart of the problem we are discussing. He made a very long speech, and we are again immediately in the issue of numbers, which was so felicitously referred to by one of your Lordships. May I say to the noble Earl that arguments are not counted either. He and I are both chartered accountants—and indeed the noble Viscount, Lord De L'Isle, graces the same profession— and we are well able to add up. There was nothing in what the noble Earl said to touch the principle of the right of an individual to defend himself. I am bound to say that I was extremely sorry to hear what the noble Earl said at the very end. At the beginning, I understood him to say that he was going to think again. But he knows what words mean at this point and in this kind of exchange, and if he is saving to us that, having heard the weight of opinion and the arguments put, he is not willing to undertake to amend the Bill at all, then we reach a very difficult situation which I am most anxious to avoid.
Of course, it is not for me to say what your Lordships' House is going to do, but if noble Lords who have spoken 284 earlier press this matter to a Division, I would advise all those who sit on these Benches to support them. But I should have thought that we were still in a situation where the noble Earl would recognise that there is enormous weight in the anxiety expressed against the present position in the Bill. I doubt whether anyone who has spoken has altered his view at all as a result of what the noble Earl has said. In those circumstances, it is really seeking a head-on confrontation. Nobody knows what the result would be, but we do not want to rely on numbers, even here. We would much prefer to rely on the good sense of the noble Earl and his advisers, taking it away and at all events moving some distance towards us at Report stage; then we could see whether that was satisfactory.
It is a political judgment, as the noble Earl said. The judgment is as between the liberty of the individual, the right of a man to defend himself, the right of a man to know what he is accused of so that he can expiate his crime. As the noble Earl has put it, if anybody has to leave an insurance company so that the company can continue to be authorised to carry on business, he carries round his neck for all time this label of guilt, which will prevent him getting any fully responsible job in the City—because the word gets round immediately—and he will never be allowed to know what he has done and how he can clear himself. That is an impossible situation. Your Lordships' House recently gave a Second Reading to a Bill introduced by my noble and learned friend Lord Gardiner saying that a man convicted of a criminal offence and who had served a term of imprisonment should have the record removed after 10 years, because it does not accord with modern tenets of justice that this offence should be brought up against him for ever and ever. Here the noble Earl is suggesting that for a very long time somebody is going to he denied the right of earning a living in a responsible way in a responsible industry because of something undisclosed. It is really not a path on which we can possibly go with the Government.
I interrupted myself. The issue is really between the right of an individual to defend himself and the Government's 285 questioning the philosophy of the Bill. If we have to go so far as denying justice in the way the Government propose, then I am suggesting that we have to think very hard whether we are correctly attacking the difficulties in this Bill. the difficulties in the insurance world. It is, I hope, right for me to say that although we shall deal to a great extent in this Bill with possibly unreliable individuals, it is quite wrong for the noble Earl—I know he did not mean to suggest this—to base an argument on the great need permanently to protect the policy holder and the country against continual defalcations and so on in the insurance world. There is no industry which has a higher reputation, in this country or abroad, for honesty and fair dealing, and we win our enormous amount of balance-of-payments benefit because of that reputation which is worldwide.
That is the basis on which the thing starts, and clearly, therefore, what the noble Earl is dealing with is the odd case and the odd individual. So I am saying to the noble Earl that this will not do, and I very much hope that he will have second thoughts at this stage before we get to the question of a vote. No doubt those who have spoken already will want to say something more, but before they do, may I say one word? I regret in a sense that at least five of those who have spoken have held such important positions in the insurance world, because if I did not say what I am going on to say it might be thought outside this House that there was some kind of interest in this matter as an insurance matter. I hope I am right in saying that each of the noble Lords who have spoken and have contributed out of their great knowledge would have said exactly the same thing whether we had been discussing insurance or any other industry under the sun. We are not concerned with its particular application to the insurance world, but with the liberty of the individual and the right of a man to defend himself. I hope, therefore, that the Government will have very careful second thoughts.
§ LORD ALDINGTON
If I may again intervene for a moment, I should like to carry on from the point made by the noble Lord, Lord Diamond. In fact, I 286 think I can speak for my noble friend next to me as well as myself. From the point of view of the insurance industry taken narrowly, in a totalitarian non-democratic, non-justice-loving State, this is an excellent provision which protects us from all sorts of troubles; that is perhaps why, in dealing with the experts, working out the regulations and the Bill, the noble Earl's Department has not had the complaint that they are now hearing from your Lordships. We are here speaking as Members of your Lordships' House, and I am the grandson of the noble Lord who stood here during the war and said inter arma leges non silent in a famous case called Liversedge v. Anderson. I am not going to remain silent while a Minister of the Party to which I belong says, in effect, that in the insurance industry natural justice is a little bit silent. That is what he has been saying.
I have some other things to say about his speech. If your Lordships do not follow me in that perhaps rather passionate attachment to the law and to natural justice, you might have attached more weight than I think your Lordships should attach to what my noble friend said about the points in favour of the Government's present policy. He referred to the Vehicle and General case. Those of us who are in the insurance industry knew a great deal about that case, both before it all came out and afterwards. We were not lax in giving warnings. Furthermore, when it did come out we had to pay most of the bill, so perhaps we know a little about that.
Perhaps when the noble Earl replies he will tell us exactly how this clause would have prevented the Vehicle and General case, and exactly how the other powers in the Bill would not have prevented it. Is he going to tell us that there were people in charge of the Vehicle and General who, at some relevant time before the company went "bust", the Secretary of State would have dubbed as not fit and proper persons to be in control of the industry? If he is going to tell us that, is he going to tell us that the rest of the powers, with the reasons for using those powers set out in Clauses 11 to 20, would not have been relevant to the matter and could not have been used to arrest the downfall of that company? I do not believe that he is, because he must 287 know that that is not the case. If that is not the case, then I would beseech him not to defend his action in backing the clause as it now stands by referring to the Vehicle and General. I think he will agree with me that it would be misleading the Committee to use that case to back the particular powers that he is now supporting.
The second point I want to make relates to the sources of confidential information. Looking back through one's career during the war and in Government, one knows that people attach a great deal of importance to protecting the source of information. But let us look at what is the problem here. The problem here is information concerning a particular man whom it is proposed, in the normal case, either to dismiss from his office altogether or, if it is wrong, to leave in his office. What is the value of protecting the sources of information about such a man in such an event? I simply do not see it. If it has a value it certainly does not have a value anywhere near as high as protecting the rules of natural justice and principles which my noble friend Lord Stow Hill put to us in such an eloquent fashion just now.
The other point I should like to make before I sit down is that the noble Earl, in replying to my noble friend Lord Hawke, gave me a great feeling of comfort, and I wish that he had followed my noble friend's advice and sat down at that point, because I should have been quite happy. He went on to talk to us about the various forms of unfitness and improperness, or what have you, as a controller, and I think he had in mind the rogue, the borderline rogue, and the man who was erratic in his private life. Part of the erraticism in private life was hinted at as being somewhat addicted to drink. Recent history is full of famous men—and I am talking about the last century or two, not the last ten years—who served our country well and did very good things very well even though they were known to drink. I hope that we are not going to live in a new form of State where the Secretary of State of the Department of Trade and Industry, sitting in his eminence above Westminster Abbey and looking down on it, is going to say, "You shall not be in charge of an insurance company "—and if an insurance com 288 pany, why not a bank or a building company, where they also get paid in advance—"because you drink a little too much"? This really horrified me.
It also horrified me when the noble Earl said that if there were a lot of peccadilloes that added up to a tremendous black smirch on the man which would make him not the sort of person that any of your Lordships would wish to be in charge of savings, he would still get off if he appeared in front of one of Her Majesty's judges. Why should Her Majesty's judges not be at least as sensible as your Lordships? Most of us think that they are probably apt to be more sensible in those circumstances. I really found that the most terrible defence.
My main quarrel with my noble friend, who I greatly admire and to whom I am most grateful for baring his soul in this way, is that he does not look at justice and the rights of the individual in the same way that I do. I do not like standing here, it being known that I am chairman of a company in a great industry, hearing that industry being described as an industry where law and justice must take second place because it is some kind of pariah. I hope that this Amendment will be pressed, unless my noble friend can say a good deal more to us and can, in particular, say that not only will he look at the wording of the clause as it now is, but that he will look again at the most terrible philosophy that he spoke to us about when speaking of his own attitude to these very important problems.
§ 5.26 p.m.
VISCOUNT DE L'ISLE
I should just like to add one word. If we allow this clause to go through unamended I am sure—and I believe that other noble Lords would be equally convinced—that we would be admitting into our commercial life a principle which is capable of indefinite expansion. There is no reason why policyholders should receive a greater degree of protection than customers of banks and depositors. I was indeed shocked by the argument advanced by my noble friend Lord Limerick. When I was a young Minister I went to lunch with Sir Winston Churchill, and I started to produce a departmental brief. He said, "Ah, I see you have learned your lesson very well already." I must say to the noble Earl 289 that though he has not been very long in the Department he may perhaps have learnt his lesson too well. I appeal to the noble Earl the Leader of the House, who is very sensitive to these matters, to be convinced that some of us feel so strongly about this matter that, although we dislike doing it, we should be prepared to divide.
§ LORD KILMANY
I wonder whether I might add one word to what has been said. The noble Lord, Lord Diamond, drew attention to the fact that most of my noble friends who have taken a prominent part in this debate were in some way connected with the insurance industry. I am not connected with it at all. I had no wish to take part in this debate, but I see that my noble friend the Leader of the House is now with us, and is in conversation with those of my noble friends who seek to divide. May I say that the last thing that I came here to do to-day was to vote against the Government that I support; but I have been so convinced by the arguments of my noble friends and of the noble and learned Lord, Lord Stow Hill, opposite, that I shall find myself faced with no alternative but to vote against the Government on this Amendment if something cannot be done to meet the point that has been put to them. The Government have been asked to think again. If we can have a real guarantee, then that will be good enough for me.
§ THE EARL or LIMERICK
It seems to me that my problem is not that I have said too little, but that I have said too much. I think my concluding words were badly chosen. I shall gladly think again and consult with as many of my noble friends, or other noble Lords, as would like to enter into those discussions, to see how far we may be able to go before the next stage in order to meet the very substantial point of principle which has been raised in this debate. I fully acknowledge the feeling of the Committee.
THE EARL OF SELKIRK
I thank the noble Earl for what he has said and I am very glad he has said it, because I should have had no alternative but to ask the Committee to divide on this Amendment. But he has now said that he will take this point back with a com 290 pletely open mind. May I make only two points to the noble Earl. First, he has said nothing at all about the precedent that is being created. He is using a Department brief, and his Department has got nowhere near mentioning that major point which was raised by the noble and learned Lord, Lord Stow Hill, my noble friend Lord Aldington and myself. This precedent could spread all over. Secondly, please let us never hear that numbers supersede natural justice. We really cannot allow that principle to go through. I really cannot accept without alteration the principle that stands in this Bill. I hope the noble Earl will bear that in mind. With those words, I beg leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Clause 2 agreed to.
§ Clause 3 [Power to refuse authorisation for combination of long term business and general business]:
§ On Question, Whether Clause 3 shall stand part of the Bill?
§ 5.32 p.m.
§ LORD DIAMOND
Clause 3 gives power to the Secretary of State to refuse authorisation for a combination of longterm business and general business, and by "general business" I understand that the Bill is using the definition in an earlier Act, which is that it means all kinds of insurance business other than long-term business. Therefore, the first question that I want to ask is about business other than insurance business. I understand very well the reason for wishing to have power to refuse authorisation for a composite company which, for example, runs both long-term business and ordinary accident business. But what I cannot see is why there is not an a fortiori argument for refusing authorisation to a financial conglomerate, for example, that runs long-term business, general business and other financial business, as many do. The dangers against which the Government wish to protect long-term policy holders exist in exactly the same way, so I should have thought that words ought to have been used which referred to general business and other business as well. I very nearly put down an Amendment to leave out the word 291 "general" and insert the word "other", in the hope that "other" would include general". But at this early stage of our examination of the Bill, I thought it would be more courteous to the noble Earl to give him an opportunity of listening to the argument and explaining why the Bill is in its present form.
Secondly, I would ask what is the policy of the Government as regards a company which uses subsidiaries, instead of having a composite business carried on by a single company. It is a very simple and fairly convenient matter for those who wish to carry on insurance to have different companies for their different types of insurance, although they are all related companies. There is something to be said for having a separate shell into which each kind of insurance business goes. Thirdly, what does the Minister propose to do with regard to existing businesses? Is it the policy of the Department for the future to stop authorising composite companies to start a business? If it is, will they carry that logic to the extreme of trying to unscramble existing businesses? I am not making any critical comment of any kind at the present stage. I am merely asking for information so that we shall understand. The noble Earl has not explained this clause and I thought I would give him an opportunity to do so, because it is indeed a very important clause.
VISCOUNT DE L'ISLE
I support the noble Lord, Lord Diamond, in asking for an explanation of the underlying meaning to the clause. If I have read the relevant sections of the Companies Act 1967 aright, I think that a power already exists for the Government to licence businesses by classes, and if an existing company—say, a life office—wishes to indulge in short-term business, it will first have to apply to the Department of Trade and Industry. If that is so, does this clause show an underlying animus against composite companies, or at least against new composite companies? As I have already told your Lordships, I am chairman of the board of a long-standing composite company, which I hope and believe has conducted both sides of its business—long-term and short-term—properly and equitably in relation to the policy holders in both sections. I, for one, should be very sorry to see the present composite 292 companies put into a position of isolation. I believe in competition. I think that competition ought to be regulated, but it would be invidious for us as a group to be given a kind of privileged position in the insurance world, because nobody else was allowed to come in and compete with us. I do not know what my noble friend Lord Aldington thinks, but I hope and believe that he will share that view.
