POLICYHOLDERS PROTECTION BILL [H.L.]

HL Deb 22 May 1975 vol 360 cc1413-507

11.38 a.m.

Lord BESWICK

My Lords, I beg to move that the House do again resolve itself into Committee on this Bill.

Moved, That the House do again resolve itself into Committee.—(Lord Beswick.)

On Question, Motion agreed to.

House in Committee accordingly.

[The Earl of LISTOWEL in the Chair.]

Clause 15 [Interim payments to protected policyholders of companies in financial difficulties]:

Lord BELSTEAD moved Amendment No. 52: Page 13, line 9, after (" liquidator ") insert (" or the provisional liquidator ").

The noble Lord said: The reference to a provisional liquidator ought to be made here as, in the interests of policyholders, we think it may be desirable to make payments before a liquidator is in fact appointed. I wonder whether the Government have a view on this. I beg to move.

Lord BESWICK

My information is that the matter is clear as it now stands, but if it is not clear to the noble Lord, in order to make it absolutely clear I should be glad to accept this Amendment.

Lord BELSTEAD

I am most grateful to the noble Lord.

On Question, Amendment agreed to.

11.40 a.m.

Lord LYELL moved Amendment No. 53:

Page 13, line 11, at end insert: ("( ) In exercising either of the powers conferred on them by subsection (2) above the Board shall, so far as it appears to them to be practicable, ensure that the expenditure thereby incurred does not exceed the expenditure which might be incurred in discharge of any relevant duty imposed on them by any provision of sections 6 to 11 above.")

The noble Lord said: The main purpose of this Amendment is to ensure that policyholders who are contributing to the levies which will be necessary to rescue life companies which have got themselves into difficulties shall obtain the maximum advantages of an orderly rundown of the business. If necessary this might mean that under the earlier clauses which we discussed. Clauses 11 and 12, the contracts could be reduced—if necessary, agreed upon by an independent actuary—and I hope that the Committee will forgive me if I do not become too deeply involved in the methods and mechanics of reducing such contracts. I think it would be better to concentrate on the advantages of allowing any company in difficulty to run off its existing business, particularly where the long-term financial prospects and the overall position warrant such treatment.

Where a company is wound up, the investments of that company will have to be realised, and in realising those investments there could be some problems, in that the sum of the realisation might be reduced when compared with a longer-term realisation, when more time could be taken to wind up the company and realise the assets in an orderly way. But if there is a problem of rushing the realisation, the policyholders who will have to contribute to the rescue of the company may well have to pay out more than might be necessary if a longer-term view could be taken. This might be of considerable advantage to the liquidation procedure. I believe that problems of tax repayments in respect of losses could also occur when investments are being realised. There will furthermore be the problem of unrelieved management expenses, but this is more a mechanical taxation problem.

The combination of these aspects—the tax aspect and the payments by innocent policyholders—could be of benefit to the policyholders who are contributing to the levy. The court already has power to reduce contracts, together with guidance from an independent actuary, instead of winding up the company immediately, and this Amendment seeks to improve the interests of the innocent policyholders who are contributing to the levy, first by appointing a provisional liquidator who could anticipate the powers he would eventually obtain; secondly by bringing the provisional liquidator within Clause 15(2)(b)—in this clause the liquidator is mentioned but we hope that a provisional liquidator could carry out the powers that he would eventually have—and, thirdly, by limiting the payments by the Board to what would be the amounts payable by the liquidator or even the provisional liquidator and not allowing the Board to overspend in the short-term. This is a complicated matter but I hope that I have explained it clearly enough.

Lord CACCIA

I support this Amendment which, as the noble Lord, Lord Lyell, said, is somewhat complicated, although its object is perfectly clear. That object is to try to help the individual policyholder, and that of course is the main object of the Bill. So without going over all the ground again and repeating the fact that certain powers already exist, I hope that the noble Lord, Lord Beswick, will view this Amendment with the same sympathy he has shown to other Amendments which seek to improve the Bill.

Lord BESWICK

I made a note of something I had intended to say, but the noble Lord, Lord Caccia, has taken the words out of my mouth. I was about to say that this is a rather complex matter but that the object is quite simple. However, I believe that the object could be achieved as the Bill is drafted and without the Amendment, and I will explain why. The Amendment would impose, and is intended to impose, a restriction on the Board's discretion, but of a very uncertain effect, and I think it could go much wider in scope than is intended. It would often be difficult for the Board to calculate at the stage when it is considering making interim payments the amount of the expenditure which will eventually be required. It may not even know for certain that its duties under Clauses 6 to 11 will ever arise in the case in question. If, for example, the provisional liquidator is negotiating for the transfer of the business—indeed, the clause is partly designed to allow for the situation where doubts of this sort exist—the uncertainties involved would be such that the provision that is proposed would often be virtually meaningless.

The clause already contains a provision which enables the Board, where appropriate, to ensure that any payments it makes under this clause will not exceed what it may be required to pay in the discharge of its duties. That is what the noble Lord seeks to achieve, and I am advised that that objective is achieved. Any payments it makes can be on such terms, including terms requiring repayment—I emphasise again that we should bear in mind the nature of the Board with which we are dealing and its responsibilities in this matter—and it can make sums available and require them to be repaid if the sort of situation should arise which the noble Lord has in mind. It can make the money available on such conditions as it thinks fit. It will no doubt wish, where necessary, to include requirements as to repayment to allow for the possibility that an interim payment might be greater than the amount the Board was eventually required to pay. The clause as drafted gives the Board the means of achieving the effect which the noble Lord, Lord Lyell, and the noble Lord, Lord Caccia, are obviously seeking to achieve, and on the basis of this assurance I hope that the Amendment will not be pressed.

Lord LYELL

I am grateful to the noble Lord, Lord Beswick, for the assurances he has given. However, we should like to study the matter further, and in the meantime I seek leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 15, as amended, agreed to.

Clause 16 [Companies at risk: transfers of business, etc.]:

On Question, Whether Clause 16 shall stand part of the Bill?

11.49 a.m.

Lord ABERDARE

This is the clause in The Bill which aroused the greatest opposition when we considered it on Second Reading, and I think that every speaker at that stage, with the possible exception of my noble friend Lord Limerick, who had some small sympathy for it, condemned this clause as being highly undesirable. The basic reason why we consider it to be undesirable is that it would extend the scope of the Bill far beyond the limited objective which we consider the Bill is intended to fulfil. It has been stressed, time and again, on Second Reading and in Committee on Tuesday, that there is sympathy for the objective in the Government's mind in bringing this Bill forward as a measure of consumer protection, and in so far as the Bill limits itself to the protection of the private policyholder we have sought to approve those provisions. But because it goes beyond that we have set down the Amendment and have sought to keep the Bill to its limited objectives. Many people have objected to the principle behind the Bill, but even they may be persuaded to admit that it is a political necessity today to have some form of consumer protection in the insurance world, but limited to the private policyholder. We do not wish to see the Bill going any wider or offering protection to corporate bodies, trade creditors, even possibly shareholders. Yet that is what we believe would be the result if the clause remained in the Bill. Its wording is very wide.

Subsection (1) says, If it appears to the Secretary of State in the case of any authorised insurance company, that the company may be unable to meet its liabilities to protected policyholders, he may refer its case to the Board … Our fear is that it would become pretty well standard practice to do so. The Secretary of State would find a company in financial difficulties and would be under great pressure to take the simple action, which would be well understood by the public, of simply referring the case to the Board. The discretion of the Board also appears to us to be much less than seems apparent, because there would again be tremendous pressure to see what it could do to rescue the company before it went into liquidation. One can imagine the sort of political pressure so to do. The result would be that in every, or nearly every, case a rescue would be carried out and there would be assistance from the levy—in other words, from the sums contributed by other policyholders—to rescue the company and thereby to give a 100 per cent. guarantee to the policyholders in the company in question, whether they were private individuals or corporate bodies. Equally, the trade creditors would be protected, and I believe that the shareholders would also be protected unless there were an arrangement whereby they were allowed to fade out of the picture.

I do not think that we should feel it right that policyholders in soundly-run companies should be used to finance the rescue of a company which has got into financial difficulties of this sort. The noble Lord, Lord Beswick, has on occasion pointed out—I believe he did so on Second Reading—that the majority of members of the Board will be representatives of the insurance industry and will be able to exercise their discretion in the case of a company at risk being referred to the Board. That is true, and later we shall be welcoming the Amendment to this effect which the noble Lord has put down, but I still think that the outside pressure on the Board automatically to rescue companies will be very heavy. For instance, one can imagine considerable pressure from Members of another place whose constituents were involved. I believe that it would be a much better way of dealing with the matter were the Bill to do as the other clauses suggest and do without the possibility of rescue.

As I understand it, the idea behind the provision is that the Secretary of State would only in certain cases refer companies to the Board. That would be done where it was cheaper to rescue the company concerned, where it was in the interests of the industry as a whole and where the underlying account was sound. In my opinion, however, if those three conditions obtained the industry itself would have come to the rescue of the company and the situation would never have reached the point where there was a possibility of liquidation. In the past there have been many instances in which the insurance industry has rescued a company which has been in temporary difficulties. That is usually not publicised but it is an effective way of operating and I am sure that it is much the better way of dealing with the matter. It would only be a company which was badly run, which was offering excessive benefits or, possibly, one which was fraudulently run which would reach the stage of being referred to the Board. All past experience goes to show that it is better to leave the present commercial arrangements between the companies to deal with those companies which are only in temporary difficulty. The other companies which have been badly or uneconomically run should go into liquidation. After all, remarkably few insurance companies have failed in the past, and we may hope that, when we get the regulations under the 1974 Act, even fewer will do so.

I do not believe that the clause will add anything to the present safeguards and I feel that it is open to possible grave difficulties because we fear that, were it to become the normal arrangement that companies in difficulties were referred to the Board by the Secretary of State and the Board were almost inevitably to take steps to rescue them, that would have the two very undesirable effects which we have been fearing all through the discussion. First of all, it would encourage companies to offer policies at cut rates and to increase benefits and run commercial risks in the knowledge that there was a long-stop and that the Secretary of State, through the Board, could come to the rescue if they got into difficulties. Secondly, it would have the corresponding effect of encouraging people to insure with such companies in the belief that if they got into difficulties there would be a 100 per cent. rescue operation which could be mounted through the Board. I believe, therefore, that if the noble Lord, Lord Beswick, wishes to be helpful to the insurance industry—and he has been very moderate and accommodating so far—it would be meeting with all our wishes to see the clause removed from the Bill.

Lord BESWICK

I am not winding up the discussion—no doubt there will be a discussion in depth on this matter—but it might be of advantage if I set down at the outset the Government's point of view. Then, at the end of the debate I will comment on what has been said. I shall listen with care to what is said against the case which I should like to have set down. We regard the clause as an essential feature of the Bill. After all, it may sometimes be in the interests both of the policyholders and of the industry as a whole to rescue a company rather than allow it to go into liquidation, but that is only a secondary feature of the Bill. I emphasise that the powers in the clause are discretionary, whereas in a liquidation the Board will have duties to fulfil. The Board will be able to use the rescue powers only in strictly limited circumstances.

The noble Lord, Lord Aberdare, said that this rescuing operation would become standard practice. But there is no reason to suppose that it will become the norm. On the contrary, there are a number of reasons why the rescue power will be used only sparingly. First, there are important restrictions in Clause 16 itself. The Board may only exercise its powers under this clause for the purpose of safeguarding protected policyholders—although it is in the nature of a rescue operation that other policyholders, and indeed other types of creditor, might benefit incidentally. It will not be possible to give assistance directly to the company at risk unless any necessary changes in management, control or membership have occurred. Even after such changes, moreover, the Board must ensure so far as is reasonably practicable that the existing members of the company will not benefit as such. It may be asked how the Board can ensure these things. in practice I do not believe it will be difficult: in a number of rescues that have been mounted in the last year or so there has been no such difficulty—and I can give as examples the Vavasseur Life and the Welfare companies. But if it proved too difficult and the shareholders were recalcitrant. then Clause 16 would not be available in that case.

Secondly, subject to the specific limitations in Clause 16, the use of the rescue powers will be at the Board's discretion. The majority of the Board's members will be from the insurance companies, as the noble Lord. Lord Aberdare. has said, and we are prepared to concede the principle—and I have put the Amendment down already—that this should he specified in the Bill. I emphasise that the Board will not be compelled to rescue a company if they do not want to rescue a company.

The Board will wish to take acount not only of the interests of protected policyholders, but also of the wider interests of the industry as a whole; and, accordingly, in weighing up the alternatives open to them in a particular case should be able to consider the implications of each course for the stability of the insurance industry in Britain and for the health of the industry's business overseas. They would also of course have regard to the net cost of each course to the industry through the levy. The expense involved in rescuing a company may well be less, as the noble Lord says, than that incurred on paying claims once the process of liquidation has started. A number of elements are involved; first, the mere fact of a liquidation often causes a sharp reduction in the value of a going concern, due to the loss of good will and accumulated tax losses; secondly, the costs of the liquidation itself can be substantial, perhaps running into millions of pounds; and thirdly, dealing with claims individually could entail a considerable extra cost to the levy.

These factors must be taken into account by the Board who are considering their own industry and indeed their own interest before they decide what action should be taken. Moreover, in a case where a company with good but liquid assets was faced with a run of surrenders, the Board might be able to retrieve the situation by providing a bridging loan to another company to take over its business or by giving a guarantee. Thus, there might be no net expenditure by the Board at all.

May I refer to a point which was made by the noble Lord, Lord Aldington—and I am sorry that he is not in his place today—in column 1266 of our discussions on 20th May, where he said that: Inside each of the big insurance company groups … there is complete protection within that group's resources. I know that the resources of these big groups are very considerable indeed. Nevertheless, they are not unlimited. One of the largest saw its solvency margin fall during 1974 from over 50 per cent. to under 20 per cent., although of course there has been a significant recovery since then. That was a time when certain values—property values—fell. Now the trouble is inflation and the difficulties that arise from that.

The other day I was reading the report by the Chairman of the Phoenix Assurance Company, the noble Viscount, Lord De L'Isle, whom we should have been pleased to have had take part in our discussions. He had this to say in talking of the dangers of inflation: Under such conditions there is no reliable method of estimating the eventual cost of claims settlements. That is a fact. That is what we have to take into account. In other words, he is in difficulties in estimating the company's liabilities. By itself that would be very worrying, but the noble Viscount goes on to say that the company has very properly adopted a cautious policy towards its liabilities and that reserves have been substantially increased. That was a company of outstanding reliability and outstanding reputation. But if that is a situation which faces one of the largest of the insurance groups, what is the position with the smaller companies? They may be very well run also, but they do not have the resources of the large groups and, inevitably, they must be much more vulnerable.

The point I am making is that insurance is the business of taking risks in an uncertain world, and even the best run companies could get into trouble, without any question of mismanagement or negligence. The larger companies should have the resources to overcome their difficulties, but the smaller ones may not. If Clause 16 is dropped, such a company may be forced into liquidation when it could have been saved.

It has been argued that all policyholders will benefit to 100 per cent. in a rescue and not suffer as the result of dealing with an unsuccessful company. But I might point out that this is what has happened in certain rescue schemes financed by individual companies in the past. The Board, in any case, under the terms of Clause 16, will be able to make it a condition of assistance that the benefits are reduced if the Board consider that is a justifiable course. There is no reason in principle why such voluntary rescues should not take place in future, although the British Insurance Association has repeatedly warned the Government that it is likely to be increasingly difficult to arrange rescues—and that was a factor in the Government's decision to propose this legislation. I hope the noble Lord, Lord Aberdare, will bear that in mind. I understood him to say that voluntary rescues can be mounted, but here we have advice from the Association that it would be increasingly difficult in the future to carry out that operation.

Rescues under Clause 16 differ from voluntary rescues in two respects. Clause 16 discourages recklessness by making it a prerequisite to a rescue that the shareholders should lose their money and the managers responsible for the difficulties should lose their jobs, whereas that is not necessarily the case with a voluntary rescue. I emphasise that, because time and again in this House on Second Reading it was stated that the shareholders would benefit and those responsible for the operation of an ailing company would benefit, if a rescue was mounted. The situation is as I have described it and we should take that into account. Moreover, as I have indicated, the "willing horses" in the insurance world which have participated in voluntary rescues in the past have found them exceedingly difficult to organise, with so many interests involved. If Clause 16 were to be deleted they would find it even more difficult in the future, whereas the Board could operate more efficiently and perhaps deal with one purchaser of the company at risk and spread a subsequent burden fairly.

I hope that noble Lords who have legitimate fears about this clause will be kind enough—perhaps I have not spoken out sufficiently clearly—to see the argument in Hansard before we come back at Report stage. There is a case to be made out for this clause which I think should be recognised. Nevertheless, I know that there are doubts in the minds of a number of my noble friends, and of noble Lords opposite, and I shall listen to them with care. I shall be glad to see whether I can give an assurance on any points when I reply.

12.10 p.m.

Lord CACCIA

I am sure that every, body in every part of the Committee—not only noble Lords on the Benches opposite, but also those on the Cross Benches and elsewhere—will respond to what the noble Lord said about looking carefully at his explanation in support of the clause. All the same, I hope that, equally, he will be ready to listen to what has been said against the clause. I do not wish to delay the Committee, particularly at this moment, by rehearsing the arguments which have been clearly stated by the noble Lord, Lord Aberdare. But perhaps I may bring one or two general observations into this argument.

First, certain noble Lords—and even the noble Lord, Lord Belstead, who is among those who moved the Amendment; and the noble Lord, Lord Houghton of Sowerby—have on occasions said that they are proud to speak, having no interest except as consumers. It is an advantage to your Lordships to have speaking those people who have only that interest in this measure. There are others of us—and not Party Members on this occasion; and I speak from the Cross Benches—who are proud to say that they are associated with this industry, and they hope that the result of any new legislation will be to improve it. In that general sense, I think the object is the same on all sides of the Committee. The question, as we go from clause to clause, is: will this Bill in fact do so? There is a genuine legitimate doubt, because this clause gives very wide powers indeed, and we must ask whether this is for the health of the industry. I think it is doubtful, on two grounds at least.

A healthy industry should have a high repute abroad and enjoy the confidence of the people of this country. This is what we in the industry seek to achieve, and this is why those who are involved are proud to be connected with it. Will this Bill lead to that end? I think that it will not necessarily do so. I do not think that at this moment it is wise to give such wide powers in a Bill, because we have to consider it in the climate of the time. I quite sec that the Board would not necessarily have to act in the sense that they would give 100 per cent. protection. But there must be that anxiety, because of what is happening elsewhere in the industrial field.

Therefore we should be exceedingly careful before giving such wide powers, unless it can be proven that they are inescapable and really necessary. Are they so? I do not think history so far suggests that they are. I believe that what is already in the 1974 legislation—for example, regulations which make it necessary to give an accounting situation of the assets of a company at regular intervals—will show whether or not firms are in a proper position to meet their liabilities. If such action is taken in good time, there is no need for anything more. I suggest that the 1974 Act, and the regulations already in force under it, make it doubtful whether anything more is necessary. My main contention is that while we are ready to look at what the noble Lord, Lord Beswick, has said before we come back on Report, I hesitate to be a willing partner to wide powers which are doubtfully necessary at this moment.

