Building Societies Investor Protection Scheme (Maximum Protected Investment) Order 1987 (Hansard, 21 July 1987)

§ The Parliamentary Under-Secretary of State, Department of Transport (Lord Brabazon of Tara)
My Lords, I beg to move that the draft Building Societies Invester Protection Scheme (Maximum Protected Investment) Order 1987 laid before the House on 2nd July be approved. This draft order fulfils a commitment given in another place earlier this year during the passage of what was then the Banking Bill. I am pleased to be able to honour that commitment.
The Building Societies Act has created a scheme, the investor protection scheme, whose purpose is to ensure that, should any building society become insolvent, investors in that society do not lose all their money. This scheme provides for a fund to be created out of levies on all other societies, from which payments can be made to investors in the insolvent society. The scheme covers up to 90 per cent. of each investor's investment, but subject to an upper limit of £10,000. The Banking Act contains similar provisions.
This draft order varies one part of the scheme. It increases the maximum cover to £20,000. If approved, the maximum possible payment to investors will double from £9,000 to £18 000. Investor protection is a much debated matter. During the passage of the Building Societies Bill, I was pressed to increase the limit we are debating today. Similar pressure was applied during the passage of the Banking Bill, and the Government decided that it was now the right time to make the increase for both sets of legislation. This order reflects that decision for building societies.
It is right briefly to consider the purpose of protective provisions of this sort. Each indvidual investor has an obligation to consider where best to place his funds. No protection scheme should provide 100 per cent. cover. Investors' primary protection is the quality of society management, backed by the 1277 supervisory regime set out in the Building Societies Act, and now being given effect by the Building Societies commission. But deposit-taking institutions form a vital part of everyone's lives. It is right that small investors in them should be protected.
The £10,000 limit was introduced in banking legislation in 1979. An increase to take account of inflation would put the limit at over £18,000 today. So an increase to £20,000 provides broadly the same level of protection in real terms as that in 1979. In that time, there has been an increase in the size and number of larger scale investments by the public. At the end of 1984, only 4 per cent. of society share accounts held over £10,000. By the end of 1986, the figure was 6.2 per cent. The figures are probably larger still now. So the Government believe that it is now right to increase the limit.
The investor protection board has been consulted about this proposal, as required by the Building Societies Act. It endorses the change. It is likely that the new figure will remain in place for some while. But it will be kept under review as the pattern of investment by small investors varies. The relevant provisions of the Banking Act are intended to come into effect on 1st October this year. We propose therefore that this order take effect on the same day. I beg to move.

Lord Bruce of Donington
My Lords, we are most grateful to the noble Lord for having given a short introduction to this order. We also thank him for indirectly paying a tribute to my noble friend Lord Williams of Elvel, who in the course of the passage of the Banking Bill and also the Financial Services Bill urged precisely this course upon the noble Lord and was rebutted at the time.
We are grateful as Her Majesty's Opposition to play such a constructive part in persuading the Government to do the right thing and we are most grateful to the noble Lord. He mentioned that he had approval but he did not mention what the attitude of the building societies themselves was in this matter. Perhaps he could give us some information as to whether building societies are now satisfied with the position as they see it.
We on this side know perfectly well the pressures that have been placed upon building societies owing to the withdrawal of funds for investment in TSB and for investment in some of the newly privatised interests. We should like the noble Lord's assurance that in view of the massive withdrawals that have taken place for investment in those types of equities he is completely satisfied with the position as he has now presented it to the House. Otherwise, we on this side of the House completely support this order and trust your Lordships will approve it.

§ Lord Strabolgi
My Lords, I should like, if I may, to say a few words. I suppose that I must declare a past interest as I was until April of this year the chairman of a building society, although I have now 1278 retired as I am over the statutory age required by the Building Societies Act 1986.
In addition to what my noble friend Lord Bruce has said about the representations made by my noble friend Lord Williams of Elvel, I also venture to remind your Lordships that I raised this matter, as the noble Lord, Lord Brabazon, well remembers, during the passage of the Building Societies Act through this House. I thought at that time that it was inconsistent to have an amount as small as £10,000 when there is absolutely no ceiling now on the amount that investors can invest in building societies. It used until recently to be £30,000 and the ceiling was removed by the Government quite rightly in my view. I therefore thought that the amount of £10,000—in actual fact it is only £9,000, as the noble Lord has said—was very small and almost derisory. The noble Lord, on behalf of the Government, resisted that amendment and I should therefore like to know why what was not acceptable to the Government last year is now acceptable.
The noble Lord implied that it was because of the falling value of money, but on the other hand the Government are very proud to remind us continually, almost daily, that they have got inflation under control; so that argument does not seem to me to be valid. Therefore I should like to know why the noble Lord would not accept what I proposed and why he is putting it forward now.

§ Lord Brabazon of Tara
My Lords, I am grateful to the noble Lords, Lord Bruce of Donington and Lord Strabolgi, for their general acceptance of the order laid before your Lordships this afternoon. In answer to the question of the noble Lord, Lord Bruce of Donington, I understand that building societies are content with the order and its contents. In regard to giving the noble Lord an assurance that withdrawals made from building societies to pay for applications for privatisation or indeed any other kind of share issue mean that the building societies remain in a position to fulfil their part of the order laid before your Lordships, that is a matter for the commission. I am sure that the commission will watch out for that but I think that in actual fact the amounts of money about which we are talking are relatively small in comparison with the overall figures for building society investments, especially when one takes into account the amount of money which goes back after unsuccessful applications have been taken account of.
The noble Lord, Lord Strabolgi, and I well remember how on 3rd July last year he moved an amendment to raise the limit to £30,000. He has asked me a difficult question as to why we have changed our minds within just a little over 12 months. I did not say in my opening remarks that it was due to the falling value of money during the past 12 months. In fact, the value of money has fallen very little during the past 12 months but it was generally a pressure put upon us during the passing of the Banking Act and it is only natural that this limit should go hand in hand with that in the new Banking Act.
Perhaps the noble Lord had some influence in the fact that we changed our minds. As a Government we 1279 are flexible, as noble Lords will be aware. Therefore, I think that we have done the right thing. We have not gone quite so far as the noble Lord's amendment would have wished. That amendment of a year ago mentioned £30,000. However, we have met the noble Lord half way between £10,000 and £30,000. Therefore, I beg to move.

§ Lord Harmar-Nicholls
My Lords, perhaps my noble friend will allow me to say that it is refreshing to have a Government who in answer to sound arguments are prepared to change. That is what I call good, sensible government.