Secondly, I think it bad that the policy holder, both short-term and long-term, should be refused, or should have limited, his choice about the kind of organisation in which he wishes to repose his confidence, whether it is a life policy, a motor insurance policy, a householders' policy or a policy for any of the risks which composite companies write. I do not see the logic of that. I have one further point to make. I suppose that, shortly, the Department of Trade and Industry will have to sit down and speak to the relevant authorities in the European Economic Community about the regulations to govern the Community's insurance laws. I can see that in this country we have a great advantage in the strength and variety of the business which is carried out by composite companies. As the noble Lord, Lord Diamond, has properly said, it is a very important part of our invisible exports. It would be difficult for the Department of Trade and Industry to argue for the relaxation of some of the regulations which exist in the European countries and, at the same time, impose restrictions on the formation of new composite insurance companies in this country, because of an apparent prejudice against them.
I do not think it is necessary for the protection of long-term policy holders to reduce or exclude competition in this field. I do not think it works against them: I think it works for them. I believe there is in fact an economy of effort, and the more so because so much of the information which we now use has to he put upon a computer. I therefore ask the Minister to explain carefully, and I hope persuasively, that there is no animus against composite companies; and also to explain why this clause is necessary in addition to the other provisions in the Bill and in the Companies Act 1967, when I should have thought that the powers already exist to regulate that field.
§ THE EARL OF LIMERICK
I hope I may be able to set at rest the minds of the noble Lords who have spoken. There is nothing in any way sinister behind this clause. The noble Lord, Lord Diamond, asked: why not "other business" in place of "general business"? There are two reasons. One is that business other than insurance business is obviously not subject to any scheme of authorisation under the powers for controlling insurance companies. We could perhaps refuse a bank authorisation to do life insurance business, but an already authorised life company would be free to do banking business. The other reason why we have not used the words "other business" is that it would be unduly restrictive. For instance—and this was a point I inquired into—it could be held that a life company, by the mere occupation of a building a part of which was let, was conducting another business. This is a fine point. But what we are concerned with here is different classes of insurance business. As to the use we intend to make of these powers, we have no policy which would preclude authorisation of companies conducting more than one class of business through the same corporate structure, and there is certainly no thought of facing the formidable problems that would be involved in unscrambling the existing composite companies. So we have no bias in this matter.
As regards the European Community, which was a point raised by my noble friend Lord De L'Isle, the Community has no policy on this matter, and therefore there is nothing with which we are called upon to fall into line. There is the thought here that there might be an evolution of philosophy, and that it was perhaps more appropriate for different classes of business to be conducted through separate companies. There is no policy in our minds as to this matter. If noble Lords have thoughts on this subject, I should be very glad to learn in the course of the next few days what these may be.
§ 5.43 p.m.
§ LORD ALDINGTON
May I thank the noble Earl for his explanation? I am glad to hear him say that he has no bias against composite companies. Most of the large insurance companies are in fact in the category of composite companies, and I think they serve the interests of their 294 policy holders well, both for the computer reason and for general outlet reasons which I think the noble Lord, Lord Diamond, and others will understand. I think it is important, in the case of a Bill in relation to which it is known that the Government have been talking to the British Insurance Association, that the Bill should not, as it were, seem to protect artificially the interests of those who are already in the industry; and we should not like it to be thought that we need some special protection, so that nobody hereafter will be allowed to do the same kind of business together in one composite company. Whether you have separate companies within that company or not does not matter; but we should not like it to be thought that any of us was championing, or that this House or the other House of Parliament were led to champion, that form of protective device.
Since the noble Earl has said he has no bias in this matter and has no intention to use such a power, then I must ask him why he wants to take the power at all, because it seems to me that the protection of the life policy holders, the long-term business policy holders, is well secured by some very good provisions that are in later clauses of the Bill that we shall be discussing; indeed there is an Amendment that the noble Lord, Lord Diamond, has down to one of them. It would therefore seem unwise to destroy the practical nature of the Bill by here seeking to take a power which the noble Earl does not want to use. May I give him one more reason why I think it unwise? He told us that the European Economic Community has no particular policy upon this matter, but I must tell the noble Earl that my information is that there is within Europe a view, and quite a strong view, that the British composite companies ought somehow to be stopped from being able to do composite business because it is a bad thing that you should do life business and general insurance business within the same company. I am told that that is so. If it is so, it seems to me to put Her Majesty's Government in a very strong posture in talking to the European Commission and to other Governments in Europe to have the words in a clause in a Bill because either now there is or at some time there may be some dislike of long-term and short-term insurance business being done within the same company.
295 I would ask the noble Earl to think more deeply about that point, though not necessarily to-day. I accept from him that he does not condemn or criticise in any way what is being done now. That is what he has said to us. If that is so, I think it is in the interests of the good name of British insurance companies in Europe and elsewhere in the world that the new Bill should not have a clause which makes it look as if either this Government or a future Government dislike that form of business. I must tell the noble Earl that in his Second Reading speech there was a sentence which, when I read it, left me with the feeling that he did not like the composite companies very much, because in referring to some criticisms made by a noble Lord opposite he said:I have no doubt that the noble Lord will have noted that under Clause 3 we have power to bring into effect arrangements to ensure the impossibility of having life business conducted in future in the same company as general business."—[OFFICIAL REPORT, 8/2/73; c. 1201.]That made me think that the noble Earl had taken the view that it was an undesirable thing to happen, and I hope the words he used just now will receive at least as much publicity as the words he used on that occasion.
§ LORD BROWN
I find this a rather extraordinary debate, in a way. There is a good deal of special pleading—in a very proper sense; interests have been declared—expressing anxiety about this clause. The clause says:The Secretary of State may refuse to entertain an application …",and that is what it means. The noble Lord, Lord Aldington, I think put words into the mouth of the Minister suggesting that the Government never intended to use this power. Whatever their intentions are, if this clause goes through they may refuse an application, future Governments may take advantage of it, and that is that. So I do not think there is any point in trying to get reassurance out of something that I do not think the Minister is saying. But the point is this. We are here as a Committee not only to safeguard the interests of a very important industry—and I acknowledge how important it is, and the very great earnings it produces in the form of invisible earnings 296 —but also to protect the public; and we all know very well that the public have suffered very severely in recent years at the hands of not so good insurance companies. We know that cases have arisen where the combination of these two forms of business has led to confusion, the result of which has been that the public has suffered.
I have heard nothing put forward in this argument or in that on the previous Amendment to support the view that the great British public should come first. The previous Amendment was a matter of principle; this one is not. To refuse a company the right to do combination business is not depriving any citizen of his freedom or of his status in society. It is damaging, possibly, a single commercial interest. If it is necessary to withhold the right to do something that may be risky and might in future damage the interests of the great British public, the Government should have the power to withhold it. If they have not that power, if the result of a new company arising and doing mixed business is a great loss to the public, they would be entitled to turn to Parliament and say that Parliament refused the Minister of Trade and Industry the right to take action which he would have taken had he had the power, and the public suffer. More fool the public and more fool Parliament! It is important that the public should be protected.
§ LORD ALDINGTON
To put the noble Lord's mind at rest, for I think he was not here during some of the earlier discussion, we tried to make clear that there were other powers in the Bill (which we fully support) which in our view secure the policy holders' interests. In particular, I referred to the powers in the Bill which specifically secure the long-term policy holders' protection by ensuring that the funds are kept separate from other funds. It would not be right to say that in the argument I have adduced I am putting forward a purely commercial interest without regard to the policy holders.
§ LORD BROWN
I am sorry that I had to absent myself; I had to meet a visitor. I do not think these other safeguards are adequate in themselves. I think this is a proper safeguard. It is an enabling safeguard. I did not think 297 the arguments put forward about possible loss of face and the status of insurance companies in Europe were very strong. One should not take into account the psychological reactions to a very short clause in the Bill as a reason for not putting it in. I would support the retention of this clause.
I was involved in this kind of argument some years ago; and the House knows very well that with all the power that you can give the Minister of Trade and Industry, it is the most difficult thing to prevent recurring tragedies in this industry. At one time, I understood that the insurance business as a whole thought that very vigorous powers were necessary and that they were backing them. There seems to have been something of a changed attitude in insurance companies over the years. I read the Bill, and I thought that they would welcome it and that it was probably the stimulus of the industry which caused the Government to take these strong powers. If the noble Lords are speaking for the industry as a whole, I am rather surprised that the industry are taking the opposite view.
VISCOUNT DE L'ISLE
I support the cross purposes. The industry as a whole welcomes the Bill or substantial portions of it. The noble Lord, Lord Aldington, and I, on the previous clause, were at pains to point out that in our narrow interest it would be better to pass Clause 2; but as Members of your Lordships' House we took our stand on a point of principle. I was merely inquiring from the noble Earl, Lord Limerick, whether he did not already, under other clauses in the Bill and under sections of the Companies Act 1967, have the powers which are apparently sought under this Bill. Apart from the Minister of Trade and Industry having the power to refuse a licence, I do not object to the powers; but I wondered why it was necessary to highlight this particular matter.
With respect to the noble Lord, Lord Brown, I said nothing about "face" in Europe. I believe that it might be more difficult for the Department of Trade and Industry to argue the rightness of composite companies and I think it is in the national interest and not our narrow, sectional interest, that they should play their part in Europe. It is 298 not a question of face, but one of practicality.
This is a comical debate. We get Amendments proposed from one side, supported from the other side and shot down from behind the proposers. I see the arguments of both sides in this particular Amendment. I was going to suggest that my noble friend might like to take this away and think that if he excluded specific mention of long-term and general business it may meet the point of my noble friend Lord Aldington. He could insert the words "any class of business". I should have thought that by giving the Secretary of State power to refuse to authorise a company to conduct "any class of business" (which is more or less an extension of the powers in other parts of the Bill) it would get over the point of having some sort of stigma put on the composite company.
§ 5.55 p.m.
§ LORD DIAMOND
I am glad that at a late moment I put down this Amendment to leave out Clause 3 in order to discover what was the Government thinking; because it is becoming clear that this Government have not thought long or deeply and that the main reason for this clause is that it is both unnecessary and illogical. Those are really not the most persuasive grounds for putting in a clause.
It is unnecessary because the noble Earl says—or indicated—that he does not propose to use the powers. My noble friend Lord Brown is right in this respect. With the greatest possible respect it does not matter what the noble Earl says as against what appears on the Statute Book. If there is power on the Statute Book not to authorise composite companies, nobody is going to say that Lord Limerick five years ago said that it was not the Government's intention to make use of the powers. The answer to that would be, "Why did Parliament give the powers?" I am afraid that we must deal with the words in the Bill. Those words give the power to refuse authorisation to composite companies carrying on both classes of insurance business. I hone the noble Earl will think a little more deeply about that and let us know what is the policy of his Department. If the Department are really going to say, "We are 299 going to refuse authorisations in future and we are not going to unscramble the existing composite companies", then we are in the very difficulty which noble Lords opposite have properly referred to.
I hope I may support their argument by saying that, of course, I have received more than one authoritative representation from within the insurance world (as one would expect when trying to help on behalf of the Opposition to clarify a Bill) indicating that the B.I.A. are happy about this because they are "the big boys". This is the Bill for the big boys and the small boys are being edged out. That is a fear expressed by two very distinguished chairmen of large insurance companies who are doing their best to make clear that they do not want that situation to exist. But it will exist if the policy of the Government is going to be to "pull the ladder up" after the existing companies have organised themselves on a composite basis.
That is what I mean when I say that one argument for the clause seems to be that it is unnecessary. Another argument is that it is illogical; because the noble Earl said that a company could not carry on both insurance and banking or some other financial activity. But there is nothing here to stop it; nothing at all! It is just as important, if you regard this as a method of protecting the funds of the long-term policy holder that those funds should not be dissipated on current needs for a business other than insurance, as it is that they should not be dissipated on the current needs for short-term insurance businesses. It is wholly illogical to exclude a composite business which carries on two categories of business but not a composite company which carries on, in addition, other forms of financial activity.
Finally, I wish to say how much I agree with my noble friend Lord Brown that you have to demonstrate that the interest of the policy holder is involved. I accept that argument, but such evidence as I have is that it has not been closely examined. The policy holder gets more for his money in a composite company than he does otherwise because the overheads are spread; it is as simple as that. In some cases overheads are a very large proportion of the premium, it may be 30 per cent. or 40 per cent., and a composite 300 company which can spread its overheads—this is the argument for the conglomerates and large mergers—can offer the same cover at a cheaper rate to the policy holder. Therefore the interest of the policy holder is involved. If the Government say, "We have examined all this and we are satisfied that the composite company is, by its structure, more expensive to run", well, the Government have got their argument; they have had their examination and if they have figures we should be interested to have them. All I am saying is that on the face of it, and from such information as I have, a composite company is likely to be more competitive, and that is all that we are here concerned with.
As has been said time and again, it is the other clauses in the Bill which give the protection. If the noble Earl is going to leave a composite company carrying on long-term and short-term business he must be saying, "We are relying on those other clauses for the necessary protection; that is our justification for leaving composites to carry on business as they are doing at the moment". For all these reasons we are getting into an unhappy situation where the Government have not really thought this matter through. Of course we are not going to stop the clause going through at this stage, but I should like to have more clarification of what is in the mind of the Government.