Lord BALFOUR of INCHRYE

The noble Lord. Lord Aberdare, has deployed very clearly the objections to Clause 16, but I have another objection, if I may put it to the Minister. Clause 16 states: If it appears to the Secretary of State, in the case of any authorised insurance company, that the company may be unable to meet its liabilities … I am concerned with the phrase: If it appears to the Secretary of State … The Board must then treat the company as a company at risk. But let us go back to Clause 2(1), which we discussed on Tuesday when we had a very considerable debate on the difference between "guidance" and "direction ". I think the general conclusion of the Committee was that the Board is really under the orders of the Secretary of State. The noble Lord, Lord Aberdare, has put forward the possible heavy political pressures upon the Secretary of State to rescue the interests of his constituents, which are in danger. As at present drafted, Clause 16 means that the Secretary of State could give directions—I call them" directions "; the Minister may call it "guidance ", but do not let us split hairs on the difference between "guidance" and "directions "—to the Board to take a certain company and label it as "at risk ".

He could then continue his "guidance "—or "directions" as the case may be—as to what the Board should, or should not, do in that case. If Clause 16 is to remain. I wonder whether we could divorce it from the powers given to the Secretary of State in Clause 2(1), in order to ensure the independence of the Board in the consideration of any particular case.

Lord HOUGHTON of SOWERBY

This clause, as well as other clauses in the Bill, has to be tested against the first principles of the Bill. That means that anything that the Board do involving a charge on their funds is utilising the proceeds of a compulsory levy on policyholders—directly, or on their behalf—for the purpose of protecting other policyholders. This is not a Bill for the promotion of the good name of the insurance industry. I submit that it must take care of its own reputation by its own practices and its own prudence and commercial and administrative integrity. The Bill, as its Title implies, is for the protection of policyholders; and so the question is: what are the reasonable limits of the protection to be given, and what are the reasonable limits of the protection to be given to some policyholders at the expense of all policyholders? These are the questions we must answer.

One can fully understand that there are occasions when a rescue operation, carried out in time, could be less expensive to the Board and to the Fund than if a company were allowed to go into liquidation. It is this matter that we must take care of in this clause. I am not concerned with the general wellbeing of the industry in this context. We have to look at this as a legitimate charge on the Fund to perform a certain function of protection of policyholders who are at risk.

I think that the reasonable principle would be that no rescue operation should be undertaken which would cost more to the fund than allowing a company to go into liquidation. To use money to protect policyholders beyond the prescribed limits of the Bill in a rescue operation is to use the funds for a wider purpose than is really intended. This is a difficult equation to be struck. Of course, I understand that the Board has no mandatory obligation to do so, but I take the point made by a noble Lord a moment ago about Secretaries of State. In the present system of Parliamentary administration the trend is for Ministers to gather more and more power and more and more patronage. I think this must be watched; otherwise there will be Boards of various kinds, ostensibly independent, nicely represented by all the interests concerned with the predominance of the insurance interests on the Board, if you like. Nevertheless, when it comes to the crunch the Secretary of State will be the person with the power—and, if not the power, the influence and probably the Parliamentary strength to enforce whatever he believes to be the result of the benefit of his discretion.

I think that we must beware of this. Whatever our political views, we are not in favour, surely, of endowing Ministers with more power than it is reasonable for them to have and to exercise in the interests of the community or in the interests of a section of the community. Therefore I think that when giving power to the Secretary of State which indicates that he is going to have influence or power of direction, it is reasonable that those powers should be prescribed. I would suggest that the remedy to Clause 16 is not to remove it entirely from the Bill, because to deprive the Board of the opportunity of undertaking this kind of exercise would be harmful to certain purposes of the Bill. My anxiety is that the Board should not be encouraged, or even have their elbows twisted, by the Secretary of State to undertake a rescue operation which is against their better judgment and which might be more costly to the Fund than if they allowed the company to go into liquidation and protected the shareholders according to the conventional pattern of the compensation available under the scheme. That is the issue and it should be incorporated in the clause.

The Earl of ONSLOW

Having been referred to by the noble Lord, Lord Aldington, the day before yesterday as a "siren voice ", I should like to make two or three comments on this Amendment. First—and this is the "siren voice" one—as I said before, I think that a slightly larger number of policyholders ought to be protected; but, having said that, it seems to me that this clause is an accompanying protection measure. Arising from that, this could encourage companies to offer higher terms of brokerage or higher brokerage percentages and put themselves more at risk to attract more business on unsound underwriting policies. Secondly, the noble Lord, Lord Beswick, was saying that the rescue of companies was becoming more difficult without this clause. I am not sure that it would not be more difficult with this clause. The industry could say: "There is the Board. Let it pick up our chestnuts! "This is the worry.

The noble Lord also, wisely, produced the argument about reserves being put at serious risk by very high rates of inflation. On Tuesday, the noble Lord, Lord Winterbottom, mentioned Germany in 1923, which unfortunately is obviously too much in the forefront of our minds at the moment. Could he perhaps produce some of the nearest historical precedents for this appalling inflation, perhaps some figures as to what happened to insurance companies at that time—and I know that this is being thrown at him out of the blue—to see what sort of effect there was and how many companies went broke and so on? I think that information of that sort would be a guidance.

Several companies have been rescued by the industry. Companies' difficulties normally have been either through lack of cash flow or unsound underwriting policy; but enormous numbers have been rescued. I am worried whether perhaps this might discourage the industry from rescuing and encourage it to give higher rates of agency commission.

12.25 p.m.

Lord PEDDLE

My noble friend, Lord Houghton, in making his comments made reference to his own personal doubts concerning this particular clause. While he would deplore any action in using the resources of policyholders for rescue operations that went beyond protecting the interests of policyholders, he felt that this might conceivably be able to achieve that objective at less cost. I know that the noble Lord, Lord Houghton, shares my view and the views of others of my noble friends on this side of the Committee in our attitude towards this Bill; but I would urge him to give greater weight to the first part of his considerations.

I believe that this is a bad clause. It is one that should be withdrawn. I put down an Amendment along similar lines to that of the noble Lord, Lord Aberdare, but in view of the fact that he put his down first I withdrew mine. I am appreciative of the comments made by my noble friend Lord Beswick. They require considerable study, and I would delay pressing this matter until I have given some thought to what has been said. However, I would take this opportunity of underlining a point that I have made on a previous occasion; namely, that I consider this clause to be wholly bad because it goes well beyond the concept of protecting the policyholders.

When, in terms of the Bill, we speak of protecting the policyholders, we think in terms of what it is going to cost policyholders in other, sound organisations. It is not a hand-out by the Government; it is a contribution by other quite innocent, usually small, savers, and that must be borne in mind. I said on Second Reading—and my noble friend Lord Beswick challenged it—that this was just as likely to benefit shareholders. That point of view was rejected. I can appreciate his argument; but he went on to say in his own explanatory comment that if a shareholder is recalcitrant then this clause would not be operated. The mere fact that one accepts the possibility of a shareholder being recalcitrant indicates that he is urging for something more than the Board would be pleased to give him. That would indicate that the shareholders would have some influence on whether or not the rescue operation was performed. You cannot have it both ways. If the Board's policy is going to be varied by the attitude of the shareholders, then one must inevitably concede that the shareholders have not only some involvement but also some influence. Where you have a widely dispersed shareholding it is obvious that some would hang out for a higher price, because if a rescue operation must be performed there must be a buying out.

Lord BESWICK

I cannot follow what my noble friend is saying. We are dealing with the liability towards the policy holders. The interests of the shareholders do not come into this at all.

Lord PEDDIE

I know that that is what my noble friend is saying; but I am saying that you cannot avoid the fact that the shareholders will benefit. That is my point.

Lord BESWICK

There would be no shareholders. They will have lost. They disappear so far as any protection purpose is concerned. The shareholders, the managers, if they were culpable, go out of it. They have lost. The only individuals who come in for consideration are the policyholders.

Lord PEDDIE

Is it suggested it is expropriation? Is it suggested that the shareholders get nothing at all and the Board have the right and power to say, "You get nothing; we take it over and you have nothing to do with it "?

Lord BESWICK

That is exactly what I am saying.

Lord PEDDIE

It should be made more clear in this clause. I am sure the opposition to it would then be far more strenuous, if those powers are to be given. However, let us forget the shareholders for the moment; there may be arguments on that, but there is no argument at all on the fact that if we extend it along the lines indicated by the clause there will certainly be benefit to a wider range of policyholders. There would be overseas business, trade risks, reinsurance and marine business and there would also be trade creditors. Trade creditors would be paid in full. By the application of this clause there will be a considerable extension. I share the fears of the noble Lord opposite when he seemed to imply that if this clause stays in you may as well forget the rest of the Bill, because there will be such pressure for the operation of these powers that the others will never be called into operation. Frankly, I think it is bad because of that, and it goes well beyond what was in the minds of those who prompted this Bill, that it was to provide some protection for the policyholder. There are many other points which can he made. I do not intend to pursue them except to say that I will read with very great care indeed the points that have been made by my noble friend. At the same time, I have great reservations.

12.32 p.m.

Lord BANKS

After listening carefully to the discussion which we have had, I am left very unhappy about Clause 16. The noble Lord, Lord Beswick. made the point that the majority on the Board would be representatives of the insurance industry who would be able to decide whether or not to apply Clause 16. But, as other noble Lords pointed out, the validity of that argument depends to a great extent on the degree to which the Board are subject to direction by the Minister. The noble Lord, Lord Beswick, said that the procedure in this clause would not become standard practice and would be used sparingly. The point which came out from the Second Reading debate was that people felt that the principle of the clause was wrong, and that has again been repeated during our discussions today. If the principle is wrong, even if it is used sparingly, its use is wrong.

The fears people have had about this clause have been twofold: first, that the shareholders, creditors of non-private policyholders, would benefit as a result of a rescue operation. Now the noble Lord, Lord Beswick, says, as I understand him that the shareholders will get nothing at all for their shares and the shares will be expropriated. If they get anything at all for their shares they are getting some advantage from the rescue operation. The fact that the words, "as far as it is reasonably practicable" are used in the clause must throw some doubt on the argument that shareholders will get no benefit in any circumstances.

Lord BESWICK

What I am saying is that they will not get any benefit out of this rescue operation.

Lord BANKS

The point the noble Lord has been making is that if the company is saved from complete failure, and prevented from going into liquidation, the shareholders could conceivably benefit from that, even though they do not get any further benefits under the new arrangements which take place once the rescue operation is carried out. That is the fear which is there: that any benefit of that kind is to be prevented "so far as reasonably practicable ". That suggests that there is a possibility that to some degree it will not be found to be reaonably practicable.

The second objection is to the diversion of the funds away from people who have paid premiums to sound companies for the purposes of rescue operations which seem to go far beyond the purposes for which the Bill has been introduced. It is the feeling that this clause is wrong in principle which has caused the objection to it and the feeling that it should be withdrawn. The fact that there may be people from the insurance industry on the Board and that the power may not be used very often does not overcome the fact that if it is wrong in principle it ought not to be put into practice at all.

Lord SINCLAIR of CLEEVE

I will not detain the Committee for more than a few minutes. I must declare an interest: up until two years ago for some 15 years I was a director of an insurance company and, in the course of that time, I learned a little about the industry and conceived a high regard for the general standard operating in that industry. The cases which have given rise to Clause 16 have been, fortunately, very few. I think it is very important that nothing should be done as a result of this Bill which would increase the danger of such cases becoming more numerous in the future. I agree very much with all that the noble Lord, Lord Aberdare, said in speaking to this Amendment.

I shall study carefully the reply which the noble Lord, Lord Beswick, made. My impression, in listening to him, was that it was an extremely fair exposition of Government policy which would appear, in general, to be reasonable in the circumstances. Yet, from such knowledge as I have of the industry, I should not think that if this clause remains we should expect to see any result other than an increasing number of unsatisfactory cases where a rescue operation would become necessary. I agree with every word which my noble friend Lord Caccia said on the subject. I hope, subject to what we may read and understand between now and Report stage, eventually due consideration will be given to the abandonment of this clause.

Lord HAWKE

I have a small interest which I forgot to declare on Tuesday. On what grounds will the Board be able to act? A company is alleged, in the opinion of the Minister, to be at risk, not in liquidation. Then the Board have to do various things to safeguard the policy; holders, either seeing that they are paid out or that their business is transferred to somebody else. What is the legal basis for that? If the company is in liquidation it is clear, but if it is not in liquidation I should have thought that the only legal basis was by consent of the shareholders who, aparently, are supposed to be pushed aside entirely. The shareholders may be rather obdurate; they may say:" We are not going to consent to having all our policies taken away from us unless there is some safeguard for our own position." I leave that thought with the noble Lord because I am uneasy about it.

Viscount SIMON

May I also ask one short question before the noble Lord replies? In his clear exposition, which we shall all need to study in Hansard before we decide what ought to be done with this clause, he mentioned, in balancing the different cost of taking various options, the cost of liquidation. But surely the cost of liquidation will not fall upon the Board and the levy. They have nothing to do with that. Their obligation is to pay policyholders their dues. But if there is no money to pay the liquidator, it is not going to come out of the levy fund, is it?

Lord AUCKLAND

I spoke of this clause on Second Reading and I used a rather racy expression, "shoring up ", which on reflection I think could have been modified. The noble Lord, Lord Beswick, quite rightly reprimanded me for having used it. However, one point has occurred to me. There can be two main reasons why a company gets into difficulty. One is gross mismanagement. or possibly even malpractice, on the part of those concerned in the company. The other is an abnormally large third party risk which was not envisaged at the time but which could put a company into difficulties and in need of rescue under the terms of this Bill. The question I should like to put to the noble Lord may be hypothetical; nevertheless, it is important. If a company is rescued and then later finds itself solvent, is it possible under the terms of this Bill for that company to set itself up again, and perhaps he the object of a further rescue operation? As I see it, this is not set out in the terms of the Bill, but in ordinary commercial practice it would seem to be a point worth considering.

Lord BESWICK

I wonder whether I might reply to some of these points at this stage. First, as to the question of a voluntary rescue, there is no reason in principle why one should not take place in the future. I thought I had made that plain in what I said earlier. I went on to say that the British Insurance Association has made it clear that it is becoming increasingly difficult to arrange rescues. In answer to my noble friend Lord Peddle, who still has this fear about the shareholders, may I repeat what I said in my opening remarks that one of the essential differences between a rescue under Clause 16 as against a voluntary rescue is that under Clause 16 it would be a pre-requisite that the share holders should lose their money—I cannot put it any clearer than that—and, moreover, the managers should lose their jobs if they were responsible for the company's difficulties.

Having said that, may I say that I have listened with great interest to what has been said. I did not agree with the noble Lord, Lord Banks, when he said that the objection running, through the speeches he had heard was one of principle, and that the principle was wrong. As I have understood it the great fear, which was expressed by the noble Lord, Lord Caccia, for example, was that the powers were too wide. The noble Lord, Lord Aberdare, thought the pressures on the Board would be too great and that they might mount operations which they would not otherwise have mounted. The noble Lord, Lord Balfour, said that the Board would be "under orders" from the Secretary of State to do things, which they would not otherwise wish to do. As I understand it, although I am sure we shall all read very carefully what has been said, it seems that the anxiety here is not so much against the principle of rescue—for, after all, I have before me representatives of companies who have themselves mounted rescue operations, so they cannot he against rescue in principle—it is rather a question of whether this Board will be compelled or persuaded to rescue a company, either by the Secretary of State or by the pressure of public opinion, in cases where they do not wish to follow such a course.

It might be possible to help if we were to limit in some way the circumstances in which the Board would carry out a rescue. This is a matter for consideration. I listened with great interest to the whole of the Second Reading speeches and I have since read what was said by the noble Earl, Lord Limerick. If I understood him correctly, he suggested that the possibility of rescue should be left to the Board, but he went on to express doubts as to whether it would be easy in practice to extinguish the interests of the shareholders. He appeared to share the fear expressed by my noble friend Lord Peddic—and it must be a very real fear since it exists on both sides—but I should like to make it absolutely clear that the fear is not justified. The noble Earl, Lord Limerick. suggested that the rescue operation should not come in until some precise stage, which would be specified in the Bill. I should like, if I may, to give some thought to the possibilities that would be open there.

For example, it might be possible to say that the powers of the Board under Clause 16 would come into operation only in the same circumstances as the powers under Clause 15; namely, if a company is in liquidation or if a provisional liquidator has been appointed. I put that forward as a possibility. I should have thought that would meet almost' all the fears that have been expressed—that about the width of fears, for instance—that the Board will be under pressure or that the Secretary of State will wield undue powers, if the question of rescue comes in only at that point. It is possible that there may have been a voluntary rescue before, and there may have been all sorts of things before, but if we reached that stage the Board would then be under an obligation to consider, and then only to consider, whether the circumstances justified a rescue operation. That seems to me reasonable and I wonder whether, on Report stage, we could agree on some Amendment which would make this possibility a statutory fact.

Another point was made by. I think, the noble Lord, Lord Aberdare—certainly, it came from his side—and it also seemed to be in the mind of my noble friend Lord Peddie, which was that the cost of rescue could be much more than the cost of liquidation. This would need to be studied and I am not sure whether it could be written into a Bill. But, certainly. I think my right honourable friend would agree that if it could be stated in some way—in the Bill if possible, or in some other way if that is not possible—that the course of rescue would be followed only if it were cheaper than liquidation. That is another interesting and, I hope, constructive point which could be considered before Report stage. Perhaps noble Lords will look at what I have said. I hope that we can reach some agreement and perhaps it may be possible to withdraw this Amendment in the meantime.

Lord HAWKE

Before the noble Lord sits down, could he answer my point. Is it a flaw in the Bill or have I misconstrued it? Legally it would seem extremely difficult for those operations to take place without the consent of the proprietors of the company.

Lord BESWICK

If the proprietors did not agree there would be no rescue, so the question does not arise. I am sorry that I did not answer the point.

Viscount SIMON

Could the noble Lord answer one short question? He referred to rescue being cheaper than liquidation. May I ask, cheaper to whom?

Lord BESWICK

Cheaper to the industry, the industry being the body from which the levy is raised. I was speaking from that point of view. As a rescue operation it would be cheaper than to allow the process of liquidation to take place.

Lord BALFOUR of INCHRYE

Does the Minister close his mind to the possibility of excluding the powers of Clause 2(1) of the Minister to give guidance to the Board in respect of their administration of Clause 16?

Lord BESWICK

I am not sure that that point does not arise under another Amendment, and I would certainly be able to say something on that. But on this narrower point of when the rescue operation would be mounted, guidance would not be possible outside the provision which I am suggesting we might consider should be put into Clause 16.

12.51 p.m.

