HL Deb 10 November 1975 vol 365 cc1651-9

[No. 43]

After Clause 24 insert the following new clause:

Report by Secretary of State with respect to the operation of this Act

". Within the period of six months beginning with 1st January 1981 the Secretary of State shall lay before Parliament a report reviewing the operation of this Act and its effectiveness as a method of protecting policyholders of authorised assurance companies carrying on business in the United Kingdom."

Lord BESWICK

My Lords, this new clause provides that the Bill should be reviewed in five years' time and the results laid before Parliament so that Members can form their own judgment as to the effectiveness of the Bill in the light of experience. This was a compromise reached with those in the other place who suggested that there should be a terminal date attached to the Bill. I hope your Lordships will agree that this compromise was a reasonable one, and I beg to move.

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

Lord PEDDIE moved as an Amendment to Commons Amendment No. 43, Amendment No. 43A:

Leave out ("its") and insert ("the Insurance Companies Act 1974 and their").

The noble Lord said: My Lords, Amendment No. 43A is an Amendment to No. 43. With the permission of the House, I will deal with the two parts of the Amendment together. My noble friend Lord Beswick stated that Amendment No. 43 was achieved as a compromise in another place, and those of us who have followed closely the passage of this Bill in another place will be cognisant of the difficulties and the "to-ings and fro-ings" that created this particular Amendment. I will not comment on whether or not it truly reflected considered opinion on this matter. But I would state here that I recognise it would be wrong for this House to pass an Amendment to this Bill, especially at this stage, which would have the effect of thwarting a decision reached in the other place, whatever one's view may be on the way in which that decision was arrived at. I want to take the opportunity of emphasising that these two Amendments are particularly important; they are not in any way, in my opinion, thwarting a decision made in another place.

I would emphasise that although the wording of my Amendment to Commons Amendment No. 43 may appear to have some similarity in form to the Amendments which fell in the Commons, my Amendment is substantially dissimilar both in its intention and in its effect. In fact, I would emphasise that it is not inconsistent with the new clause in Amendment No. 43. Indeed, it accepts that new clause, and builds on it. I think that is important.

The first of my Amendments would extend the review of the Secretary of State to the Insurance Companies Act 1974 as well as to this Bill. That is surely right, because it has been said repeatedly that the major provisions for the protection of policyholders are contained not in this Bill, but in the Insurance Companies Act. That has been stated frequently. Government spokesmen have said, again and again, that this Bill is complementary to the preventive legislation, and the winding up legislation, in the Insurance Companies Act. The review, if it is to have much meaning, or indeed any meaning, must therefore cover the Insurance Companies Act as well as this Bill.

My second Amendment would have the result that the guarantee scheme in this Bill would apply only to insurance companies failing before the end of 1982. The arguments for this are two-fold. First, during the next few years not only will all the regulations be made under the 1974 Act, with the aim of preventing fringe insurance companies doing the kind of thing which may make them insolvent, but there is to he a full-scale review of the winding-up laws as they apply to insurance companies, and this review will be followed by legislation. The Secretary of State gave categorical assurances to this effect when moving the Second Reading of this Bill in the Commons. His Under-Secretary also reiterated those assurances when winding up the Second Reading debate. This means that by 1982 at the latest there will be far less need for any form of guarantee scheme, and, if there is to be a continuing guarantee scheme after 1982, then it almost certainly should be in a different form from the scheme in this Bill.

Second—and I am sure no one in this House will quarrel with this—the passage through Parliament of this Bill has revealed numerous anomalies, and although attempts, very brave attempts, have been made to amend the Bill in order to improve it, there are many serious anomalies that still remain. There are anomalies in the scope of the guarantee; some policies are covered and others, for no good reason, are not. There are many anomalies in the basis of the levy. If a general business policy is reinsured, that part of the premium which is passed on to the reinsurer is not leviable either in the hands of the original insurance company or in the hands of the reinsurer. In fact, if the business of a subsidiary insurance company is wholly reinsured with its parent insurance company, then it escapes the levy entirely for all time. If a pension scheme is insured under a master policy, it is never subject to the levy at any time unless the insurance of the pension scheme is transferred to another insurance company, when the whole of the contributions paid to the pension scheme then become subject to levy. If an insurance company is constituted under the Companies Act, then its policyholders are liable to levy, but a virtually identical insurance company registered as a friendly society is never subject to levy. There are several large insurance companies which are constituted as friendly societies; some of them are household names.