§ THE EARL OF LIMERICK
May I make a brief comment on those remarks? This separation of funds of life companies is the point which is picked up in Clause 9(1), as the noble Lord, Lord Diamond, will not have missed. There is, I think, a perfectly sensible distinction between saying that we are against conglomerates, that conglomerates are bad—which we emphatically are not saying—and saying that having regard to the desirability of separting the funds it may be inappropriate in individual cases to refuse authorisation for new composite companies.
§ LORD JACQUES
My interpretation of this clause is that it is a preparation for Europe. Its acceptance would mean that if we are under pressure from the Community to have specialised insurance throughout the Community, then the Government of the day will be in a position to accede to that wish. Suppose 301 that is the case; suppose the Government philosophy at some future date is that it would be better to specialise, despite the fact that specialisation would undoubtedly cost more. Then I would say that this is not the way to do it. This clause does not go far enough. It allows the Minister to refuse authorisation to a company which is carrying on one class of business to carry on another class of business. But it does not authorise the Minister to prevent insurance business from being carried on by a company which is carrying on some other kind of financial business.
For example, a company may be concerned with unit trusts or with takeovers. It could get money from the life funds in order to do that business, and that would be a dangerous position. The Government are not taking powers to prevent financial conglomerates from doing life business. This kind of clause does not go far enough. The Government should go further and extend it not merely to a company carrying on some other class of business, but to a company carrying on some other financial business which ought not to be mixed with insurance. Furthermore, it does not deal with a subsidiary. It would be quite an easy way out for a company carrying on general business which was unable to get authorisation to carry on life business to set up a subsidiary to do it. We know that Vehicle and General had two subsidiaries carrying on life business. It is quite unreasonable to use authorisation to prevent one company from carrying on two classes of business while at the same time allowing some other company to do exactly the same thing by means of subsidiaries. If the power is required at all, we want it expressed in different and much wider terms than it is expressed in this clause.
§ On Question, Clause 3 agreed to.
§ Clause 4 agreed to.
§ Clause 5 [Deposit of documents with Secretary of State]:
§ 6.5 p.m.
THE EARL or LIMERICK moved Amendment No. 3:
Page 4, line 18, at end insert ("but one of the copies of any such report deposited under that subsection shall be signed by the auditor and not by the persons mentioned in that subsection.")
§ The noble Earl said: It is a relief to have something to deal with which is simple—at least, I hope it is. I suggest that the Committee consider Amendments Nos. 3 and 4 together as they are directly associated. In rectifying an anomaly in Section 8(1) of the 1958 Act which, as worded, did not specifically call for the auditor's report to accompany the annual returns deposited with the Department. Clause 5(1) inadvertently creates another anomaly in that it requires the auditor's report to be signed by the directors and chief executive of the company which, of course, is not intended. These Amendments have the effect of requiring the auditor's report to be signed by the auditor only. I beg to move.
§ LORD DIAMOND
I think that these are very sensible Amendments and I appeal to the noble Lord, Lord Aldington, not to divide the Committee against them.
§ On Question, Amendment agreed to.
Page 4, line 22, leave out ("of those copies") and insert ("copy of any such document except an auditor's report").—(The Earl of Limerick.)
§ On Question, Amendment agreed to.
§ Clause 5, as amended, agreed to.
§ Clause 6 [Periodic statements by company with prescribed class of business]:
§ On Question, Whether Clause 6 shall stand part of the Bill?
§ LORD ALDINGTON
May I just ask about one point? It relates to the publication of this information and, in particular, statistics. I entirely agree with the thinking behind this clause, which is that more frequent and up-to-date information shall be made available to the Department is trying to avoid. I hope that he be fairly detailed information which, if published without explanation, could produce exactly the situation in a "dicky" company which the noble Earl's Department is trying to avoid. I hope that he will be able to satisfy the Committee that the information coming to the Department will not automatically be made 303 public and that he will make some pronouncement later about what will be published and what will not.
§ THE EARL OF LIMERICK
The intention of this clause is that information should be available to the Department for the purposes of supervision. Without giving an assurance that no information will be published, it is my understanding that that is no part of the purpose of this clause. But I will gladly look into the point and advise my noble friend. Consultations have already started about the additional information for which it may be appropriate to call under the provisions of this clause. The general intention is that certain key statements shall be asked for quarterly from the industry, which is the statement I made on Second Reading.
VISCOUNT DE L'ISLE
I believe that the noble Lord, Lord Aldington, is thinking of Clause 6(5) where it states:The whole or any part of any document deposited … may be published by the Secretary of State in such ways as he thinks appropriate.I should like to support his statement that it might be harmful rather than helpful. I entirely support the supplying of early information to the Department, but I hope the returns will not be unnecessarily detailed as they can become extremely expensive.
LORD ERROLL or HALE
Perhaps I may point out that I think it particularly important that if subsection (5) is adhered to in its present form, those from whom information is demanded should be told in advance whether such information will or will not be made public, because that might well affect the form and the manner of presentation in which the information is given. If they know it is going to be made public, or, alternatively, if they think it is going to be confidential, it might cause a great deal of trouble and alarm to them if the Secretary of State suddenly saw fit to publish it. I would suggest that, even if we cannot have it written into the Bill, it would certainly be wise for the Secretary of State to ensure that he always explains in advance of a request whether the information will be made public or be kept confidential.
§ THE EARL OF LIMERICK
I will certainly take note of those points and I will be glad to be in touch with my noble friends to amplify them.
§ LORD DIAMOND
May I say that it has been the practice of all Governments that, where information is collected from individuals and then published, it is on the basis that no individual firm can be identified from the total figures collected from them. If, of course, any publication were to take place with individuals which did identify them, it would be essential that the individual should know beforehand.
§ Clause 6 agreed to.
§ Clause 7 [Statements of transactions of prescribed class or description]:
§ 6.12 p.m.
§ On Question, Whether Clause 7 shall stand part of the Bill?
§ LORD DIAMOND
I do not know what is going to happen on this inquiry, but I am seeking information from the Government about the very broad language used in this clause:Every insurance company to which the Act of 1958 applies which enters into an agreement or arrangement of a class or description prescribed … shall … furnish the secretary with a statement containing such particulars …An agreement or arrangement may presumably, to my untutored mind, cover everything under the sun. So the first question I have to ask the noble Earl is this. What kind of agreement or arrangement does he have in mind? I find it difficult to think of anything that a company does in the course of its business which is not either an agreement or an arrangement. Perhaps the noble Earl will be good enough to give us examples.
Then, by "arrangement" does the noble Earl mean an arrangement with associated companies or with companies at arm's length? If the arrangements are with associated companies, one can understand the reason for it. Arrangements with companies at arm's length are again, I should have thought, just ordinary day-to-day business, and I am not aware at the moment of what purpose is served by this clause. Also, do I understand it correctly that when the Bill says "of a class or description 305 prescribed" this gives the Minister power, without seeking confirmation of a statutory order or anything like that, without coming to Parliament again, to prescribe as he thinks fit? If that is the case, then we should be most careful to make sure that the language of this clause is clarified and particularised a good deal so that we know what the Government are talking about. My final question is: What sanctions are there for not providing the information which may be required under this clause?
VISCOUNT DE L'ISLE
The noble Lord, Lord Diamond, has once again put a question to the Government on this rather mysterious clause in words with which I entirely agree. I hope my noble friend Lord Limerick will forgive me if I say that I have a picture of the Department of Trade and Industry as a lot of officials stringing besom brooms together. It seems to me that they have sat around and thought: is there anything that we have left out of the Bill which we can include in the omnibus clauses? I think that we ought to look carefully to see what powers are specified and that the purposes for which they are required are known beforehand.
§ THE EARL OF LIMERICK
This is the kind of clause that exemplifies the problem that we have with insurance supervision. The purpose of this clause is to permit notification of unusual and potentially dangerous transactions promptly. These are transactions which might in certain cases seriously threaten the security of policy holders or remove a vital aspect of the company's operations from the Department's scrutiny. The problem is that one does not know by what method people may attempt to do this. Details have got to be considered. We have no list of things which we are waiting to prescribe, but I can give some examples of our thinking. These might be guarantees or undertakings entered into for unlimited amounts; charges created on assets, which, as your Lordships will doubtless have noted, are rendered void by Clause 9(4) if they impinge improperly on long-term funds, but not for other funds, or arrangements whereby a normal function of an insurance company, such as underwriting investment and claim settlement, is hived off to another agency which may be outside our supervision. 306 On receiving information in these classes, the Department would consider in the particular circumstances if the transaction constituted a threat to solvency or effective supervision and accordingly merited intervention under some other power in this Bill. The noble Lord, Lord Diamond, asked about sanctions. There is a provision in Clause 42(1) providing for a fine extending to £400.
§ LORD DIAMOND
Would the noble Earl answer my third point, about whether he needs to come to Parliament, and about prescribing?
§ LORD BROWN
When the Minister described this clause he introduced an important limitation of the powers of the Secretary of State. He referred to the powers under this clause by saying, "when it appeared that an arrangement which might threaten the policy holders was being organised or envisaged". That is an important limitation. Why cannot the clause read: "or arrangements of a class or description which is accepted by the Secretary of State prima facie to be a potential threat to the policy holders?" You have then conditioned the clause in such a way that might make it acceptable.
§ LORD ALDINGTON
I hope that my noble friend will look at that point again. I wonder whether he will also consider this point. He has just said that the prescribing is done through administrative machinery and does not result in an Order coming before Parliament which we can look at. That means that the Secretary of State really is seeking in this clause to take a very general power which he can use throughout the whole insurance industry—760 companies, or whatever it may be—which enables him to look into any agreement or arrangement of whatever type, because he is given the power prescribed.
§ THE EARL or LIMERICK
I hesitate to interrupt my noble friend, but I think I may be able to help by confessing that I made a mistake. The prescriptions 307 under Clause 7 are by Statutory Instrument subject to annulment.
§ LORD ALDINGTON
That reduces that part of my complaint, and I am very glad to hear it. But it is really drawn much too wide. This is part of the dilemma I was referring to when I spoke first this afternoon in this Committee stage. What is there about the insurance industry that makes it impossible to apply normal legal control over the Department of Trade and Industry? I can understand the difficulties that my noble friend's Department have found. I think most of us who have had anything to do with this matter, whether in office or out, have thought from time to time that the officials have been a bit squeamish in the past about using the powers that they had, which were then specific and clearly laid down. But to move from that to a Bill which has quite so many completely general powers in it in my opinion is really going too far.
I hope the noble Lord will consider, between now and the next stage of the Bill, trying to express in an Amendment to this clause exactly what kind of agreements and arrangements he wants to catch. He has mentioned to us some perfectly proper things, which I believe we should all say are things about which the noble Lord might have information and which would certainly fit in with other powers in the Bill. But that is a very narrow area compared with the whole width of the agreements and arrangements covered by the present wording. If the noble Lord is not able to reach some definition on this point, perhaps he will allow some others of us to put suggestions before your Lordships at the Report stage.
§ LORD DIAMOND
If I may say so, I am sure that that is a wise course. I am most grateful to the Minister for having explained what the Government's thinking is. It is not our intention to prevent this clause going through at this stage, but clearly the wording is far too wide and I hope that the Minister will seek some alternative wording before the Report stage—or, of course, we shall carry out the traditional function of Her Majesty's Opposition, and try to help the Government to improve the Bill in that respect also.
§ Clause 7 agreed to.308
§ Clause 8 [Separation of assets and liabilities attributable to long term business]:
§ 6.22 p.m.
§ LORD DIAMOND moved Amendment No. 6:
§ Page 6, line 10, leave out from beginning to end of line 15, and insert ("the liabilities attributable to that class or, as the case may be, each of those classes of long term business, and for identifying immediately on receipt and for keeping identified at all times thereafter the assets (including cash in hand and in bank accounts) representing the fund or funds maintained by the company under subsection (1)(b) above (but without necessarily distinguishing between the funds if more than one); except that:
- (a) the insurance company need not identify such of these assets as are held in the form of cash in hand or in bank accounts at branches or local offices of the company or in a bank account (in this subsection called a "combined bank account") into which are paid moneys remitted from branches or local offices which it is not convenient to identify at the time of remittance and other moneys received by the company (not being moneys representing items specified in (i) below) which it is not convenient to identify at the time of receipt provided that:
- (i) no moneys representing dividends, rents, interest or other income from investments and no moneys from the sale or realisation of investments are retained in cash or are paid into bank accounts at branches or local offices of the company or into any combined bank account, and
- (ii) the amount of money held in the form of cash in hand or in bank accounts at each branch and local office of the company is kept to the minimum necessary for the reasonably convenient operation of the business of the branch or local office and the amount of money held in any combined bank account is kept to the minimum necessary for the reasonably convenient operation of the business, and
- (iii) the company has taken and continues to take all steps to ensure so far as is practicable that the arrangements for the handling of cash and the operation of bank accounts at all its branches and local offices and the operation of any combined bank account do not lead to moneys forming part of the assets representing the fund or funds maintained in respect of its long term business being applied, directly or indirectly, for purposes other than those of the long term business;
- (b) the insurance company need not identify such of these assets as are held in the form of moneys in a bank account (in this subsection called a "common investment bank account") into which no moneys
309 are paid other than income from investments and moneys from the sale or realisation of investments provided that no moneys are paid out of any common investment bank account until such moneys are identified as forming or not forming (as the case may be) part of the assets representing the fund or funds maintained by the company in respect of its long term business.