Lord ABERDARE

We have had a very full debate on this clause. There are immense difficulties, and even greater difficulties than one imagined have appeared in the course of the debate. I still find it difficult to understand this matter of the position of the board of directors and the shareholders. As I understood what the noble Lord, Lord Beswick, just said, it would require the assent of the board of directors for this rescue operation to be mounted; at the same time, the shareholders as a result would receive nothing. I cannot see how any board of directors could agree to a rescue operation taking place if their shareholders were to get nothing at all. However, this is only one difficulty that seems to me to have arisen in the course of our discussions which needs looking into a good deal more closely. I think also that there are—

Lord BESWICK

May I interrupt to put a point? The noble Lord, Lord Aldington, will probably correct me if I am wrong, but I believe that in a recent case a board of directors and a company actually paid to be taken over—there was a negative transaction—because it was thought to be in the fair interests of the policyholders.

Lord ABERDARE

I understand that to be correct.

Lord ALDINGTON

There were special circumstances, but the noble Lord has not mis-stated a set of facts.

Lord ABERDARE

That may have been so in a special case—not one, I am afraid, with which I am familiar. But—

Lord PARGITER

If I may intervene, can we define the word "rescue "? The term "rescue" is used in regard to the rescue of something or somebody. If the noble Lord is using the argument that one could rescue the company and still leave the shareholders with nothing, that is no longer a rescue operation. I presume that a rescue operation entails keeping a company in existence, as distinct from some other type of operation which lets it go out of existence. "Rescue" must surely mean maintaining the body politic, as it were.

Lord ABERDARE

As I understand the Bill, and what the noble Lord, Lord Beswick, has said, that is not so and the shareholders lose everything. The noble Lord does not believe me. Will he kindly ask his noble friend Lord Beswick, or read the Bill, because this is exactly what we are speaking about. The shareholders lose everything, whereas in the case of what he—

Lord PARGITER

May we be clear? I am not now concerned with the rescue of policyholders as distinct from the rescue of something else. We were speaking in the rather narrower terms of the rescuing of an insurance company. At least, that is what I understood we were talking about.

Lord ABERDARE

That is what Clause 16 is all about. But where there is a company which is worth rescuing, it seems to me that the industry itself can be left to rescue it, keep it in being or take it over, with the added advantage that there are people, maybe debenture holders, whose interests are looked after in that case. I do not know what happens to them under Clause 16. Certainly, the shareholders in certain circumstances might have, or would have, a residual claim. There are innumerable difficulties. I would much prefer the noble Lord, Lord Beswick, to say that he will remove this clause and have a look at it again. We will certainly discuss it, if we may, in the intervening period between Committee and Report, but I think from what has been said from all parts of the Committee that it would be a much cleaner and happier operation, giving a good deal more confidence to those in the industry who have grave doubts about this clause, if we agreed to take it out at this stage and discuss the matter again before Report stage.

Clause 16 disagreed to.

Clause 17 [The insurance industry levies]:

12.55 p.m.

Lord PEDDIE moved Amendment No. 54: Page 15, line 3, after (" the ") insert (" net income of the company, such net income being equal to the ").

The noble Lord said: I hope we may take Amendments Nos. 54, 56 and 57 together. Amendment No. 54 would change the basis of the long-term business levy, which is the levy in respect of life assurance business. The Bill provides for the long-term business levy to be based on the premiums received on long-term policies effected after 31st December 1974—although there is a further Amendment after mine which would change the year from 1974 to 1975. At Second Reading it was pointed out by many noble Lords that one of the fundamental objections to the Bill was the fact that millions of small savers, saving through traditional life insurance companies, and entitled under their policies to a share in the profits of those companies, could in no circumstances secure any benefit from the guarantee scheme.

If their companies struck adverse circumstances, the position would be met by reducing bonuses to policyholders; and if the circumstances were so adverse that even this was not sufficient, then the financial circumstances would be so serious that the entire insurance industry would be in difficulty and no guarantee scheme would be of any use to anybody. Yet under this Bill it is these policyholders and many millions of small savers saving through traditional life insurance policies who have to meet the great bulk of the cost of any levies that may be imposed in respect of life assurance business.

As was pointed out on Second Reading, this is an objection in principle to the Bill. We cannot, I suppose, correct that at Comittee stage. It is however possible at Committee stage to modify the basis of the levy to make it less unfair to the policyholders in the traditional life assurance companies where, because of the high proportion of with-profit business, there is very little chance of failure. This is what my Amendment seeks to do. Instead of the levy being based on the premiums received on life assurance policies, it would base the levy on premiums received on life assurance policies, less the amount of profit distributed to the holders of life assurance policies. As compared with the basis of the Bill, this would reduce the amount payable by insurance companies with a high proportion of with-profit business, and increase it in those companies with little or no with-profit business. Incidentally, these are just the companies which can be driven insolvent in adverse conditions unless they are very carefully managed.

Some noble Lords will. I am sure, have seen the statement issued by the Scottish Provident Institution—one of the most respected of the life insurance companies; it was issued on Tuesday and I think reported in the Press yesterday. This states fully and clearly the point I have endeavoured to make, although in fairness I must say that the Institution is arguing against the guarantee scheme in principle; not arguing, as I am at this moment, for a modification in the basis of the levy. I would say at the outset that I do not propose to press this Amendment to a Division. We have set down the Amendment, because my colleagues and I are anxious to know what the Government have in mind. The Secretary of State indicated quite recently—I think at a lunch—that he is willing to consider other bases for this levy. Therefore, I shall be glad to know what the Government have in mind. Judging from the utterances of the Secretary of State, it appears that there is something basically wrong and that there is a willingness to give consideration to the study of some other basis. Because of that, I beg to move.

Lord WINTERBOTTOM

With the permission of the Committee, may I speak to Amendments Nos. 54, 56 and 57 together? If I understand correctly the intentions of my noble friend, the purpose of this Amendment is to vary the impact of the levy between companies carrying on long-term business according to the amount of their surplus that is allocated year by year to policyholders.

Lord PEDDLE

That is correct.

Lord WINTERBOTTOM

The effect is to lessen the impact of the long term levy on companies run on mutual lines. As my noble friend has said, through the Secretary of State the Government have already expressed considerable sympathy with the purpose of this Amendment, Which is to reduce the impact of the long-term business levy on companies run on mutual lines, where all or most of a company's profits accrue to the policyholder. Indeed, the Government have already given some thought to working out a formula to achieve this result, but have found it difficult to do so equitably. However, the Government are prepared to look at the matter again in the light of the proposal contained in these Amendments, in order to see whether we can work out a fair and acceptable scheme. I know that the Government would be most grateful for any positive suggestions coming from the sources for which the noble Lord, Lord Peddie, is speaking. I make no commitment, because there are great difficulties in devising formulæ which are applicable to all the various kinds of long-term business. However, with all the assistance that they can possibly get, the Government will try to work out something and. if possible, propose an Amendment at Report stage

Lord ABERDARE

I have great sympathy with the point which has been put by the noble Lord, Lord Peddie, and I am very pleased to hear that the Government will try to find some formula which will satisfy the point. I know that there are very grave difficulties over obtaining an acceptable arrangement, but I hope that we shall be able to make some progress towards it.

Lord WINTERBOTTOM

May I say to the noble Lord, Lord Aberdare, and to the Committee that any positive advice or assistance that the Government can obtain will be appreciated.

Lord PEDDIE

I appreciate very much indeed this indication of support, and I welcome the statement which has been made by my noble friend that this point is open for consideration. I look forward to our discussions, during which we shall probably he able to find a satisfactory solution to this problem. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

1.4 p.m.

Lord ABERDARE moved Amendment No. 55: Page 15, line 6, leave out (" 1974 ") and insert (" 1975 ").

The noble Lord said: I beg to move Amendment No. 55. Subsection (4) of Clause 17 deals with the long-term business levies. It says that the first levy may be made on the net premium income of the company for the year ending last before the beginning of that financial year in respect of long term policies effected after 31st December, 1974. … ". On the premium income of a company, the current year is from 1st January, 1975. Therefore this would mean that a company would be paying a levy on policies written before the Bill was published and certainly before it passed into law. It means that in drawing up its contracts with its policyholders a company would have had no chance to consider how it could meet a possible levy.

May I give an example? In a linked life policy the contract between the company and the policyholder states the proportion of the premium which is allocated to units in the investment fund and the proportion that is kept for management expenses, life insurance cover and so on. The latter figure may be as little as 5 per cent., thus leaving 95 per cent. to be invested and 5 per cent. to cover risks and management expenses. If a levy of 1 per cent. was placed on a company and the company had to find it, it would have to come out of the 5 per cent. which had been put aside for management expenses—and that is 20 per cent. of the company's own essential financial backing

The reason for the Amendment is to suggest that in the long-term business area it would be fairer to these companies that they should have a chance to reconsider their contracts with their policyholders, and that the levy should not start to operate until after 31st December of this year. I beg to move.

Lord BESWICK

I hope that I have been able to follow what the noble Lord has said. As I understand it, if this Amendment were included in the Bill it would prevent any long-term business levy from being raised before the financial year 1977–78, since levies relate to income in the previous calendar year. Consequently it would reduce the potential size of the levy in future years. We have already accepted that it would be wrong for insurance companies to be levied in respect of policies effected before they had knowledge of the scheme. The Government's proposals were announced on 29th October, 1974. Therefore so far as policies effected this year are concerned, companies should have had ample opportunity to adjust their premiums or other policy conditions to take account of the forthcoming levy. I see no reason for delaying the imposition of the long-term levy for another year. Indeed, the Board's duties arise in relation to companies whose liquidation begins after 29th October, 1974. It seems wrong that they should have no access to funds to pay for the protection of long-term policyholders of such companies before 1st April, 1977. They would have no access to levies; and if they did not have the money from levies, they would have to borrow and the result would probably be more expensive to all concerned.

With that explanation, I hope that the noble Lord will feel able to withdraw his Amendment.

Lord ABERDARE

I will certainly have a look at what the noble Lord has said. I appreciate the difficulties. It was in my mind that the Board would have to borrow. As the noble Lord has rightly said, the levy would not be imposed until 1976 on the premiums of the year 1976, which means, as the noble Lords says, that the levy would bite in 1977. I see the objections to that. On the other hand, there is still the difficulty that many of these contracts with policyholders have been made and, so far as I know, have not been altered to meet the possible levy. However, I will have a look at it.

Lord BESWICK

They have been made since the date on which it was known what was going to happen.

Lord ABERDARE

I acknowledge that they have been made since the date the Government announced their intentions, but that does not mean to say that necessarily it will happen. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

1.10 p.m.

Lord ABERDARE moved Amendment No. 58: Page 15, line 25, leave out (" given") and insert (" recorded")

The noble Lord said: This is a technical Amendment, to meet what I understand is the normal practice of insurance companies and it would be better to use the word "recorded" than "given ". I beg to move.

Lord WINTERBOTTOM

As I think the noble Lord, from his brief introduction, would agree, this is a technical point which does not raise points of policy or principle. The Amendment in its present form is not entirely satisfactory since it should be made clear where the refunds and reinsurance premiums in question are to be recorded. However, in the light of the Committee's view and the views of the insurance industry, we undertake to consider the tabling of a suitable Government Amendment at Report stage.

Lord ABERDARE

I am grateful to the noble Lord. Perhaps we may take it that the same consideration would apply to Amendment No. 60, which I intended to speak to at the same time. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord ABERDARE moved Amendment No. 59: Page 15, line 28, at beginning insert (" in the case of general business ")

The noble Lord said: This Amendment refers to paragraph (c) of subsection (6) of this clause which defines the expression "net premium income ". It says that from the gross premium income you may deduct various things—paragraph (a) is rebates, paragraph (b) is refunds, and paragraph (c) is reinsurance premiums. This Amendment would leave paragraph (c) as it is in the case of general business. In other words, a company conducting general business could deduct from its gross premium income any premiums that it had paid towards reinsurance before arriving at the net premium income on which the levy would be calculated. But since the Amendment confines this to general business I have excluded long-term business from the general proposition. The reason is that, as I understand it, a great many life insurance companies reinsure their risks on a standard basis by arrangement with another company or companies, and very often a fairly large proportion of the sum assured. Therefore it would be more convenient to the life insurance company if, in their case, the levy was calculated on their gross premium income, leaving them to reclaim the correct proportion from the company with which they conduct reinsurance. It would also have the advantage that if the levy was not calculated on the gross premium income in this case you might find that a company was reinsuring a large proportion of its risks and would therefore pay a very small levy, and the levy would thereby be reduced. I hope that is a sufficiently clear explanation of a fairly complicated matter. I beg to move.

Lord WINTERBOTTOM

The noble Lord, Lord Aberdare, managed to make a fairly complicated clause fairly clear. I think I have grasped his point, but I understand that the original decision that the levy should be calculated by reference to premium income net of reinsurance was made in consultation with the insurance industry. If the industry now believes that it would be more practical for it to be calculated gross of reinsurance then the Government have no objection in principle. However, we believe that the Amendment is not satisfactory as drafted, since it is not consistent with the structure of the subsection—that is purely a technical drafting point—and in particular with the words at the beginning. I would therefore propose to consider the opinions expressed by the noble Lord, coupled with the opinion of the industry, with a view to incorporating any necessary change in a Government Amendment at the Report stage of the Bill.

Lord ABERDARE

I am most grateful. I accept that and I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 17 shall stand part of the Bill?

1.15 p.m.

Lord LYELL

Before we finally decide whether this clause should or should not stand part of the Bill, is it in order for me to seek guidance and clarification as to what is in the mind of the Government with regard to treatment of such levies as are to be paid so far as the tax computations of the companies are concerned? I know the industry would care to seek some gentle guidance as to what is in the Government's mind. I think the simplest way, as noble Lords may be aware, is to allow the payment of such a levy as a legitimate deduction against the profit computation for corporation tax. I think noble Lords will be aware that a legal argument will immediately ensue over the treatment of these levies. If they are considered legally and for tax purposes as a tax, then I understand that such levies will have to be paid out of income after tax. I think that would be inconsistent with the present position of the life companies, whereby the investment income can be accumulated free of tax. This is for life companies' pension fund business.

Noble Lords will be aware that it is already accepted that tax is payable by life insurance companies on the basis of investment income less the management expenses. But where new costs are incurred, which is possible and, unhappily, likely, and these levies might be payable, then I think the industry believes that, where possible, they should be treated on the same basis as management expenses. In other words, the industry would seek to ask whether the levies can be treated as management expenses and as allowable expenses against corporation tax, just as insurance premiums to provide for such an eventuality would be an allowable expense.

I think the answer is a simple "Yes" or "No" as to whether such a levy, which is a completely new concept in any tax computation, will be, or is likely to be, treated as an insurance premium. I can see perfectly logical arguments for that. The Government might take the view that this is not an allowable expense; that it is in the nature of a levy or a tax and therefore should not be allowable against the corporation tax.

I believe the first formula that I set out, which was that the levies should be allowable, would be a move towards clarity and some consistency—at least I hope so—particularly where, in the case of life insurance companies, the corporation tax is already computed on a very specialised basis. I see that the noble Lord might have some clue of an answer and therefore I seek at this stage just to know what is in the noble Lord's mind.

The Earl of ONSLOW

If I understand this correctly—and I am sure I shall be corrected if I do not—this levy is on the net premium income of all direct business in Great Britain, other than marine, aviation and transport. What percentage of that direct business in Great Britain is corporate and what percentage is private? Therefore how much is the corporate sector, by its levy of premium income, subsidising the private sector?

Lord BESWICK

The noble Lord, Lord Lyell, would be very interested in what is going through my mind at the moment, but I do not propose to tell him. The general answer to his question must be that what is allowable and what is not is a matter for the decision of the Commissioners of Inland Revenue. But my view, supported by advice, is that a levy would be a deductible expense. If I am wrong, I will write to the noble Lord. So far as the question put by the noble Earl, Lord Onslow, is concerned, I cannot give an answer.

Lord LYELL

I am grateful for the explanation.

Viscount SIMON

May I ask one question before we agree to this clause? It has worried me a good deal, and has not been referred to at all. The provision of subsection (3) is that the levies are based on the previous year's income. The noble Lord, Lord Winterbottom, was at pains to remind us on Tuesday last that there is no levy unless there is a claim, and unless there is a failure. We are all hoping that there will be no failure. But since the levy is based on the previous year's income, would it not be necessary at the end of each year to make provision in the accounts for a contingent liability throughout the following year, in case a claim were made? If at the end of that year no claim has been made the provision can be released, but at that point a further provision has to be made in respect of 1 per cent. of the premium income of the next year, and so on indefinitely. So a sum, which will vary from year to year because the premium income will not always be the same, but which will be substantial, will at all times and continuously be taken away from the fund out of which participating policyholders will be entitled to draw their bonuses. Is it not a little misleading—and I am sure the noble Lord, Lord Beswick, never intended to mislead the Committee—to say that there is no loss to the policyholders until a claim is made on the fund?

Lord BESWICK

I am sorry, but I cannot answer categorically the question put. It would seem to me that any company makes provision for contingencies. One may say that this comes out of the pockets of policyholders, but nevertheless it is an inherent requirement for an insurance company to make such provision, and part of that provision would be used in the case of a call for a levy. That is how I see it working out, but I will look at what the noble Viscount said to see whether I can give him a fuller answer.

Viscount SIMON

Of course, the company has to make provision for contingencies, but this is an additional provision which will have to be made under this Bill. Therefore, it is an additional amount withdrawn from the fund which is available for the participating policyholders.

Lord BESWICK

This is a subject for an interesting discussion. I should not have thought it was additional in that sense here. In fact, with this legislation we are covering certain contingencies, are we not?

Lord DRUMALBYN

Reverting to the question put by the noble Lord, Lord Lyell, can the noble Lord, Lord Beswick, say whether it is not well precedented that any charge imposed by Statute, by an Act, should be declared to be deductible for the purposes of the calculation of taxation? I seem to remember having seen such provision. Can the noble Lord look into it? It seems far more satisfactory that this should be made clear in the Bill, rather than that it should be left to the Commissioners.

Lord BESWICK

That is a point. I was asked a somewhat complicated question and I am sure that if he had still been on these Benches the noble Lord, Lord Drumalbyn, would have given the same answer, that to give a categorical answer to a hypothetical question would be unwise. But I take his point, and will look into the matter.

The Earl of ONSLOW

May I just say that I did not expect the noble Lord to give me an answer now, but I shall be glad if he will undertake to write to me, of to let the Committee know.

Clause 17 agreed to.

Clause 18 agreed to.

1.25 p.m.

Lord PEDDIE moved Amendment No. 62: After Clause 18 insert the following new clause—

(" Levy on intermediaries to finance business expenditure of companies in liquidation

—(1) Subject to the following provisions of this section and to Schedule (Additional provisions with respect to contributions from intermediaries) to this Act, the Board shall, for the purpose of financing general business expenditure in respect of a company in liquidation require a contribution from certain intermediaries, such intermediaries being persons not in the employ of the company who have received any commission or other remuneration in any form from the company in respect of general business (hereafter in this Act referred to as a "general business contribution."

(2) Subject to the following provisions of this section and to Schedule (Additional provisions with respect to contributions from intermediaries) to this Act, the Board shall, for the purpose of financing long term business expenditure in respect of a company in liquidation require a contribution from certain intermediaries, such intermediaries being persons not in the employ of the company who have received any commission or other remuneration in any form from the company in respect of long term business (hereafter in this Act referred to as a "long term business contribution").