There are many other anomalies and many imperfections in this Bill, which remain despite the most strenuous efforts to improve it in its passage through both Houses. It was very extensively amended in this House before it went to the other place, and it has now come back from the Commons with 15 pages of Amendments to what was originally a 29-page Bill. By no stretch of the imagination could it even now be considered a wholly satisfactory Bill, although I concede that it is much better than it was. It cannot be regarded as anything more than a holding operation and, in consequence, it should not have more than a limited life in its present form.

But I would stress that the purpose of my second Amendment is not to provide that the guarantee provisions of the Bill should just peter out at the end of 1982, except for running off the guarantee arrangements in respect of any insurance companies which had failed before then. The earlier part of my second Amendment specifically provides for the Secretary of State to make recommendations in respect of future legislation for the protection of policyholders. The point is that by 1981 circumstances will be very different from today. Not only will we have had experience of the working of the present Bill, but we will also have the improved protective legislation —that is important—by means of the regulations under the 1974 Act, and the improved winding-up legislation. I have little doubt that the recommendations of the Secretary of State in 1981, whoever he may be, will be for a very different kind of guarantee scheme than the one that is in this present Bill.

The second part of the Amendment then allows until the end of 1982—that is rather more than a full Parliamentary Session after the report and recommendations have been made—for the revised legislation to be brought into force. Even before that, however, it is likely that there will be insurance legislation to cover the changes in the winding-up provisions of insurance companies. I would stress that this will have to be insurance legislation and will have to amend the Insurance Companies Act 1974. It will, therefore, be wholly in order to include in that legislation provisions in relation to a guarantee scheme. They could be provisions which would supplant this Bill, or they could amend this Bill, or they could even continue it unchanged after 1982, if the Secretary of State could persuade Parliament at that time that that was the right course, which I personally think would be highly unlikely.

The point I wish to make, however, is that there will be ample legislative opportunity to bring in a sensible guarantee scheme, to replace that in this Bill in the substantially changed conditions in a few years' time. In no way, therefore, can this Amendment be considered a destructive Amendment; indeed it is a constructive Amendment and it is certainly not contrary to the will of the Commons as expressed in their Amendment. The purpose of the Amendment is to avoid the position which would otherwise apply, under which those responsible for operating the Bill, the civil servants, would simply have to do nothing at all, except supply the Secretary of State with a semi-formal report to put to Parliament in 1981—thatis all that is expected under the terms of the Amendment—and this appallingly bad Bill, in the opinion of some people, although I admit greatly improved, and one that falls far short of what we originally expected, would remain on the Statute Book indefinitely. We all know the pressures on Parliamentary time and the other much more important things that Parliament has to deal with. We also all know that it is only too likely that there would be no change at all. The purpose of my Amendments is to make sure that that does not happen. Therefore, in the light of that explanation, I hope that my noble friend will accept the spirit of this Amendment and recognise that it is put forward with a constructive purpose in view. I beg to move.

6.0 p.m.

Lord ABERDARE

My Lords, I take it that we are also discussing Amendment No. 43B because it is on that Amendment that I should like to join with the noble Lord, Lord Peddie, and express great sympathy with the Amendment he has moved so fully and with such clarity. I think that there is a considerable case to be made for putting a term of years on this legislation. From the start we, on this side of the House, did not wish to see any legislation at all. We were hoping that the insurance industry could themselves produce a scheme which would mean that policyholders had full protection. We also, in the same spirit as the noble Lord, Lord Peddie, in putting protection ahead of rescue, have high hopes that when all the necessary regulations have been made under the Insurance Companies Act 1974, and when the new legislation governing insolvency is on the Statute Book, hopefully this Bill will prove to be unnecessary. Therefore, I think one can see that there is a lot to be said for trying to put a term of years on it.

On the other hand, I would make two remarks. First I do not take quite such a gloomy view as the noble Lord about the Government Amendment No. 43 and the requirement of a review within six months of 1st January 1981. It seems to me that with so many people actively interested in this Bill, and who are only too anxious to make sure that it does no injustice to anybody, this Report will, when it is made, be studied with great care by those of us who are interested—if we are still here in 1981—to make sure that if indeed this Bill turns out by that time to be unnecessary great pressure will be put on the Government of the time to repeal it. Secondly, coming, as it unfortunately does, right at the end of this Session, I should not feel it right, if the Government were to resist this Amendment, to suggest to your Lordships that we should divide on it. Only were a matter of real constitutional importance to be debated at this stage of this Session could we contemplate trying to make an Amendment of this sort. Whereas I have great sympathy with the noble Lord, Lord Peddie, I hope that he will not press this Amendment. I hope that he will be satisfied that the Government's undertaking to make a review within six months of 1st January 1981, has some substance in it, even though it does not go quite so far as he and I might have wished.