§ (3) If under any or all of the exceptions set out in subsection (2) above an insurance company does not identify some of the assets representing the fund or funds maintained by the company under subsection (1)(b) above then the auditors of the company shall include in their report made in accordance with the Regulations made under section 4 of the Act of 1958 a report stating whether or not the provisos set out in paragraphs (a) and (b) of subsection (2) above have been complied with by the company.")
§ The noble Lord said: I beg to move this Amendment, and I hope your Lordships will forgive me if I do not read it out. It is a long Amendment which I am afraid cannot be explained in two sentences, but I shall be as brief as I can. We understand the purpose of the Bill; we accepted the purpose at Second Reading, together with the main way of achieving it; but we are in a real difficulty here, stemming from the nature of that awkward animal, "cash at bank". To my mind (though I do not know whether my professional colleagues agree with me) it is to be likened to a lake into which streams flow from identifiable sources, but once the water is in the lake you can no longer identify which drop came from where, and any water taken out of that lake cannot be related to its source.
§ That being the situation, we now look at the clause in relation to the assets and liabilities which are to be separated, the purpose of the clause being to separate out assets and liabilities attributable to long-term business. As the clause stands at the moment, I believe it could mean one of two things—one of which is inadequate and the other impracticable. It would be totally inadequate as a means of protecting the assets of the long-term business if we took the words on page 6 in subsection (2)(a), "the assets representing the fund or funds", merely as meaning investments purchased out of the fund which is established and defined from time to time. That would be inadequate, because all the other moneys coming in from long-term business could be used for short-term purposes and 310 would therefore invalidate the purpose of the clause.
§ If, on the other hand, one interprets this subsection and this reference to identifying the assets as meaning all the assets, including cash in hand and cash in bank, then one reaches the totally impracticable situation where a composite company (particularly one in which money is collected from door to door) would collect cash—and there are, I am sure, others here who must have a far greater experience of this than I but I am told that this is the case—representing a variety of kinds of insurance business. The cash would then have to be paid into a branch, and from time to time the branch would send portions of such money to the head office, and the head office would then sort it out and identify it. In the meantime, it would be quite impracticable for the collector or the branch cashier to do the identification which is required by this clause if the word "assets" includes what is clearly an asset; namely, cash at bank. The matter would be even more difficult if there was an overdraft. So I do not think that on either interpretation this provision is very practicable, and we have attempted to put forward a "half-way house" which tries to meet the situation and yet enables the company to function without undue difficulty.
§ It will be seen, therefore, that what we are proposing is an arrangement which gives maximum protection but for practical reasons eases the full requirement and enables a collector to collect different premiums and, as I have indicated, enables a branch to hold moneys before transmitting them to head office while enabling an investment (for example, in a large property or in the shares of a large company) to be held on behalf of long-term funds, short-term funds and other funds and for the income to be received and later separated out in the way in which it in fact occurs. There are provisions in the Amendment which require immediate identification, but then give exemptions to enable the business to function in a practical way.
§ I believe that the wording is clear and that the lines on which the Amendment proceeds are obvious. Only one new addition has been made, and that is the requirement that the auditors should check and certify that this process has 311 been carried out, in a similar manner to that in which auditors now certify—for example, that a solicitor's accounts have been kept in such a way that clients' moneys are separately identified throughout. That is a very familiar function which auditors have no difficulty in performing. The purpose of the Amendment is to try to provide a practical method of giving the maximum protection without tying up the company to such an extent that it cannot really function, if it is a composite company and particularly if it does industrial insurance as well. I hope that I have made the situation clear, and I shall be interested to hear whether the Government feel they can move some way towards us on this. I am not suggesting for one moment that they will embrace each single word in the Amendment.
§ Having, I hope, made the principle clear, I should now like to mention a minor point, though not to the extent of erasing the clarity of the main principle. This minor point concerns the problem of a bank lien. Suppose you have two separate bank accounts, kept separately, for two classes of business—the long-term and the general business—and that procedure is being allowed in full accordance with all the provisions of the Bill, supposing it is enacted in its present form. In that situation, it is possible that one of the accounts may be in balance and the other overdrawn. As we all know, in these circumstances a bank has a lien, and it is a lien without a specific charge. Therefore, there could be an unintentional evasion of the provisions of the Bill if the bank lien were to be exercised by the overdraft on the general business being repaid by the bank by means of its lien out of the funds held in the bank account on the long-term business. I do not know whether, as a matter of technical law, the provision in Clause 9(4), which talks about a mortgage or charge being void to the extent at which it contravenes the provision of that section, deals with the anxiety I have, and no doubt the noble Earl could tell us whether a bank lien is a mortgage or charge of a kind which would be covered by that. I come back to the main proposal, which is one to enable a composite company, particularly one dealing with industrial business as well as other forms 312 of life assurance and general business, to function reasonably, and yet to give the maximum protection of the kind that the Government seek.
§ 6.31 p.m.
§ LORD CACCIA
I hope that the Minister will be ready to give some thought to the problem which has been raised by the noble Lord, Lord Diamond, especially as it affects composite companies. If he does not feel that the Amendment, as it stands, is necessary to cover this point, I wonder whether, as a matter of procedure, he would turn to subsection (2)(a), of the Bill as it stands where it discusses assets. At that point, at the end of that subsection would it not be sufficient to insert some such wording as this:Subject to the operation of combined banking arrangements in accordance with such regulations as may be prescribed.That should meet much of the concern that the noble Lord, Lord Diamond, expressed—in my view, rightly—to be dealt with as a matter for regulation rather than in the clauses of the Bill itself. This is only a suggestion as to how to handle the problem from the point of view of procedure rather than commenting on the merit of what the noble Lord has said.
§ LORD BROWN
I listened with great interest to my noble friend Lord Diamond. This appears to be a most ingenious Amendment to Clause 8. I am not competent to say whether it will work or not. There is one point which causes me misgiving, although in general I support my noble friend. One is dependent for the "policing"—if one can use such a word—of these provisions on the auditor, and the trouble is that in insurance companies in between annual audits the crook can rob one business to deal with another, and then decamp.
I cannot think of a better argument for the retention of Clause 3 than the arguments used in support of this Amendment. I have great sympathy with the Minister of Trade and Industry over this matter. I was involved in such discussions over and over again. I came to learn the enormous difficulty of safeguarding the policy holder from the occasional crook who entered the insurance world. The noble Lord, Lord Aldington,
313 asked earlier: why is it that insurance companies require all this special legislation? The answer is quite easy, and every insurance man knows it: there is no business in which it is easier for a crook to get away with a great deal of money than in the insurance business. This is no reflection on the insurance world. The insurance world is very keen to get rid of the crooks. I am not making any snide remarks about the insurance world. The need for wide powers is exemplified by this Amendment. This is the accountant's way of producing some protection for the policy holder. It is fairly complex, and I am not necessarily against it. It has to be buttressed by much wider powers available for use in extreme cases.
§ 6.34 p.m.
§ THE EARL OF LIMERICK
I concede at once that I would be ready to consider this further—it is a very technical question. I have considerable doubts whether it would be practicable to bring about the result desired in the way that is set out in this Amendment. I know that in some circumstances there are practical problems in identifying long-term receipts immediately, owing to the mechanics of the way people operate.
I do not think there is need for me to speak at length in my reply. I am doubtful whether provisions of this detail should properly find their place into the Bill, and I concur with what the noble Lord, Lord Brown, said: there are other ways in which this can be done which might be more appropriate. In revising regulations we would be requiring directors to certify that they were satisfied that any amounts held in cash or in bank accounts which were common to long-term and other business pending their identification had not been improperly applied. The auditors could examine the control arrangements and report whether they thought the certificate reasonable.
In general, it must be better to operate on the division of accounts rather than of cash, particularly given that bank accounts may be under common control. If we are concerned with improper conduct, the fact that you have two bank accounts under the same control is obviously not going to prevent improper conduct. However, to do what the Amendment suggests would mean some loss of 314 flexibility, and—this is a practical matter—possibly involving carrying heavy cash floats to ensure that no funds are drawn on one of these accounts that properly should not be drawn on it. I will gladly look at this matter again. Prima facie there is much to be said for the approach suggested by the noble Lord, Lord Caccia. Before the next stage, we should be able to reach some sensible proposal to meet this point.
§ LORD DIAMOND
On behalf of the Committee, may I say we are grateful to the noble Earl for undertaking so readily to look at this matter. We are all driving towards the same end, and we all recognise that it is not easy to achieve. We are very grateful to him for promising to look at the matter again, and I seek your Lordships' leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Clause 8 agreed to.
§ Clause 9 [Application of assets of company with long terns business]:
§ 6.37 p.m.
§ LORD DIAMOND moved Amendment No. 7:
Page 7, line 14, at end insert—
("(6) Where an insurance company to which the Act of 1958 applies carries on long term business of either or both classes and is an associated body as defined in subsection (7) below that insurance company shall not invest any part of the assets representing the fund or funds maintained in respect of its long term business directly or indirectly in any other body (corporate or unincorporate) of which it is an associated body or a fellow associated body.
(7) For the purposes of this section:
The noble Lord said: May I suggest that it would be convenient for the Committee to take Amendment No. 7 with Amendment No. 8, as both deal with the same fundamental point. Clause 9 deals with the application of the assets of a company with long-term business. The Amendment which I beg to move prompts me first of all to refer to the prohibition in Clause 9(1), which says:
… the assets representing the fund or funds maintained by an insurance company in respect of its long term business shall be applicable only for the purposes of that business".
That is excellent so far as it goes; that appears only to apply to a single company. The first question I want to ask is: What is the situation if a holding company works with subsidiary companies? So far as I can see, the protection would be lost or, at least, seriously weakened. As I understand it, the powers under the Bill would at best enable the Department to step in, if at all, after a dubious investment had been made. I refer to the kind of investment a subsidiary may make in its parent company—loans and so on.
In order to prevent that occurrence, the Amendment proposes to provide that an
… insurance company shall not invest any part of the assets representing the fund or funds maintained in respect of its long term business directly or indirectly in any other body (corporate or unincorporate) of which it is an associated body or a fellow associated body.
It goes on to define those terms. That is what the Amendment is getting at; it is dealing with the weakness which apparently seems to exist in that clause.
§ The first point I want to make is that this is not an academic issue. As I understand it, although I have not read the Report carefully, V. & G. shortly before it failed borrowed £1 million 316 from its life assurance subsidiary. I do not know what the final result of all that is, but at all events it seriously weakened the funds of its life subsidiary. This is an event therefore which could recur unless we prevent it by something like the Amendment to which I am speaking. Then I would remind your Lordships of the normal situation affecting trustees. Trustees cannot say, "We can use trust money to invest it in some organisation in which we are interested, because it is a very good investment on behalf of the beneficiaries." The question of the merits of the investment does not arise at all. By virtue of the fact that they are trustees they cannot invest in anything in which they are interested or are connected with. I regard the board of directors of a life assurance company, in particular, very much in the same frame as trustees. They receive the savings of the policy holder; they invest them wisely and use them for the purposes for which they have been given them on trust. They charge a service fee, as trustees are entitled to charge a service fee, for their professional services for so doing, So I think that that is a reasonable parallel.
§ Then I am told that Mr. Slater (I believe he is referred to as "Jim Slater" by his friends) has made it known—and he is a well-known figure in the financial world—with regard to some of his recent acquisitions that he intends that none of the life companies which he and his colleagues have acquired will use any of their funds to invest in any other of the organisations in the management of which he is responsible. They may be very well managed and very profitably managed, and it would therefore no doubt be a good investment for the policy holder of the life companies that they should be so invested; but he takes the view—and, with respect, I think he takes it very wisely—that it is not the function of those who run a life assurance business to invest those funds, however wise an investment it might be, in companies with which they themselves are associated; it is far better to err on the side of extra caution and not do this.
§ So the simple remedy I am suggesting in this Amendment is to prevent those who are in control of life assurance funds from investing in any other organisation 317 in which they are interested. As those who have taken the trouble to read the Amendment will see, I do not think that 50 per cent. is the right figure. Fifty per cent. is far more than a sufficient figure to ensure control in a public company. I think that in most cases one would achieve effective control with a much smaller figure, and therefore I have adopted the figure of 20 per cent., which, as my professional colleagues will recollect, is the figure recommended by the Institute of Chartered Accountants for accountancy purposes in connection with associated companies. Those are the reasons why this Amendment is worth your Lordships' consideration, and I beg to move it.
§ 6.43 p.m.
§ LORD ALDINGTON
With the purpose as outlined behind the Amendment there would be general agreement. One obviously does not want to have misuse of funds in the way that the noble Lord described. But the wording as it is at present (I do not know what my noble friend Lord Limerick is going to say about it) seems to me to prevent a life insurance company, for example, from investing policy holders' funds in companies which have been set up specially for the purpose of that life insurance business. Examples are unit trust links or property development companies, which provide a way of helping you invest your policy holders' funds wisely in properties. I think that all that is needed are words such as:unless those companies are set up for the purpose of the long-term insurance business of the company".My only other point is that one sees at once—and I really do have some sympathy with the Government here, despite what I have been saying about them—the importance of specifying what you want to do. One sees at once the difficulty in the Bill itself of trying to spell out every single condition. The principle is there: the money belonging to the long-term policy holders must not be invested except in their interests. That is the principle and it seems to me to stand out a mile, and various other provisions in the Bill seek to secure that. Once one begins defining that further down one has to go on and on, so that one does not by mistake exclude things which are for their benefit. Subject to 318 that, I look forward to hearing what my noble friend has to say.