(3) The amount each intermediary shall be required to pay under general business contribution in respect of a company in liquidation shall be calculated by reference to the commission or other remuneration in any form received by that intermediary from the company in respect of general business in the three years prior to the beginning of the liquidation of the company; and any such income is thereafter in this Act referred to, in relation to any intermediary, as income of the intermediary which is income liable to the general business contribution.

(4) The amount each intermediary shall be required to pay under long term business contribution, in respect of a company in liquidation shall be calculated by reference to the commission or other remuneration in any form received by that intermediary from the company in respect of long term business in the three years prior to the beginning of the liquidation of the company; and any such income is thereafter in this Act referred to, in relation to any intermediary, as income of the intermediary which is income liable to the long term business contribution.

(5) The proceeds of general business contributions may be applied by the Board only on general business expenditure, and the proceeds of long term business contributions may he applied by the Board only on long term business expenditure.

(6) Schedule (Additional provisions with respect to contributions from intermediaries) to this Act shall have effect with respect to the requirement and enforcement of general business contributions and long term business contributions.").

The noble Lord said: With this Amendment I should like to take Amendment No. 96 which introduces a new Schedule after Schedule 2. This is an entirely new clause intended to give the Board power to recover part of the commissions paid by an insurance company in liquidation during the three years preceding the liquidation. The maximum amount which the Board can recover is the whole of the commissions paid during the year preceding the liquidation; two-thirds of the commissions paid during the previous year, and one-third of the commissions paid during the year before that. The Board cannot recover commissions except in respect of expenditure incurred by them in connection with an insurance company in liquidation.

It is well known that insurance companies which have failed in recent years have, almost without exception, paid substantially higher rates of commission than the industry generally, and this has been an important contributory factor in their failure. Moreover, there is little doubt that some insurance brokers were influenced by the very high rates of commission paid, and placed business with the fringe insurance companies, sometimes without proper regard to the suitability of the policies offered to their clients, or for the financial services of the insurance company. In these circumstances, it is desirable that the Board should have power to make at least a partial recovery of these commissions. In some cases, an insurance broker may be treated unfairly in that he may have acted perfectly properly and done work for which the commission was an appropriate remuneration, but the unfairness there is no greater than that inherent in the guarantee scheme, in that it charges the costs of the guarantee to policyholders in other insurance companies who bear no responsibility whatever for the failure. Those brokers who place business with a company which fails in that sense bear at least some measure of responsibility.

The Board would not he able to recover any of th[...]se commissions unless they incurred expenditure in connection with the failed company. Any recovery of commissions that the Board decided to make in those circumstances would therefore reduce the amount of money which they would have to raise by way of levy on the insurance companies, namely, in practice, on the policyholders of the insurance companies. Therefore, overall I think the Amendment will reduce the degree of unfairness. I commend it to the Committee, and beg to move.

Lord BESWICK

I can understand the spirit behind what the noble Lord has said, even though I do not believe that this Bill is the right way of securing either the discipline or improvements in the sphere of insurance brokers. I have to say that insurance policies are issued by companies and not by intermediaries, and I cannot see that we can use this Bill as a vehicle for a drive against the intermediaries. That said, I agree with him that certain of those intermediaries have excessively pressed the merits of some policies in the past, and indeed the willingness of some of them to take part in voluntary rescue operations was welcome. The Government are well aware of the need to take a closer look at the operations of intermediaries and have been engaged in discussions to see whether in this area it is possible to define exactly what is a broker. That is important, as the present lack of firm definition may mean that some people may believe that they are receiving independent advice when in fact this is not the case. My right honourable friend has decided that the discussions have reached the stage when it would now be appropriate for him to ask the brokers' associations to examine the problem together with his Department.

There are at least two possible ways of dealing with the situation that we have in mind. One possibility would be for standards of education, training, financial security, conduct, et cetera, to be administered by, say, a professional brokers' institute and for membership or not to be a guide to the standing of the broker. An alternative approach, which would require further legislation and might take longer but is not ruled out, would be an official licensing scheme. We shall have to see what ideas the brokers bring forward and what views are expressed by the other interested parties who will be consulted. The Secretary of State wrote to the President of the Corporation of Insurance Brokers on 21st May inviting them to make suggestions on this matter. When their suggestions are received they will be considered in the light of views expressed and of what has been said by my noble friend. I recognise that this does not deal with what has happened in the past, but I hope that if we can tighten up in this way in the future the injustice or unfairness to which my noble friend has referred will be eliminated.

Lord PEDDIE

I thank my noble friend for that comment. I am pleased to hear that the whole problem is being examined. I welcome the inference that he is alive to the significance of the principle that lies behind this Amendment. I will make a special study of what he has said. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord PEDDIE moved Amendment No. 63: After Clause 18 insert the following new clause

Levy on shareholders to finance business expenditure of authorised insurance companies in liquidation

" .—(1) Subject to the following provisions of this section and to Schedule (Additional provisions with respect to contributions from shareholders) to this Act, the Board shall for the purpose of financing both general and long term business expenditure in respect of a company in liquidation. which was an authorised insurance company, require a contribution from certain shareholders, such shareholders being persons who were shareholders of the company on the date of liquidation of the company or at any time in the three years prior to the date of liquidation (hereafter in this Act referred to as "general and long term business shareholders' contributions ".

(2) The amount each shareholder shall be required to pay under general and long term business shareholders' contribution in respect of a company in liquidation shall he calculated by reference to the income, by way of dividend or otherwise, received by that shareholder from the company in the three years prior to the beginning of the liquidation of the company; and any such income is hereafter in this Act referred to, in relation to any shareholder, as income of the shareholder which is income liable to the general and long term business shareholders' contribution.

(3) The Board may apply the proceeds of general and long term business shareholders' conributions on general business expenditure or on long term business expenditure, or partly on the one and partly on the other, in such manner as may appear to them to be reasonable in the circumstances of the case.

(4) Schedule (Additional provisions with respect to contributions front shareholders) to this Act shall have effect with respect to the long term business shareholders' contributions".

The noble Lord said: With Amendment No. 63, which is also a new clause, I should like to take Amendment No. 97, which introduces a further new Schedule after Schedule 2. I recognise that this Amendment has many similarities with the Amendment I have just moved and withdrawn, in that it provides on a similar basis for recovery of certain dividends paid to shareholders by an insurance company which has gone into liquidation if the Board incur expenditure in connection with that insurance company. As with the recovery of commissions, the maximum amount that can be recovered is the whole of the dividends received in the year before liquidation, two-thirds of dividends received in the previous year and one-third of dividends received in the year before that. The Board also may not recover any part of those dividends except in respect of expenditure which the Board incurred in connection with a particular insurance company.

Here is the nub of the point I want to make. There have been quite a number of insurance company failures over the last ten years or so, and in almost every case the shareholding, or most of the shareholding, has been held by a small number of people who have in practice managed the company and been responsible for the management practices which led to the failure of the company. In all these companies the shareholders received very substantial sums by way of dividends on their shares, some of which, in many cases, they themselves had voted. When the companies failed, these shareholders, namely, the proprietors, were not called upon to repay any of the dividends they had received, even though in at least one case, the Vehicle and General, the estimated deficiency is over £20 million. That figure is a measure of the loss suffered by the unfortunate policyholders in the failed company, a loss which will, if this Bill is passed, be spread a little more widely in the future because of the operation of the guarantee scheme. But the persons really responsible for the failure, namely, the proprietors, did not make a loss; they made a substantial profit.

So far as I know, there is no provision for recovery from shareholders generally if a company, not necessarily an insurance company, fails. If, therefore, this Amendment was accepted, the provision would be special to insurance. But then, it has been admitted on both sides of the Committee and by my noble friends on the Front Bench that insurance is special in many different ways, and certainly the guarantee scheme in the Bill is very much a special provision. As with the brokers' commission, my view is that there is a great deal of justice in recovering some of the dividends paid to shareholders. Indeed, I would urge this even more strongly than in the case of the brokers' commission. We are dealing in many cases with proprietors, the people who often were responsible for the failure. If we were levying policyholders to meet the results of that failure, it seems to me sad to have innocent policyholders in other companies having to bear the burden of that failure and those responsible suffering no loss; indeed, in some cases, as I have indicated, they make a substantial profit. I am sure the Committee would agree that that demands attention. I beg to move.

Lord HAWKE

Although there may be a moral case for getting money back from the proprietors of certain small companies that have gone into liquidation, I think the clause as it is would transfer the shares of all the principal insurance companies on the market into partly paid up shares, and that might have repercussions on the ability of people to hold them under various trusts. I am afraid it would have very wide repercussions on insurance companies' shares generally which would be most unfortunate.

Lord MONSON

I am strongly opposed in principle to this Amendment, as I am strongly in favour in principle of the previous Amendment moved by the noble Lord, Lord Peddie. As the noble Lord, Lord Hawke, has indicated, this would affect innocent shareholders in companies who were in no way responsible for the misconduct of the company concerned. If the noble Lord's Amendment were confined to the shareholders who are at the same time directors of the companies, there might well be something to he said for it; but ordinary shareholders are in no way responsible and in no way comparable with those amateurish, or in some cases unscrupulous, insurance brokers whose inefficiency, or in some cases malpractices, are responsible for guiding their clients into unsound contracts. For that reason I oppose the Amendment.

1.40 p.m.

Lord WINTERBOTTOM

As I understand it, my noble friend is arguing a case from a situation which is not a general one, where a major shareholder is a controlling shareholder and is therefore in a position to appoint managers and to determine policy to his own benefit. I think it is unwise to argue from a particular case to a wider general case. What my noble friend is proposing is to penalise shareholders who are in no position to influence the policies of the company. As with a number of these Amendments, this one appears to have been prompted by the effects of the issue of certain guaranteed income bonds with guaranteed surrender values. The Bill is designed to look to the future rather than to concentrate on one or two past cases. The Amendment also proposes certain arbitrary powers for the Board which accord ill with the desire of some noble Lords to define the Board's sphere of action precisely and in advance.

In the case of companies with many small shareholders the exacting of contributions could be a laborious business, the cost of which might often exceed the money obtained. The extra delay and expense involved in proceeding in this way may not always therefore be in the interests of the policyholders and of sound companies. The Government believe that the best way to protect policyholders is not to attempt to confiscate the dividends of shareholders of insolvent companies after the event, but so to regulate and supervise the conduct of insurance business that, so far as possible, insolvencies do not occur. This is a point which we have already discussed. With this object in view, my right honourable friend the Secretary of State for Trade is making more and more use of his considerable powers under the Insurance Companies Act 1974. I am sure that this is the right approach. Given the practical problems and the explanation that I have given of the Government's broad strategy, I hope that the Amendments will be withdrawn. May I add that the Amendment would also mark a departure from the principle of the limited liability of shareholders which, in itself, is a dangerous innovation.

Lord PEDDIE

I thank the noble Lord for his comments. It is rather interesting that he argues that it is confiscation if you pull back some of the dividends that were paid out just prior to the disaster, but that it is justifiable expropriation if the remaining shareholders are deprived of all their shares and all their rights. It seems an incredible distinction between the two. I realise the difficulties here, and I appreciate that, quite frequently, a shareholder is innocent. He has had no direct involvement and he may have been completely in the dark as to what was going on. But, as I pointed out, there have been many cases where the shares have been held by a small number of persons and surely, arising out of the points that I have made here, there could be some consideration which would ultimately result in clauses in legislation to deal with this factor.

It was also stated by my noble friend that it is wrong to argue from a particular case to the general, as I appear to have done. I know that that may be right in theory, but is not that what this Bill is all about? Have we not, because of some particular failures, sought to introduce a general Bill to cover the entire industry? Therefore, I do not think there is anything wrong in my picking out a particular case in order to arrive at a general conclusion. However, I have ventilated the point. I feel that if you are going to penalise small policyholders and call on them to make a contribution, then at least those people who derive considerable profit from it should make their contribution. With that comment, I beg leave to withdraw this Amendment.

Amendment, by leave, withdrawn.

1.45 p.m.

Lord PEDDIE moved Amendment No. 64:

After Clause 18 insert the following new clause:

Restrictions on issue of long term: policies

" .—(1) An authorised insurance company established in the United Kingdom shall not issue a long term policy of any description, and an authorised insurance company established in a country outside the United Kingdom shall not issue a long term policy of any description where the contract of insurance evidenced by the policy was made in the United Kingdom—

1. (a) if the premium chargeable under the policy is not in accordance with premium rates fixed for that description of policy with the approval of the person who is for the time being the actuary to the company under section 15(1) of the Insurance Companies Act 1974 or section 3(5) of the Insurance Companies Amendment Act 1973; or
2. (b) if the policy terms are not in accordance with policy terms fixed for that description of policy with the approval of the actuary to the company.

(2) An authorised insurance company shall be deemed to have the approval of the actuary to the company for the premium rates and policy terms for any description of policy only when it has obtained and submitted to the Secretary of State—

1. (a) a certificate for that description of policy signed by the actuary to the company certifying that in his opinion the premium rates are adequate and in accordance with sound insurance principles and that the policy terms are in accordance with sound insurance principles; and
2. (b) a statement for that description of policy signed by the actuary to the company setting out the terms of the policy and the formula and basis by which the premium 1457 rates have been calculated, including for this purpose the mortality and interest bases, a statement of the provisions for taxation and expenses, and the maximum rate of commission provided for.

(3) The actuary to the company shall not for the purposes of this section approve premium rates for any description of long term policy unless he is satisfied that they are adequate and in accordance with sound insurance principles, nor shall he approve policy terms for any description of policy unless he is satisfied that they are in accordance with sound insurance principles.

(4) Where in the case of any authorised insurance company premium rates for any description of long term policy are approved by the actuary to the company, the company shall not pay or allow in respect of any policy of that description any commission or other remuneration in any form to persons not in the employ of the company, greater in cost to the company than the maximum rate of commission certified by the actuary.

(5) The actuary to the company in giving his approval in respect of the premium rates or policy terms for any description of long term policy shall state whether, in his opinion, there are any circumstances in which it would become unsound for the authorised insurance company to continue to issue policies of that description on the basis of the certificate and statement required by subsection (2). and the company shall not in those circumstances continue to issue policies of that description.

(6) An authorised insurance company which issues a long term policy or pays or allows a commission or other remuneration in contravention of this section shall be guilty of an offence.

(7) A person guilty of an offence under this section shall be liable—

1. (a) on conviction on indictment, to imprisonment for a term not exceeding two years, or to a fine, or to both;
2. (b) on summary conviction, to a fine not exceeding £400.")

The noble Lord said: Amendment No. 64, and this series of Amendments, are in my opinion the most important which I have the responsibility of moving on behalf of my noble friends and myself. In my opinion, they are also among the most important Amendments that have been put down. Therefore, I hope that the Committee will bear with me when I try to argue the case closely and in some detail.

Throughout the discussion on this Bill, there has been constant criticism that the Bill does nothing to prevent the irresponsible management practices which led to the failure of the two fringe life insurance companies last year. It has been stated on both sides of the House on Second Reading and during the Committee stage that prevention is better than cure, but there is nothing in the present legislation which, even after all the regulations are made, will enable the irresponsible management practices to be prevented. That is a statement of fact. Therefore, there is an obvious need for a clause preventing such practices, and it is surprising that the Government have not seen fit to include one in this Bill.

What this clause does in substance is to prohibit an insurance company from issuing life assurance policies except on terms approved by the actuary to the company. Noble Lords will not be surprised to learn that quite a number of foreign countries have a provision similar to this in their legislation, and that other foreign countries go further and prohibit insurance companies from issuing policies except on terms approved by the Government; in practice, of course, the insurance division of the appropriate Government Department. I do not think that it is necessary to go so far as Government control of premium rates; I certainly would not care to see that. But the proposed new clause provides for the actuary to be required to state the basis on which he has calculated the premiums.

As in all other professions, there are actuaries and actuaries. The requirement to state the basis which, if anything went wrong, the actuary would have to justify, is some safeguard against a weak actuary being pressurised by a strong proprietor. I stress that in no sense does this proposed new clause put an actuary on some sort of pedestal where he would have the job of running the company and controlling the management, or having to veto the decision of the company's directors, unless those directors proposed to stray beyond the bounds of safety, putting at risk people's life savings which have, in effect, been entrusted to them by taking out life insurance policies. To my way of thinking, that is the kernel of what I have to propose in this Amendment.

If people's life savings are to be protected, then there must be some limits beyond which a company should not be allowed to go. The actuary to the company is in the best position to decide where those limits should lie in respect of long-term life insurance business. The noble Lord, Lord Brown, put his finger on this point on Second Reading when he said that Clause 12 of the Bill provided for the scaling down of excessive benefits if an independent actuary reported that they were excessive. He wondered, since it was known that the granting of excessive benefits contributed to the recent failures of life insurance companies, would it not be better to have the actuary's report before the policies were issued and then stop them from being issued if the benefits proposed to he promised were excessive.

The seriousness of this matter—and it is a very serious matter—is exemplified by the circumstances leading to the failure of London Indemnity last year. This company failed, because it issued large numbers of guaranteed bonds at substantial single premiums carrying a guaranteed surrender value. When interest rates grew, many policyholders surrendered their policies in order to invest the proceeds of surrender to better advantage, and this broke the company. The company had also cut the premium rates too fine and had paid excessive commissions to brokers, and I need not belabour that point. It is precisely this sort of thing that leads to failures and to the loss of people's life savings, and it must be stopped.

Obviously, there is a grey area in the sense that actuarial opinions may differ to some extent, and what may be sound in some circumstances may be unsound in others. The proposed new clause allows for this latter point in subsection (5). Let me make it clear that from discussions on this matter I understand that the Institute of Actuaries has some reservations about requiring prior actuarial certification of interest premium rates and policy terms. I confess that I simply cannot understand the reasons for their reservations. We all know from practice that professional bodies tend to have reservations about everything under the sun, particularly if it means change, but what we are dealing with here is not a matter which solely or even primarily concerns the professional body. What we are concerned with is people's life savings being put at risk by irresponsible management and the appropriate legislative steps that should be taken to prevent this from happening.

In any case—and this is important—I understand that the Department of Trade, with the agreement of the Institute of Actuaries, wishes to include in the quarterly returns, which, when the regulations are made, insurance companies will be required to submit, a question to be answered by the directors stating whether or not the terms of all long-term policies issued during the previous quarter have been approved by the actuary to the company. If the Government and the Institute of Actuaries are prepared to accept this, I cannot see why they should baulk at a requirement for prior actuarial certification. Either method requires the keeping of precisely the same records and involves the actuary in precisely the same way, because presumably if, under the Government's methods, a quarterly return stated that all the policies issued during the previous quarter had not been actuarially approved, then obviously the Department of Trade would be down on the company like a ton of bricks—one would hope so, anyway—and there seems little point in having the question on the quarterly return unless the Department of Trade intends to do this.

