HL Deb 10 November 1975 vol 365 cc1638-47

[No. 37.]

Leave out Clause 17 and insert the following new clause:

Levies on intermediaries

".—(1) Where—

  1. (a) the Board have incurred or propose to incur any long term business expenditure in relation to a company in liquidation or a company which is a company in financial difficulties within the meaning of section 16 above; and
  2. (b) it appears to the Board that the company in question has accountable intermediaries;
it shall be the duty of the Board to impose a levy on those intermediaries in accordance with the following provisions of this section and Schedule 2 to this Act.

(2) Subject to section (The exempt income level for the purposes of section (Levies on intermediaries)) of this Act and subsections (3) and (5) below, a person is an accountable intermediary of a company for the purposes of this section and Schedule 2 to this Act if—

  1. (a) he has acted as an intermediary for the company in relation to any relevant long term contract of the company; and
  2. (b) his income from the company in respect of his services (whether as an intermediary or otherwise) in relation to any such contracts (hereafter in this section and in section (The exempt income level for the purposes of section 18) of this Act referred to as "relevant services") for either or each of the two years comprised in the period of two years ending immediately before the time mentioned below in this subsection exceeded his exempt income level for the year in question.
The time referred to above is the beginning of the liquidation in the case of a company in liquidation and the relevant time as defined by section 16(6) above in the case of a company in financial difficulties within the meaning of that section.

(3) An individual shall not be an accountable intermediary of a company for the purposes of this section and Schedule 2 to this Act if the services in question under subsection (2) (b) above were performed in pursuance of a contract of exclusive agency with the company.

For the purposes of this subsection a contract is a contract of exclusive agency with a company in relation to the performance of any services there under if it provides that the person performing the services must not perform services of a like description for any other insurance company.

(4) Subject to section (The exempt income level for the purposes of section (Levies on intermediaries)) of this Act and subsection (5) below, the income of an accountable intermediary of a company which is liable to levy under this section shall be—

  1. (a) one-half of any amount by which his income from the company in respect of relevant services for the later of the two years mentioned in subsection (2) above exceeded his exempt income level for that year; and
  2. (b) one-quarter of any amount by which his income from the company in respect of relevant services for the earlier of those two years exceeded his exempt income level for that year;
and in relation to any intermediary, his income liable to levy for either of those years or, where he had become liable to levy for each of those years, the aggregate of his income liable to levy for both of those years, is hereafter in this Act referred to as income of the intermediary which is income liable to levy.

(5) For the purposes of this section and section (The exempt income level for the purposes of section (Levies on intermediaries)) of this Act a person's income from a company in respect of relevant services for any year is the total amount of the sums paid or allowed to that person by the company in respect of relevant services which were recorded as debits in the company's accounts during that year; but no account shall be taken for those purposes of any sums recorded in a company's accounts at any time before 1st January 1976.

(6) If the proceeds of any levy imposed under this section in respect of any company exceed the long term business expenditure incurred by the Board in relation to that company the Board shall distribute the excess among the accountable intermediaries of that company who have made any payments to the Board under the levy in proportion to the sums those intermediaries have respectively paid there under.

(7) References in this section, in section (The exempt income level for the purposes of section (Levies on intermediaries)) of this Act and in Schedule (Additional provision with respect to levies on intermediaries) to this Act to an intermediary of a company are references to a person who has acted as an intermediary for the company in relation to any relevant long term contract of the company.

(8) For the purposes of this section a person acts as an intermediary for a company in relation to a long term contract if, otherwise than as an employee of the company—

  1. (a) he invites any other person to take any step with a view to entering into a long term contract with the company;
  2. (b) he introduces any other person to the company with a view to his entering into such a contract with the company; or
    3. 1640
  3. (c) he takes any other action with a view to securing that any other person will enter into such a contract with the company.