§ LORD CACCIA
May I follow the noble Lord, Lord Aldington, with very much what he has in mind and for this particular reason. When you look at the actual wording of the Amendment suggested, I think, if it were carried out it would prevent and put a complete embargo on investments in a wholly-owned subsidiary of a life fund; and I am not sure that the noble Lord, Lord Diamond, would have intended that. In any event, it ought to be looked at carefully before such a result was reached. Perhaps again, whereas the general objects are obviously acceptable in the drafting of the Bill, when it comes to the drafting of the Amendment do you really need a complete embargo? Ought not the Department to have some discretion for a reasonable percentage? In raising these questions I shall be very much interested to know what the Minister will say in reply.
§ LORD BROWN
As I have been on the other side of the argument twice against my noble friend Lord Diamond, I would say that on this occasion I am wholly with him. With respect to the noble Lord, Lord Aldington, I really do not see that one should sacrifice this degree of protection of the policy holder merely to ensure that the life company had the opportunity for investing in its own subsidiaries or its own associated companies. There are plenty of investment trusts set up by parent companies in the City; there are plenty of opportunities for investment. I do not see why a life company has to create its own investment opportunities. Although it may be some loss to the policy holder on some occasions in that he might have got a better deal that way, there is no logical case for saying he would. Yet there is a logical case for saying that for the crook this opens up a rather nice way of doing the policy holder down in a very big way if he cared to misuse this liberty. So I back my noble friend.
§ LORD DIAMOND
Will the noble Earl permit me to say one more word before he replies? I suggested to your Lordships that it might be convenient to take the following Amendment with this one, and then forgot to say one word about the 319 following Amendment. I will deal with it very shortly because the same principle is involved; the same arguments are involved, but it is a protection against improper or excessive charges. The purpose of the Amendment is to prevent that. Here again, it is not entirely academic because I understand that this was a point at issue with V. and G., too. They made a very large charge to their life subsidiary, and some people have held it to be an excessive charge. I understand that arguments are going on as to the recovery of that, or part of that, charge. So it is an issue which can arise; and here again, as a further protection, the Amendment proposes that the auditors should report as an additional safeguard.
§ THE EARL OF LIMERICK
I find myself here able to adopt the relatively comfortable line which is in the middle of what has been said, because I am sympathetic to the purpose of this clause. It seeks, broadly, to treat investment in associated companies in the same way as the use of long-term funds within the same company for purposes other than those of the long-term business which are prohibited by Clause 9(1). But the cases are not on all fours, and I should like to examine further, in consultation with the industry, what complications might arise in bringing about something which I think we all believe is on the right lines.
It might be helpful if I were to refer to some of my doubts about this Amendment. First, the definition of "associated companies". This goes very wide indeed and I can discern three difficult points about it. The first is that it introduces the concept of the receding 20 per cent. in relationships, and a relationship therefore at three removed will represent less than 1 per cent. common holding. I think this is perhaps going farther than would be reasonable. The second point is that if one of these holdings is through the medium of a trust or a nominee company it does not follow that the two bodies would know they were associated—this is a practical point. The third point, and possibly the most significant, is that this definition of "associated bodies" takes one squarely and solely into the realm of common financial ownership and away from the one that we have, with our concept of controllers, where there are com 320 mon directorships and common influence, and I believe this is an area that we should also consider.
To come to the practical problems, I am not quite sure how this would work. If the top company of a group was a life company, what would be the implications for investment down the line? They would not be able to follow, to increase, successful investments in associated companies. I feel that there is no logical reason to prevent them from doing this. It may be excellent business, provided perhaps—and this is where our consultations would come in—that these investments are not relied upon for solvency considerations; and it is perhaps not generally appreciated that these regulations govern what assets are counted as well as what liabilities. So this would be an alternative approach, and I think it would be well worth looking at. Consultations are now going on with the industry and they have made a proposal with regard to limitation of investment, which is one that we are very ready to look at. Finally, before leaving that point, I think there might be substantial reasons of tax or management why companies, very reasonably and properly, wanted to conduct business through associated companies. The point has arisen earlier this afternoon. An example that springs to mind is if they have a joint operation overseas which can only be conducted on the basis of local participation. So there are many practical difficulties that we should have to look at.
I should like to say a word about Amendment No. 8. I acknowledge that this is concerned with the same point, but the action which this Amendment seeks to prevent would in any case, I am advised, be misappropriation of a company's assets and would be actionable at common law. Apart from this, a premium of excess service charge would be a breach of Clause 9(1) to the extent that it exceeded a reasonable amount, since excess would not be applied for the purpose of the long-term business. There are various remedies for this to be found in Clause 24, dealing with civil proceedings by the Secretary of State, or, if the company is to be wound up, in Clause 29(7), and the penalties are provided for under Clause 42. However, 321 I acknowledge that these are not very satisfactory alternatives, and for that reason I end by saying that I think the Amendment as proposed is unduly restrictive on legitimate business. I think the definition which it seeks to establish of associated companies is not satisfactory, but in another way it is possible that it does not go far enough. If we are going along this path we should be thinking not only about investments, perhaps, but about guarantees as well. For these reasons I suggest that the noble Lord, Lord Diamond, might agree to withdraw his Amendment in order that we may think about it further.
§ LORD DIAMOND
I am most grateful to the noble Earl for having given this careful thought and attention and for the undertaking he has given. I am sure that with the knowledge and expertise that exists in his department he will be able to make a much better job of it than we can in our ignorance. I am glad that the ideas that we put down have prompted further thoughts on his part. I gather the noble Earl was saying that he would certainly give further thought to Amendment No. 7; that he thought Amendment No. 8 was possibly unnecessary but that he would even think about that as well in order to satisfy himself, and that he might come back to the Committee with further thoughts on that Amendment also. Is that correct?
§ THE EARL OF LIMERICK
Yes, we can certainly look again at the principle behind Amendment No. 8. I think that one is less clear and the reverse case of the life company which under-recovers a management fee which may be due to it, which likewise would represent a diminution of its proper revenue, is not covered.
§ LORD DIAMOND
At any rate, the noble Earl has made it clear that he will look at it again, and that is all we really seek in this early stage of our deliberations. I beg leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Clause 9 agreed to.322
§ Clause 10 [Allocations to policy holders]:
§ LORD JACQUES
I ask leave of the Committee to move a Manuscript Amendment to Amendment No. 9: instead of the words "half of" to substitute the words "one half of".
Page 7, line 39, delete the words ("half of") and insert ("one half of").—(Lord Jacques.)
§ On Question, Amendment agreed to.
§ 6.57 p.m.
LORD JACQUES moved Amendment No. 9:
Page 7, line 39, after ("to") insert ("half of").
§ The noble Lord said: I understand that this Amendment may be accepted, but I feel that I have a duty to explain the purpose and the effect of it very briefly. In practice the share capital of a life insurance company is small in relation to the total size of a life assurance fund, and the percentage of the profits which are taken by the shareholders as distinct from the policy holders is relatively small. It is unusual for it to be more than 10 per cent.
§ The clause provides that there shall be no material change in the proportion taken by the shareholders without appropriate publicity. It then goes on to deal with what is "material change" and it allows a reduction of the proportion of profit of 1 per cent. going to the life policy holders. As I pointed out in the Second Reading debate, this could mean a dramatic change in a very short period. For example, if the proportion taken by the shareholders was 10 per cent., it would be permissible under the clause as it stands for the company to increase that proportion by 1 per cent. each year, say for five years, and there would then be a 50 per cent. increase in the amount taken by the shareholders without any appropriate publicity. This Amendment seeks to reduce the 1 per cent. to a half of 1 per cent. That means that even then over a period of five years the position could be changed to the extent of 25 per cent., but we appreciate that there should be some flexibility, because in the absence of flexibility the insurance company would not wish to increase the proportion going to the life policy holders for fear that it could not 323 get a reduction at a later stage without undue publicity.
§ We would point out that if the one-half of 1 per cent. is accepted, there are ways of getting increases which would not cause the company any great inconvenience. The publicity that is required for something more than a half of 1 per cent. would be decided by the Secretary of State, and where it was a proper increase in the proportion taken by the shareholders it would require the very minimum publicity laid down in the clause, which is merely publication in the Edinburgh and London Gazettes. If he thought that it was entirely against the interests of the policy holders he could require the utmost publicity, which could include a statement to every policy holder. Therefore we feel that there is adequate flexibility with one-half of 1 per cent. rather than 1 per cent. I beg to move.
§ THE EARL OF LIMERICK
I would just say to the noble Lord, Lord Jacques, that I was one-half convinced of the merit of his Amendment before he rose to move it. It would be appropriate if I were just to point out that the clause does not impose a prohibition on changes in the allocation of the surplus of a long-term fund to the advantage of shareholders, which in some circumstances may be a perfectly reasonable thing to do. It merely requires that the intention to make such a change should be made public in a manner approved by the Secretary of State if it exceeds that certain percentage. We are not talking about a principle but about the difference between one per cent. and one half of 1 per cent. We have made some inquiries in the industry and understand that they have no objection. On that basis I am quite happy to accept the Amendment.
§ On Question, Amendment agreed to.
§ 7.2 p.m.
§ LORD JACQUES moved Amendment No. 10:
Page 8, line 5, at end insert ("and
(c) has not applied assets representing any part of the surplus mentioned in paragraph (a) of subsection (1) above for purposes other than those mentioned in section 9(1) above before the expiry of a period of 56 days from the date of publication of the statement mentioned in paragraph (b) above.")
§ The noble Lord said: The purpose of Amendment No. 10 is to delay the distribution to the shareholders when there has been a material change in the proportion of the profits on the life fund going to the shareholders. Where there was an increase of more than one-half of 1 per cent., appropriate publicity would be required by the Bill. We take the view that it is no use having this publicity unless one is going to hold up the distribution until after the publicity, and we feel that 56 days would be a fair and reasonable time. We provide for that in the Amendment. I beg to move.
§ THE EARL OF LIMERICK
I am not out of sympathy with the purpose of this Amendment, but I may ask the noble Lord, Lord Jacques, to accept some delay in pressing his case for delay. That is partly because I am not sure what he thinks is going to happen during that period. I see nothing wrong with having a delay unless it would make for practical delays in finalising accounts, declaring dividends and declaring bonuses, which is a point that I should like to examine with the industry. I have some doubts about the drafting. If this is a desirable object, I believe that it could be achieved rather more briefly. I have some doubts about whether 56 days is the right period. We are not at issue in the fact that there may be some merit after the notice is published in allowing time for public reaction. So I would ask the noble Lord not to press his Amendment at this stage and we may well be able to come to some conclusion on this before the next stage.
§ Amendment, by leave, withdrawn.
§ Clause 10, as amended, agreed to.
§ Clause 11 [Grounds on which powers are exercisable]:
THE EARL OF LIMERICK moved Amendment No. 11:
Page 8, line 42, leave out ("and") and insert ("or").
§ The noble Earl said: It may be convenient if we were to take this Amendment together with Amendment No. 18 which deals with a similar topic. Since Clause 11 was drafted, we have realised that it could be held that the present wording requires the Secretary of State 325 to be satisfied before invoking any of his powers of intervention on the grounds specified in Clause 11(1)(a) that the interests of both present and potential policy holders were at risk. The Amendment permits him to act if either class is threatened, and makes this clear. I beg to move.
§ On Question, Amendment agreed to.
§ THE EARL OF LIMERICK
moved Amendment No. 12:Page 9, line 2, at end insert ("or potential policy holders").
§ The noble Earl said: These words were inadvertently omitted from the end of Clause 11(1)(a). Their effect is to enable the relevant powers to be exercised on the grounds of expediency in protecting the reasonable expectations of future long-term policy holders of the company as well as the company's existing long-term policy holders. I beg to move.
§ On Question, Amendment agreed to.
§ 7.5 p.m.
LORD JACQUES moved Amendment No. 13:
Page 9, line 20, leave out paragraph (f).
§ The noble Lord said: I believe that it may be for the convenience of the Committee if Amendments Nos. 13 and 14 were taken together. Amendment No. 13 seeks to leave out paragraph (f). That paragraph gives exceedingly wide powers to the Minister on a change of a single director. This is regardless of whether the new director is or is not a fit and proper person. The Department of Trade would have powers under Clauses 12 to 20 to do such drastic things as restricting the company's investments and/or its premium income and even preventing it from taking new business. The clause is apparently not intended to deal with the circumstances where a new director or manager is not a fit and proper person, because that is covered by Clause 11(1)(e) in conjunction with other clauses in the Bill. It would appear that this clause should deal not with controllers but with the control of the company. We are seeking in Amendment No. 14 to substitute a clause which would deal with the control of the company. We suggest, therefore, that the clause should not deal with persons who are controllers of the company but with a change in the control of the company. There is certainly every justi 326 fication where there is a change in the effective control of an insurance company for giving the Secretary of State the same power as he has when authorising a new assurance company. The Amendment seeks to achieve that. I beg to move.
§ THE EARL OF LIMERICK
The Amendments as drafted are dependent upon the acceptance in Clause 9 of the amended definition of an associated body, and for that reason alone I think that the noble Lord, Lord Jacques, will understand that I could not accept them as they stand. I understand that these Amendments are intended to do two things: to substitute the definition of an associated body as proposed for the one now standing in Clause 2; and to remove the Secretary of State's power to impose requirements upon a company simply because one director or a chief executive had been replaced. Such a replacement would, of course, have required approval under Clause 32 of the Bill.