There is, however, one vital difference between the two methods, apart from the fact that prior actuarial certification requires further legislation, whereas quarterly returns can be introduced by regulations under the 1974 Act. The vital difference is that once a fringe company has issued a substantial block of single premium bonds or immediate annuities, or some other sort of policy requiring substantial single lump-sums from policyholders, on unsound terms, then one can have quarterly returns until one is blue in the face, but that company will be in serious trouble if circumstances become adverse. Surely it is much better to stop the company from doing that in the first place, and that is what the noble Lord, Lord Brown, suggested on Second Reading.

A further multiplication of form filling, which is already, I am informed, almost overwhelming in the insurance industry, is not the answer. It may increase the number of civil servants and so on, but it does not stop unsound practices which imperil people's savings. I hope that the Government will accept this Amendment, which I regard as being of the greatest importance. I say straight away that it is more than likely that its wording is not in the best form, although a great deal of care has been taken in its drafting. If there is anything wrong with its wording, I hope that we can have discussions about it. What I am concerned about is the principle involved and I am positive that both sides of the Committee will agree with that principle. In my opinion, this proposed new clause is one of the corner stones of genuine policyholder protection and I sincerely hope that the Government will accept it. I beg to move.

Lord ABERDARE

I have great sympathy with the point of view put forward by the noble Lord, Lord Peddie, who made a powerful case. He will have everyone's sympathy in trying to put prevention ahead of any sort of later rescue. I do not know how well drafted his proposals are and I will listen with great interest to what the noble Lord, Lord Beswick, says, but I should like briefly to express my sympathy with his proposals, although there are many difficulties in the way. Like him, I have been in touch with the Institute of Actuaries who, as he said, have some reservations; I think mainly a feeling that it is really for the board of a company to run the company and for the actuary to advice the board, and they foresee some difficulty if the actuary is to be given the responsibilities that will be laid on him by these proposals. But we have general sympathy with the noble Lord.

Lord BESWICK

I agree with my noble friend Lord Peddie that these are important Amendments, and I also agree with the noble Lord, Lord Aberdare, that my noble friend made a very powerful case in their support. The difficulty is that they do not fit into this Bill. They are important matters and they will need to be dealt with but, as we said at the outset, this Bill is only part of the armoury which the Secretary of State has in enabling him to cope with the problems with which we are dealing. These Amendments deal simply with the premiums, policy conditions and surrender values which companies may properly offer in the course of their ordinary business; whereas this Bill relates explicitly to the consequences of an insurance company's insolvency. I am advised that in another place it is extremely unlikely that the Amendments will be accepted, because they fall outside the scope of the Bill. Nevertheless, I hope I can go a long way to meet what my noble friend wishes to achieve.

As I have said, there are other possibilities; in particular, there is the Companies Act 1974 and he has rightly said that the Secretary of State proposes shortly to lay regulations before Parliament under that Act. Those regulations will require companies to submit to him quarterly returns and accompanying certificates from appointed actuaries, designed to ensure that long-term insurance business is conducted in accordance with sound insurance principles in regard to premiums and policy conditions. The Secretary of State is guided by the advice of the Government Actuary in such matters and the Government Actuary will of course be examining the quarterly returns. It seems to me, therefore, that there is little difference between what my noble friend seeks to achieve and what the Government propose to do. But as to the details of what he said, I undertake that we will give careful consideration to it and bear his remarks in mind when the regulations are drafted. I feel certain he will find that to a very large extent what he seeks to achieve will in fact be achieved through the 1974 Act regulations.

Lord PEDDIE

I should like to thank the noble Lord, Lord Aberdare, for his general support of the principle underlying the Amendment. I also very much appreciate the comments of my noble friend Lord Beswick. I understand his difficulty, but I am greatly encouraged by his obvious recognition of the need for a clause of this character. I do not accept—and I am sure no one else in this Committee does either—the idea that it goes outside the scope of the Bill because the Bill is concerned with the protection of the policyholder. Perhaps the Bill has the wrong Title and should really be called the Compensation for Policyholders Bill. If it is for protection, this provision would be just right. However, I need say no more but thank my noble friend for his comments. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord PEDDIE moved Amendment No. 65: After Clause 18 insert the following new clause—

Restrictions on alterations of policies by authorised insurance companies.

(" .—(1) An authorised insurance company established in the United Kingdom (in respect of a long term policy of any description) and an authorised insurance company established in a country outside the United Kingdom (in respect of a long term policy of any description where the contract of insurance evidenced by the policy was made in the United Kingdom) shall not—

1. (a) grant a surrender value, unless the amount of such surrender value is in accordance either with a scale guaranteed on the issue of the policy which scale is one of the policy terms, or with a scale in being at the time of surrender and fixed for that description of policy with the approval of the person who is for the time being the actuary to the company under section 15(1) of the Insurance Companies Act 1974 or section 3(5) of the Insurance Companies Amendment Act 1973;
2. (b) grant a paid-up policy, unless the amount of such paid-up policy is in accordance either with a scale guaranteed on the issue of the policy which scale is one of the policy terms, or with a scale in being at the time of conversion to a paid-up policy and fixed for that description of policy with the approval of the person who is for the time being the actuary to the company; or
3. (c) otherwise make a financial alteration to the policy, unless the terms of such alteration are in accordance either with a basis guaranteed on the issue of the policy which basis is one of the policy terms, or with a basis in being at the time of alteration and fixed for that description of policy with the approval of the person who is for the time being the actuary to the company.

(2) An authorised insurance company shall he deemed to have the approval of the actuary to the company for the scales of surrender values and paid-up policies for, and the basis for the financial alteration of, any description of long term policy only when it has obtained and submitted to the Secretary of State a certificate for that description of policy signed by the actuary to the company certifying that in his opinion such scales and basis are in accordance with sound insurance principles.

(3) The actuary to the company shall not for the purposes of this section approve scales of surrender values and paid-up policies for, and basis for the financial alteration of, any description of long term policy unless he is satisfied that they are in accordance with sound insurance principles.

(4) The actuary to the company in giving his approval in respect of the scales of surrender values and paid-up policies for, and basis for the financial alteration of, any description of long term policy shall state, if in his opinion, there are any circumstances in which it would become unsound for the authorised insurance company to continue to use such scales and basis for that description of policy, and the company shall not in those circumstances continue to use such scales and basis.

(5) An authorised insurance company which uses a scale of surrender values for. a scale of paid-up policies for, or a basis for the financial alteration of, any description of long term policy in contravention of this section shall be guilty of an offence.

(6) A person guilty of an offence under this section shall be liable—

1. (a) on conviction on indictment, to imprisonment for a term not exceeding two years, or to a fine, or to both;
2. (b) on summary conviction, to a fine not exceeding £400.")

The noble Lord said: This new clause is, in a sense, subsidiary to the previous proposal which I withdrew. However, I feel that it is equally important, so I must briefly indicate the reasons for having put it down. The previous new clause covered the financial terms of a policy at the time it was issued, while the present proposed clause covers the financial terms if a policy is changed while it is in force. A policy can be issued on sound terms and at sound premium rates but if it is later altered and the new terms are unsound the safety of the company can be imperilled. The clause is necessary to complete the protection in this area supplied by the new clause proposed in Amendment No. 64. I beg to move.

Lord BESWICK

As my noble friend said, this Amendment should have been taken with the previous Amendment and what I said on that applies to this. On that basis, I have no doubt that my noble friend will withdraw the Amendment in the knowledge that what he wants to achieve will, in large part, be achieved by the regulations which are to be laid under the 1974 Act. With regard to the present Bill, as my noble friend said, it is for the purposes of protecting policy holders, but it is also for the purpose of protecting others who have been or may be prejudiced in consequence of the inability of authorised insurance companies to meet their liabilities. We are not dealing with the sort of situation in which the policing regulations which my noble friend has in mind would be appropriate. Nevertheless, I hope he will take it that what I have said in regard to Amendment No. 64 applies equally to the present Amendment.

Lord PEDDIE

I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord PEDDIE moved Amendment No. 66: After Clause 18, insert the following new Clause—

Restriction on investment of long term business

(" .—(1) Every actuary who in his professional capacity signs a certificate after the passing of this Act relating to an authorised insurance company in accordance with Regulations made under section 13(3) of the Insurance Companies Act 1974 or under section 4(3) of the Insurance Companies Act 1958 shall at the same time inform the company in writing of the nature of the changes in the investments of its long term business which may affect the validity of his certificate, and in so doing shall have regard to the nature of both the liabilities and the assets of the long term business of the company.

(2) An authorised insurance company shall not make a change in the investments of its long term business of the kind specified in subsection (1) above without first obtaining and submitting to the Secretary of State a certificate signed by the actuary referred to in subsection (1) above certifying that in his opinion the proposed change does not affect the validity of his certificate referred to in subsection (1) above, or if the actuary referred to in subsection (1) above is not the person who at the time of the proposed change in investments is the actuary to the company appointed under section 15(1) of the Insurance Companies Act 1974 or section 3(5) of the Insurance Companies Amendment Act 1973, a certificate from the actuary so appointed certifying that in his opinion the proposed change would not affect the validity of the certificate referred to in subsection (1) above.

(3) Any person who makes a change in the investments of the long term business of an authorised insurance company in contravention of this section, or is aware that such a change is being made and does not inform the Secretary of State, shall be guilty of an offence.

(4) A person guilty of an offence under this section shall be liable—

1. (a) on conviction on indictment, to imprisonment for a term not exceeding two years, or to a fine, or to both;
2. (b) on summary conviction, to a fine not exceeding £400.")

The noble Lord said: This new clause has some similarities to the previous two, in that it is concerned with the need to set limits—in this case in the investment area beyond which life assurance companies should not be permitted to stray because they may endanger the savings which their policyholders have entrusted to them. Investments are a sensitive area with many people. I stress at this point that there is nothing in the proposed new clause that would enable the Government in any way to control the investments of insurance companies. The clause simply sets safe limits for investments in cases where that is necessary, so that policyholders' savings shall not be endangered. We must remember that Nation Life failed partly because, in the same way as London Indemnity, it acted rashly, but largely because it invested far too high a proportion of its life assurance fund in a speculative property investment in Bournemouth. That kind of thing must be stopped, but there is no power in the present legislation to stop it. I repeat: within the compass of the Bill we can introduce this kind of clause to add to the protection of the policyholder. I believe that that is what it is all about.

The regulations under the present legislation require the annual accounts of every life assurance company to contain a certificate from the actuary stating, in effect, that the assets exceed the liabilities—that is, that the company is sound. To check the solvency of a life assurance company is not simply a question of comparing cash assets and immediate liabilities. The assets, which are mainly investments, and the liabilities, which are the policies in force, both involve a long series of receipts and payments stretching far into the future. That is why an actuary is needed to certify the solvency of a life assurance company. However, the actuary's solvency certificate can be invalidated, especially if there is not a large margin of solvency or a substantial proportion of with-profits business, by a switch of investment into investments which are unsuitable to cover the liabilities of the company. That is especially so if too high a proportion of the investments is concentrated in one place, and it is worse still if that one place is a speculative investment.

I should like to focus attention upon the following point. It seems ridiculous to have a statutory requirement that a life assurance company must submit an actuarial solvency certificate each year when that certificate can be invalidated, even immediately after it has been given, by a switch in investments made by the proprietors, possibly without the knowledge of the actuary. If that is not a ridiculous situation, I do not know what is. The proposed new clause provides that when an actuary gives a solvency certificate, he shall inform the insurance company of the nature of the changes in its investments which might affect the validity of the solvency certificate. The company would then be prohibited from making changes in its investments without checking with the actuary that his solvency certificate would still be valid. There is no restriction upon the company's investment policy except in so far as the clause demands consultation with the actuary who has to give the certificate.

I know that it is proposed, when the new regulations are laid, to provide for actuarial solvency certificates quarterly instead of yearly. That certainly narrows the risk a little, but it does not protect the company's policyholders if the proprietor decides to switch the investments into highly speculative or unsuitable investments just after the actuary's certificate has been given. I have already commented on that, and the only way of stopping it is by prohibiting insurance companies from making a switch of investments, which may invalidate the actuary's solvency certificate, without first clearing it with the actuary. I have repeated that because it is so fundamental, so important.

I know also that the Institute of Actuaries has reservations about this clause. I am particularly concerned about the responsibility thrown on the actuary if he is required to state the nature of the changes in the company's investment which may affect the validity of his certificate. Here I can understand the Institute's reservation, although in the great majority of traditional insurance companies the safe limits of investment will be very wide indeed because of a substantial proportion of with-profit business which gives the company a very large buffer with which to ride out almost any contingency.

The actuary would have a problem only with the fringe company with little or no profit or with-profit business and barely adequate capital and free reserves, where the limits of investments would need to be fairly narrow. But if the actuary is not prepared to specify these limits when it is well known that investing outside these limits can easily imperil people's life savings, what alternative is there? I hope we all agree that the proprietors of life insurance companies should not be permitted to invest in such a way as seriously to imperil their policyholders' savings. If the actuaries are not prepared to set limits in these cases, it seems to me the only alternative is for the Government to set limits—and that I should like much less.

As with the previous clauses, this is not simply a matter for the actuaries; it is a matter of finding the best way of preventing irresponsible management practices that have led to the failure of life insurance companies and caused such hardships to their policyholders. I repeat what I said in regard to a previous clause: the actual wording of the clause may be imperfect, but I should like the Committee and my noble friends to consider the spirit that lies behind it. It is justifiable and in my opinion, without any question at all, would add enormously to the efforts which we are all seeking to make, to give greater protection to the policyholder. I beg to move.

Lord BESWICK

I have to say that, here again, we are dealing with the supervision of insurance companies and not with the protection of policyholders, and that this is a matter which would fall within the powers of the 1974 Act and not under the Bill we are now considering. But having said that, again let me say that I entirely share the spirit of the Amendment, and so do the Government. The noble Lord has explained what he wants to do; namely, to exercise proper control over insurance companies' investments. He wants to strengthen that control. On that matter some important work is already in progress. On 1st February this year we brought into operation new regulations made in December on the valuation of the assets of insurance companies. We hope to follow this up later in the year with regulations on the admissibility of assets. It is also our intention—and I stress this to my noble friend—to revise the terms of the appointed actuary's statutory balance sheet certificate so as to include specific reference to the long-term business assets, although the precise wording is still under consideration.

Under existing powers we are already going a long way to achieve the objectives which my noble friend is seeking. The regulations that the Secretary of State will be laying before Parliament on the quarterly actuarial certificate—to which I have already made reference—from the companies' actuaries will co[...]r changes in companies' investments during the quarter and the effect of those changes on the financial condition of the long-term business. I believe that is in accordance with what my noble friend wishes, and it is in accordance with one of the recommendations of the Scott Committee. Here again, there is nothing between my noble friend and myself. The question is simply how to achieve what he seeks, and I have indicated to him that I hope under the regulations we shall obtain the situation that he wants.

Lord PEDDLE

I am very glad to hear my noble friend state that there is nothing between us on this matter. Realising that there may be a necessity for further consideration regarding the redrafting of the clause, and in the light of the assurances I have been given—which I greatly appreciate—I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

2.14 p.m.

Lord PEDDIE moved Amendment No. 67: After Clause 18 insert the following new clause:

Insolvency of authorised insurance company

" . If an authorised insurance company becomes insolvent in such circumstances that in consequence a levy under section 17 is made, this shall be treated as prima facie evidence of negligence by the Department of Trade in the discharge of its responsibilities under the Insurance Companies Acts, and the Secretary of State shall make a statement to Parliament explaining why the Department has not acted in sufficient time to avoid the necessity for a levy to be made."

The noble Lord said: My first reaction on reading this Amendment was that it might sound a little offensive to many of my good friends who are civil servants, and so I take the opportunity to assure them that nothing was further from my mind. Having personally spent six or seven years with the Prices and Incomes Board I could not fail to have a wholesome respect for the abilities of civil servants. The wording of the Amendment may be improved, but we are seeking here to treat an insurance company's insolvency, if sufficiently severe to lead to a levy under Clause 17, as prima facie evidence of negligence by the Department of Trade.

That might seem strong meat, but I believe that the explanation I shall give will show that the clause is certainly not intended to be offensive but that it can indeed protect the Department of Trade officials in circumstances where it would be proper to do so. The Department of Trade has the responsibility for administering the insurance companies Acts and thereby for ensuring, so far as practicable, that insurance companies do not become insolvent. Only the Department of Trade can police the insurance industry, because only the Department has the necessary statutory powers. The industry itself cannot prevent irresponsible practices by individual insurance companies. Even if it knew what was going on—which in most cases it would not—it has no power whatever to prevent such practices.

Nevertheless, the insurance industry has expressed willingness to assist and, in so far as it is proper, to share the responsibility with the Department of Trade. The industry has done this by offering to serve on an advisory body, and this is provided for in a later clause. Although the Department of Trade has the final responsibility, if an insurance company fails and the Department has been following the advice of its advisers, then although the proposed new clause would require a statement to be made, the statement could easily justify the actions taken by the Department. It is a matter of public concern that when an insurance company fails many ordinary people may lose a lot of money, yet the Department of Trade, which has the final responsibility, normally makes no statement whatever about what it has done.

When the Vehicle and General failed a few years ago, the tribunal, which was set up for an entirely extraneous reason, found one civil servant negligent in carrying out his duties and censured others. When London Indemnity failed last year—largely because of the heavy run on guaranteed surrender values, as a result of which the company's funds fell from £96 million to £70 million during the first eight months of last year—no statement was made and the public did not know what actions had been taken by the Department of Trade. On the face of it, it appears that if the Department of Trade had acted more quickly, the insolvency of London Indemnity would have been less and, in consequence, the losses suffered by the policyholders would have been less. No one knows whether or not the Department of Trade acted correctly. Surely in such circumstances it would be better if a full statement were made by the Secretary of State. I beg to move.

Lord BESWICK

I have expressed considerable sympathy with other Amendments which my noble friend has put forward, but I am afraid that on this occasion I cannot extend my sympathy, sympathetic a person though I am. I wonder whether we could not have put into some other piece of legislation some phrases about the responsibilities which my noble friend carries out in his capacity as chairman of the Post Office Users' National Council. In my view, he performs those functions absolutely admirably, and he is a splendid chairman, but I wonder whether I ought not to impose upon him an obligation to make a statement every time I have a letter which has been delayed for more than a day. Ought he not to account for his stewardship? Why should I suffer without his having to say what has gone wrong?

My noble friend will appreciate that apart from the fact that the Amendment as drafted would be considered inadmissible in another place within the framework of this Bill, there is every opportunity within the Parliamentary process to call for the Secretary of State to make a statement in particular cases. We have all the procedures of Parliamentary questioning, and I should have thought he would be content to use them without seeking to put this rather novel form of words into an Act of Parliament.

Lord HOUGHTON of SOWERBY

Before this Amendment goes the way of other Amendments—and never have more Amendments been withdrawn by so few—I have some sympathy with the Minister's argument a moment ago that it would be tiresome to hold anybody accountable for anything. It is always tiresome to have to hold anybody accountable for anything. With respect to my noble friend, I do not think that anything in this clause can be compared with the position of my noble friend as the Chairman of the Post Office Users' National Council. If my noble friend were in charge of the Post Office, then perhaps we could call him to account for increased charges. But as Chairman of the Post Office Users' National Council he is the watchdog on behalf of the public, who tries to restrain the bureaucrats from putting their hands unnecessarily into the pockets of the people—which is quite another function.