(9) In this section "long term contract" means a contract the effecting of which by a company constitutes the carrying on by the company of long term business of either class in the United Kingdom, not being a contract of reinsurance; and a long term contract is a relevant long term contract of a company for the purposes of this section if it was effected by the company within the period of two years mentioned in subsection (2) above.

(10) Schedule (Additional provision with respect to levies on intermediaries) to this Act shall have effect with respect to the imposition and enforcement of levies under this section").

Lord BESWICK

My Lords, I dealt with Amendment No. 37 when I spoke to Amendment No. 1. I beg to move that this House doth agree with the Commons in their Amendment No. 37.

Moved, That this House doth agree with the Commons in the said Amendment.—(Lord Beswick.)

The DEPUTY SPEAKER (Lord AIRDALE)

My Lords, the Question is, That this House doth agree with the Commons in their Amendment No. 37 to which there is an Amendment, and I now have to call Amendment No. 37D.

Lord ABERDARE moved as an Amendment to Commons Amendment No. 37, Amendment No. 37D:

At end insert— (10A) Where it appears to the Board that they may be under a duty to impose a levy in accordance with subsection (1) above, they shall so inform the Secretary of State, and the Board shall be increased by one additional member, who shall be appointed by the Secretary of State and who shall serve as a member of the Board only when the Board are performing their functions in relation to the company referred to in subsection (1) above. (10B) The additional member of the Board referred to in subsection (10A) above shall be a person appearing to the Secretary of State to be qualified to represent the interests of intermediaries, and the Secretary of State shall consult persons appearing to him to be representative of the interests of intermediaries before appointing the additional member

The noble Lord said: My Lords, I beg to move Amendment No. 37D, to insert two new subsections in Amendment No. 37. When the Bill started its passage through this House, one of the concessions that we obtained from the Government was that in Schedule 1, which relates to the constitution of the Policyholders' Protection Board, words should be inserted which clearly carried out an undertaking that the Government had already given that a majority of the members of that Board should be drawn from the insurance world. That is now so; it appears in Schedule 1, paragraph 1(2) (a), that of the persons to be appointed members of the Board: at least three shall be persons who are directors, chief executives or managers of authorised insurance companies". This gave us great satisfaction. However, at the Third Reading in this House the situation changed when an Amendment proposed by the noble Lord, Lord Peddie, was accepted which inserted into the Bill a new Clause 17, "Recovery from intermediaries". In brief, this extended the Board's powers and gave them the right to make a levy on brokers who had conducted business on behalf of a life company that was either in liquidation or in financial difficulties. Amendment No. 37 which the noble Lord, Lord Beswick, has just moved, is a redraft of that clause.

On that occasion, I and my noble friends voted for the Amendment of the noble Lord, Lord Peddie, to include brokers in the Bill because it seemed to us that there was a case for including them. After all, the insurance companies which are subject to the levy have had no association with the company that is either in liquidation or in difficulties—the policyholders of other companies who are in no way at fault are to be levied—whereas it can be argued that a broker who has earned commission of over £5,000 in either or each of the two years preceding the liquidation of the company in question certainly bears some responsibility. After all, he will have recommended his clients to deal with the company that either has failed or is in financial difficulties. If innocent persons in the shape of policyholders in other companies are to be levied, why should not the broker, who has made a considerable sum of money, also pay a share?

If one accepts this proposition—and the Bill evidently does, because it includes brokers— it seems on the face of it to be unjust that whereas we obtained representation on the Board as of right for the insurance companies, the brokers will have no voice at all. One cannot help feeling that if this Bill had been originally drafted with the brokers included in it, it might well have provided for some representation on the Board in the case of consideration, at any rate, of life business. However, it is now too late to start interfering with the membership of the Board because that is in Schedule 1 and no Amendment has been made there.

To meet this point, I have put down these two Amendments which require the Secretary of State to appoint an additional member of the Board who would be representative of the brokers' interests but who would sit only when the Board was considering imposing a levy in respect of a life company that was either in liquidation or in financial difficulties. On the principle of no taxation without representation, it seems that if the Board are to require money from brokers there should be somebody on the Board who, if not sitting as their representative, at least is knowledgeable about the world of broking. One feels that there would have been great sympathetic feeling for the brokers if they had been included in the right in the original Bill to have representation on the Board.