The purpose of these Amendments in relation to a change of director or chief executive is understandable, but I believe it is somewhat misconceived. If the Secretary of State were debarred from imposing precautionary requirements in cases where it appeared to him that the intended appointee was, having regard to the strength of the team he was to join, no more than barely acceptable, pending evidence of the faults in that appointment he would have to refuse approval under Clause 32. That, I believe, would be a less desirable course. Moreover, a single change might well be one of a series of changes concerned with movements in management or control of a company which cumulatively gave the management a very different complexion. At some point the Secretary of State must be able to introduce safeguards until the new team has shown its competence. I regret, therefore, for those reasons, including the one about the doubt of the definition of associated body, that I would not feel able to accept these Amendments.
§ LORD ALDINGTON
By a sad mischance, I was engaged in some discussions outside when we seemed to get on rather fast, so I find that some important things I want to say will have to be postponed until we get to the Question, That the clause stand part. I understand we are 327 now on the Amendment to leave out paragraph (f), "that it appears to him that there has been a change in the persons who are controllers of the company". Well, there will frequently be changes in the persons who are controllers of the company, and just to have those words without any qualification at all will bring into play, if the Secretary of State so wishes, the whole body of powers. For example, in the case of the company of which I have the honour to be chairman, when I cease to be chairman there will be a change in the persons who are controllers of the company, and then, if the noble Lord is Secretary of State at that time, he will be able to operate all the powers of this Act.
I cannot believe that is what he means to do. What he must mean to do is to bring the powers into operation if it appears to him that there has been some unsatisfactory or bad change of some kind in the persons who are controllers of the company. That is the first thing that I would say, but I would guess that the other arguments have been put which I would back. I would have thought that, like some other parts of the Bill, this paragraph is unnecessary, and in so far as it is powerful or effective at all it is a very bad thing to have in the Bill, because it produces a right for the Secretary of State in circumstances in which we really do not mean to give him that right.
§ 7.13 p.m.
§ LORD BROWN
The noble Lord referred to a personal situation, and he is assuming that this paragraph (f) would mean that if he resigned from the company and somebody else came in the Secretary of State would be able to exercise the right. I am sure the noble Lord would be the first to agree that if a very crooked person got into his role by some dubious means it would be a very good thing that the Secretary of State could exercise these powers. A change in the persons who are controllers of the company does not necessarily mean that the Secretary of State does exercise these powers; it makes that possible. These are all enabling clauses. The arguments against are put as though these were not enabling clauses but clauses which insist that the Secretary of State takes action.
328 I really feel that the policy holder should have the protection of this clause. I again reiterate that the Ministry of Trade and Industry have a terrible time when they fear something is going wrong and some insurance company is getting into trouble. I have heard the arguments—"Can we exercise our powers in relation to this?" Lawyers are brought in to give interpretations of the Act. Somebody says, "It is doubtful whether we could move yet". This goes on interminably, and then they decide that possibly they are not really entitled to act, because the power has been limited in Parliament; and so they let the insurance company go and another ten thousand policy holders come a cropper. The Ministry are criticised by the public for letting it happen. This is all because these wide powers which appear in various places in this Bill are not pressed at the present moment. So I am very glad to see them here.
VISCOUNT DE L'ISLE
Some of us remember the events to which I think the noble Lord is referring and would have wished—I remember wishing—that the Ministry of Trade and Industry, or whichever Ministry it was, would interfere in these cases. I believe that they had the power then. I hear the sound of many stable doors shutting and it is not a very agreeable sound. I believe they have gone from one asymptote to another; I believe it comes from the Seven Pillars of Wisdom, "oscillating from asymptote to asymptote". I think having failed to be sufficiently farseeing over some insurance companies they are now desperately grasping every power they can. Let us be reasonable men. My noble friend is chairman of a very well known, competent insurance company. Who will get up in this place and say that he is likely to be succeeded by a crook? I object very strongly to putting the whole insurance industry under the imputation of possibly putting up crooks because some crooks have got through. It is a very bad way of legislation, to put everybody under the same imputation. What I am against is the spirit of this Bill and its interpretation, in that it classes everybody as a potential crook in order to catch one or two possible crooks.
§ LORD BROWN
With great respect, that is an absurd interpretation to put 329 on my remarks. I am not for a moment putting a slur on the insurance companies, but crooks have got into command of insurance companies—not very big ones, I agree. And there are such things as take-over bids which can be led by people of doubtful lineage, as the noble Viscount knows very well. The potentiality is there all the time. What powers are there to prevent somebody of doubtful lineage taking over one of the big insurance companies if he has enough money behind him? I meant no slur at all on the insurance companies in my remarks, and if any was inferrable I withdraw it.
VISCOUNT DE L'ISLE
I was not implying that the noble Lord said that my noble friend's company has any crooks. That is not my point. It is the way the powers are being applied and the philosophy behind the Bill to which we object. I will be candid with your Lordships. There have been conversations behind the scenes. I wish that we had been able to come here to-day better prepared with Amendments, because I think this Bill needs restructuring. I think the Bill needs to tackle the problem, which is a real problem, from another angle.
I return to the charge that I think it is wrong that the Bill should be so structured that everybody is treated as a potential crook. I do not think the insurance industry's reputation, its organisation or its place in our society justifies that treatment. I do not think that even the emergence of some unsavoury people is a reason for treating normal, well-run commercial organisations on the basis of paternalistic interference. I think we shall have to look very carefully particularly at Clause 11, possibly on Report stage. I personally would not accept the Bill as it stands, and I think some of my noble friends would feel the same. I implore the Government to realise that we are not being selfish, we are not being contentious; we are not trying to safeguard ourselves or our reputations, but we are trying to prevent the Government doing something which I think is damaging not only to the insurance industry but to the commercial world at large, and setting a most unfortunate precedent.
I am afraid I cannot agree with my noble friends, Lords Aldington and De L'Isle, because the whole object of the Bill is that the Board of Trade, or whatever it calls itself now, should have sufficient power to get into the stables before the horses have bolted; and this particular phrase, that they can go in if there has been a change in the persons who are controllers of the company, seems to me the most valuable advance power that they could possibly have. When a small, obscure company is falling into the wrong hands, the fact that the Department knows it has fallen into the hands of a certain person may be the signal that the horse is about to bolt.
§ LORD JACQUES
I should like to point out that some of the arguments being used, especially the argument used by my noble friend Lord Brown, are deceiving the Committee. The purpose of the clause before us is not to enable the Minister to deal with people who are appointed controllers, who are unfit, who are, for example, crooks. The language which was used by the noble Lord, Lord Brown, was such that it indicated that the person that was going to be appointed was unfit. That is dealt with in an entirely different paragraph; it is dealt with in Clause 11(1)(e). Therefore, the crooks that my noble friend Lord Brown talks about are already being dealt with in another paragraph.
What we are saying is that the Minister is seeking too wide a power to use against the appointment of a single director whom he cannot claim is unfit. The powers that he would be able to use are exceedingly wide. He could restrict premium income or investments, and prevent the taking in of new business, and so on, merely because somebody had been appointed to the board that he did not like but whom he could not prove to be unfit. If he were unfit, the Minister could deal with him under some other clause. It may well be that the Minister may feel that he should have this power because there might be circumstances when it would be necessary to use it, but we on this side of the Committee would claim that there are many more occasions when there would be circumstances where it would be unwise for this power to be in the hands of any Minister. 331 I feel that the clause, as it stands, is far too wide.
§ LORD BROWN
I am not going to detain the Committee by refuting the charge that I misled the Committee by my interpretation of the clause. I will take it up with the noble Lord later, but I did nothing of the kind.
§ 7.22 p.m.
§ THE EARL OF LIMERICK
This Amendment springs from the definition of "controller" in Clause 2, which of course is a new concept. The part with which we are concerned is Clause 2(2)(c)(ii). In this clause "controller" means, in relation to a company,a person—who, either alone or with any associate or associates, is entitled to exercise, or control the exercise of, one-third or more of the voting power …It is from that point that we start our argument. We have been criticised in this debate for intervening too much and we have been criticised for intervening too little. One thing that is quite clear is that we cannot intervene at all unless we have the power to intervene. With respect to those of my noble friends who know a very great amount about the affairs of great companies, I may say that there are some companies in this field—and we have the duty of exercising powers over 760 companies—that are neither so big nor so good as the companies with which they are concerned. It is here that the problem lies.
My noble friend Lord De L'Isle referred to the sound of shutting stable doors. I think that in the Department we should regard this as the most sickening sound that we could ever hear. If we want this power when it appears that there is a change of control and the company is falling under the dominance of one man—and often with the small companies it is one man—whose motives we may mistrust, this is not a slur on the industry; it is a measure of protection in a particular case. I think that this stable door point is one which really goes to the heart of the whole question.
It was said that we can use powers under other clauses when the company is already controlled in the sense I have defined, by somebody we should not regard as a proper person, but I think 332 that that is not a very satisfactory remedy. The purpose of this Clause 11(1)(f) is not to keep out crooks; Clause 32 does that. What this clause looks at is inexperienced or unproven controllers, and it is a corollary of Clause 11(4). I have already explained—and I hope that the noble Lord, Lord Jacques, will accept this—that on account of the definition of associated bodies which it introduces, we could not accept this Amendment. There are reasons of principle why it should not be accepted. I am very happy to look at the arguments that have been used, but this would sum up our view of those powers.
§ LORD JACQUES
The principal object of this side of the Committee is to improve the Bill so that it will give consumer protection. Therefore this is not the kind of Amendment that I would press. I understand the Minister to say that while he has objections to this Amendment, he is prepared to take account of the arguments and have another look at it. In that case, I beg leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
EARL ST. ALDWYN
I think that this might be a convenient moment for us to adjourn the Committee until, shall we say, 8.15.
[The Sitting was suspended at twenty-six minutes past seven o'clock and resumed at fifteen minutes past eight o'clock.]
§ THE EARL OF ONSLOW moved Amendment No. 15:
Page 9, line 37, at end insert—
("() The Secretary of State, in relation to the power conferred on him by section 19 below, shall institute a system of periodical inspection of all insurance companies whether or not in the case of any such company a specific ground for investigation exists.")
The noble Earl said: The object of this Amendment is to make sure that all insurance companies are inspected periodically. During the Second Reading debate, the noble Lord, Lord Diamond, said:
Further we would, during the Committee stage, seek to protect the well-run company against the stigma of investigation". [OFFICIAL REPORT, 8/2/73; Col. 1167.]
The noble Lord, Lord Hawke, said:
If I was the Minister, I would send my inspector first of all to Lord Caccia and his Prudential." [col. 1187.]
Then the noble Earl, Lord Limerick, said in winding-up:
If we have more inspection, the stigma will be greatly diminished and will disappear. I also assume that our inspectors will be knocking on some very eminent doors in the not too distant future." [col. 1196.]
I think he also referred later on to inspectors becoming more like auditors than anything else.
§ It is not beyond the bounds of possibility that, if the Vehicle and General had been inspected earlier, it would not have collapsed because it could then have been put right. It is also not beyond the bounds of possibility that, if the inspectors had gone in under the Act, confidence in the company would have ebbed even more quickly than it did at a later date. But if an inspection is just like somebody walking into any company, there is no stigma at all attached to it. I am not asking the Government to inspect the Prudential every day, and I know that there are 730 insurance companies. But it is the small companies which are probably most gravely at risk from this stigma, because people know whether the inspectors have gone into a small company. It is no good people saying that they will not know that the inspectors have gone in, because the City will know even before the inspectors' behinds have touched the chairs on which they are going to sit, because the City has its methods of finding out things of that kind. I believe that it is rather peevishly referred to in some circles as the "old boy network", but that is one of the City's great assets. The object of this Amendment is solely to remove the stigma of inspection, and I hope very much that the Government will find some way of accepting it or of meeting my point in some other way in the Bill. I beg to move.
§ LORD JACQUES
I should like to make our position on this Amendment quite clear. We agree with inspection on two grounds. First of all, it is not uncommon, where an industry is subject to Statute or to statutory regulations, for inspectors to be appointed to ensure that the company concerned is complying with the Statute or with the regulations. We have it in factories; we have it in shops, with shop inspectors; we have health inspectors to see that we comply with the health Statutes and regulations; 334 and if an industry like the insurance industry is going to be subject to Statute to the extent which this Bill would make it subject, there would appear to be no reason at all why there should not be inspection to ensure that the Statute and the regulations arising from it are being carried out. That is the first ground. The second ground upon which we support inspection in principle is that we feel that it could give control by the Minister without the stigma which flows from control without regular inspection. If there were regular inspections, then there would be no stigma attaching to anyone at all: where there are irregular inspections, then there could be stigma. We therefore prefer regular inspections.