It would he unduly harsh on the Secretary of State to regard the failure of an insurance company as prima facie evidence of his failure; it probably would he, but I think it would he a little cruel always to regard it as prima facie evidence of his failure. It would also be awkward to ask the Secretary of State to explain himself. That, again, is something that Ministers usually do not like being required to do by Statute. Your Lordships will understand that I am about to form a trade union for the protection of Secretaries of State. Nevertheless, on a serious note I see no reason why the Secretary of State should not be asked to make a report to Parliament when there is a failure, an insolvency, which requires a charge on the funds of the Board. I think this could probably be done by some statutory requirement that a Report should be made by the Board—probably it is in the Bill; but I have not got as far as that yet. The public are entitled to know what the Board are doing and the Secretary of State should be the person responsible to Parliament for the things done under this Bill when it becomes an Act. I suggest that there is something here which ought to he given serious consideration; and, with that, I am sure my noble friend will now beg leave to withdraw his Amendment.

Lord CACCIA

May I add a further reason? Not only, surely, as the clause is drafted is there a question arising of a trade union to protect Secretaries of State, but the question is raised of the Department itself. I should have thought that that perhaps raised an issue of another character; that is, whether the Secretary of State is or is not responsible for his Department and held to be so before Parliament. Therefore, on another ground as well, I should have thought that as drafted this new clause might need to be withdrawn.

Lord PEDDIE

In the light of the comments made I will withdraw my Amendment; but I have taken note of the support expressed by my noble friend Lord Houghton. He joins with me in believing that all parties would be well served if the Secretary of State were called upon to make a statement to Parliament under the conditions I have described. I thank him for his references to the Post Office Users' National Council; but, discretion being the better part of valour, I had better not pursue that any further. I therefore beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

2.25 p.m.

Lord PEDDIE moved Amendment No. 68: After Clause 18 insert the following new clause.

Transfer of functions

(" . From a date to be prescribed, which shall not be later than six months after the passing of this Act, all powers and responsibilities which by the Insurance Companies Acts 1958 to 1973, by the Insurance Companies Act 1974, and by this Act, are exerciseable by or placed on the Secretary of State, shall be exercisable by or placed on the Industrial Assurance Commisioner, whose title from the same date shall be changed to Insurance Commissioner.")

The noble Lord said: Never was so much done by so few! I must apologise for wearying the Committee with this series of Amendments. It is a pity that noble Lords opposite did not break up the monotony a little. However, this is an Amendment which encompasses a point of view which was supported by a number of speakers at Second Reading, that it is better if the supervision of insurance companies is placed in the hands of a more independent body than a section of the Department of Trade, which is concerned with a vast range of trade matters and is subject to some political pressures. We already have an independent body in the form of the Industrial Assurance Commissioner, who is also the Chief Registrar of Friendly Societies, who is responsible for the supervision of industrial assurance business; namely, life insurance business, the premiums of which are paid at intervals of less than two months and are collected by house-to-house callers. His position was created by the Industrial Assurance Act 1923 and he is directly responsible to Parliament. As Chief Registrar, he is directly respon- sible for friendly societies, trade union societies, co-operative societies, working men's clubs and so on.

There is much to be said for transferring the responsibility of administering the Insurance Companies Acts to this official. It would have the advantage, especially for industrial assurance companies, of bringing all the regulations to which they are subject under the same heading. It would also have the possible advantage of bringing the practice of this country into line with the practice in most other countries. I do not intend to press this Amendment. I put it down because I hope the Committee will discuss the appropriate body to administer the Insurance Companies Act. I shall appreciate the views of noble Lords opposite, and certainly of my noble friend the Minister.

Lord WINTERBOTTOM

It seems that my noble friend is using this Bill to sow ideas in the heads of a number of people. This is a perfectly acceptable and agreeable way of doing things, provided one admits at the end that it is an exercise in cross-fertilisation rather than an attempt to amend major legislation.

If this Amendment were accepted, a fundamental change would be effected in the organisation of Government business. Whatever the merits of this proposal, I am sure your Lordships will agree that it would be quite inappropriate to introduce, in a Bill specifically concerned with the protection of policyholders, a radical change in a quite different area. It is a matter which requires the most careful thought and study both within Parliament and outside. But even if it were generally agreed that the Secretary of State's functions in relation to insurance companies should indeed be transferred to the Industrial Assurance Commissioner, this is surely something that should properly be dealt with in separate legislation. Your Lordships have been pressing in other areas for separate and specific legislation. This surely must fall in the same category.

Having said this, I think that I should refrain from any detailed comment. I would only observe that I find it difficult to see what would in practice be achieved by the transfer of responsibilities. The supervision of insurance companies is carried on according to legislation enacted by Parliament, and that legislation is the same whether the responsible authority is the Secretary of State, the Industrial Assurance Commissioner or anyone else. It seems to me that the legislation, not the executive authority, is the most important thing. We have new legislation passed in 1973 which is progressively being brought into force; we should give that legislation a chance to work before introducing radical changes of this sort. For these reasons, the Government must resist this Amendment.

Lord CACCIA

May I be allowed to put forward one more consideration besides this one of general principle, with which I entirely agree. There must be a limited number of people who are well acquainted with the insurance industry but who are not themselves engaged in it or in promoting the business which is now to be supervised and whose policyholders are to be protected. Are we not running into the danger of a "Parkinson" situation? Not only would there need to be members in the Department of Trade in order to assist the Secretary of State, but a whole number of other expert people would be needed, presumably largely recruited from the industry, to help the proposed Commissioner. Before we enter that road, I hope some very careful thought will be given to the memory of Parkinson.

Lord PEDDIE

I endorse the comment made by my noble friend, in that a number of Amendments have been put down for the purpose of drawing attention to the importance of the protection of policyholders. I do not recollect any Bill coming before this House which has had such universal condemnation as this Bill has. Therefore we have the problem of amendment. Someone made the comment about moving Amendments and then withdrawing them, but I think we would all agree on the appalling problem which lies before this Committee in trying to deal with the matter piecemeal. It was almost impossible merely by, say, securing a single Amendment or perhaps two Amendments, to achieve what we wanted. I hope that what we shall be able to do is to emphasise the feeling, which has been expressed on both sides of the Committee, of the need for greater stress on protection. Arguments have been advanced and pressed only so far, not because of any feeling of weakness on our part or because of a belief that an Amendment, if pressed to a Division, would not carry. I do not want the wrong impression to be given. We are doing it also because we are seeking to provide an opportunity for a full-scale reconsideration of the whole Bill. That is what we are after, and that is the sole reason why I personally may appear to be adopting the rather weak method of moving an Amendment and then withdrawing it. Having explained my action, I now beg leave to withdrawn the Amendment.

Amendment, by leave, withdrawn.

2.33 p.m.

Lord PEDDLE moved Amendment No. 69: After Clause 18, insert the following new clause:

Priority of debts to policyholders of protected policies in winding up

" .—(1) In the winding-up of a company in liquidation, every liability of the company in liquidation towards any policyholder under tile terms of any protected policy evidencing a contract the effecting of which constituted the carrying on of general business of any class, being a liability in respect of a contractual obligation of the company in liquidation existing before the beginning of the liquidation to make a payment to a policyholder (all such liabilities being hereafter in this section referred to as "outstanding claims shall be paid in priority to all other debts other than those specified in section 319 of the Companies Act 1948.

(2) The liquidator of a company in liquidation, as soon as practicable after the beginning of the liquidation, shall ascertain whether the assets of the company in liquidation, other than the assets representing the fund or funds maintained by the company in respect of its long term business, are sufficient to pay the debts specified in section 319 of the Companies Act 1948 and the outstanding claims.

(3) If the said assets are sufficient for this purpose, the liquidator shall pay the debts specified in section 319 of the Companies Act 1948 and the outstanding claims as soon as practicable after he has ascertained that the said assets are sufficient for this purpose, and before paying any other debts owing by the company in liquidation.

(4) If the said assets are insufficient for this purpose, or if the liquidator is uncertain whether or not the said assets are sufficient for this purpose, but the assets are sufficient to pay the debts specified in section 319 of the Companies Act 1948, the liquidator shall pay these debts and such percentage of the outstanding claims as the liquidator considers the remainder of the said assets will cover provided such percentage is 90 per cent. or more.

(5) If the percentage ascertained in accordance with subsection (4) above is less than 90 per cent. the liquidator shall pay 90 per cent. of all outstanding claims in respect of which the Board is prepared to grant an indemnity covering such payments, and the percentage ascertained in accordance with subsection (4) above of all other outstanding claims."

The noble Lord said: I beg to move Amendment No, 69—

Lord BESWICK

This was dealt with with Amendment No. 51, I think.

The DEPUTY CHAIRMAN of COMMITTEES (Lord St. Helens)

Does the noble Lord wish to move Amendment No. 69?

Lord PEDDIE

We are moving backwards and forwards; I am speaking on Amendment No. 69. When I moved Amendment No. 13 I mentioned then that that Amendment was the first of a long series which included this Amendment, No. 69, which I quoted at the time and which was to achieve three things. First, it would oblige the Board to operate the guarantee scheme only by means of indemnities to the liquidator. Therefore the money to operate the guarantee would in the first place come from the assets of the failed company. The second point was that it would give outstanding insurance claims on non-life policies a priority in liquidation. Thirdly, it would require the liquidator to accept an indemnity and make payments accordingly, if the Board were prepared to grant an indemnity. The new clause in Amendment No. 69 would provide for the second and third of these objectives: that is, priority in liquidation for outstanding claims, and the obligation on the liquidator to accept an indemnity from the Board.

This new clause can stand on its own; that is why I am moving it now in spite of my action on previous Amendments. It is independent of the earlier Amendments which would have obliged the Board to operate solely by means of granting indemnity to the liquidator. Indeed, from one point of view there would be advantages in dealing with the matter solely by means of the new clause in Amendment No. 69. If outstanding insurance claims are given a priority in liquidation and the liquidator is required to accept an indemnity from the Board, then the problem is largely solved, because the Board would almost certainly then choose to implement the guarantee scheme by means of giving the liquidator an indemnity. The defect in the Bill, as drafted, is that unless the outstanding claims are given a priority in liquidation. the liquidator would be unlikely to accept an indemnity by the Board. The Board would then be forced back on the method of making payments themselves and taking an assignment of policies' rights in the liquidation, which, as your Lordships will appreciate, would be more costly to the Board and consequently to the policyholders in other insurance companies.

I should like to make two points clear at the outset. The first line of this proposed new clause refers to "a company in liquidation "; but this is defined by Clause 5(4) of the Bill as an authorised insurance company going into liquidation on or after 29th October 1974. The new clause would therefore not alter the general liquidation laws but only the liquidation laws applying to insurance companies going into liquidation after that date.

Secondly, the words "protected policy" are used in the third line of the proposed new clause, and the new clause would give a priority in liquidation to outstanding claims on such a policy. These policies are not, however, confined to policies entitled to the protection of the guarantee scheme in the Bill. By Clause 4(2) of the Bill, as modified by subsections (3) and (4), protected policies are defined as all policies effected in the United Kingdom other than marine, aviation, transport and policies of reinsurance. The proposed new clause would therefore give a priority in liquidation to outstanding insurance claims on virtually all United Kingdom non-life policies including outstanding claims on policies taken out by business firms to cover trade risks. The proposed new clause does not, however, extend to life assurance policies. The words, "general business" at the beginning of the fifth line of the proposed new clause refer back to definitions earlier in this Bill and in the Insurance Companies Act and confine this proposed new clause to insurance other than long-term in the life assurance business.

I mention these points particularly because, in commenting on Amendment No. 13, which I moved, my noble friend Lord Beswick suggested that Amendment No. 69—the Amendment I am dealing with now—would make a fundamental change in the liquidation laws and have all kinds of dire results favouring particular policyholders against others and as against other creditors, and even, he said (and I hope I have quoted him correctly), damaging severely the conduct of companies in the insurance world. With all respect, I just cannot accept that statement. It is common practice in most other countries for outstanding insurance claims to be given priority in winding-up, with none of the dire results that Lord Beswick mentioned in reply to me when I was moving Amendment No. 13. Indeed, before many years have passed—or many months, probably; I do not know—it is quite likely that we shall be required to alter in this way the winding-up rules as they apply to insurance companies in this country. However, in view of the divided opinion on this subject among my friends on this side of the Committee, perhaps I ought not to pursue that point.

The new clause would alter the liquidation laws as they apply to insurance companies but not to companies other than insurance companies. What is fundamentally wrong in that? The last Insurance Act—the Insurance Companies Amendment Act 1973—altered quite substantially the liquidation laws as they apply to insurance companies. Indeed, if the Department of Trade had made the regulations and the provisions in that Act relate to liquidation, many of the difficulties of the Nation Life liquidation would have been avoided.

The reason why this new clause is so necessary, and the reason why most other countries give priority to outstanding insurance claims in a winding-up is surely obvious. If an insurance company fails—here I must emphasis that I am talking not about a life assurance company but about an insurance company transacting fire, accident, motor insurance and so on—serious hardship is caused to persons who have outstanding insurance claims. If a man's house is burned down and before his fire claim is paid his insurance company goes into liquidation, under the present law he is in terrible trouble. He gets nothing at all for many years, and then his claim ranks equally with the claims of all other creditors. It is true that the guarantee scheme would give him a limited measure of protection. However, the guarantee scheme does not extend to the fire insurance of a little corner shop. If a shopkeeper, who may be a man working on his own account, has chosen to operate as a limited company—as he might well have chosen to do for all sorts of reasons quite unconnected with insurance—and has his shop burned down, and possibly loses all his stock in trade as well, he gets no protection under this Bill. He would certainly be ruined because of the outrageous liquidation laws of this country as they apply to insurance, which, as I have said, are out of line with the rest of the world. I regard this Amendment as being of the greatest importance and it makes a substantial contribution to the intention which I think is held by all Members of this House, to add to the protection of the policyholder. Therefore, I beg to move.

Lord BESWICK

I am in something of a difficulty because, as the Committee will recall, we dealt with Amendments Nos. 13, 14, 16, 17, 21, 22, 24, 25, 28, 29, 45 and 51 and related those to Amendment No. 69. And when my noble friend spoke to Amendment No. 13 and subsequent Amendments I endeavoured to give him an answer to the substantial point which, as he rightly said, is embodied in Amendment No. 69. I am afraid I can only repeat the argument—if he wishes it—exactly as I gave it on Tuesday.

He made an interesting point about the difficulties of the little shopkeeper on the corner who may suffer fire damage and have difficulty in getting proper protection. I am not sure whether he is seeking to widen the scope of the Bill. It is conceivable that this is his intention, but Amendment No. 69 is unacceptable for the reasons I then gave. It would effect a fundamental change in the basic rule relating to the priority of creditors in a winding-up, that ordinary creditors rank equally, which would result, in effect, in money, which, under the present law would have been paid to non-protected policyholders and other creditors, being used to compensate protected policyholders. To that extent, it would be inequitable. It would worsen substantially the position of ordinary creditors in a winding-up, could well lead to such creditors being less willing to extend credit to insurance companies, and could thus have a damaging effect on the conduct of business of such companies. Indeed, the creditors might well seek to counteract the effect of the clause by insisting on the provision of security for their debts which would give them priority over protected policyholders. It would worsen the position of policyholders to whom the protection of the Bill does not extend; for example, the marine, aviation and transport policyholders and holders of overseas policies. I am certain that that is not the intention of my noble friend.

Finally, the clause does not even appear to achieve the objectives set out in Clauses 6 to 8. No provision is made for ensuring that insurance policyholders receive 100 per cent. of their claims. Further, in the event of funds available to the liquidator being insufficient to pay the protected policyholders up to 90 per cent., no provision is made for their receiving the balance. For those reasons, as I said on Tuesday, we do not think the clause should be accepted.

Lord PEDDIE

I am sorry if my emphasis on this matter has given my noble friend some embarrassment. I took the opportunity of emphasising how the liquidation laws operate and the need for some improvement. I do not accept the arguments that have been advanced as a counter to the points that I put forward. However, I will study them and I realise this is not the point at which to press this Amendment. I take note of what has been stated and give notice that we shall return to the matter at Report stage. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

2.48 p.m.

Lord PEDDIE moved Amendment No. 70: After Clause 18 insert the following new clause

Payment by liquidator of reduced sums out of assets of company in liquidation.

" . If the liquidator of a company in liquidation is given an indemnity by the Board in accordance with the duty placed on the Board by section 11(5) above, and the indemnity is in the terms specified in that section, the liquidator shall pay from the assets of the company in liquidation such reduced sums as specified in that section."

The noble Lord said: This Amendment applies only to long-term insurance business—that is, life insurance business—because Clause 11 of the Bill applies only to this class of business. The new clause corresponds broadly to the new clause in the previous Amendment, which applied to insurance other than life insurance. The new clause is of equal importance to the previous one, although it may require some minor modification in wording, because the Amendment which I moved to Clause 11(5) has for the present been withdrawn. Nevertheless the substance, and I hope the importance, of the proposed new clause is clear enough.

Clause 11 provides—and with this I entirely agree—that if a life insurance company fails the Board shall endeavour to arrange for the life insurance business to be transferred to another life insurance company, or for another life insurance company to institute substitute policies. This is clearly the best way to go about it. However, if this is not possible what needs to be done is for the policies of failed life insurance companies to be continued by the company in liquidation, albeit on a reduced basis, so that life insurance cover may be continued, annuities and pensions can continue to be paid and, in due course, maturity benefit and the like may be paid. That is clearly what was intended by the provisions in the 1973 Act, but these have never come into force because the necessary regulations have not been made. As a consequence, when Nation Life failed the liquidator was forced back on earlier and totally inappropriate provisions under which Nation Life policyholders will receive a proportion of the capitalised value of their life insurance policies. This is a dreadful state of affairs. It means that persons who have purchased an annuity in Nation Life, and perhaps are living on a regular annuity payment, will receive nothing at all for many years and then, at the end of the day, will receive a lump sum. I should add that that is what would have happened if a group of insurance companies had not been prepared to make special arrangements to mitigate this obviously undesirable result.

Clause 11(6) of the Bill appears to go back to the pre-1973 Act position, however, and seeks to perpetuate this arrangement, which I have described as dreadful of paying out lump sums. The new clause which is Amendment No. 70 may not be the best way of achieving a desirable result. It may be better to tackle the problem by amending Clause 11, or possibly Clause 15. In my opinion, which I know is shared by the entire life insurance industry, it is essential to ensure that the Bill is amended to provide that, if it is not possible to arrange for the transfer of the life insurance business of the company in liquidation, or the issue of substitute policies, then the business of the life assurance company must he continued so that the existing policies can be run off on a reduced basis, and with the protection of the guarantee scheme. I sincerely hope that the Government will be prepared to look very closely and sympathetically at these suggestions. I beg to move.