I accept right away that it is very late in the day to put forward an Amendment of this kind, but I hope that the noble Lord and the Government will look favourably on the case which is being made for the brokers. If the noble Lord is unable to accept the Amendment, I hope he will be able to go some way towards giving some form of reassurance that their interests will be considered by the Board and that they will be consulted. After all, the brokers themselves are realising the importance of looking after their own affairs and are putting their own house in order. I know that they are in the process of forming a new institute, and I hope very much that through the medium of this new institute they may he consulted when, in the future, the Board are having to consider matters which may vitally affect the interests of the brokers. I beg to move.

The DEPUTY SPEAKER

My Lords, the original Question was, That the House doth agree with the Commons in their Amendment No. 37, since when it has been moved by the noble Lord, Lord Aberdare, as an Amendment to Amendment No. 37: at end to insert the subsections as printed. Therefore, the Question I have to put is that Amendment No. 37D be agreed to.

Lord BANKS

My Lords, may I briefly express sympathy with the terms of this Amendment. I told your Lordships' House before that I am an insurance broker. Also, I voted for the inclusion of intermediaries within the scope of the Bill when it was before this House at an earlier stage. It seems to me that a case has been made out by the noble Lord, Lord Aberdare, for including some representation for intermediaries on the Board, in view of the fact that it is understood that insurance interests, insurance companies and policyholders will, in any event, be represented on it.

Lord HAWKE

My Lords, I have an interest to declare: I am on the board of a small insurance company, chiefly connected with the Church of England, a member of the British Insurance Association and the Life Offices' Association. I am sorry to say that I cannot agree with my noble friend Lord Aberdare that the brokers have any raison d'étre on this Board whatsoever. At the moment the composition is five: three have to be drawn from the insurance offices—that means a majority; if you introduce another one there will be no clear majority at all. Five is quite big enough. This will be a working body and they all have to be experts in their own line. One person is to represent the policyholders and the Government will have another place at their disposal, but it is most important that the majority should remain with the insurance interests.

With great respect to the brokers, frankly I do not think that their expertise runs in any way to the rescue of a company which, in some cases, they may have encouraged to over extend through in the past placing business with it. The companies are being levied to provide funds for the rescue of the company in difficulties. Admittedly, the brokers will have to pay something, but the amount they will have to pay will be very small compared with what the companies have to pay. The cases are entirely different and I earnestly ask my noble friend not to press his Amendment and I ask the noble Lord the Minister to reject it.

Lord PEDDIE

My Lords, I should not have intervened had it not been for the comments made by the noble Lord, Lord Hawke. I rise to support this Amendment. As the noble Lord, Lord Aberdare, said at an earlier stage of this Bill, I moved a new clause which was accepted by the House and became Clause 17. This has now been redrafted, although without changing its substance, and appears as Amendment No. 37. I have felt strongly that brokers should make their contribution and give some support to the expenditure incurred by the Board, and I share completely the view expressed by the noble Lord, Lord Aberdare. There should be no taxation without representation. The noble Lord, Lord Hawke, indicated that because the companies are levied they should have some representation.

Lord HAWKE

My Lords, it is not the point of the representation: they are the only people who know how to rescue the company. That is the point.

Lord PEDDIE

My Lords, it sounds somewhat arrogant to say that they are the only people in the world capable of rescuing the company. They are also the people, in many cases, who bring the company to the state of emergency that makes necessary this support. However, that is beside the point. If brokers are being called upon to accept a major responsibility, then obviously there is justification for a measure of representation. It is no more than that. The Board in its operation is not likely to lose anything; on balance it is more likely to gain. I support the Amendment.