Clause 19 gives the Minister sweeping powers. In a few words he can call for any information and require it to be certified in any manner he sees fit. Those are very wide powers. We feel that those powers should be exercised only where there are good grounds, and we say that the grounds set out in Clause 11(1), Clause 11(2) and Clause 11(4) are good grounds for using the powers in Clause 19. But we suggest that where there are no such grounds as those in Clause 11(l), (2) and (4), then the powers should not be exercisable. We are therefore, as we shall show in a later Amendment, opposed to Clause 11(3). Instead of that subsection, we should like to see a subsection on inspection. But the Amendment which is before the Committee at the moment does not quite suit us. We suggest that, so far as this Amendment is concerned, the wordsin relation to the power conferred on him by section 19 belowshould be deleted, and that instead the Amendment should read as follows:The Secretary of State shall institute a system of periodical inspection of all insurance companies whether or not in the case of any such company a specific ground for investigation exists to ensure that it is complying with the statutes and any statutory regulations.We feel that if there is going to be inspection, then the law should say for what purpose there is going to be inspection. We could not agree that it should be for any purpose whatever. We think that inspection is only justified to ensure that the company is complying with the law. We therefore consider that this 335 Amendment is right in principle, but that it needs some modification. We also feel that it should take the place of the present subsection (3).
§ LORD CACCIA
In considering this proposed Amendment, I suppose we all have sympathy with the object; namely, to enable inspections to take place without stigma attaching where that might not be justified and where it might do great damage to the security of the company. But I should be interested to know what, in a practical way, this would mean to the Department if there were a statutory requirement for periodical inspections of all companies. The number being over 700, I do not quite know where Parkinson would end up if the word "periodical" meant anything short of, say, ten years or so. If you take 700 and divide it by 10, that is 70 a year. You must have quite a team to get through that number in 52 weeks. So I would just ask about the practicalities of the proposal, though having sympathy with the object, which is, of course, to see that inspection is carried out without necessarily damaging companies which no one intends to damage if their affairs are in order.
§ LORD ALDINGTON
Once again I find myself in the opposite camp to my noble friend on the Government Bench. Without, for the moment, going into the pros or cons of having a general inspection for insurance companies—and my noble friend who has just preceded me, Lord Caccia, has given one obvious con—this subsection, as I understand it, enables the power of inspection in Clause 19 to be used in the case of companies against which there is no charge at all of doing anything wrong, or no suspicion that they might be doing anything wrong, but in relation to which it is thought by the noble Lord and his colleagues that it is a good way to govern the country that you should have snooping rights (I do not wish to get back to the old days of overstating things, but snooping rights), so that you can go into good insurance companies because you know you have to go into bad insurance companies and you do not want to publicise the fact that they are bad when you send in an inspector. I understand that argument, but I think it is absolutely deplorable, as is the fact that we should find at this moment that 336 a Government governing this country should be taking credit for putting that kind of proposal in front of this Committee and should be justifying it on Second Reading in the way that my noble friend did when he came to deal with this particular clause. He was in favour of investigation. My goodness me! So is Mr. Brezhnev and all his friends over there. They like governing by investigation: but I thought that we in this country liked a system which produced efficiency; a system of competition and of seeing that companies doing their business had a reasonable legal system which governed what they did.
My noble friend asked, "How do we know, without investigation, that a company is well run?". I must tell him, with all the knowledge that I have of the excellent men he has serving him, that he will not know that a company is well run with investigation, but what he will know is whether they are obeying the law. He will also know whether they are obeying the law by the many other powers that the Government have taken to themselves in this Bill, which I support—the returns, which we have dealt with earlier; the various powers to go and look more closely at certain companies when there are suspicions about certain things; and all those other provisions in subsection (1) of the clause we are dealing with now. But my noble friend will not know—and, if I may say so, it is very arrogant of the Government to think they will know—that a company is well run by putting people in there to find out. I am horrified—frankly, horrified—that someone on this side of your Lordships' Committee should with glee, as it appears was done, say during the course of Second Reading:I also assume that our inspectors will be knocking on some very eminent doors in the not too distant future."—[OFFICIAL REPORT, 8/2/73, col. 1196]For what purpose? I do not know what has come over the Department of Trade and Industry in recent years. That, through the mouth of my noble friends here, they should be putting forward such a philosophy and such a doctrine seems to me absolutely extraordinary. I should have thought that the feeling of this Government would be that the less interference there was from civil servants in affairs of companies the better.
337 We are faced here with the dilemma about which we have been talking all day. There is a particular difficulty here in protecting the policy holder who puts his money in against the depredations of rascals. It is about rascals we should be concerned and not about the industry as a whole which seeks to run its business competitively, with its own competitors in this country and with the U.S. competitors and with the European competitors all of whom have various regulations they have to stand by, but none of whom would be open to the argument that it is a good thing for the D.T.I. to knock on the door of a good company in order to justify an approach to a bad one. I am frankly astonished that this kind of argument should be put to us.
I know that in the insurance industry there are many people among the general managers and others, and among some of my colleagues, chairmen and directors, who feel strongly that the Government must have more power in order to rid the insurance industry of bad men. But they do not need to take powers over the good men in order to rid the industry of the bad men. So I support what has been said earlier against this subsection.
As to inspection, it may be that in the end we have to come to an inspection system for the insurance industry of this country. I would regret it. We have managed to get by without an inspection system of the banking industry, about which the noble Lord knows a great deal. I should hope that we could go on getting by without inspection. Most other countries have it. We do not. We have other ways of dealing with the problems of the insurance industry. I hope we shall not have any more of the argument that it is a good thing to inspect a good company to justify yourself inspecting a bad company.
VISCOUNT DE L'ISLE
I do not wish to detain the Committee, but this is one more example of what I was trying to present to your Lordships: that in order to catch the rogue the whole industry must put on inspection. If it should be necessary to set up a comprehensive system of inspection, I should regret it but I should understand it. I do not think it would catch the rogue. As I have said before, I think Her Majesty's Government, informed by the officers of 338 the Department of Trade and Industry, have gone from one extreme to another. I should like them to go back and think about the philosophy of the whole Bill. They ought not to think of 720 companies or the ambit of what they have to do. I think they have a thriving, thrusting, profitable and invisible-export-earning industry, mainly run by honest men of high probity and the greatest skill. To put the whole industry under the blanket coverage of omnibus powers because a few clever rogues have got away with some policy-holders' money will not redound to the credit of the Government; it will not make for the efficiency of the industry but will discourage enterprise, put up overheads and in the long run defeat the major object, which is to make our country commercially honest and viable.
§ THE EARL OF LIMERICK
The discussion has ranged a little wide of Amendment No. 15. I was proposing to confine my answer to the subject matter of the Amendment and I think I should first establish that this would be agreeable to the mover of the next Amendment, for some of the arguments made are those which obviously bear on both these Amendments. If that is agreeable I shall deal only with Amendment No. 15.
The duty that the Amendment of my noble friend Lord Onslow would impose on the Secretary of State is a very imprecise duty. The scope of the inspection and how often it should happen are matters not touched upon. A minimal interpretation would probably not be one which would satisfy what the noble Lord wants here; but even this would impose significant demands on manpower, and our resources of manpower in this area are very small. So there is a problem of precisely what is meant here. I should like to refer to the doubts or questions asked by Lord Caccia. I would say that it would be a difficult proposition to interpret this in a more meaningful way. I referred—and this point was picked up—to an inspector becoming like an auditor. In that sense the analogy was misleading. Regulator visitors have a statutory duty to visit. I was intending to imply only that the visit of an inspector should imply no greater slur on a company than the visit of an auditor.
339 The other question to which we should refer is that this Amendment is not only about rascals but about incompetence as well. If we were to establish a régime of regular inspection, it would be remarkable if a company were to be inspected out of what would be its turn. We should be back to the problem of the stigma. I believe it is only by having inspections which apply to very large companies as well as to medium and small ones that we can hope to get away from the stigma. This general argument would be more properly developed in the next Amendment. In relation to the Amendment in the name of my noble friend, Lord Onslow, I feel for the reasons given that it is not a practical one.
We could certainly consider the suggestion made by the noble Lord, Lord Jacques, that there should be a purpose for a visit. This is a point I will gladly consider. I think that that is as far as I can go. It would not be possible to accept my noble friend's Amendment as it stands.
§ THE EARL OF ONSLOW
While thanking my noble friend, there are one or two points I should like to make to my noble friend Lord Aldington. The principle of inspection has been accepted since the 1967 Act. This Act presumably came about because the insurance industry would not police itself. I am pleased to see that my noble friend Lord Limerick is going some way towards helping to remove this stigma of inspection and toward the suggestion of the noble Lord, Lord Jacques, of the idea of a purpose for inspection. I beg leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ 8.39 p.m.
LORD JACQUES moved Amendment No. 16:
Page 9, line 38, leave out subsection (3).
The noble Lord said: I rise to move this Amendment. I would wish to point out to the Committee the purpose of Clause 11. The whole purpose of this clause is to lay down the ground on which the Secretary of State may apply his powers in Clauses 12 to 20. These are exceedingly wide powers. Clause 11 gives the various grounds, and I would look first at subsection (1) which says
that he shall have these powers where he thinks it necessary for protecting the policy holder or the potential policy holder against the risk of the company being unable to meet its liabilities:
or, in the case of long term business, to fulfil the reasonable expectations of policy holders.
It goes on in paragraph (b) to say that he shall have these powers to see that the company is complying with the 1958 Act, the 1967 Act "or this Act". He can apply these wide powers where he thinks he has misleading or inaccurate information. Further, he can use his powers where he thinks the arrangements for reinsurance are inadequate. He can use the powers where he has refused to authorise the appointment of a particular controller and where there has been a change in the persons who are controlling the company. He can use them when a company carrying on general business may, in his opinion, be unable to meet its debts, and in the case of a company carrying on long term business which he thinks may have liabilities which exceed its assets. Subsection (4) goes on to say that he can apply the powers in the case of a new company.
§ These are very wide powers, as are the grounds on which such excessive powers can be granted. We think that is far enough, and that it is not necessary for the Secretary of State to have such wide powers as those stated in Clause 19 against a company to whom none of the grounds which I have mentioned apply. We feel that there are sufficient grounds in subsections (1), (2) and (4) for the application of the powers in Clause 19. Therefore we feel that subsection (3) should be deleted; it has not been justified.
§ LORD ALDINGTON
I will rise once again so that the noble Lord, Lord Brown, may be enabled to contradict what I am about to say. I agree with the Amendment, and on the last Amendment I indicated my general approach. But here I wish to refer to a particular word. The subsection states:The power conferred on the Secretary of State by Section 19 below shall also be exercisable—this is in addition to all the other reasons—on the ground that he considers the exercise of that power to be expedient in the general interests of persons who are or may 341 become policy holders of insurance companies …The word "expedient" is used also in subsection (1)(a). As I have already explained, I was out of the Chamber at the time when that discussion took place, but I should like to know from my noble friend what he thinks the word "expedient" means. If he will look at the Concise Oxford Dictionary he will find that it means, "politic but not just" and that brings us back to where we were earlier in the day.
I do not know what the Government are doing in asking for powers as wide as this on that kind of criteria. Good gracious me! The Minister has powers in subsection (1)(a) and (f)—I have already explained why paragraph (f) seems to be quite unnecessary—and now he wants to take powers to put inspectors into companies against whom he has no complaint at all under the provisions of paragraphs (a), (b), (c), (d), (e) and (f) of Clause 11. So he introduces a new idea altogether, that the powers shall be exercisable in the case of the inspection under Clause 19—"Power to obtain information and require production of documents"—on the grounds that:… the Secretary of State … considers the exercise of that power to be expedient in the general interests of persons who are or may become policy holders of insurance companies to which the Act of 1958 applies, and references in that section to a company include references to anybody (whether incorporated or not) which appears to the Secretary of State to be an insurance company to which that Act applies.He wants to have power to inspect anybody. If that is what he wants, why does he not say so? For that reason I prefer the idea of my noble friend Lord Onslow whose Amendment we considered earlier.
As I have said already, I am appalled that any of my noble friends should be putting forward a case for inspecting good companies just as a camouflage in order that they may inspect bad companies whenever they like. That does not seem to me to conform to the kind of society I was brought up to believe in. Nor does it seem to me to promote the kind of climate in industry which will protect policy holders properly, and which internationally will earn the very important sums in invisible exports which we look 342 to the insurance industry to provide at times when the visible trade balance is not so good.
§ LORD BROWN
If this debate has demonstrated anything, it is that it is not true to say that this Committee always divides on Party lines. I would speak against this Amendment. I like Clause 11(1)(c) very much; so much in fact that I would put the suggestion to the Minister that he should dispense with the beginning of Clause 11 down to subsection (3), and then that he should put in subsection (3) the power conferred on the Secretary of State by Clauses 12 to 20—and then read on. All of Clause 11 up to that point is, I think, in defence of the consumer. And why should not the Secretary of State use all his powers under Clauses 12 to 20 in accordance with what he considers expedient?
I rather wondered whether the noble Lord, Lord Aldington, quoted from the Oxford dictionary all the definitions of the word "expedient". I have no pre knowledge, but I always believed that the Oxford dictionary generally gave three or four or more meanings of a word, and I wondered whether the noble Lord selected the one which suited his case. At any rate, I am against this Amendment because I think that subsection (3) is very important and could be used in a wide way to get rid of the earlier parts of this clause.
§ 8.50 p.m.
§ THE EARL OF LIMERICK
As it happens, I have a dictionary in front of me. I do not know whether it is the same one as my noble friend used but I notice that the word "expedient" is stated to mean "politic rather than just". That is the second meaning given to it. The first meaning is, "advantageous, suitable; as, 'to do whatever is expedient.'" So I think that this word has more respectable antecedents than has been suggested.