Lord BESWICK

This clause could have been taken, had my noble friend wished, with Amendment No. 69, and the objections which I put to that new clause apply largely to this clause, except in so far as Amendment No. 70 applies to long-term business. Under present company legislation, the liquidator's duty is to exercise his powers for the benefit of the creditors as a whole. The proposed new clause would interfere with the carrying out by the liquidator of this duty, and would be liable to prejudice the interests of other creditors. It may be that the proposers and my noble friend who speaks for them, envisage that losses suffered by other creditors in this way would be covered under the indemnity. If so, there is a risk that in certain circumstances the compulsory indemnity would in practice prove more expensive to the Board than if they made payments to the policyholders. The system proposed seems likely to give rise to complex and expensive disputes between the Board, the liquidator and the other creditors.

In any case, the Amendment is defective in so far as it refers only to Clause 11, and makes no provision at all for policyholders' claims under Clause 10. Under the Bill as drafted, there is nothing to prevent the Board performing their duties by indemnifying the liquidator if they so decided, and they would no doubt wish to do so where possible, if this would serve to minimise the need for calls on the levy. As my noble friend Lord Peddie said in his earlier remarks, it is true that some countries have arrangements for priorities for insurance creditors. It is also true, as anyone who trades with such countries knows, that one does so against the background of, for example, special funds within insurance company assets which are appropriated to insurance creditors of particular classes.

There may well be a case for some alteration of the law on winding-up, but before contemplating such far-reaching alterations as my noble friend envisages it is necessary to have proper discussion. In fact, discussions are now going on, as I think my noble friend knows, between my right honourable friend and the representatives of the British Insurance Association. These discussions will also cover such action as is possible by regulation under existing legislation. I am certain that the case made by my noble friend in this regard will be taken into account. On that basis, I hope he will be able to withdraw the Amendment.

Lord PEDDIE

I thank my noble friend for the comments he has made. I take particular note of the statement that there may be, or could be, a case for consideration; he argues that it needs discussion. With that I completely agree. That is a point of view that is certainly accepted by me, and, if such discussions are to take place. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord MONSON

Before we move on to Clause 19, would the Minister be kind enough to indicate whether, at Report stage, the Government might be prepared to look favourably upon an Amendment drawn so as to achieve substantially, although in a different manner, the objectives sought by the noble Lord, Lord Peddie, in Amendment No. 63, now withdrawn?

Lord BESWICK

I am not sure to what Question the noble Lord is addressing himself.

Lord MONSON

I was merely asking the Minister whether he would be prepared to consider an Amendment.

Lord BESWICK

We have no Question before the House, and therefore I am not able to speak.

Clause 19 agreed to.

Clause 20 [Application of surplus funds by the Board]:

2.56 p.m.

Lord LYELL

Amendment No. 72 is akin to a drafting Amendment. It seeks to inquire from the Government whether they would agree that where the Secretary of State is about to apply surplus funds acquired by the Board he should obtain the leave of Parliament before instructing the Board over the distribution of these funds. I have in mind the Minister's remark to Lord Peddie that the Secretary of State should not necessarily apply too often to Parliament, but I hope the application of these funds will apply only in rare cases. I beg to move.

Amendment moved— Page 17, line 4, at end insert (" by order ").—(Lord Lyell.)

Lord WINTERBOTTOM

The Board are unlikely ever to accumulate sufficient funds to justify distribution; but the Government took the view that if this were to happen it would be in accordance with the interests and wishes of the insurance companies that the Secretary of State should be in a position to arrange readily that a distribution he made. I appreciate the importance of the formula for distribution and the conditions that may be attached to it by the Secretary of State, and I understand the desirability of subjecting the process to some form of Parliamentary control. I should therefore be glad to consider introducing at Report stage an Amendment to make the Secretary of State's powers requiring and directing the Board under this clause subject to the Negative Resolution procedure. The Affirmative Resolution procedure seems to be cumbersome and time-consuming for such a subsidiary, and probably uncontroversial, matter.

Lord DRUMALBYN

Could the noble Lord say on what principles it would be proposed that the Government should arrange for the distribution of funds, or what would be the principles of the distribution? In passing, may I say that I am surprised to hear the noble Lord say that he does not expect any substantial funds to be built up. If, as we all hope, there are no claims, or if there is one failure, that levy would presumably go on being collected, and one would hope that there would not be a further liquidation. If that were so, the funds could quite easily be built up to the point where it would be desirable for them to be redistributed. I am a little surprised to hear the noble Lord say that it seems unlikely that funds would be distributed back to the contributors. Perhaps he could say on what principles they would be redistributed?

Lord AUCKLAND

Before the noble Lord replies, may I say that I spoke to Clause 20 in the course of the Second Reading of this Bill because at that time I found it difficult to understand quite what Clause 20 was trying to achieve. After consultation, I have a little more knowledge of it. Line 1 of this clause talks about consultation with the Board, which is perfectly proper. If funds are to be distributed, the Board must have discretion and the Department must be consulted, but I am puzzled with the last words of the clause, in accordance with the Secretary of State's directions". Surely if there is to be a distribution of these funds—and, as my noble friend said, one hopes that this will not in fact have to be the case—the Board should have the maximum discretion, because otherwise the Secretary of State of whichever Department deals with it will be put into all sorts of difficulties, because presumably if the worst happens funds of all shapes and sizes will be involved. I hope that when the Government look at this clause again the last part will be particularly closely looked into.

Lord WINTERBOTTOM

I find it difficult to give a concrete answer to the somewhat hypothetical question from the noble Lord, Lord Drumalbyn. The noble Lord will remember that the levy will not be imposed except where it is needed, and to that extent only. Something has happened, a levy is imposed and money is collected which one hopes would be approximately equivalent to the actual amount of money to be paid out to policyholders who have experienced damage. I think that the noble Lord would agree that an exact calculation would not be possible and a situation could easily arise whereby, after the policyholders had had their deficiencies made up from the levy, the company in question might be found to possess assets larger than was thought at the time of liquidation, or certain assets might have appreciated in value, and for that reason a surplus might arise at the end of the day.

I think it is of general agreement that it is not desirable that the Board should have substantial funds under their control, and that is why the power to redistribute, or pay back, the funds is being included. The power of direction or guidance in this case is important, because as I understood the Bill it was intended that the Secretary of State's powers of guidance, or direction, according to the word you use, were designed to be of assistance to the Board to protect them, if necessary, from criticism and because a situation might arise when the Board themselves might welcome the help of the Secretary of State. That is why the Secretary of State comes in. I think we also agree with the Amendment tabled by the noble Lord, Lord Aberdare, that some sort of control is desirable. We believe that an Affirmative Resolution is a bit too powerful a weapon, and that perhaps the Negative Resolution procedure is adequate. It is on that basis that I propose this new Amendment.

Lord LYELL

We are grateful for the noble Lord's assurances that the Government are going to look at this matter, and with that assurance I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 20, agreed to.

Clause 21 agreed to.

Clause 22 [Disclosure of documents and information to the Board]:

3.5 p.m.

Lord BELSTEAD moved Amendment No. 76: Page 17, line 45, at end insert (" but nothing in this section shall be taken to authorise the disclosure by the Board or their servants of any such information or the contents of any such document.")

The noble Lord said: This Amendment will in no way prevent the Board from obtaining the information for which Clauses 22 or 23 allow; but it would improve the security of the documents which may be concerned. I beg to move.

Lord BESWICK

Would the noble Lord agree that I should deal with Amendments Nos. 76 and 79? The note I have is that the Amendments are misconceived. By that is meant that they rest on a misunderstanding of the 1967 Act. There is nothing in Clauses 22 and 23 as drafted that could be deemed to authorise the Board or the Secretary of State's insurance advisers to disclose to others information they had received from the Secretary of State by virtue of these clauses. I am advised that the limitations on disclosure of information in Section 111 of the Companies Act 1967 would apply to the Board and the advisers in relation to information they receive under these clauses as they apply to the Secretary of State himself. I have the 1967 Act here if the noble Lord would wish me to quote from it. I hope he will be able to accept my assurance.

Lord BELSTEAD

On that assurance, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 22 agreed to.

Clause 23 [Disclosure of documents and information to insurance advisers appointed by the Secretary of State]:

3.7 p.m.

Lord PEDDLE moved Amendment No. 77:

Page 18, line 1, at beginning insert— (" (1) The Secretary of State may appoint persons to advise him on the exercise of his powers under the Insurance Companies Act 1974, but the names of any persons so appointed shall be reported by the Secretary of State to Parliament, and the Secretary of State shall also report to Parliament if and when any such persons cease to be so appointed. (2)").

The noble Lord said: I propose, if I may, to take Amendments Nos. 77 and 78 together. Clause 23 has nothing to do with the rest of the Bill which introduces a guarantee scheme. The purpose of this clause is to permit the Secretary of State to disclose to persons appointed to advise the Department of Trade confidential details about certain insurance companies without offence being committed under Section 111 of the Companies Act 1967, which requires Ministers and civil servants not to disclose confidential information which they have obtained in the course of their duties.

I understand the need for the appointment of advisers from the insurance industry. It was felt strongly last year, because of the substantial fall in the stock market, when the Department of Trade officials found difficulty in distinguishing between those small insurance companies which were probably quite sound and trading profitably and which had been affected by the fall in share values, and other small insurance companies which might appear similar but were, in fact, being badly managed and going downhill. It was desirable for the Department of Trade to intervene as early as possible.

I support the principle of this clause and I hope that everybody else does, but I think that it is important that the names of the advisers are made known if only to protect the advisers themselves. I am sure that they will be persons of the highest integrity and standing, and if in the course of their duties they happen to be in possession of information which might be used for their own or for their company's advantage I am sure they will be scrupulous in dealing with this. Nevertheless, it would be better from everybody's point of view if the names of the advisers were made known. This is quite a small point, but it is a useful one and is certainly not controversal. I beg to move.

Lord ABERDARE

I agree with the noble Lord that this is a useful new subsection. I would support him in what he has said.

Lord WINTERBOTTOM

This Amendment is unnecessary. The Secretary of State already has powers to appoint advisers if he wishes without express provision of this kind. The inclusion of an express provision here would be undesirable as casting doubt on the general power. The Secretary of State will naturally make whatever public announcement he considers appropriate of the appointments which he makes or may make. In my view it is unwise, in a situation of this kind, to enclose the Secretary of State in too tight a corset of legislative control. If the Amendment were accepted, it might inhibit the Secretary of State from seeking advice which could be valuable on an informal basis. The result would be that, every time the Secretary of State took advice, on an informal basis, he might have to make a declaration and this would inhibit his powers. For that reason, we must resist the Amendment.

Lord PEDDIE

I am amazed at that reply. It is incredible. Here is a simple suggestion. It is one which, if accepted, would enable the Secretary of State to give an indication to Parliament and public that he had confidence in the men concerned, yet we get the reply that it would put him in too tight a corset. I really do not know what to do about this. I am almost inclined to break my rule, though I have been very accommodating so far. But this is a trivial matter and I have confidence that common sense will prevail. I have confidence that, after reading the arguments, my noble friends on the Front Bench will come to the conclusion that the response that has been given is utterly inadequate.

The Earl of LONGFORD

I have not been present during the discussion. May I ask what exactly is the rule in question? Is it a rule against using foul language? What is the rule which my noble friend is proposing to break?

Lord PEDDIE

It has nothing to do with foul language, pornography or anything else. It merely deals with the matter which is here indicated. My noble friend was not in the Chamber when it was explained, but I am sure that I have spoken so much this afternoon that it would be intolerable if I were to repeat my arguments merely because my noble friend had come in late.

Lord BESWICK

I wonder whether my noble friend has understood what has been said. We are not opposing this, and I am agreeing with what he wants. All I am saying is that the Secretary of State can now appoint an adviser and he would naturally announce whom he had appointed. There is no difference between us. What my noble friend went on to say was that if this power was in the Bill. the Secretary of State might, if he stopped someone in the street and asked his advice, be thought to be going outside his powers because he had not named the adviser in question.

Lord PEDDIE

I am sure that it is not intended that we should ask the Secretary of State to give a public declaration of anybody he happened to chat with. In the light of my noble friend Lord Beswick's statement, in which there is apparently complete agreement with my proposal, and in the light of the statement that Parliament will be informed of the names of the people appointed—and I emphasise the word "appointed ", because one does not appoint a person with whom one has a chat in the street—I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

3.20 p.m.

Lord PEDDLE moved Amendment No. 80.

Page 18, line 9, at end insert— (" Provided that section 111 of the Companies Act 1967 shall still prevent the disclosure to any person who is a director, controller or manager of an insurance company of any information or document obtained by the Secretary of State by virtue of the powers conferred by section 36 of the Insurance Companies Act 1974, if those powers were exercised by the Secretary of State on the ground stated in section 28(3) of the Insurance Companies Act 1974 ").

The noble Lord said: I hope that this Amendment will be as non-controversial as Amendment No. 77 turned out to be. It is a small point, but I think it useful. Section 36 of the Insurance Companies Act 1974 gives very extensive powers to the Secretary of State to require insurance companies to supply him with information. It can be invoked on a number of grounds connected with doubts about the way in which a company is being managed; also on the grounds stated in Section 28(3), which section empowers the Secretary of State to obtain information from insurance companies, about whose solvency there is no question, to assist the Department of Trade to gain experience and knowledge about the practices of sound companies. Information obtained on the grounds stated in Section 28(3) can be highly sensitive. I am sure that anyone connected with insurance will realise that information about investments and so on ought not to be disclosed to competitors.

Although I am sure that the advisers will be persons of the highest integrity who will be scrupulous in not making use of any such information, in a matter such as this everything should be seen to be entirely above board if only to protect the advisers themselves. There will be no need for information obtained on the grounds stated in Section 28(3) of the 1974 Act to be passed to the advisers. There will not be any need for it, because presumably the advisers themselves will be experienced senior managers in the industry and will know the practices of sound companies; otherwise they would not have been appointed as advisers. Therefore, I see no disadvantages in the Amendment at all and, in fact, I see quite substantial advantages. I beg to move.

Lord BESWICK

I can probably say that there is nothing in the present situation which is contrary to the position which my noble friend seeks to ensure. When he says that he wants everything above board, what he means is that in certain cases something should be below board and, of course, that is exactly how the relationship between the Secretary of State and his advisers will work. There is nothing in Clause 23 which compels the Secretary of State to disclose information to an insurance adviser, and he will obviously call on the adviser only when he has need for advice on the use of his powers under the 1974 Act, and will disclose to him only information which seems relevant for the purpose, and appropriate in other respects. If there were reason to think that the disclosure of information to certain people might needlessly embarrass or harm the company from which it had been obtained, that consideration would obviously weigh heavily with the Secretary of State against the disclosure. In any case, if information were given to the adviser and there was a balance of advantage or disadvantage and if it were thought at all sensitive, the situation would be covered by the Official Secrets Act and the advisers would have to conform to that Act.

Lord PEDDLE

I thank the noble Lord for those comments and I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 23 shall stand part of the Bill?

Lord DRUMALBYN

May I ask the noble Lord whether this is not a rather odd clause? It has nothing to do with the rest of the Bill. Can the noble Lord explain to the Committee why it is here, and what it is intended to achieve?

Lord BESWICK

Having been protesting throughout this morning and night—whatever it is at the moment—that certain matters could not be brought within the scope of the Bill, I must confess that I am nonplussed when the noble Lord asks me why certain things are in the Bill. I should have thought the answer was fairly straightforward. They are held to facilitate the protection of the policyholder. They are procedural matters, machinery matters, helping the Secretary of State to discharge his obligations.

Lord DRUMALBYN

I hoped that the noble Lord might have said that the experience of the 1974 Act had shown that this power was needed, and that the Government were taking the opportunity to bring it in here. If this is not so, perhaps the noble Lord will write to me.

Clause 23 agreed to.

Clause 24 [Orders and regulations]:

3.20 p.m.

Lord BALFOUR of INCHRYE moved Amendment No. 81: Page 18, line 20, leave out subsection (4).

The noble Lord said: This Amendment aims at asking the Minister why subsection (4) is necessary? What is gained by the writing into Clause 24 of subsection (4)? This subsection, which I wish to eliminate, gives power to the Secretary of State … to make an order or to make regulations under any provision of this Act includes power—

1. (a) to make different provision for different circumstances; and
2. (b) to include therein such incidental, supplementary or consequential provisions as the Secretary of State considers appropriate."

In the very wide powers we have given to the Secretary of State in other provisions of the Bill, surely what is provided for in subsection (4)(a) and (b) is already included. I do not see what is gained in defining the lesser within the greater. Why is this definition of specific powers needed when we already provide the powers for the Secretary of State, including those in the subsection? I beg to move.

Lord BESWICK

I confess that when I read the words I have a lot of sympathy with what the noble Lord says, but I am told that they are common form and do not have the meaning which is ascribed to them.

Lord BALFOUR of INCHRYE

Common form or not common form, the Minister has not really told me why it is necessary to include these powers and why they should not be eliminated.

Lord BESWICK

I have said that I have a good deal of sympathy with what the noble Lord says, but the fact of the matter is that they cover minutiae which may require Orders. I will look into this point and sec whether they are absolutely necessary, but it looks to me as if they are enshrined in Parliamentary practice.

Lord DAVIES of LEEK

I wonder whether I may have just half a minute in which to support the contention of the noble Lord? I hope that my noble friend will look into this matter and bring back to us a more up-to-date explanation than that of merely accepting common form.

Lord REIGATE

I hope that when the noble Lord refers to this matter again on Report stage he will give us some choice examples of where it is common form, because this is exactly the sort of thing for which this House exists—to stop the expansion of unnecessary powers. The noble Lord might put ideas into the heads of some of us as to reforms which could be carried out on other occasions.

Lord BALFOUR of INCHRYE

I am willing to withdraw the Amendment provided the Minister will look at the question of unnecessary powers being given to the Executive over the Legislature merely because they have been given in the past.

Amendment, by leave, withdrawn.

Clause 24 agreed to.

Clauses 25 and 26 agreed to.

Schedule 1 [Additional provisions with respect to the Policyholders Protection Board]:

Lord BESWICK moved Amendment No. 82: Page 20, line 9, at end insert— (" (1A) Of the persons appointed to be members of the Board—

1. (a) at least three shall be persons who are directors or managers of authorised insurance companies; and
2. (b) at least one shall be a person appearing to the Secretary of State to he qualified to represent interests of policyholders of authorised insurance companies.")

The noble Lord said: I wish to speak to this Amendment and to Amendment No. 83. The question was asked and assurances were given that the composition of the Board would be such as to command the confidence of the industry and that a majority of the members of the Board should be drawn from the industry. That is the purpose of these Amendments. I hope it is thought that I have fulfilled the undertaking which I gave on Second Reading regarding this point. There is one difference here as between my Amendment and others on the Marshalled List. The Government Amendment refers to persons … who are directors or managers of authorised insurance companies … ". while one of the Amendments tabled refers to "directors, controllers or managers "of companies in this context. I understand that "controllers" includes chief executives, even if they are not directors, and persons who control one-third or more of the voting power in a company. If the Committee feels that it would be valuable to extend this to include some or all controllers, I should be glad to hear any voices that are raised to support that contention. Being anxious to accommodate everybody. I should even be prepared to amend my Amendment if that was thought necessary.