Lord BESWICK

My Lords, the noble Lord, Lord Aberdare, moved his Amendment in a characteristically moderate and persuasive way, but despite the support he has received from my noble friend Lord Peddie and the noble Lord, Lord Banks, I am afraid I must come down on the side of the view expressed by the noble Lord, Lord Hawke.

The idea—that is, that if the brokers are to be within the purview of the levy then they should have an interest on the Board—is superficially attractive; but I shall show that it is only a superficial attraction. In the first place I say particularly to my noble friend Lord Peddie that the Board is not composed of interests. There is only one member of that Board who represents an interest and that is in accordance with the provision of Schedule 1, paragraph 1(2)(b) which lays down that only one member of the Board: … shall be a person appearing to the Secretary of State to be qualified to represent the interests of policyholders". The interest of policyholders has separate representation there because this is a policyholders' protection Bill.

The other reference in the Bill to members of the Board, in paragraph 1(2)(a) of Schedule 1 specifies only that at least three shall be persons who are directors, chief executives or managers of authorised insurance companies, but they do not sit there and represent interests. They are there because the Government accepted a suggestion made in this House that this element in the membership of the Board should be made explicit in the Bill, and our reason for accepting the proposals then made was not that the three company members would represent, in that sense, the insurance companies; it was simply because the Board has an executive function in relation to insurance companies in difficulties which involve the taking of decisions in which a wide knowledge of how insurance companies operate is necessary.

There is the point which obviously has carried some weight in some quarters of the House, that there should be no taxation without representation: but there is a very big difference between the levies being levelled upon the insurance company and the amount which a broker will have to pay back if he has done particularly well in a company which he may well have helped to "go under". That is a completely different conception of payment from the insurance levy which the insurance companies are being asked to pay.

There is also the problem with the Amendment that it would remove the insurance companies' majority on the Board. I gave an undertaking to this House—indeed, to the noble Lord, Lord Aberdare—that they would have a majority on the Board, and it would seem to me to be a pity to overturn that arrangement by now increasing the numbers by the inclusion of a broker.

It might be of some interest in the House and give confidence in the Board if I mentioned those individuals who will be invited by my right honourable friend to serve on the Board. As chairman, Mr. Colin Smith, a senior accountant and chairman of the Insurance Sub-Committee of the Institute of Chartered Accountants in England and Wales; as insurance company members there are Mr. A. Macdonald of General Accident, the immediate past chairman of the British Insurance Association; Mr. Ian Isles of the Scottish Equitable Life Assurance Society and Mr. A. W. Grant of the Ecclesiastical Insurance Office Limited; also, as policyholders' representative, Mr. Max Wood, a member of the National Consumer Council, who was Parliamentary Secretary to the Co-operative Union until 1974. I hope it will be seen that this is a body of five which will command confidence and which would take into account those aspects of any operations which affect brokers. If problems arise and the Board consider that they need the advice of brokers in general on, for example, the application of levies and provisions to brokers, then clearly they will not hesitate to consult the relevant broking associations. I think it is only right that they should do so.

As the noble Lord, Lord Aberdare, has said, these associations are now, one might almost say belatedly, drawing up proposals for a professional institute. If this institute is set up, and wishes to make representations to the Board, or to offer advice about the way in which the Board should carry out its duties, I am confident that the Board will pay careful attention to what that institute has to say. In the light of that undertaking and explanation, I hope that the noble Lord, Lord Aberdare, will find it possible to withdraw his Amendment.

Lord ABERDARE

My Lords, this has been a useful short debate on this question, and I am most grateful to the noble Lord, Lord Beswick, for having gone into it in great detail and for having produced some quite understandable arguments, which perhaps point to some weaknesses in the case I originally put forward. I certainly do not wish to expose myself to the difficulties of my noble friend Lord Hawke. Certainly those members of the Board the noble Lord has mentioned whose names I know give me confidence, and I am grateful to the noble Lord for having announced them. With that, I beg leave to withdraw the Amendment.

Amendment to the Amendment, by leave, withdrawn.

5.43 p.m.