§ THE EARL OF LIMERICK
Yes, it is, "advantageous, suitable". In many other countries detailed and frequent inspection is applied as a matter of routine to all companies. Not by any means do we want to go as far as that. I think that was clear in the debate on the last Amendment. Particularly we do not want to 343 because we expect to be in closer touch with the development of the affairs of companies by means of the reports which we shall be receiving in some cases with greater frequency under the regulations that may be made under Clause 6. But I think there is a rather wide divergence of philosophy here. There is a reference to the interests of persons who are or may be policy holders. I think that the main interest of these people must be that there shall be no insurance failures at all. I do not see how one can get away from that proposition. Therefore, being reasonable, things which conduce to that must be helpful rather than the reverse.
In our supervision philosophy there are two broad roads that can be trodden. There is the one that is being trodden in many other countries, where they have chosen to regulate conditions of policy and they have chosen to regulate premiums. We do not want that. Therefore we are advancing a step further on the other road, which is to give us powers of reaction where things seem to be going awry; to give us powers to monitor the people for their fitness and propriety to take part in this industry and to look at the solvency of the companies. This seems to me to be a very clear division of philosophy, and that if you turn your back on the detailed supervision, as we have done on the first model, then it is necessary, in the interests of the policy holders, that there shall be adequate powers, which we have taken to include the power to obtain information on the lines with which this Amendment deals.
Why should we want to inspect good companies? I think it is clear why one wants to inspect a bad company. And it is clear that we want to avoid the automatic consequences of an inspection being that doubt, possibly followed by disaster, comes to the company in the wake of the inspectors. How can we avoid this? In my estimation, we can avoid it only by its being generally known that inspectors go to companies, good, bad and indifferent; and they go there not on a regular basis, but when they have some particular objects in mind. What could these objects be? They could be not only to see why the had companies are bad; they could legitimately, I suggest, in the wider interests of the industry, be to discover 344 why the good companies are good. We want to establish standards for our supervision. We want to try to bring the weaker companies towards the standards of the best. This is a step along the road. Or there could be a simple request for knowledge. The point might well be made—and I would not disagree—that if we had a request for knowledge of a good company whose solvency was beyond doubt, we would ask them and they would almost certainly tell us. But that would not be the same thing. It would not be seen to be treating all companies alike. I think this a point of great importance in the whole philosophy of supervision.
The noble Lord, Lord Aldington, referred to the importance of the industry for our invisible exports. He knows a great deal about this; I know something about it; and it is very much to the front of our minds. But I should like to ask my noble friend a question. What does he think would happen to the reputation of the industry, what does he think would happen to our invisible earnings, which follow the reputation of the industry, if we were to have more insurance failures, and more insurance failures which people feel could have been prevented if we had had a better knowledge as a basis for exercising our powers? That is a simple question, and I think it is a fair one.
I have one more point on this subject before I sit down, and that is that all our talks with big insurance companies have indicated that they would see no difficulty in our inspecting them.
VISCOUNT DE L'ISLE
Has my noble friend had any talks with any director of and large insurance company?
VISCOUNT DE L'ISLE
I must ask my noble friend whether he has himself, or through his Department, had any direct contact with any big insurance company through the board.
§ LORD ALDINGTON
I regard this matter as very important. In private discussions—and I regard the faith of private discussions as important—I made it quite clear to my noble friend and his colleagues that though there had been proper discussions with the B.I.A., there were not in those discussions any references to the boards or to any of us here who have responsibility. This point was taken, and I understood that at no time during the course of this debate was I to have thrown in my face that there had been discussions with officials for whom I was responsible, and that those appeared to be contrary to what we had said. That was a point of promise given to me, and I am surprised to find that promise unfulfilled.
§ THE EARL OF LIMERICK
I really think that my noble friends are being unkind, or even unfair to me. What I was about to say when my noble friend intervened—my two noble friends who have spoken from that Bench speak entirely for themselves; they are not seeking to do otherwise—was that these discussions had taken place at official level.
VISCOUNT DE L'ISLE
With great respect to my noble friend, he said they took place with big insurance companies. Any discussions that have taken place have taken place through the British Insurance Association. Companies are governed by boards of directors and not by officials. I ask him to withdraw his statement that he had discussions with big insurance companies.
§ THE EARL OF LIMERICK
I will gladly qualify it by saying that my understanding is that these discussions have taken place at official level. I cannot possibly say that there have been no discussions. I had really concluded my remarks on the Amendment. What I have been seeking to do is to explain the importance which we attach to these provisions and the reasons for which we do not conceive that it would be in the 346 interests of these policy holders, about whose affairs we are all so rightly concerned, for it to come out in the course of this discussion that the power contained in Clause 11(3) should not be available.
VISCOUNT DE L'ISLE
It is, I think, becoming more and more clear as the debate on the Committee stage proceeds that there is a basic misunderstanding between the Department and Her Majesty's Government and any of us who are in some way implicated in the insurance industry. I absolutely and categorically deny in the presence of your Lordships that there have been discussions with big insurance companies. There may have been discussions with the small ones. There have been discussions between the organised executives, called the British Insurance Association, privately, not to be revealed, on the basis that it is better for the Government to be informed about the expertise, but not committing anybody to an opinion in this House. So I hope that never shall we hear that phrase again. I hope that not merely will it be qualified, but it will be withdrawn.
We recognise the difficulty under which the Government are acting, but we do not think they have reacted to the situation very ably. I repeat—and I am sorry to have to make the same remarks over again—that they seem to be informed by the spirit that if you only apply to every member of the insurance industry the same criteria that you apply to a potential rogue, the Departments of State concerned will be absolved from any risk and, in the words of the noble Earl, it will prevent any insurance failure. I do not want to be pessimistic, but I do not think it is possible to prevent some failures in this field. I do not believe that consistently with any form of enterprise and initiative it is possible to ensure that; and in trying to ensure it the Government are attempting to acquire blanket powers which, in my estimation, they have not really the capacity properly to fulfil.
Partial inspection of insurance companies of the kind which the noble Earl has adumbrated will really be a farce. To quote the case of the company of the noble Lord, Lord Caccia—because it is the biggest—if you went to the Prudential Insurance Company and 347 started to inspect it, I honestly think that either you have to go to lunch or you need to be there for three years. I am sure that the inspectors would rather go to lunch, because they know that Lord Caccia and his colleagues are not doing anything in the least disreputable. But it would be reported that there had been an inspection. Do not let us deceive ourselves because we hope that we might possibly deceive the general public. I do not think the Government are proceeding along lines which are practical, which are fundamentally ethical or which will be conducive to a higher standard. I do not think that in the end action along these lines will catch the really persistent and dishonest person.
Once again I beseech the Government to take back some of these provisions which have been criticised, to think about them again and, above all, to put out of their minds the fact that they have to come to an agreement with the big insurance companies.
§ 9.2 p.m.
§ LORD BROWN
There are many things I used to notice about insurance companies, one of which was the extent to which the companies were run by general managers, but these general managers often did not appear also as directors. I do not know whether or not this is still true. It seems to me rather astringent, and perhaps overcritical to say to the Minister, "You have not consulted the insurance companies because you have not been to the directors"—because there must be a very large percentage of names among directors of insurance companies who really cannot claim to be experts on insurance. I thought that perhaps the remarks went a good deal too far when the object of the Bill has a very clear and social purpose, which I heartily support, namely, to protect the policy holders. Insurance companies in this country have been very successful and wonderful overseas currency earners. They are the best of their kind nationally—no one else has companies as good as they are—and yet there have been these tragedies in recent years. Nothing could be more harmful to the reputation of these great insurance companies than any continuation of this kind of thing. All these provisions in 348 the Bill—draconian as they are, and I admit it—are there to prevent such tragedies happening; and the apparent anger they are arousing leaves me absolutely puzzled.
§ LORD ALDINGTON
Perhaps I can try to still some of the anger. These matters arouse my opposition, as a Member of this House, because I have been brought up to believe that in our country a Government come to Parliament to seek the powers they need for specified purposes, and are granted those powers for specified purposes. Secondly, I believe, frankly, that civil servants do not run industry and commerce very well and the private enterprise system which we have created does run them very well. Of course I realise there is an interface where things go wrong; that is what we are talking about.
The noble Earl, Lord Limerick (who sometimes arouses my admiration and at other times arouses my passions) is of course right in saying that he has consulted the only representatives of insurance companies that are available to him at official level, through his officials. That consultation is done through the British Insurance Association. But, you know, we are getting into a state in this country where we think that we have the very best knowledge when we get it from the various associations such as the C.B.I., the T.U.C., the B.I.A. and so on. If you want to find out what is happening, in my opinion, you do better to go to the people who are running the thing. I happen to believe that if you want to find out what trade unions think it is better to go to the leaders of the unions than to the lowest common denominator (or is it the highest common factor?) that can be got through an association. Likewise, I believe what we are trying to say is that though the noble Earl has had consultations with the associations and with experts of different kinds, he has not had the advantage of talking to people who really look at these things in the broad.
What we have tried to do here—because frankly, my noble friend and I have rather a lot of other things to do, but we feel it is part of our duty, when we know about something, to come here—is to give your Lordships, out of our knowledge of the insurance industry and of Government here and in another place, 349 what we believe is the right answer. I do not think we need to say that we are "passionate" or that we need argue with each other about motives; but I believe it is an error to proceed with this subsection, and that is why I said what I have.
§ LORD JACQUES
I wonder whether I could put the argument to the Minister in another way. Nowadays practically every industry has some statutory control. The extent to which statutory control is required depends upon the industry, and we are entirely with the Minister regarding the purposes of this Bill. We agree that this is an industry where more statutory control is required than in most other industries: we accept that. But in all other industries inspection is for the purpose of seeing that the company is complying with the Statutes. We suggest that that is what should happen here—that the inspection should be to see whether or not the company is complying with the Statutes and that it should be treated in the same way as companies are treated in other industries. We believe that to achieve that effect there would have to be substituted for subsection (3) powers of inspection to ensure that an insurance company was in fact complying with the Statutes and the statutory regulations. May I ask the Minister whether he would look at this to see if he could have a little more sympathy with that idea and whether it would be possible to devise another clause which would take the place of subsection (3)?
§ THE EARL OF LIMERICK
Influenced as I inevitably must be by this debate, of course I will look at this Amendment again. I will look with great attention at what has been said. But I hope that my own arguments will not go unnoticed, either. I understand very well the point that the noble Lord, Lord Jacques, is making, and I noted the words that he used, and the way in which he would have liked to see the previous Amendment altered to meet this point. That is something that I will gladly consider, but I must consider it without commitment.
§ LORD JACQUES
I appreciate that the Minister must consider it without commitment. I accept that, and I beg leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.350
§ 9.8 p.m.
LORD JACQUES moved Amendment No. 17:
Page 10, line 9, at end insert ("but the Secretary of State shall not continue to exercise in relation to that company, society or body, any of those powers later than ten years after the issue of the authorisation except on one of the grounds specified in subsections (1) to (3) above.")
§ The noble Lord said: As I understand it, Clause 11(4) gives the Secretary of State very wide powers over new companies. He can restrict investments and premium income, and apparently do so indefinitely. As the law stands at the moment, I understand that the powers which the Minister has over the new companies are for five years. We submit that while there may be a case for extending the period for the use of these exceptional powers from five to ten years, there is no case for the Minister having those exceptional powers over a new company indefinitely. There must come a stage when the new company is established, and it should be treated like everyone else in the industry—subject to exceptional powers only when there are exceptional grounds for the use of those powers. I beg to move.
§ THE EARL OF LIMERICK
We are talking about restrictions that are imposed at the time of authorisation, and the question is how long it would be proper that these should be maintained unless specifically renewed in relation to a situation which gave rise to doubt. This is a fair point. We have previously had a time limit of five years. It was proposed to abolish this time limit. The idea that we should have a ten-year time span is one with which I would not quarrel. I think it is quite reasonable that within that span the company should be sufficiently established so that the imposition of any particular restrictions should be a matter to be looked at entirely on its merits. Therefore I can accept this idea in principle. I should like to look at the drafting, which raises a few problems, but I do not think the noble Lord will expect me to go into those now. Together we can see what progress can be made on this at the next stage.
§ LORD JACQUES
I thank the Minister for his reply. I accept his assurance, and beg leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.351
§ On Question, Whether Clause 11, as amended, shall stand part of the Bill?
§ LORD DIAMOND
We have had a most interesting debate on this clause. It has raised many issues to which, so far as I am concerned, I should like to give much more thought. The debate has been very valuable, and it seems to me that it would now be appropriate for us all to reconsider the various well-informed and well argued views that have been put forward, and return to this matter at a later stage. On that basis, I do not think it would be in the best interests of the Committee that we should debate at length the very important principle raised by this clause. But I hope that I am not misleading the Minister, or the Government; we have the gravest reservations on this clause, and we therefore want to come back to it at a later stage, after having studied the conclusions the Minister has reached on the careful review that he has been kind enough to promise on many aspects of this clause.
THE DEPUTY CHAIRMAN OF COMMITTEES
The Question is, That Clause 11, as amended, stand part of the Bill.
§ LORD ALDINGTON
I was hoping that we could stop before we passed the clause. I thought that was the noble Lord's proposal—that we should adjourn now and not take the debate on the Question, That the clause stand part of the Bill. That debate might go on for quite a time.
§ LORD DIAMOND
I understand the purpose behind that comment. If that suggestion is agreeable to the Government, the Committee could be adjourned now. I do not know what the Rules of Order of your Lordships' House are on this point, the Question having been put.
§ Moved, That the House do now resume.—(Lord Denham.)
§ On Ouestion, Motion agreed to, and House resumed accordingly.