There is another feature of my Amendment, in that it makes provision for the representation of another important interest on the Board, the policyholders themselves. It could be said, of course, that nearly everybody is a policyholder, and it may be thought that the field of choice for somebody qualified to represent their interests is almost unlimited. We have had considerable discussion of this point on another Bill for which I have been responsible and I know that there are difficulties here, but to the best of his ability and knowledge the Secretary of State will endeavour to find somebody who could genuinely be held to represent the interests of the policyholders, and in the course of this search he will consult the Secretary of State for Prices and Consumer Protection. I hope that with this explanation the Committee will accept the Amendment.

Lord ABERDARE

I am grateful to the noble Lord because he has certainly carried out the undertaking which he gave on Second Reading, and I thank him for that. As for the wording of the Amendment, we had noticed that "con- trollers" had been omitted, and in my view, at any rate at this stage, I think it is a pity. Indeed, I think it is wrong. The "controller" under Section 7 of the Insurance Companies Act 1974 includes the managing director, who anyway will qualify as a director, or the chief executive, as the noble Lord said, and it seems odd to say that the Board can have as its members directors or managers and not have the chief executive. He might be the right man to have. Thus I accept the noble Lord's invitation and ask him kindly to include controllers in his Amendment.

Lord CACCIA

Like the noble Lord, Lord Aberdare, I thank the noble Lord, Lord Beswick, for bringing forward this Amendment in accordance with his previous undertaking. However. I. too, hope that he will include controllers. If necessary he can return to the point at a later stage if, for some reason, he wishes to exclude this particular person.

The Earl of ONSLOW

Will the noble Lord. Lord Beswick, be more specific about who will be found as the representatives of policyholders? I recognise that this may be extraordinarily difficult, but perhaps he can give a little more information about how these people will be found and who they are likely to be.

Lord BANKS

I welcome the fact that it is clear from this Amendment that the insurance companies' representatives will be in the majority on the Board. I should like to give an even warmer welcome to the fact that there will be representation for policyholders, in the sense that the Minister will appoint somebody whom he believes to be qualified to represent the policyholders. It had seemed to me that although this was the Policyholders Protection Bill, up to this point there was very little policyholder representation. However, I suppose that this representative to be appointed by the Minister will not necessarily be somebody who has been chosen by policyholders, and I will return to this point when we come to discuss Amendment No. 85.

3.30 p.m.

Lord BESWICK

If the noble Lords, Lord Aberdare and Lord Caccia, think, that in this one particular and narrow respect my Amendment is misconceived, I will undertake to return to the point and see whether we can improve it on the next occasion. So far as the noble Earl is concerned, I cannot say any more than I have said. I have indicated frankly that we are all consumers and, apart from the fact that I have indicated that my right honourable friend the Secretary of State at the Department of Trade will consult with my right honourable friend who has a special responsibility for consumer legislation, I cannot indicate any formula or procedure. I shall be glad to have any ideas that are put up as to what interests or people it is thought might most adequately carry the confidence of the policyholders.

Viscount SIMON

We all believe Secretaries of State are generally sensible but, regarding appointments, there is no provision here that the different types of insurance should be represented on the Board. The three members representing the insurance industry may be all in the long term life business or general business. I am sure that would not be so, but it seems odd that it is not made clear that there should be representatives from both branches of the insurance industry.

Lord ABERDARE

Before the noble Lord replies, perhaps I may be able to interest the noble Viscount in my Amendment No. 85A which, if he supports it, would meet this point.

Lord BESWICK

I was going to ask the noble Viscount whether he would allow me to reserve whatever arguments I can muster until a later Amendment.

On Question, Amendment agreed to.

Lord BESWICK

I beg to move Amendment No. 83.

Amendment moved— Page 20, line 15, at end insert: (" ( ) A person appointed as an alternate member of the Board in respect of a person who is a director or manager of an authorised insurance company shall himself be such a director or manager; and a person so appointed in respect of any such person as is mentioned in sub-paragraph (1A)(b) above shall himself be a person appearing to the Secretary of State to be qualified as there mentioned.")—(Lord Beswick.)

On Question, Amendment agreed to.

Lord BANKS moved Amendment No. 85:

Page 20, line 15, at end insert: (" ( ) At least one of the five persons appointed to be members of the Board shall be an officer of an authorised mutual insurance company and any person appointed as an alternate to him shall also be an officer of an authorised mutual insurance company.")

The noble Lord said: As I said a moment or two ago, Amendment No. 82 has ensured that one member of the Board shall be a person appearing to the Secretary of State to be qualified to represent the interests of policyholders of authorised insurance companies. That person need not be a direct representative of the policyholder, and need not be a person chosen by policyholders. This Amendment would ensure there was such a person on the Board, since mutual companies have no shareholders and those who are appointed to run the mutual companies are directly responsible to policyholders and to nobody else. It would be up to the Minister, I suppose, to decide at any given time whether the mutual company representative should be the person appointed by him to represent the policyholders' interests. He may feel the mutual insurance company representative should be regarded as additional policyholder representation. Apart from that, since mutual insurance companies are a very distinct category of companies from proprietary companies, provision ought to be made for them to be represented on the Board. I beg to move.

Lord HAWKE

The Secretary of State will obviously have regard to the remarks of the noble Lord, Lord Banks. But, going back to 1947, when we had the nationalisation Bills, we used to argue for hours in this House as to the precise constitution of the Board. Looking back on it, I realise that those hours were entirely wasted. We needed to have certain categories of people; somebody had to be skilled in the organisation of workers. The only thing we did not have in those days was a woman on the Board. We put in all sorts of categories and I am sure they have been an embarrassment to the Secretary of State ever since. I am all in favour of giving him the widest possible choice. If he makes a bad one he should be held to account in Parliament.

Lord BESWICK

I am deeply moved. I have been in this House now for some years and I have the greatest possible respect for the noble Lord, Lord Hawke; but I think this is the first occasion when he has ever agreed with what I was proposing to do. But if we are going to stipulate that there should be this or that person, I do not see why we should not designate the others by category. One might even say that one must be a Christian, one a Moslem and so on. I can give no formal undertaking about it and I have no authority from my right honourable friend to do so, bat it seems inconceivable to me that there should not be someone representing the mutual and life assurance aspect. Certainly, the idea is to get as wide a spread as possible, and I hope the noble Lord will accept the intention.

Lord BANKS

I should like to thank the noble Lord very much for that reply. It is desirable to put a great deal of emphasis on policyholder participation, as we have been doing in the last few minutes. In view of what he has said about the possibility of mutual insurance company representation on the Board, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord ABERDARE moved Amendment No. 85A:

Page 20, line 15, at end insert— ("( ) Before making any appointments to the Board of persons who are qualified as set out in sub-paragraph (2A) above the Secretary of State shall consult with and have regard to the opinion of persons appearing to the Secretary of State to be representative of the interests of authorised insurance companies.")

The noble Lord said: I beg to move this Amendment which is self-explanatory, and I hope it goes some way towards satisfying the demands of the noble Lord, Lord Banks, and the noble Viscount, Lord Simon, in that it merely asks that the Secretary of State should "consult" with people in the insurance industry before making appointments to the Board. I hope that this will also commend itself to the noble Lord, Lord Beswick, and I beg to move.

Lord BESWICK

I assume that my right honourable friend would consult, but if the noble Lord wishes to have this put into the Bill I am prepared to see that it is done. However, I suggest that he might reconsider the wording so as to fit in more closely with our own text. I will give him an undertaking to see that what he asks for is included in the Bill, but that the drafting is in the same sort of language as we have used. I will do that very thing on Report stage.

Lord DAVIES of LEEK

May I briefly say how grateful I am to my noble friend for the assurance he has given, because it seems to those of us who have watched the appointments of boards over 30 years that bodies on the boards have been clutched out of the skies, and they have jobs not at all relevant to the responsibilities which are ultimately thrust upon them.

Lord HAWKE

Most of them have one thing in common; they succeed in making massive losses nearly every year.

Lord ABERDARE

I beg leave to withdraw the Amendment, in view of the noble Lord's assurance.

Amendment, by leave, withdrawn.

Lord ABERDARE moved Amendment No. 86:

Page 20, line 26, leave out sub-paragraph (1) and insert— (" (1) The members of the Board shall elect their own chairman.").

The noble Lord said: Again, this is a quite simple and self-explanatory Amendment. It seems extraordaniary, if we are going to have a Board of the calibre of people one hopes to have, after consultation with the industry and with three of its members drawn from the industry, that they should not be entrusted with the election of their own chairman. There is no cause at all for the Secretary of State to appoint the chairman of the Board. I hope that this is also a well-conceived Amendment, and I beg to move.

Lord BESWICK

There are practical difficulties here, and I hope the noble Lord will not press the Amendment. The chairman may well have to devote more time to his duties than the other members, and this may be a factor that the Secretary of State will have to take into account when appointing members. Members also may need to take it into account when considering whether they can accept an appointment. If the appointment were left to the Board, they might find that none of them was prepared to take on the responsibilities of the chairman. Therefore, I think it is advisable to ensure that when a person is appointed he is willing to take on the full responsibilities of the chairman.

Lord ABERDARE

I accept that there may be difficulties and I should like to think further about it. In the meantime, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

3.40 p.m.

Lord ABERDARE moved Amendment No. 87: Page 22, line 10, leave out from (" Schedule ") to (" the ") in line 12.

The noble Lord said: I beg to move Amendment No. 87 and, if I may, I will join it with No. 88. No. 87 is a paving Amendment for No. 88 which seeks to leave out paragraph 8(2) on page 22. The paragraph reads: The Secretary of State may give to the Board from time to time general directions with respect to the manner in which they are to conduct their proceedings. Again, it seems unnecessary to bring in the Secretary of State, if we have a responsible Board, to tell them how to conduct their proceedings. I should have thought they would be capable of conducting their own proceedings without any instructions, and I am rather astonished that this paragraph should be in the Schedule. I beg to move.

Lord BESWICK

I wonder whether I can so brace myself to accept these two Amendments.

On Question, Amendment agreed to.

Lord ABERDARE

I beg to move Amendment No. 88.

Amendment moved— Page 22, line 13, leave out sub-paragraph (2).—(Lord Aberdare.)

On Question, Amendment agreed to.

Lord PEDDIE

Having recovered from my shock, I would say that Amendment No. 89 was a consequential Amendment and I do not propose to move it.

On Question, whether Schedule 1, as amended, shall stand part of the Bill?

Lord DRUMALBYN

Am I right in thinking that the Board will be serviced by the Department? Unlike most Schedules of this kind, this one does not seem to make provision for employees and the like, and I therefore concluded that the Board would be serviced by the Department. I do not know whether or not that is so. Secondly, when is it intended that the Board should be incorporated? If, as the noble Lord, Lord Winterbottom, told us, the Board will not really be called into action until it has funds to collect and distribute, this would not seem to be a very immediate matter. On the other hand, the probability is that it would be advisable to appoint a chairman, at any rate, so that the Department could be in touch with him on a continuing basis. Perhaps the noble Lord could tell us whether it is intended to give the Board premises, and so on, before any need for its use and services arises. This is not quite clear from the Bill as it stands, so perhaps the noble Lord could tell us.

Lord BELSTEAD

May I add just one question to what my noble friend Lord Drumalbyn has asked? With reference to paragraph 14(3) of the Schedule, will the report which is to be produced be published? It depends on how wide the powers of the Board are to be when this Bill eventually becomes law, but if they are going to be wide powers I should have thought that the report for which paragraph 14 provides ought also to be published.

Lord BESWICK

I confess I am not advised on that latter point, but I will find out the answer and let the noble Lord know. So far as the servicing of the Board is concerned, their independence will be emphasised by giving them their own secretariat. As regards the other practical point which the noble Lord raised as to where they are to sit, and what sort of a table they are to have I am afraid I cannot answer that but I will try to find out.

Lord DRUMALBYN

But this is a fairly important point, surely. The main purpose of the Board is to deal with cases of liquidation, which may or may not arise. Is it seriously suggested that there should be a permanent secretariat sitting in premises waiting for a liquidation to take place when it may never take place? I think that more consideration should be given to this point.

Lord BESWICK

As I have said, I think this is an eminently practical point, although I have not taken advice upon it. I shall have to inform the noble Lord.

Schedule 1, as amended, agreed to.

Schedule 2 [Additional provisions with respect to the insurance industry levies]:

3.45 p.m.

Lord ABERDARE

I beg to move Amendment No. 90. May I speak also to Amendment Nos. 91 and 93. This is quite a simple matter. Under the Bill companies are required to make returns of their premium income by 31st January each year. There are practical reasons why it would be much more satisfactory to leave them a little more time, and I am suggesting that they should be allowed to make their returns by 31st March instead of 31st January. I beg to move.

Amendment moved— Page 24, line 26, leave out (" January ") and insert (" March ").—(Lord Aberdare.)

Lord WINTERBOTTOM

With the permission of the Committee may I comment on Amendments Nos. 90, 91 and 93 together? They deal with the same point.

Lord ABERDARE

Yes, indeed.

Lord WINTERBOTTOM

In view of the fact that I personally think that one month is a very short time after the year's end for an audit statement of premium income to be prepared, I have considerable sympathy with these Amendments. Although I have no direct experience of it. I am certain that this is a complicated matter. The reason why the Bill is drafted as it is is because the Amendments as drafted by the noble Lord, Lord Aberdare. and his noble friends would cause an undesirable delay in the Board's ability to raise a levy in any year. Any levy imposed by the Board during a given financial year will be calculated by reference to premium income for the previous calendar year. If, however, companies' annual statements of premium income were not required before the beginning of the next financial year, there would clearly be delay, probably amounting to several weeks, while the returns were processed, before any levy could be raised. At the same time, the Government appreciate that some companies may find difficulty in providing accurate returns only one month after the end of the year in question. Therefore, the Government are willing to consider putting down a Government Amendment, in the light of the opinion of the industry and the views expressed by the noble Lord, to extend more moderately the time allowed to companies for preparing their returns—perhaps to the end of February.

Lord ABERDARE

If the Bill says January and I am asking for March, a good compromise would be February! However, I am grateful for what the noble Lord has said and perhaps we may look at it later. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord ABERDARE

This is also an endeavour to safeguard companies which are making returns of premium income. Again it is an attempt to meet a practical difficulty, in that companies will find it difficult to produce a completely exact premium income figure, even if we allow them until the end of February. This is an attempt to safeguard the position of companies by allowing them to return as accurate an estimate of income as is practicable. I beg to move.

Amendment proposed—

Page 24, line 39, at end insert— (" ( ) For the purpose of a statement under sub-paragraphs (1) and (2) above a company may use an estimate of income which is as accurate as may be practicable.")—(Lord Aberdare.)

Lord BESWICK

I have another, much stronger note about this Amendment, but I will not use it. I do not think it is "on" to allow a company to decide what its liabilities should be. We might as well lay it down by Statute that we should all make our declarations of income for Inland Revenue purposes and leave it at that. Clause 17 sets out with considerable precision the income of insurance companies which is income that is liable to the levies.

In determining how the relevant income should be defined, we have been guided by the wishes of the industry. In particular we have, in the light of the industry's views, defined "net premium income "as the gross amounts recorded in a company's accounts as paid or due by way of premiums, less any amounts deductible by way of rebates, refunds or reinsurance premiums. We understand that this formulation is the most convenient indication of the extent of a company's business during a year, and we have today undertaken to consider certain technical Amendments to Clause 17 which have been moved to clarify the position still further. Moreover, we have agreed, on Amendments Nos. 90 to 93, as my noble friend has just said, to consider a reasonable extension to the one-month period allowed for the preparation of returns by companies. I think, therefore, that we should not be justified in leaving the matter still further open to the companies in the way suggested by the noble Lord, and I hope that on reflection he will be prepared to withdraw his Amendment.

Lord ABERDARE

I am left to speculate on the other words that appeared in the noble Lord's brief, and perhaps he could tell me some other time. In the meantime, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord ABERDARE moved Amendment No. 95:

Page 26, line 5, at end insert— (" and (c) the purpose for which the levy is being raised and the name of the company or companies in respect of which it is required.")

The noble Lord said: This, again is quite self-explanatory and merely seeks to impose a duty on the Board to make clear the purpose for which the levy is being raised, and the name of the company or companies in respect of which it is required. I beg to move.

Lord BESWICK

I am happy to accept this Amendment in principle. It is consistent with the provision of paragraph 3 of Schedule 2 that the Board may impose a levy only when a need arises. However, if I may be allowed to say so, the wording is not entirely satisfactory because of the reference to, the name of the company or companies in respect of which it (the levy) is required ". There may be occasions when a levy is required not in respect of any particular company, but in respect of the Board's administrative expenses. When, on the other hand, a levy is in respect of a company or companies, it will be quite sufficient if the Board is required to state, "the purpose for which the levy is being raised ". The Board would clearly have to name any companies concerned in order to comply with this provision. Therefore, I give the undertaking that an Amendment to give effect to the principle will be brought forward on Report stage.

Lord ABERDARE

I am most grateful, and beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Schedule 2 agreed to.

In the Title.

3.50 p.m.

Lord PEDDLE had given notice of his intention to move Amendment No. 98: Line 8, after (" industry ") insert (" and on intermediaries and shareholders ").

The noble Lord said: This and the following Amendments are alterations to the Long Title, and they were intended to accommodate the new clauses which my noble friends and I tabled. But, obviously, since the Amendments introducing those new clauses have been withdrawn it will not be necessary to move these Amendments. However, I wish to make a comment at this point, because it is essential to make quite clear to the Committee and to my noble friend the purpose that lay behind our frequent interventions. We hoped that out of the discussions there would arise some substantial fundamental changes in the Bill.

On Second Reading, fundamental criticism was voiced by every speaker. It was felt that the Bill did not get to the root of the problem in dealing with the protection of policyholders. It did nothing to stop the recklessly irresponsible management practice which led to the failure of London Indemnity and Nation Life. That is why we had some difficulty in effecting amendment of this Bill during this Committee stage. I hope that we have voiced a considerable number of points of view. I appreciate the extremely sympathetic reaction we have had from the Front Bench. I can only hope it will be interpreted in the manner of having close and constructive discussions between now and Report stage. I hope that during Report stage we will be able to produce a Bill which will at least get a few steps nearer to the achievement of those objectives which we have in mind, and bring about the effective protection of policyholders.

I do not think I can do better at this point than to read the short final paragraph of the statement of the Scottish Provident Institution, which so clearly represents my views. This expresses so much better than I can what I feel. The statement says: We do not object to the guarantee scheme out of indifference to the fate of the policyholders. The life office is in difficulties. We object because,

1. (a) the scheme will do nothing to discourage the irresponsibility which is the root cause of the problem;
2. (b) due to the heterogeneous nature of the life insurance industry, the scheme must be fundamentally inequitable in its operation, and
3. (c) it fails to tackle the real source of distress in a life office insolvency, cumbersome and costly liquidation procedures."

As I have already said, I sincerely hope that between now and Report stage we will have constructive discussions so that we can have a Bill which will achieve all that we have in mind.

House resumed: Bill reported with the Amendments.