Lord BESWICK

My Lords, may I just return briefly to my Amendment No. 43. During the debate in another place my honourable friend the Parliamentary Under-Secretary of State suggested that the Amendments which were eventually not accepted would have curtailed the operation of Clause 24 of the Bill which empowers the Secretary of State to disclose certain information to insurance advisers. I am referring to the Official Report, Commons, 30th October, column 1811. My honourable friend has subsequently found that he was mistaken on this point. Nothing in the Amendments would have affected Clause 24. He has therefore asked me to put straight the record and to apologise on his behalf for inadvertently giving a misleading impression. On turning to the two Amendments which my noble friend Lord Peddie moved in such a vigorous fashion, he made a great case which would have been relevant, I think, or entirely appropriate, on Second Reading, or Committee stage, or Report stage, or possibly at Third Reading; but, with all kindness, may I suggest it is not so appropriate when we are only considering Commons Amendments to our Amendments.

Perhaps I can deal with the merits of the two Amendments. If I can, I should like to give certain assurances to my noble friend. Taking the first Amendment, Amendment No. 43A, the Bill we are considering nowhere modifies or in any way alters the effect of the 1974 Insurance Companies Act. It is one of the rather bizarre characteristics of this House that we can put an Amendment of this kind on the Marshalled List. My experience of another place leads me to think that this would have been dismissed out of hand by the Table if we followed the practice of another place, but of course we do not. However, I submit that it would be wrong to seek to introduce into the Bill at this stage an Amendment which calls for a review of an existing Act which the Bill in no way affects, and which deals with many matters entirely outside the scope of this Bill. That is the situation. In any case, Section 87 of the 1974 Act already provides for the Secretary of State to lay before. Parliament each year a general report on the matters within that Act. The 1974 Act subsumed the1967 Act, which also required an annual report to be laid, and I have here the eighth such report that has been laid before Parliament. I hope that my noble friend will have no difficulty in withdrawing that Amendment.

May I now turn to Amendment No.43B which, as the noble Lord, Lord Aberdare, said is a matter of rather greater substance. Under this Amendment the policyholders' protection scheme as provided for in this Bill would not apply in the case of any company that failed after the end of 1982.To make that provision now, when a report reviewing the operation of the Bill and its effectiveness as a method of protecting policyholders has been solemnly accepted by the Commons, would be a case of forcing the Government's hand, and indeed pre-empting the possible findings of that report. Once the report is made, it will be fully debated in Parliament. There will then be extensive consultations and discussions; if it is considered necessary, new proposals will have to be formulated and new legislation prepared. It will be a thorough-going review, and it should surely be conducted in an open-minded framework without the issue being prejudged in any way. It would be inconsistent with the whole spirit of review if Parliament's decision were to be pre-empted: yet that would be the effect of this Amendment to bring the main provisions of the Bill to an end at a particular time.

My noble friend called attention to the possible changes that could take place in the five years, and certainly I suggest that the Parliament of that time, in the light of the five years' experience, in the light of this thorough-going review, will be in a better position to say what changes should and should not be made. Moreover, the Bill now provides for the report to Parliament to be laid in the spring of 1981. The report, of course, will need consideration. If this provision was accepted, there would be a gap, a sort of "no man's land" in the regulations, until the review had been considered and any legislation followed.

I suggest to my noble friend that it would be much better to leave the decisions to those who, with the benefit of the review, with the facts of the time before them, with the experience of the five years, would be in a better position than we to take the necessary decisions. What I repeat to my noble friend, however, is that the review will be different in character from the annual report to which I have just referred. It will follow from the undertaking given in the light of criticisms of the basis of, and indeed the need for, legislation. It will be a fundamental appraisal of the whole situation and I have no doubt that it will take into account the criticisms which my noble friend and others have made during the passage of the Bill. With that assurance, I hope that my noble friend will see his way to withdraw his motion.

Lord PEDDIE

My Lords, I make no apology for bringing forward this Motion. I have focussed attention on something that needed highlighting, although I have no intention of creating any embarrassment for this House. I appreciate very much indeed the assurances given by my noble friend and they are now clearly on the record. They are fundamentally in character and they will be sufficient, at least for the time being. They also give complete justification to my action in bringing forward this Motion. However, in the circumstances and with the assurances given by my noble friend, I beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.